Class 11 FMM notes, Chapter -1

These are the notes of class 11 Financial Markets Management (FMM) based on the latest syllabus and designed as per the curriculum issued by CBSE . This is chapter 1 called Markets and Financial Instruments. In this chapter we will know about What is investment, important points to be remember while investing, short term and long term investment options. We would also read about the SEBI and it's role in the securities market. In the last we would be knowing some thing about the market segments those are Primary and Secondary Market.

Read these notes completely and if you are having any doubt them ask in the comment section.

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Chapter 1 of class 11 financial markets management

Investment

When we use savings in order to get return on it in future. This is called investment.

Why should one invest?

To earn return on resources

To generate specified sum of money for future

For uncertain future

Inflation

Inflation is the rate at which the cost of living increases.

Chapter -1 of FMM,Class -11 (Part -1)

When to start investing?

Invest early , regularly and for long term

What care should one take while investing?

Obtain written document.

Read and understand them.

Verify the legality of the investment.

Find out costs and benefit.

Assess risk-return profile.

Know the liquidity.

Compare the details with earlier investment.

Deal only through an authorised intermediary.

Interest

Amount charged to the borrower for the privilege of using the lender's money.

What factors determine interest rates?

Demand for money.

Level of government borrowings.

Supply of money.

Inflation rate.

RBI and government policies.

What are the various options available for investment?

Physical assets - real estate, gold , commodities etc.

Financial assets - FD, post offices, insurance, provident, pension fund

Part -2 of Chapter 1

What are various short-term financial options available for investment?

Saving bank account

First banking product people use

Offers low interest (4-5%)

Money market or liquid funds

Specialised form of mutual funds.

Invest in short term fixed income instrument.

Provide easy liquidity.

Give better returns than saving accounts

Fixed deposit with banks

Also referred - Term deposit

Minimum investment period - 30 days

For Low risk appetite investor

What are various long-term financial options available for investment?

Post office savings

Low risk saving instrument

Can be availed through any post office.

Interest rate -8% per annum paid monthly

Minimum amount - ₹1000

Maximum amount -₹3,00,000

Maturity period - 6 years

10% bonus on completion

But 5% deduction if withdrawn prematurely

Public provident fund

Long term saving instrument

Maturity - 15 years

Interest - 8% per annum compounded annually

can be opened through a nationalized bank.

Tax benefits can be availed.

Company fixed deposit

Borrowing by company for short term to medium term at a fixed rate of interest.

Interest varies between 6 -9%

Interest received after deduction of tax

Bonds

Debt instrument

A promise to repay the principal along with fixed rate of interest on a specified date (maturity date).

Purpose - raising capital

Issued by central or state government

Mutual funds

Operated by an investment company.

Raise money from public and invest in group of assets.

Substitute for doors who lack resources, time and knowledge about investing .

NAV - Value of all shares - expenses / number of units issued.

Life Insurance Policies

Life Insurance is a contract providing for

payment of a sum of money to the person assured.

On the happening of a certain event.

It is a good method to protect your

family financially, in case of death, by providing funds for the loss of income.

Types of Policies

term life insurance, endowment policies, annuities/pension policies and Unit Linked

Insurance Plans or ULIPs.

Part -3 of Chapter -1 of FMM

Stock Exchange

Body of individuals under The Securities Contract Regulation Act ,1956 [SCRA] constituted for the purpose of assisting, regulating the business of buying, selling or dealing in securities.

Equity

The holders of equity are members of the company and have voting rights.

Debt Instrument

Contract where by one party lends money to another on pre-determined terms ( Rate and Period of interest, repayment of principal amount )

Two types of debts

Bonds - issued by central or state government

Debentures - issued by private corporate sector.

Derivative

Product whose value is derived from the value of one or more basic variables is called underlying (Shares, stocks, debentures ,bonds etc.)

Index

It is a basket of securities and the average price movement of the basket of securities indicates the index movement , whether upwards or downwards.

Depository

Like a bank wherein the deposits are securities (shares, debentures, bonds, government securities and units etc.) in electronic form.

Dematerialization

process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form.

Part 4 of FMM

Securities

Under Securities Contracts Regulation Act (SCRA) .,1956

Any instrument such as shares , bonds, scrip , stocks or other marketable securities.

Functions of Securities Market

Place where buyers and sellers can transact in securities.

Transfer of resources from those having idle resources to others who have a need for them (company).

Which are the securities one can invest in?

Shares
Bonds and debentures
Government securities
Derivative products
Units of mutual funds

Regulator

Why does securities market need regulator?

To ensure the desired behaviour of market participants.

To protect the interest of investors.

Who regulate the securities market?

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

What is SEBI and what is its role?

Securities and Exchange Board of India - Regulatory authority in India.

Role of SEBI

To protect the interest of investors.

To promote the development of securities market.

To regulate the securities market.

Powers of SEBI

Regulate the business in stock exchange.

Promote and regulate self regulatory organisation.

Prohibit fraudulent and unfair trade practices.

Participants

Issuer, Investor and intermediaries

Segments of securities market?

Primary market

Secondary market

Thanks

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