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Chapter 1: Equity Markets

Capital markets are classified into two categories:
1. Primary Market: Primary market is the market where a financial instrument is first issued/
offered to the public. The interaction is between the issuer and the investor.
2. Secondary Market: Secondary market is the market where the instrument is subsequently
traded (bought and sold). The interaction is between one investor (seller) and another
investor (buyer).
Based on the nature of trading, secondary markets are classified into:
1. Listed Market: Trading where an auction method is used at a physical location, or an
automated mode of trading using Order Matching Systems through an exchange.

For example, stock markets.
2. Over-The-Counter (OTC) or Unlisted Market: A negotiated market without a
physical location where transactions are done via telecommunications. For example,
currency markets.
Trade Life Cycle:

The trade life cycle of a financial instrument has five stages:
1. Issuance:
2. Pre-Trade Analysis:
3. Trade:
4. Post-Trade:
5. Asset Servicing:
Market Participants
Trading participants in the equity markets are classified as follows:
Banks & Brokerage Firms: Banks and brokerage firms are members of stock exchanges. The
exchange interacts with the members, who in turn interact with their clients/investors. Banks
and brokerage firms are said to be on the sell side.
Fund or Portfolio Managers: Fund or portfolio managers manage accounts of institutions like
mutual funds or of highly wealthy individuals. They are also called asset managers.
Corporates and Individual Investors: These investors are the ones who invest their
surpluses into the capital markets.
Funds/Investment Managers/Corporates /Individuals are said to be on the buy side.
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Other Market Participants

The other market players who facilitate the post trade process are:
Clearing Firms: A clearing firm is an organization that works with the exchanges to handle
confirmation, delivery and settlement of transactions. Depository: Securities are held in
electronic (also called dematerialized) form in the demat (short for dematerialized) accounts
at firms providing depository services.
Custodian Banks: These are banks where the clients hold their demat accounts. They
facilitate clearing and settlement for the client, by interacting with the broker members,
depositories and clearing corporations.
Exchange: The exchange facilitates trade execution and the clearing and settlement of
securities through their various agencies such as clearing firms.
Regulators: SEBI regulates the stock market to ensure smooth functioning.
System Vendors: These are technology service providers who automate the various processes
and ensure processing with minimal manual intervention.
Some Key Terms

American Depository Receipt (ADR): ADR is a negotiable certificate issued by an American
bank. It represents a certain number of shares of a foreign company, which have been
deposited with them.
Bull Markets: It refers to a market that is on the rise. There is a sustained increase in market
share prices. Investor confidence & expectations are high in a bull market.
Intrinsic Value: The intrinsic value of a share, as against its market driven prices, is its
fundamental strength and future potential. This is also called fair value.
Market Capitalization: Market capitalization is the total market value, at the current market
price, of the total number of equity shares issued by a company.
Market Capitalization = Market Price * Number of Outstanding Shares of the
Company
Participatory Notes (P-Notes/PNs): Participatory notes are instruments issued by
registered Foreign Institutional Investors (FIIs) to overseas investors. This is issued to those,
who wish to invest in the Indian stock markets without registering themselves with the market
regulator - SEBI (Securities and Exchange Board of India).
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Trading Philosophy:
1. Top-Down Investing- In this approach, an investor considers important parameters like
trends in the economy, industries which these trends favor and companies within these
industries which are likely to benefit the most.
2. Bottom-Up Investing- Bottom-Up investing involves looking for individual shares with
outstanding performance or potential, without considering economic trends.
Classification of Stocks
Stocks are classified into the following categories for trading purposes:
1. Growth Stocks
2. Income Stocks
3. Cyclical Stocks
4. Defensive Stocks
5. Value Stocks
6. Contrarian Stocks
7. Momentum Stocks
Chapter 2: Equity Derivatives

A derivative is a financial instrument that derives its value from the value of some more basic
underlying instrument or variable.
The Building Blocks
Credit Extension Products - Credit extension products are forms of extending credit or
loans.
Price Fixing Products - Price fixing products are financial products that fix the price at
which exchange of value takes place at a future date. Example : Futures
Futures
A futures contract fixes the price at which a standard amount of the asset is exchanged, at
a pre-defined price, on a standard expiry date in the future. Futures contracts are traded
on Exchanges.
Price Insurance Contracts - Price insurance products give the owner the right, but not the
obligation, to exchange value at a future date, at a pre-determined price today. Example:
Options
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Options
Options are of two types:
Call - These are contracts that give the owner the right to buy the underlying at a predetermined price in the future.
Put - These are contracts that give the owner the right to sell the underlying at a predetermined price in the future.
Options Terminology
Holder - The holder of the option contract is the entity that has the right.
Writer of the option - The seller of the option contract.
Strike price - The price at which the holder of the option has the right to buy(call) or
sell(put).
Premium - The price of the option, quoted per share is the premium.
Settlement/ Expiry Date - The date when value to be exchanged is decided.
ITM Option - In The Money option (ITM option) is an option that will result in a profit if
exercised at current market price.
American option - Can be exercised on any date upto maturity.
European option - Can be exercised only on maturity.
Trading Options
Buy a call or sell a put option, when you expect the price of the underlying stock to rise.
Sell a call or buy a put option, when you expect the price of the underlying stock to fall.
Open Interest
The total amount of long or short positions, in terms of quantity in a particular contract, is
called the Open Interest (OI) in the contract.
Portfolio of Options
Asset Option Combination - A portfolio that combines a position in the underlying asset
with positions in options on that asset. Example- Protective Put.
Combinations - Portfolio of options that has both calls & puts. Example Straddle.
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Spreads - Portfolio of options of the same type i.e. either only calls or only puts. Example
Call/ Bull Spread.
Options Margins
Initial + Exposure Margin - This is similar to futures, but payable only by the seller of
the option.
Assignment Margin - This is levied on the assigned option positions in case of interim or
final exercise, and the payoff has to be made. This is again payable by the seller.
Premium Margin - This is for the amount of premium to be paid upfront by the buyer of
the option.
Chapter 3: Bond Markets

Introduction
A bond is a debt instrument that:
Typically carries a specific rate of interest

And a promise to repay the principal on maturity
Coupon the rate of interest on the bond when it was first issued.
Yield It is the return on the amount invested, expressed as a percentage per annum.
Bond price and yield have an inverse relationship.
Yield to Maturity (YTM)
YTM is the most relevant in the bond markets and factors in the coupon payment, the capital
gain/loss, and the reinvestment return of the coupon.
Total yield over the life of this investment, considering all cash flows, will be = total rental
income + gain on purchase price.
Yield curve
A yield curve gives the relationship between interest rate and term to maturity, at a specified
time. This could be positive, negative or flat.
Traders take a view on two things:
A change in interest rates across tenors i.e., a parallel shift in the yield curve up or down.
A change in the shape of the curve i.e., a steepening or flattening of the curve.
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Floating interest rates

If the rate on the bond is varied or re- priced at regular intervals, it is a floating rate bond. The
floating rate is linked to a benchmark such as LIBOR or MIBOR.
The floating rate is reset two business days prior to the start of the interest period.
Credit rating
Evaluates the risk of default on a bond. The rating is expressed in the form of alphabets such as
AAA, AA etc.
Chapter 4: The Indian Bond Market

Bonds in India can be classified based on:
The type of issuer.

The bond characteristics.
Central Govt. securities

Issued by the central government. They are all very safe investments as they are backed by the
central government. The default risk is minimal. However, market risk remains.
Day Count Convention is: 30/360
Coupon payment: semi-annual
Treasury Bills (T-Bills)

The Government of India issues securities called T-Bills that have a maturity < 1 year. They are
also called Money Market securities as they are of short duration.
Maturities available: 91, 182 and 364 day T- Bills.
Day Count Convention: Actual/365.
No coupon.
State Government Securities

Although the majority of state funding comes through borrowings from the Central
Government, a significant amount of borrowing is also done by the state through capital
markets. These are called State Govt. securities.
Day Count Convention : 30/360
Coupon: Semi-annual
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Corporate Bonds
Bonds issued by corporations, for funding their expansion plans, or specific projects, are called
corporate bonds.
These bonds must be rated by a rating agency before the issue.
Day Count Convention : Act/365,
Coupon payment: Annual
Callable Bonds: These are bonds where the issuer has the right to buy back the bonds.
Puttable bonds: gives the investor the right to sell the bonds back to the issuer.
Convertible bonds: These are bonds that can be exchanged for specified amounts of common
stock, after a certain period of time.
Money Market Instruments

Certificate of Deposit (CDs): Issued by banks to raise money.
Commercial Paper (CPs): Issued by corporate to raise money. CPs is an unsecured money
market instrument, issued at a discount to face value.
Call Money market: The most liquid tenor for borrowing and lending transactions remains the
overnight market, which is called the call money market in India.
Repurchase Agreements (Repos): Repos are backed by G- secs. A repo is therefore, a
secured borrowing. RBI uses the repo as an instrument of monetary policy i.e., to signal
interest rate changes.
Collateralized Borrowing and Lending Operation (CBLO): The call money market is
limited only to inter-bank participants. Other participants like mutual funds and corporates, with
surplus liquidity, can participate in this market through the Collateralised Borrowing and Lending
Operation (CBLO) of the Clearing Corporation of India Ltd. (CCIL).
India has one of the deepest local bond markets with maturities ranging from a few days to 30
years. The largest issuer in the country is the Government of India (GOI).
Regulations
Primary market regulation is the responsibility of the RBI. In the secondary market, regulation is
divided between the RBI and the Securities and Exchange Board of India (SEBI).
Market Players
Primary Dealers
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PSU Banks
Private Banks
Co operative Banks
Foreign Banks
Insurance Companies
Mutual Funds
FIIs and Hedge Funds
Chapter 5: Currency Markets- Introduction

Any individual or a company, who needs to sell or buy foreign currency, does so through an
authorized dealer. Currency trading is primarily conducted in the Over-The-Counter (OTC)
market.
Foreign exchange market is a 24 hour market. In terms of time zones, the first market to open
is Sydney, then Tokyo, Singapore, Frankfurt, London and then New York. As New York shuts,
Sydney opens.
Market Participants
Authorised dealers
Corporates
Brokers The Central Bank
Foreign Exchange Fundamentals

Foreign exchange rates express the value of one currency in terms of another.
They involve a fixed currency (base currency), which is the currency being priced, and a
variable currency (quoted currency), the currency used to express the price of the fixed
currency.
The market always talks in terms of the base currency.
Direct quotations use USD as the base currency (BC). Indirect quotations use USD as the
quoting currency (QC).
Exchange rates are normally expressed upto four decimal places. The last decimal place in the
rate is known as a pip. The first two numbers after the decimal are called the big figures
and the number before the decimal is called the super big figure.
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Bid: It is the rate at which the quoting party is willing to buy the base currency, or sell the
quoted currency.
Offer (also called Ask): It is the rate at which the quoting party is willing to sell the base
currency, or buy the quoted currency.
Valuation or MTM
The procedure of calculating gains or losses for the day is called Valuation or marking to
market. It is calculated as,
Cost of Purchases Sales, after squaring your position.
It is expressed in the quoted currency.
Stop Loss & Take Profit Trades

Stop Loss & Take profit are prices at which a trader books his losses or profits respectively. As a
matter of discipline, a trader must always place a stop loss, when he/she initiates a position.
Chapter 6: Factors affecting Currency markets:

The fundamental factors that affect currency markets can be classified into:
Macro-economic factors:
GDP
Balance of Payments
Inflation
Structural Factors
Foreign Exchange reserves composition
Import elasticity
Exchange rate competitiveness
Short Term Factors
Capital Flows
Carry Trades
Political Factors
Comments by Key Personnel
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Central Bank Intervention
Safe Haven status
Technical Market Factors
Technical Analysis
This technique is essentially based on the fact that history tends to repeat itself. By looking
at past data, one can forecast future exchange rates.
Economic Data
Economic data must be analysed in 3 ways:
As compared with the prior period.
As compared to the same period in the previous year. This will account for seasonality if
any.
Finally, and most importantly, you need to look at the data as compared to market
expectations.
US Economic Data
US economic data is the key focus area as
All currencies are traded against the dollar in the interbank market.
The US economy has a direct impact on the other economies as well.
Unemployment data
This gives the percentage of workers unemployed. Another indicator of unemployment is the
data on weekly jobless claims. These two are key indicators of the health of the US economy.
Durable Goods
This indicates the growth of consumer durable goods sector. A strong growth is an indicator of
the health of the economy.
The equivalent data in India is the Index of Industrial Production (IIP).
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ISM-PMI
This is the Purchasing Managers' Index (PMI). It is one of the leading indicators of
manufacturing growth, and is published as an index. The data is compiled by the Institute for
Supply Management (ISM). A reading above 50 is a sign of economic expansion and below 50
indicates contraction.
PPI: The published number gives the inflation at the factory level.
CPI: This gives the inflation at the individual level.
Traders also look at core inflation, that is, excluding food and energy. This is because energy
and food are demand inelastic.
Retail Sales
This denotes local demand growth. It actually shows what customers are doing on the ground.
Monetary Policy Meeting

Any FOMC action on interest rates affects the US dollar. Any rise in interest rates,
indicating an economic pickup, would typically result in a stronger dollar.
Short- Term Factors

IFO Germany
This survey throws light on the business sentiment in Germany.
Quarterly Tankan
It is a quarterly index of the growth of big, medium and small manufacturers and nonmanufacturers. It is a gauge of business sentiment in Japan.
Indian Rupee Market

Features
The daily volumes in the market are estimated to be over USD 20 bio.
The bid-offer spread normally ranges between 0.5 ps. 1.5 ps.
Standard market lots in the interbank market vary from USD 0.5 mio to USD 5 mio.
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Flows: Supply side
Growing FDI & FII inflows
Corporates accessing External Currency Borrowings (ECB) and bringing them into India
NRI inflows
Exports
Flows: Demand side
Oil demand (hence imports)
Foreign debt repayments
Non-oil imports
Factors affecting the Rupee spot market
Month-end demand
Oil demand
FII flows
Chapter 7: Currency Futures

The Forwards Market
A forward transaction is a contractual commitment to buy or sell a specified amount of
foreign exchange for a specified price at a specified future date.
Currency Futures
They are absolutely similar to forward contracts except that Currency Futures are traded on
exchanges like NSE, and not OTC.
Margins:
Initial Margin: The exchange imposes an initial margin. This is a percentage of the
transacted amount.
The exchange also charges an extreme loss margin. This is calculated as 1% of the
MTM value ofyour open positions. This has to be deposited at the end of every trading
day.
Futures - Settlement
The daily MTM profit/loss is paid (received) through the broker to (from) the clearing house
(CH). This is called daily settlement.
On maturity, there will also be a final settlement.
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Chapter8: Commodity derivatives

Commodity derivatives are an important tool used by hedgers worldwide to hedge their
commodity transactions.
Commodities traded in financial markets fall into two broad categories.
Investment commodities: Gold, Silver, Platinum etc.
Consumption commodities: Oil, Food Grains etc.
In India, commodities are broadly classified as:
Agricultural commodities: Maize, Barley, Soybean, Wheat, Sugar etc., and non edible
products such as cotton, rubber etc.
Non-Agricultural commodities: These include oil (energy), Precious metals such as
Gold, Silver, Platinum and Base metals such as Aluminum, Copper, Lead etc.
Commodities are traded on commodity exchanges like NCDEX, MCX etc.
Why is it useful?
Provide an efficient platform for hedgers, producers and consumers of commodities.
Better price discovery and transparency
Popular with speculators
Do you take delivery?
Most transactions are net settled, however the buyer and seller can agree to a physical delivery
as well.
Pricing Commodity Derivatives

Storage costs and Convenience yields are important in pricing the commodity derivatives.
The formula for pricing a commodity derivative must replace the interest rate with the Net of
storage costs and convenience yield.
Specifications of a Futures Contract are:
The underlying asset
The contract size
Price quotation
Delivery date
Place of delivery
Details of assets and delivery arrangements
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Margins
Margins are used by exchanges to reduce credit risks associated with these futures contracts.
In India, the mark to market amount is collected separately, leaving the margin amount
deposited unchanged.
Different types of margins include:
Initial Margin - Initially, a participant starts off by depositing an initial margin amount.
Mark to Market Margin - This is calculated as the difference between the closing price
and the contracted price.
Additional Margin - This is the margin collected to protect the open positions in case of
any unexpected volatility prevailing in the market.
Delivery Margin - This is applied to all open positions once they enter the delivery period.
Trading in Commodity Futures
Some of the commodities are influenced by government policy.
Speculation in these markets is high, and understanding of global commodity trends play
a significant role in influencing local markets.
Seasonality is an important factor, and unique to commodities especially agricultural
commodities.
The value of the dollar exchange rate also affects commodity prices.
Some commodities are in scarce supply, factors affecting demand and supply of these
commodities also play a major role in influencing their prices.
Trading Strategies
Trading strategies vary with reference to various participants operating in the market.
Hedgers-Producers/Consumers of commodities are faced with price and production risk over
time.
Trading strategy for hedgers:
For Producers: Sell (go short) a futures contract (to protect themselves against a fall in price)
on their finished product.
For Consumers: Buy (go long) a futures contract (to protect themselves against a rise in price)
on their raw material inputs.
Speculators: They have no business interest, but just trade as they are volatile.
Trading strategy for hedgers:
Sell if you expect prices to go down.
Buy if you expect prices to go up
Arbitrageurs: They look at mis-pricing between the cash and futures market in commodities,
and exploit this arbitrage opportunity.
Trading strategy for Arbitrageurs:
If the commodity Cash price plus the Cost of Carry is above or below the Futures price,
according to their view, an arbitrage opportunity arises.
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Regulations
At present there is a 3 tier structure for regulations:
The Government
The Forward Market Commission
Commodity exchanges.
Some Key Terms
Bullion - Precious metals such as Gold and Silver in the form of Bars and Ingots, which are
serially numbered and cast in standardized sizes, quality and weights is commonly referred to
as bullion.
Backwardation - A market condition in which futures contract price of a particular commodity
is lower than the spot price of that physical commodity.
Calendar Spread - A calendar spread means taking opposite positions in futures contracts of
the same commodity with different expiry dates.
Chapter 9: Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. They take these savings and in turn invest them in stocks, bonds or money
market instruments.
Structure
AMC
Sponsor
Trustee
Custodian
Transfer agent
Regulators
NAV
NAV = {Market Value of the Fund Investment (including cash) + Income Accrued
Expenses Accrued}/Number of units outstanding to date
Entry or Front- end load is commission paid by the investor while buying into the fund. They are
now banned, and the distributors now charge a commission directly from the client.
Exit or back- end load is commission paid while redeeming units from the fund.
Distributors also receive a Trail Commission from the AMC. This is calculated as a
percentage of the Daily Average Net assets of the investor during the period.
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Types of Mutual Funds

Classification by structure:
Open ended Funds

Close ended funds
Classification by scheme:
Growth schemes
Income schemes
Balanced schemes
Money Market Funds/Liquid schemes
Special schemes:
ELSS
Index funds
Capital Guaranteed
Fixed Maturity Plans
These funds also get double indexation benefits, as the tenor straddles two financial years.
Double indexation implies that the cost of purchase is adjusted for the inflation index, hence
bringing down the quantum of capital gains.
Fund of Funds A fund investing in other mutual funds.
Classification by plan:
Growth Plan
Dividend Plan
Bonus Plan
Systematic Investment Plan (SIP)
Systematic Withdrawal Plan (SWP) - Systematic Transfer Plan (STP)
Exchange Traded Funds (ETFs) - ETF represents a basket of stocks that reflect an
index.
Hedge Funds
Hedge funds also pool investors' money and invest those funds in financial instruments in an
effort to make a positive return.
Funds Selection
The factors to be evaluated for selecting a mutual fund within the same category are :
Absolute returns - History
Relative returns - As compared to a benchmark
Negative returns - Relative performance in a falling market
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Risk adjusted returns
Fund Expenses
Initial Issue Expenses - These are one-time expenses that come up when the scheme is
offered for the first time (NFO).
Recurring Expenses - Commissions paid to brokers, Fees paid for investment advisory/
management, fund administration and accounting, custody, transfer agency.
Other Investment Avenues
Physical Assets Real Estate, Gold etc

Financial Assets Equity, bond, government schemes etc.
Role of the Investment Advisor

Ten Commandments:
1. Ensure the AMFI certification is valid
2. Only recommend an approved scheme
3. Recommend based on client profiling
4. Highlight risk factors of each scheme
5. Urge investors to go through offer documents/key information memorandum before
deciding to make investments
6. Avoid misrepresentation and exaggeration
7. Abstain from indicating or assuring returns in any type of scheme, unless the offer
document is explicit in this regard
8. Present an unbiased view of various mutual funds
9. Send a monthly updated recommended list of funds based on performance parameters
10. Do not divulge any confidential information about clients.
Chapter 10: Insurance - Introduction

Insurance is a way of transferring the risk a person (the insured) bears, to another entity, the
insurer.
The value of an asset should not be under or over insured.
Coinsurance is a penalty imposed on the insured by the insurance carrier for under
reporting/declaring/insuring the value of tangible property or business income.
Conditions for Insurance to occur
There must be a large pool of similar profile of insured,
The loss-causing event must be pure risk,
The loss must not be catastrophic for the insurer.
Players in the world of insurance
Insured - The person or business who buys insurance or risk protection.
Private Insurers - All insuring companies, which do not have government ownership fall
under this category.
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Government Insurers - State and central governments often provide the largest amount
of insurance.
Insurance Distributors - Insurance companies sell their insurance schemes via various
types of distributors. Banks are a popular distribution channel.
Regulators - Play an important role in safeguarding the interest of insured customers. In
India, the Insurance Regulatory Development Authority (IRDA) is the regulator.
Insurance as Part of the Financial Planning Process

Protection of Lifestyle Insurance Products
Human Life Value index is the capitalized value of your net earnings for the rest of your
working span. HLV index is the multiplier to annual income.
This is the amount of savings needed to protect your familys lifestyle. The calculation of HLV
has inflation built into it.
The main principles around which insurance is structured:
Pooling of Risk: An insurer pools or clubs the risk faced, by getting together a large number
of people of similar profile.
Adverse Selection: A person with higher than average risk is more likely to take insurance.
This is an adverse selection for the insurance company, and affects the pricing of the insurance
premium.
Insurable interest: For a person to obtain insurance, the risk event must be quantifiable in
financial terms. The probability of the risk event also needs to be ascertainable.
For example: you cannot purchase insurance for depression.
Key Terms
Underwriting: It is the process of selecting and classifying risk exposure.
Indemnity: Protection against loss. This restoration insurance value could be depreciated
market value or replacement value.
Speculative Risk: This is associated with situations which result in either a profit or a loss.
Speculative risk cannot be quantified.
Pure Risk: This is the opportunity of loss as a result of accidental circumstances. It is based on
probability and hence is mathematically predictable i.e., can be quantified and the probability
of occurrence measured.
Chapter 11: Insurance Products General Insurance
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Property & Casualty/ Liability Insurance

Property Insurance - Property insurance covers the loss due to damage to property such as a
factory, machinery, vehicle or house.
Casualty Insurance - Casualty or Liability insurance covers the loss when you cause damage
to someone else or their property.
Replacement vs. Indemnity Policy
Indemnity - the insured receives the market value of the asset - that is, typically, the
depreciated value of the asset.
Replacement - the insured receives the amount needed to rebuild the asset to the same level
as the old one with the incentive of getting a new asset for an old one.
Types of Property and Liability Insurance
Property Insurance can be taken for the property and the contents within the property.
Building Insurance -Building insurance covers the structure, and sometimes, the contents of
the house it depends on the insurance company.
Contents Insurance - Contents insurance provides replacement for assets covered against
theft, fire, flood or any other form of loss.
Personal Property Insurance - Specialized personal contents such as paintings and
sophisticated tools are beyond the scope of contents insurance and needs to be covered
individually.
Personal liability insurance provides cover against any liability arising out of injury caused to
a person or damage to a property resulting from an accident (other than a car accident).
Motor Insurance This covers third party claims, and property damage during accident.
Liability Insurance
Liability insurance is also called third-party insurance. Here, three parties are involved - the
insured, the insurance company, and the third party whose property has been damaged, or who
has suffered personal injury due to the insureds actions.
Automobile Liability - The liability due to any damage your automobile may cause.
Commercial General Liability - This refers to liability which may arise, due to running any
commercial activity.
Personal Liability - This covers any liability due to personal actions.
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Professional Liability - Professional liability insurance covers the liability arising out of
negligence or being unable to perform professional duties.
Commercial Insurance
These are insurance covers required for a commercial enterprise.
These include:
Business Overhead Insurance - It is suitable for small businesses and self employed
professionals for whom Income Continuation policies are insufficient.
Workers Compensation - The Workmens Compensation Act 1923 defines the amount
payable to the worker under different scenarios.
Fire and Damage Insurance - The policy covers both, the work premise and the content.
Key person Insurance - Its a policy to mitigate the loss to business owners arising
from the loss of a key person owing to incapacity, disability or death.
Personal Indemnity Insurance - The policy provides an indemnity for legal liability.
Liability Insurance - The policy covers the insured against claims made by members of
the general public.
Healthcare and Disability Insurance
Total & Permanent Disability (TPD) - It pays a lump sum amount. Under this policy,
payment is made if unable to work, loss of limbs or sight and inability to perform any two
basic daily activity.
Income Continuation - It ensures a regular monthly payout. Payment is initiated on total

and not necessarily permanent disablement.
Trauma Insurance - This covers the occurrence of life threatening diseases and pays a
lump sum. Policies could offer a lump sum on diagnosis and schedule of payments towards
regular medical costs.
Health Insurance - This covers medical treatment costs for illnesses. It also covers
expenses during the pre as well as post hospitalization stages.
Chapter 12: Insurance Products Life Insurance

Life Insurance products:
Single Life: taken out on the life of one person
Joint Life: covers more than one person, pays out on the death of the first.
Survivorship joint life: it covers more than one person, but it pays out on the death of the
last person.
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Family: for the entire family. The family policy does not have to wait for the death of everyone
in the family.
Beneficiaries: He/she is the person or entity who receives the insurance proceeds.
In case of more than 1 person, they are called co-beneficiaries and all beneficiaries will share
the proceeds.
Contingent beneficiary: Also called secondary beneficiary, she/he will receive the proceeds if
the primary beneficiary dies before the insured.
There are two types of values associated with a life insurance policy.
Cash Value: Equal to the savings accumulated during the existence of the policy.
Surrender Value: Amount returned to the policy holder at termination.
Term Insurance
A term insurance provides only death protection there is no investment / savings portion, and
hence no return, in case the person survives the policy term.
Types of Term Insurance
Annual Renewable policy in effect, a year at a time.
Renewable automatically renewable at a pre-defined price.
Level premium decreasing - The premium remains constant throughout but the cover
keeps falling as the cost of coverage for the insurer increases.
Level premium constant - Level premium term insurance means that, the premium will
stay the same each year for the term of the policy.
Increasing premium level - Here the premium keeps increasing every year as your risk
of death keeps increasing - while the cover remains fixed.
Single premium - The premium is paid upfront for a fixed cover for a fixed term.
Convertible term insurance This enables you to convert your term insurance into any
of the other types of insurance policies offered by the insurance company.
Traditional/Permanent Life Insurance
Investment Products
In this type of an insurance policy, the policy has a savings / investment component along with
the life cover. The policy protects against premature death and helps build a corpus through
compulsory savings.
So, unlike a term policy which is for a specific term and is a pure risk cover - permanent
policies are for ones entire life, and provide both a risk cover and an investment return.
Whole of Life Policy

This policy provides life insurance for the whole of ones life, not just for a specific duration.
The premium is a function of the age at entry and remains constant through the policy term.
Endowment Policy
These policies are payable on a specified date or on the death of the insured.
The payment shall depend on the investment performance, level of premiums paid and the
age of the policy.
The maturity value includes the guaranteed sum and accrued bonuses - the bonus once
announced is guaranteed.
Endowment policies have a fixed maturity date while whole-of-life policies dont.
ULIPs
This is also a type of permanent policy where the premium paid covers risk of death, plus an
amount for savings. The difference here is, the customer makes the choice as to where he
wants the savings amount to be invested.
The allocated (invested) portions of the premiums after deducting all the charges, and premium
for risk cover are pooled together to form a unit fund.
In an endowment policy the insurance company pools funds across all policies and investments
are not disclosed. All that the customer gets to know is, if and when any bonus is issued.
A ULIP has 5 sets of charges:
Premium allocation charge - is deducted before allocating funds for investment.

Fund management charge - charge for managing the fund at a certain fixed percentage
Surrender charge - levied on the unit fund at the time of surrender of the contract.
Mortality charge - fee that insurance companies charge to give life cover.
Policy administration charge Any other operational charges not covered above
Annuities
Investment Products
An annuity is a regular monthly payment for life or another defined period. It transfers an
accumulated sum of money into a series of payments over a number of years or a lifetime.
The Various Types of Annuities

Immediate Annuities - The immediate annuity starts payments right after the annuity is
funded.
Deferred Annuities - A type of annuity contract that delays payments of income, until the
investor elects to receive them.
Retirement Corpus
To arrive at the retirement corpus the wealth manager has to a step by step analysis
1. Expenses post retirement is calculated factoring the inflation.
FV = PV *(1+r)^(t)
2. Calculate the retirement corpus needed.
RC = A * (1+i)t -1/ i*(1 + i)t
3. Amount to be saved by the client every month.
FV(A) = A * {[(1+i)n 1] / i}
Chapter 13: Alternate Investment Products & Services

Classification of Alternate Investments
Alternate investments can be classified into 3 categories: Real Estate, Private Equity &
Structured products.
All
these investments have the following features:

Initial investment is large
Longer time horizon
Illiquid
Real estate like any asset class provides a steady income (lease or rentals) over a period of
time, with a potential for capital appreciation.
A Private Equity (PE) investment involves an equity participation in an unlisted company.
Investment is done through a PE firm in these companies.
PE
firms are of 3 types:

Seed capital firms invest in pre-start up stage.
VC firms invest in start- up stage, where the idea is still untested.
PE firms invest in more established ideas.
Structured products: These are pre-packaged strategies that use a traditional asset class as the
underlying.
Investment Products
Example: INR Denominated 16 Month Nifty Linked Non Convertible Debenture (NCD) Payout
Linked to Reference Index.
Portfolio Management Services (PMS)

Under this, a unique portfolio is customized for the client, and is separately managed by the
wealth management firm.
In case the investments involve alternate investments such as PE, then portfolio manager will
collect the money from you in tranches, but at his discretion. This is called a drawdown.
Fee structure
The fees would tend to be a combination of a smaller fixed component and a larger
performance based component.
The fixed component is to recover the costs of
Fund management (front office),
Research (middle office) and
Account servicing (back office)
The performance fee gets charged only when the portfolio generates a return beyond a
specified hurdle rate.
The PMS Service can be discretionary or non-discretionary.
The discretionary portfolio manager independently manages the funds in accordance with the
needs of the client. The client cannot make decisions for the management of his/her portfolio.
On the other hand, in non-discretionary portfolio management, the client is actively involved in
decision making for the management of the portfolio.
Tax Planning
The investment advisor must be aware of the tax regulations at any point in time, to help the
client manage his tax incidence.
Taxes are of two types: Direct taxes & Indirect taxes.
Direct taxes cover Income tax, Capital Gains tax, Wealth Tax. These are all related to
individuals.
Indirect taxes cover Sales tax, VAT etc. These all apply to businesses.
Income tax
Investment Products
According to Income-tax Act, 1961, every person, who is an assessee and whose total income
exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or
rates prescribed in the finance act.
Residents are taxed on worldwide income. Non-residents are taxed on income arising in India,
such as rental income etc.
Income is calculated under various heads such as Salary, Interest income, Rent from property,
business income etc.
Tax payers also get deductions under various sections such as
80C maximum of INR 1,50,000
80D medical insurance premium
80G charitable donations
24 Interest payment upto INR 2 lakhs, on Housing Loans
Capital Gains Tax

A capital gain is income derived from the sale of an investment. Capital gain tax is applicable on
sale of shares, mutual funds, securities, property etc., as per income tax, at special rates
depending on the period of holding, and the type of security.
Capital Gain = Full value of consideration received or accrued on transfer of capital asset {
Cost of acquisition of capital assets + Cost of improvement of capital assets + Expenditure
incurred wholly and exclusively in connection with the transfer of capital asset }
Capital Gain on Different Investments:
1. Investments in Stocks, Equity Mutual Funds: Short term gains 15%, Long term
gains (> 1 year) Nil.
2. Debt Mutual Funds: Short term gains normal income tax rates, Long term gains(> 3
years) 20% with indexation benefits.
3. Investment in Property: Short term gains normal income tax rates, Long term gains
(>3 years) - 20% with indexation benefits.
Wealth Tax
Wealth tax is tax on the benefits derived from property ownership. The tax is to be paid year
after year on the same property, on its market value, whether or not such property yields any
income.
The value of all the taxable assets on the valuation date is clubbed together and is reduced by
the amount of debt if any owed by the assessee (loans etc.).

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Investment Products

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Chapter 1: Equity Markets

automated mode of trading using Order Matching Systems through an exchange.

Trade Life Cycle:

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Other Market Participants

Some Key Terms

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

outstanding performance or potential, without considering economic trends.

Chapter 2: Equity Derivatives

The Building Blocks

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Writer of the option - The seller of the option contract.

Settlement/ Expiry Date - The date when value to be exchanged is decided.

American option - Can be exercised on any date upto maturity.

European option - Can be exercised only on maturity.

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Chapter 3: Bond Markets

Typically carries a specific rate of interest

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Floating interest rates

Chapter 4: The Indian Bond Market

The type of issuer.

Central Govt. securities

Treasury Bills (T-Bills)

State Government Securities

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Money Market Instruments

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Chapter 5: Currency Markets- Introduction

Brokers The Central Bank

Foreign Exchange Fundamentals

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Stop Loss & Take Profit Trades

Chapter 6: Factors affecting Currency markets:

Foreign Exchange reserves composition

Exchange rate competitiveness

Short Term Factors

Comments by Key Personnel

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Central Bank Intervention

Safe Haven status

Technical Market Factors

As compared with the prior period.

The US economy has a direct impact on the other economies as well.

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Monetary Policy Meeting

Short- Term Factors

Indian Rupee Market

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Flows: Supply side

Growing FDI & FII inflows

Flows: Demand side

Oil demand (hence imports)

Foreign debt repayments

Factors affecting the Rupee spot market

Chapter 7: Currency Futures

A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM

Chapter8: Commodity derivatives

Commodities are traded on commodity exchanges like NCDEX, MCX etc.

Pricing Commodity Derivatives