Name of the Program: Bachelor of Business

Administration (BBA)
Finance Elective
Course Code: FN2
Name of the Course/TITLE OF THE PAPER :
Security Analysis and Portfolio Management (DSE)
Prepared by,
Jyothi Prabha RV
Assistant professor
SVRFGC chandpura.
 Module No. 1: Introduction to Investments 10
• Introduction- Investment process, Criteria for Investment, types of Investors,
Investment, Speculation and Gambling. Elements of Investment, Investment
Avenues, Factors influencing selection of investment alternatives.
• Security Market- Introduction, functions, Secondary Market Operations. Stock
Exchanges in India, Security Exchange Board of India, Government Securities
Market, Corporate Debt Market and Money Market Instruments.
• Module No. 2: Risk-Return Relationship 10
• Meaning of risk, types off risk, measuring risk, risk preference of investors.
Meaning of return, measures of return, holding period of return, Annualized return,
expected return, investors attitude towards risk and return.
• Module No. 3: Fundamental Analysis 10
• Introduction- Investment Analysis, Fundamental Analysis, Macro Economic
Analysis, Industry Analysis, Company Analysis, Trend Analysis, and Ratio
Analysis.
• Module No. 4: Technical Analysis 12
• Meaning of Technical Analysis, Fundamental vs Technical Analysis,
Charting techniques, Technical Indicators, Testing Technical Trading
Rules and Evaluation of Technical Analysis.
• Module No. 5: Portfolio Management 14
• Framework-Portfolio Analysis – Selection and Evaluation – Meaning
of portfolio – Reasons to hold portfolio – Diversification analysis –
Markowitz’s Model – Assumptions –Specific model – Risk and
return optimization – Efficient frontier – Efficient portfolios –
Leveraged portfolios – Corner portfolios – Sharpe’s Single Index
model – Portfolio-evaluation measures – Sharpe’s Performance
Index – Treynor’s Performance Index – Jensen’s Performance Index.
Skill Development
• 1. Prepare an imaginary investment portfolio for
individual with a salary of 10 lakhs per annum.
• 2. List of 10 companies approached SEBI for IPO
• 3. Prepare a technical analysis chart on Blue Chip
Companies of BSE. 4. Collect information
regarding GDRs, ADRs, IDRs and various Bonds
and make a chart.
• 5. Watch market movement for a day and analyze
the trend of Nifty-Fifty Index.
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

BBA VI SEM – BANGAORE UNIVERSITY

Prepared by,
Jyothi Prabha RV
Dept. Commerce and Management
Assistant professor
[Link], UGC-NET,K-SET,(PhD)
 SECURITY ANALYSIS AND PORFOIO MANAGEMENT

• Security analysis and portfolio management are fundamental

concepts in finance that revolve around assessing the value of
securities and constructing investment portfolios to achieve
specific financial goals.
• Security Analysis: Security analysis involves evaluating individual
securities such as stocks, bonds, and other financial instruments
to determine their investment potential. There are two main
approaches to security analysis:
• Fundamental Analysis
• Technical Analysis
 Portfolio Management
• Portfolio management involves the selection, allocation, and
management of a combination of different securities (portfolio) to
achieve specific investment objectives while considering risk and
return trade-offs. The key steps in portfolio management include:

• Asset Allocation

• Security Selection

• Risk Management

• Performance Evaluation
 Module No. 1: Introduction to
Investments
•
• Introduction- Investment process, Criteria for
Investment, types of Investors, Investment,
Speculation and Gambling. Elements of
Investment, Investment Avenues, Factors
influencing selection of investment alternatives.
• Security Market- Introduction, functions,
Secondary Market Operations. Stock Exchanges
in India, Security Exchange Board of India,
Government Securities Market, Corporate Debt
Market and Money Market Instruments.
 According to oxford dictionary “investment is defined
as the action or process of investment money for
Meaning & Definition profit”.
of investment:
Investment is an employment of funds on assets in
the aim of earning income or capital
appreciation.

Definition-Economic sense “Investment means it is the use

economy’s goods and services that are used in the production to
earn income/profit”.

Definition–Financial sense
“Investment is a commitment / employment of funds made in the
expectation of some positive rate of return in the form of interest,
dividends, rent, premiums, pension benefits.
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

Definition
Generally, “investments” refers to financial assets and in particular to
marketable securities.
Marketable securities financial assets those are easily and cheaply tradable in
organized markets.
Features/attributes/ essential elements
/characteristics of an investment
1. Return
2. Risk
3. Safety
4. Tax benefits/concessions
5. Stability of income
6. Growth of capital
7. Concealability
8. Legality
9. Tangibility
[Link] power stability
[Link]
The elements of investments
• Return: The profit or gain generated by the investment over a certain period. Returns can
come in various forms, including interest, dividends, capital gains, or rental income.
• Risk: The possibility of losing some or all of the invested principal. Different types of
investments carry different levels of risk, and investors typically assess and manage risk
according to their risk tolerance and investment objectives.
• Time Horizon: The length of time over which an investor plans to hold the investment
before selling or redeeming it. Time horizons can vary depending on individual goals and
objectives, and they influence investment decisions and strategies.
• Liquidity: The ease with which an investment can be converted into cash without
significantly affecting its market price. Investments with higher liquidity are easier to buy or
sell quickly, while those with lower liquidity may take longer to convert into cash.
• Diversification: Spreading investment capital across a variety of assets to reduce risk.
Diversification helps investors mitigate the impact of poor performance in any single investment
and improve the overall risk-adjusted return of their portfolio.

• Costs and Fees: The expenses associated with buying, holding, or selling an investment. Costs
and fees can include brokerage fees, management fees, transaction costs, and taxes. Investors
should consider these costs when evaluating investment options, as they can impact investment
returns.

• Asset Allocation: The strategic allocation of investment capital across different asset classes,
such as stocks, bonds, real estate, and cash equivalents. Asset allocation is a key determinant of
portfolio performance and risk, and investors often adjust their asset allocation based on factors
such as risk tolerance, time horizon, and market conditions.

• Market Conditions: The broader economic and market environment in which investments
operate. Market conditions, including factors such as interest rates, inflation, geopolitical events,
and market sentiment, can influence investment returns and risk.

• Tax Implications: The impact of taxes on investment returns and cash flows. Different types of
investments may have different tax treatments, and investors should consider the tax
implications of their investment decisions.
Investment Process

[Link] Investment objectives

[Link] of investment constraints

[Link] of suitable asset mix

[Link] of Portfolio strategy

[Link] of securities

[Link] Execution

[Link] revision

[Link] of portfolio performance

[Link] and prioritizing investment
goals.
• The objectives of investment sought by the investors are to be
clearly defined. It provides a basis for identify the portfolio
strategy. The principal objectives are stability of income,
capital appreciation, liquidity, marketability, diversification,
tax benefits, hedge against inflation etc. The investor must
define the relative importance of these objectives and
prioritize them.
 2. Identification of investment
constraints
• No one can take an investment decision in a situation where
there will be no constraints. The constraints reduce the
chances of realizing the investment objectives. They have to
be identified with due care. The major constraints include
liquidity, tax shelter, time horizon, portfolio risk level,
diversification etc.
 [Link] of appropriate asset mix
• An appropriate asset mix must be selected with
regards to risk and return. It involves asset mix
decision, where an investor has to decide upon
the combination of real and financial assets in his
portfolio. Real assets are represented by tangible
assets such as real estate, gold, precious objects.
• while financial assets paper claims such as shares,
debentures, bank deposits, mutual funds etc..
[Link] of portfolio strategy
Once the appropriate asset mix is selected, the
next logical step is to formulate the portfolio
strategy. There are two types of portfolio
strategies namely, active portfolio strategy and
passive portfolio strategy.
 [Link] of securities

• Basically, there are two types of securities viz.,

fixed income securities and variable income
securities. Fixed income securities include
bonds / debentures.
• On the other hand, variable income securities
include equity shares.
 [Link] execution
• This is an important phase in portfolio
management. It involves implementing the
portfolio plan by buying or selling a given amount
in specified securities.
[Link] revision:
• Involves monitoring and revision of the portfolio
periodically Due to the dynamic developments
that take place in the capital market, changes in
risk- return characteristics of various securities
and changes in the objectives and preferences of
investors.
[Link] of portfolio performance
• It should be evaluated on a continuous basis
to improve he quality of
Portfolio management. Risk and return
characteristics of a portfolio are the key
dimensions in assessing its performance.
Investment process
1. Setting Investment Goals
The first step in the Investment Process is to set clear and specific investment goals.
We need to be clear about what we want to achieve, whether it may be short-term
or long-term objectives. It is essential to identify and consider the time frame of our
investment, as this will affect the level of risk we are willing to take.
2. Determining Risk and Returns
The second step is to determine the level of risk you are willing to take and the
potential returns you expect to receive. Investing involves risks but can also be a
rewarding option. High-risk investments often have the potential to generate higher
returns, while low-risk investments generally offer lower returns. That’s why
understanding the risk-return relationship is crucial for the success of our investment
decision.
3. Asset Allocation
The third step is to decide on the asset allocation that fits your investment plans and risk-
taking ability. It is the strategy of dividing your investment portfolio into different securities
such as stocks, bonds, commodities, derivatives, etc. By investing in these securities, asset
allocation aims to balance the risk and return of your portfolio.

4. Creating Investment Portfolio

The next step after assessing the fund allocation is to create an investment portfolio that
reflects your investment strategy. Your portfolio should be diversified and include a
combination of high-risk and low-risk investments that match your investment objectives.

5. Monitoring and Reviewing

Investment monitoring and reviewing is a crucial steps to ensure that your portfolio is
performing as expected. You should regularly check the performance of your investments
and adjust your portfolio as per market conditions. Regular monitoring and reviewing will
help you identify any weaknesses or opportunities in your portfolio.
• Investment Criteria
According to Meier, “Investment criteria refers to the problem of
determining the best utilization of investment resources to
minimize capital intensity, to maximize social marginal
productivity of capital and employment absorption.”
Objectives of investment criteria
(i) Equal distribution of income and wealth.
(ii) Balanced and rapid growth of the economy.
(iii) To raise the gross and national product and per capita
income.
(iv) Proper allocation of existing resources.
(v) Efforts to correct the balance of payment.
(vi) All-round development of the country.
(vii) To keep watch the interest of the future generation.
Investment/Speculation/Gambling
• What is Investment?
Investment refers to the purchase of an asset with the goal of generating income or capital
appreciation. It is a long-term strategy that involves putting money into assets that have the
potential to grow in value over time, such as stocks, bonds, mutual funds, and real estate.

• What is Speculation?
Speculation refers to the practice of buying an asset with the hope of selling it at a higher
price in the near future. Unlike investing, speculation is a short-term strategy that involves
taking advantage of market inefficiencies or price movements.

• What is Gambling?
Gambling refers to the practice of risking money on an uncertain outcome in the hopes of
winning more money. While gambling can take many forms, such as casino games or sports
betting, it generally involves little or no research or analysis. Instead, gamblers rely on luck
and a chance to determine the outcome.
Investment and speculation
Investment is the application of money for earning more money. Investment
also means savings or savings made through delayed consumption.

In other words, Investment is a commitment of funds to derive the future

income in the form of interest, dividend, rent, premium or appreciation in the
value of principal capital.

Speculation is an act of conducting a risky financial transaction in the hope of

substantial profits
 Difference between investors and speculators

Investors Speculators

Lower risk High returns, Higher risk.

Consistent and moderate returns No consistency in returns

Investors uses own funds Speculators uses own and borrowed funds

Long term framework Short term planning and holding assets for even for
one day.

High degree of safety Focused on more returns than safety.

Decide based on fundamental factors and Market psychology and stock market movements.
performance of the company

It has a longer time horizon It has a shorter time horizon

 Investment Avenues
• Stocks: Investing in publicly traded companies by purchasing shares of their stock.
Stocks offer the potential for capital appreciation (increasing stock prices) and
dividends, but they also carry the risk of price volatility.

• Bonds: Investing in debt securities issued by governments, municipalities, or

corporations. Bonds provide regular interest payments and return of principal upon
maturity. They are generally considered less risky than stocks but offer lower potential
returns.

• Mutual Funds: Pooled investment funds that invest in a diversified portfolio of stocks,
bonds, or other securities. Mutual funds are managed by professional fund managers
and offer diversification, but they also charge management fees.
• Exchange-Traded Funds (ETFs): Similar to mutual funds but traded on stock
exchanges like individual stocks. ETFs track indexes, sectors, commodities, or
other assets and offer diversification and liquidity.

• Real Estate: Investing in physical properties such as residential, commercial, or

industrial real estate. Real estate investments can provide rental income and
potential for capital appreciation but require significant capital and may have
higher maintenance costs.

• Certificates of Deposit (CDs): Time deposits offered by banks with fixed

interest rates and maturity dates. CDs are considered low-risk investments but
offer lower returns compared to stocks or mutual funds.
• Savings Accounts: Bank accounts that offer a safe place to deposit funds
while earning interest. Savings accounts are highly liquid but typically offer
lower interest rates compared to other investment options.

• Commodities: Investing in physical goods such as gold, silver, oil, or

agricultural products. Commodities offer diversification and can serve as a
hedge against inflation but may be subject to price volatility.

• Cryptocurrencies: Digital or virtual currencies that use cryptography for

security and operate on decentralized networks. Cryptocurrencies like
Bitcoin offer potential for high returns but also carry high volatility and
regulatory risks.
Retirement Accounts: Tax-advantaged accounts such as Individual Retirement

Accounts (IRAs) or 401(k) plans that allow individuals to save for retirement.

These accounts offer tax benefits and may provide a range of investment

options including stocks, bonds, and mutual funds.

Peer-to-Peer Lending: Investing in loans through online platforms that connect

investors with borrowers. Peer-to-peer lending offers the potential for

attractive returns but carries credit risk and liquidity risk.

Options and Futures: Derivative financial instruments that allow investors to

speculate on the future price movements of underlying assets such as stocks,

bonds, or commodities. Options and futures can be highly speculative and are
Factors influencing on Investment
• Risk Tolerance: Investors' willingness and ability to tolerate fluctuations in the
value of their investments. Risk-averse investors may prefer safer, lower-risk
investments such as bonds or cash equivalents, while risk-tolerant investors may be
more inclined to invest in higher-risk assets like stocks or cryptocurrencies.

• Investment Goals and Objectives: Investors' financial goals, such as capital

preservation, income generation, or capital appreciation, influence their choice of
investment alternatives. For example, investors seeking steady income may prefer
dividend-paying stocks or bonds, while those seeking long-term growth may focus
on equities.

• Time Horizon: The length of time an investor plans to hold an investment before
needing to access their funds. Longer time horizons may allow investors to take on
more risk and invest in assets with potentially higher returns, while shorter time
horizons may require more conservative investments to preserve capital.
Liquidity Needs: Investors' need for access to cash or the ability to sell their
investments quickly without significant impact on their value. Investors with short-
term liquidity needs may favor liquid investments like cash equivalents or highly
liquid stocks, while those with longer time horizons may have more flexibility to
invest in less liquid assets like real estate or private equity.
Diversification: Spreading investment capital across different asset classes and
investment types to reduce risk. Diversification helps investors mitigate the impact
of poor performance in any single investment and improve the overall risk-adjusted
return of their portfolio. Factors such as correlation among assets, geographic
diversification, and sectoral diversification are also considered.
Tax Considerations: The impact of taxes on investment returns and cash flows.
Investors may consider tax-efficient investment strategies to minimize taxes on
investment income, capital gains, and distributions. Factors such as tax brackets, tax-
deferred accounts.
Market Conditions: The broader economic and market environment, including factors such
as interest rates, inflation, geopolitical events, and market sentiment, can influence
investment decisions. Investors may adjust their investment strategies based on market
conditions and economic outlook.
Costs and Fees: The expenses associated with buying, holding, or selling investments.
Investors consider factors such as brokerage fees, management fees, transaction costs, and
taxes when evaluating investment alternatives. Minimizing costs and fees can help improve
investment returns over time.
Inflation: The rate at which the purchasing power of money decreases over time. Investors
consider inflation when selecting investment alternatives to ensure that their investments
can preserve and grow their purchasing power over the long term.
Regulatory and Legal Considerations: Compliance with regulatory requirements and legal
considerations, including investment restrictions, disclosure obligations, and tax laws, may
influence investment decisions. Investors consider regulatory and legal factors to ensure
compliance and avoid potential legal risks.
 Types of Investors
1. Individual investors
Cautious Investors
Emotional Investors
Technical Investors
Busy Investors
Casual Investors
Informed Investors
Passive Investors
Active Investors
[Link] Investors
• Mutual funds
• Investment companies
• NBFCs
• Insurance companies
Security Market
The stock market, also known as the equity market, is a
type of security market where shares of publicly traded
companies are bought and sold. It serves as a platform for
companies to raise capital by selling ownership stakes
(shares or stocks) to investors, and for investors to buy and
sell these ownership interests.
 Meaning of stock market
• Stock market is also known as stock exchange or security
market
• It is important segment and backbone of capital market
• The stock exchange helps to facilitates purchase and sale of
existing securities between the investors
• It refers to a market place, here investors can buy and sell
stock and securities like shares, debentures, bonds, govts
securities etc..
 Features of stock market
• Market for securities
• Deals in second hand securities
• Regulates trading in securities
• It allow dealing only listed securities
• Transaction effected only through members
• Working as per rule
• Specific location
• Financial barometer
 Functions of Stock Market
• Continuous and ready market for securities
• Encourage Capital Formation
• Liquidity and marketability to existing securities
• Safety and security of transactions
• Evaluation of securities
• Listing of securities
• Regulates company management
• Facilitates healthy speculation
• Serves as economic indicator
• Facilitates bank lending
• Mobilizing surplus savings
 Stock exchange Operation
• Selection of broker

Customer will select the broker from whom purchase or sale is to be made.

• Placing the order

Client places order for the purchase or sale of security in stock exchange on
behalf of client

• Making the contract

On trading floor authorized brokers will express the intention to buy or sell the
shares traditionally it happened through out cry method and both the parties
will agree in price.
 Stock exchange Operation con…
• Contract note

Buying and selling brokers will prepare contract notes after their
mutual consent

• Settlement

Spot dealings are settled in full selling broker will transfer the share to
buying broker in return of money
 Eligibility Criteria for members
• He is not less than 21 years

• He should be citizen of India

• He has not been adjudged bankrupt

• He has not compounded with creditors

• He has not convicted for an offence involving fraud and

dishonesty he has not been expelled from any other
stock exchange
 Eligibility Criteria for members
• The stock exchanges however are free to decide the
fees

• The minimum standards are laid down by the SEBI

• The admission of trading members is based on various

criteria like capital adequacy, track record, education,
and experience
 Stock Exchanges in India
The Bombay Stock Exchange (BSE)
• It is one of the oldest and largest stock exchanges in
Asia, located in Mumbai, Maharashtra.
• BSE was established in 1875 as "The Native Share &
Stock Brokers' Association" and later renamed as the
Bombay Stock Exchange in 1957.
• It is located in the Dalal Street area of Mumbai, which
is considered the financial hub of India
 The Bombay Stock Exchange (BSE)
• BSE offers trading in various market segments, including equities, derivatives,
debt instruments, mutual funds, and exchange-traded funds (ETFs). It
provides a platform for investors to buy and sell shares of listed companies
and other financial instruments.

• BSE is home to several key market indices, including the BSE Sensex and the
BSE 500 index. The BSE Sensex, often referred to as the "Sensex," is India's
benchmark stock market index, comprising the top 30 actively traded stocks
listed on the BSE.

• BSE operates an electronic trading platform known as the BSE Electronic

Trading System (BOLT). BOLT facilitates trading in equities, derivatives, and
other financial products, providing transparency and efficiency in the trading
process.
 The Bombay Stock Exchange (BSE)
• BSE is regulated by the Securities and Exchange Board of India
(SEBI), which oversees the functioning of stock exchanges and
securities markets in India.

• Companies seeking to list their shares on the BSE must meet

certain listing requirements, including minimum net worth
criteria, profitability track record, and compliance with
corporate governance standards.

• BSE has gained international recognition as a leading stock

exchange in Asia and a key player in the global financial
markets.
 National Stock Exchange
• The National Stock Exchange of India (NSE) is one of the leading stock
exchanges in India, headquartered in Mumbai, Maharashtra.

• The National Stock Exchange of India was established in 1992 as the first
demutualized electronic exchange in India. It was incorporated as a public
limited company and commenced operations in 1994.

• It was established to bring transparency, efficiency, and liquidity to the

Indian capital market. It was founded as a public limited company and is
owned by a association of leading financial institutions, banks, insurance
companies, and other financial intermediaries in India.
 National Stock Exchange
• The NSE operates under the regulatory purview of the Securities and Exchange Board of
India (SEBI), which is the primary regulatory body for the securities markets in India.

• The NSE facilitates trading across various segments, including:

• Equities: Stocks of publicly listed companies are traded on the NSE.

 Equity Derivatives: Derivative contracts based on individual stocks or market indices like
Nifty 50 are traded.

 Currency Derivatives: Futures and options contracts based on currency pairs such as
USD/INR, EUR/INR, etc., are traded.

 Debt Instruments: Debt securities like government bonds, corporate bonds, and other
fixed-income securities are also traded.

• The NSE operates a fully automated screen-based trading system known as NEAT (National
Exchange for Automated Trading). This system ensures faster execution of trades,
transparency, and equal access to all market participants.
 National Stock Exchange
• The NSE is known for its benchmark stock market indices,
particularly the Nifty 50. The Nifty 50 is a well-known stock
market index comprising the top 50 actively traded stocks
from various sectors listed on the NSE.
• The NSE caters to a wide range of market participants,
including institutional investors, retail investors, trading
members (brokers), market makers, foreign institutional
investors (FIIs), and domestic institutional investors (DIIs).
 National Stock Exchange
• The NSE continually invests in technology and innovation to
enhance its trading platform, improve market infrastructure,
and introduce new products and services to meet the evolving
needs of market participants.

• Over the years, the NSE has gained recognition globally as a

leading stock exchange, known for its efficient trading
infrastructure, liquidity, and transparency.
 Security Exchange Board of India
The Securities and Exchange Board of India (SEBI) is the regulatory body
overseeing the securities and commodities markets in India.

• Establishment: SEBI was established in 1988 as a statutory regulatory body

under the Securities and Exchange Board of India Act, 1992. It was given
statutory powers on April 12, 1992, through the SEBI Act.

• Regulatory Authority: SEBI's primary role is to regulate and supervise the

securities markets in India, ensuring investor protection and promoting the
development and regulation of the securities market. It has jurisdiction over
various market participants, including stock exchanges, brokers, merchant
bankers, mutual funds, and foreign institutional investors (FIIs).
 Functions of SEBI
SEBI performs a wide range of functions to achieve its regulatory objectives, including:

• Regulating stock exchanges and other securities trading platforms.

• Registering and regulating intermediaries such as brokers, merchant bankers, portfolio

managers, and mutual funds.

• Monitoring and regulating the functioning of mutual funds, venture capital funds, and
foreign institutional investors (FIIs).

• Protecting the interests of investors by ensuring fair practices, disclosure

requirements, and transparency in securities transactions.

• Promoting investor education and awareness to enhance investor protection and

confidence in the securities markets.

• Enforcing regulations through investigation, inspection, and enforcement actions

against entities violating securities laws.
 Functions of SEBI
• Enforcement and Surveillance:

SEBI has enforcement powers to investigate violations of securities laws, market

manipulation, and insider trading.

It conducts surveillance of market activities, including trading patterns, price

movements, and abnormal trading volumes, to detect irregularities and take
appropriate enforcement actions.

• Market Development and Innovation:

SEBI promotes market development and innovation by introducing new products and
trading mechanisms in the securities market.

It facilitates the introduction of new financial instruments such as derivatives, exchange-

traded funds (ETFs), and bond futures to deepen the market and enhance liquidity.
 Government Securities Market
• Government securities are debt instruments issued by a
government to raise funds for various purposes, including
financing budget deficits, infrastructure projects, and
other government expenditures. These securities are
considered low-risk investments because they are backed
by the credit of the issuing government.
 Types of Government Securities
Treasury Bills (T-bills): Short-term debt securities issued by governments with
maturities typically ranging from a few days to one year. T-bills are usually
issued at a discount to their face value and mature at par.

Government Bonds: Longer-term debt securities issued by governments with

maturities typically ranging from two years to thirty years or more. Government
bonds pay periodic interest payments (coupon payments) to investors until
maturity when the face value is repaid.

Zero-coupon Bonds: Bonds that do not pay periodic interest but are issued at a
discount to their face value and redeemed at par upon maturity. The return to
the investor comes from the difference between the purchase price and the
redemption value.
• .
 Government Securities Market
• Market Participants:
– Government: The government issues government securities to raise funds and manage its
fiscal policy.

– Investors: Institutional investors, such as banks, insurance companies, pension funds, mutual
funds, and individual investors, participate in the government securities market.

– Primary Dealers: Financial institutions appointed by the central bank or government to

participate in the primary market for government securities, underwriting new issuances and
facilitating trading.

• Market Structure:
– Primary Market: New government securities are issued and sold through auctions in the
primary market. Investors bid for the securities, and the government accepts bids based on
the yield offered.

– Secondary Market: After issuance, government securities are traded among investors in the
secondary market. The secondary market provides liquidity and enables investors to buy and
sell securities before maturity.
 Corporate Debt securities
• Corporate debt securities are bonds or debt instruments issued by corporations

to raise capital. These securities represent a promise by the issuing corporation

to repay the borrowed amount (principal) along with periodic interest payments

(coupon) to the bondholders.

• Types of Corporate Debt Securities:

– Corporate Bonds: Long-term debt securities with maturities typically ranging from one year to

thirty years or more. Corporate bonds pay periodic interest payments (coupon payments) to

investors until maturity when the face value is repaid.

– Corporate Commercial Papers (CP): Short-term unsecured promissory notes issued by

corporations with maturities typically ranging from one day to one year. CPs are usually issued at

a discount to their face value and do not pay periodic interest.

– Corporate Medium-Term Notes (MTNs): Debt securities with maturities typically ranging from

one to ten years, issued by corporations through private placements to institutional investors.
• Market Participants:
– Corporations: Corporations issue debt securities in the corporate debt market to raise capital for various
purposes, including funding expansion projects, acquisitions, working capital needs, and refinancing
existing debt.

– Investors: Institutional investors, such as banks, insurance companies, pension funds, mutual funds, hedge
funds, and individual investors, participate in the corporate debt market by purchasing corporate bonds
and other debt securities.

– Underwriters and Investment Banks: Financial institutions and investment banks facilitate the issuance of
corporate debt securities by underwriting new offerings, advising on pricing and structuring, and
distributing securities to investors.

• Market Structure:
– Primary Market: New corporate debt securities are issued and sold through public offerings or private
placements in the primary market. Investment banks and underwriters assist corporations in structuring
and pricing new offerings.

– Secondary Market: After issuance, corporate debt securities are traded among investors in the secondary
market. The secondary market provides liquidity and allows investors to buy and sell securities before
maturity.
 Money Market Instruments
• Money market instruments are short-term debt securities that serve as highly liquid and
low-risk investment options for investors while providing short-term funding solutions
for borrowers. These instruments are typically characterized by their short maturity
periods, high liquidity, and low credit risk. Here are some common types of money
market instruments:

• Treasury Bills (T-Bills):

– Treasury bills are short-term debt securities issued by governments to raise funds. They are typically
issued with maturities ranging from a few days to one year.

– T-Bills are considered risk-free investments because they are backed by the credit of the government
and are sold at a discount to their face value, with the difference representing the investor's return.

• Certificates of Deposit (CDs):

– Certificates of Deposit are time deposits issued by banks and financial institutions with fixed maturity
dates. They typically have maturities ranging from a few weeks to several years.

– CDs offer higher interest rates compared to regular savings accounts, and their rates are determined
by market conditions and the issuing institution's creditworthiness.
 Money Market Instruments
• Money Market Mutual Funds (MMFs):
– Money Market Mutual Funds are investment funds that invest in a diversified portfolio of short-term
money market instruments such as T-Bills, CPs, CDs, and commercial papers.

– MMFs offer investors a convenient way to access the money market with professional management
and liquidity, making them popular choices for short-term cash management.

• Short-Term Municipal Notes:

– Short-Term Municipal Notes are short-term debt securities issued by state and local governments to
finance short-term capital needs. They include Tax Anticipation Notes (TANs), Revenue Anticipation
Notes (RANs), and Bond Anticipation Notes (BANs).

– These notes are typically issued with maturities ranging from a few weeks to one year and are backed
by the government's ability to collect taxes or revenues.

• Commercial Papers (CPs):

– Commercial Papers are short-term unsecured promissory notes issued by corporations to raise funds
for short-term financing needs. They typically have maturities ranging from one day to one year.

– CPs are issued at a discount to their face value and do not pay periodic interest like bonds. Instead, the
investor earns interest by purchasing the CP at a discount and receiving the face value at maturity.