Introduction to

Securities Market
Module 1
 “I have SUM to invest and I’m
“I need SUM to launch my looking for a promising
new product” company.”

Stock Investors
Company Exchange
Great! You can buy this
company’s shares here.
“List your shares with. I’ll provide a platform
Company gets the funds, you
where investors can buy them.” get part-ownership, and
trading can continue.
 The stock exchange serves as a
Equity Shares commonly called market/platform where financial
shares, represent a share of instruments like stocks, bonds and
ownership in a company commodities are traded.

Share

Stock Investors
Company Investment
Exchange

The Securities Market is a place where companies can raise funds by issuing
securities such as equity shares, debt securities, etc. to investors (public) and is
also a place where investors can buy or sell various securities.
The Primary Market is a place where companies can raise funds by issuing
securities such as equity shares, debt securities, etc. to investors (public).

Share

Stock Investors
Company Investment
Exchange
The Secondary Market is a place where investors can buy or sell various
securities.

Share

Investment
Investors Stock Exchange Investors
 Primary Market
• The primary market is where new securities like stocks and bonds are first issued
to the public.
• The primary market exclusively deals with newly issued securities.
• This is the marketplace where companies offer their shares to investors for the
first time through Initial Public Offerings (IPOs) to raise capital for business
expansion, debt repayment, or other corporate purposes.
 Secondary Market
• The secondary market is where investors buy and sell securities like stocks and
bonds that have already been issued.
• After being sold in the primary market, securities are traded among investors in
the secondary market.
• This trading allows investors to easily enter or exit investments, making the
market more liquid and helping to set fair prices for securities.
• Prices fluctuate based on supply and demand, reflecting investor sentiment.
• The issuing company is not directly involved in these transactions.
How does the Stock Market Investment
process work?
Demat Account Demat Account
X company’s 100 shares
A Demat Account, also called as Dematerialized account, A Trading Account lets you trade shares of different
store your shares. A Demat account converts your shares from companies on the stock market. You can use your trading
a physical to an electronic format. That is the account where account to buy and sell shares and carry out transactions.
all your purchases are stored, like shares, bonds, futures and Trading accounts work alongside Demat accounts. That
options, exchange-traded funds, mutual funds, and other implies that the shares you buy on a trading account are
securities. stored on your Demat account.
Broker
 Types of Demat Account
1. Regular Demat Account
• Ideal for: Resident Indian investors.
• Regular Demat Accounts are the standard accounts used by Indian residents to
hold equity shares, bonds, Mutual Funds, and other securities.
• These accounts are subject to standard maintenance charges, which vary
depending on the service provider.

• Key features:
✓ Wide range of holdings: Equities, bonds, mutual funds, and more.
✓ Maintenance charges: Applicable based on the value of holdings and the
policies of the service provider.
✓ Ease of access: Easily accessible via online platforms and mobile
applications.
 Types of Demat Account
2. Basic Services Demat Account(BSDA)
• Ideal for: Small investors with limited holdings.
• The BSDA was introduced by SEBI to encourage financial inclusion by reducing
the cost of maintaining a Demat Account.
• As per SEBI's circular, starting 1st September 2024, your demat account will
automatically be categorised as a BSDA if the following conditions are met:

✓ The individual must have only one Demat Account where they are the sole
or first holder.
✓ The value of holdings in the demat account should be less than ₹10,00,000.
• No annual maintenance charges (AMC) apply for holdings up to ₹4 lakh, and a
fee of ₹100 will be charged for holdings between ₹4 lakh and ₹10 lakh.
 Types of Demat Account
3. Repatriable Demat Account
• Ideal for: Non-Resident Indians (NRIs) who wish to invest in Indian securities
with the option to transfer funds abroad.
• This type of account allows NRIs to invest in India while also enabling the
repatriation of funds to their country of residence.
• To operate a repatriable demat account, an NRE (Non-Resident External) bank
account is required for fund transfers.
• Key Features:
✓ Fund Repatriation: Provides the facility to transfer funds abroad.
✓ Regulatory Compliance: Operates in accordance with FEMA (Foreign
Exchange Management Act) regulations.
 Types of Demat Account
4. Non-Repatriable Demat Account
• Ideal for: Non-Resident Indians (NRIs) who wish to invest in Indian securities
but do not require the option to repatriate funds abroad.
• This type of account functions similarly to a repatriable demat account, but it
does not permit the transfer of funds outside India.
• Instead, it is linked to an NRO (Non-Resident Ordinary) bank account for fund
management.
• Key Features:
✓ Local Investments: Suitable for NRIs who prefer to retain their investments
within India.
✓ Regulatory Compliance: Governed under FEMA (Foreign Exchange
Management Act) guidelines.
 Pre-requisite to invest in stock Market
• Bank account
• Demat Account
• Trading Account

• Mobile Number and Email ID

• PAN number
• Aadhaar number linked to your mobile number
• Income proof (required only for F&O trading).
 How to open a Demat account online?
1. Install the Broker app from the App Store or Play Store, or visit Broker’s official
website.
2. Enter your mobile number and click on Get OTP. Enter the OTP and click on
Continue.
3. Verify your email ID by selecting Gmail or by entering your name and email ID,
then click on Continue.
4. Enter the OTP you received on your email ID and click on Continue.
5. Enter your PAN number and date of birth, then click on Continue.
6. Select the segments you would like to trade in, accept the terms and
conditions, and click on Continue.
7. Enter your Aadhaar number, OTP, captcha, and 6-digit Digilocker PIN to verify
your KYC. Then click on Continue.
8. Enter your personal details and click on Continue.
 How to open a Demat account online?
9. Link your bank account using UPI or by manually entering your bank account
details, then click on Continue.
10. Complete the In-Person Verification (IPV) by ensuring you are clearly visible
and click on Capture (you must enable your camera). Then click on Continue.
11. Click on Sign, draw your signature on the screen or upload a copy of your
signature, and click on Save.
12. Upload documents (If required): Bank proof (if you entered the bank details
manually) or income proof (if you want to trade in F&O). Click on Continue.
13. If you wish to add a nominee, click on Add nominee, enter the nominee
details, and click on Continue.
14. Click on Sign now and digitally sign your account opening forms using your
Aadhaar number, OTP, and Digilocker PIN.
 Types of Trading Account
1. Equity Trading Account
• Used for trading in stocks, futures, and options.
• Not enough to take delivery of shares—you also need a demat account to hold
them.
• If trading only in futures and options (F&O), a trading account alone is sufficient
since no delivery is involved.

2. Commodity Trading Account

• Required for trading in commodities such as gold, silver, crude oil, and
agricultural products.
• Separate from equity trading accounts because of historical reasons (earlier
different regulators; Forward Markets Commission).
• Even though SEBI regulates both equities and commodities now, separate
accounts are still maintained..
 Types of Trading Account
3. 2-in-1 Account and 3-in-1 Account
• 2-in-1 Account – Combines a trading account + demat account. Makes
buying/selling and transferring shares to demat seamless.
• 3-in-1 Account – Combines a trading account + demat account + bank account.
Offers easy transfer of both funds and shares.
• Usually provided by banks with brokerage services.

4. Discount and Full-Service Trading Accounts

• Discount Trading Account – Offers only basic trading services at low cost (no
research/advisory).
• Full-Service Trading Account – Provides extra services such as stock research,
advice, portfolio management, along with trading.
 Modes of Investments
1. Equity/Stocks
• Equity represents ownership in a company through shares or stock.
Shareholders benefit from dividends and potential capital appreciation if the
company’s value rises. Equities are generally liquid, bought or sold easily on
stock exchanges, but are subject to high volatility and risk of loss.
2. Mutual Funds
• Mutual funds pool money from multiple investors to invest in a diversified
portfolio of stocks, bonds, or other assets. Professional fund managers handle
asset selection. Mutual funds provide diversification and lower risk than
individual stocks, but charge management fees and may not always outperform
indexes.
Modes of Investments
 Modes of Investments
3. Bonds
• Bonds are fixed-income securities. Investors lend money to governments or
corporations and receive regular interest payments (coupons) and the principal
amount back at maturity. Bonds are generally less risky than stocks, offering
stable returns, but are subject to interest rate and inflation risks.
4. Derivatives
• Derivatives are financial contracts whose value is derived from underlying assets
such as stocks, bonds, commodities, currencies, or indexes. Common derivatives
include options, futures, and swaps. They are mostly used for hedging risks or
speculation on price changes, but may be high-risk and complex. For example, a
farmer and a food company can use a forward contract to lock in the price of
wheat for a future date, protecting both from sudden price changes—this is
called hedging. Similarly, an investor may use an option to bet on a stock’s price
rise or fall, with limited loss if the prediction is wrong.
 Modes of Investments
Types of Derivatives
• Options are financial derivatives that give the holder the right, but not the
obligation, to buy (call option) or sell (put option) an underlying asset at a
predetermined price within a specified time period. They are widely used by
investors and traders for various purposes, including speculation, hedging, and
generating income.
• Futures are financial contracts that obligate the buyer to purchase (in the case
of a long position) or the seller to sell (in the case of a short position) a specific
asset at a predetermined price on a specified future date.
• Forwards are financial contracts between two parties that agree to buy or sell
an asset at a specified price (the forward price) on a future date (the delivery
date). Unlike futures contracts, forwards are typically traded over-the-counter
(OTC), meaning they are customized agreements negotiated directly between
the buyer and seller, rather than standardized contracts traded on exchanges.
 Modes of Investments
5. Real Estate
• Real estate involves investing in physical property such as residential homes,
commercial buildings, land, or industrial properties. Investors earn returns
through rental income, property appreciation, or both. Real estate can provide
inflation hedging and portfolio diversification but is less liquid and may require
substantial capital.
6. Exchange Traded Funds (ETFs)
• An ETF pools money from many investors and invests it in a basket of assets such
as stocks, bonds, commodities, or even gold. For example, a Nifty 50 ETF holds
all the shares in the Nifty 50 index in the same proportion, so when you buy one
unit of that ETF, you indirectly own small portions of all those 50 companies.
ETFs combine the features of mutual funds and shares: like mutual funds, they
provide diversification and professional management, but like shares, they can
be bought and sold instantly on the stock market during trading hours.
Modes of Investments
 Modes of Investments
7. Cryptocurrency
• Cryptocurrency is a digital asset exchanged electronically, using decentralized
blockchain technology. Examples include Bitcoin and Ethereum.
Cryptocurrencies offer high return potential and independence from traditional
finance but are highly volatile and speculative, with regulatory and security risks.

8. Commodities
• Commodities are physical goods such as gold, oil, or agricultural products traded
on commodity exchanges. Investors use commodities for inflation protection
and diversification. Commodity prices can be volatile and are impacted by global
events, supply-demand, and currencies.
 Trading in the Stock Market
• Trading in the stock market means buying and selling stocks, futures, option or any
other financial instrument with the intention of making a profit in a short time from the
change in its price.
• The purpose of trading is to take advantage of short-term price movements that can be
from a few seconds to a few weeks or months.

Difference between trading and investing

• In investing, people hold shares for a long time (5-10 years) so that they can benefit
from the growth of the company.
• On the other hand, the purpose of trading is to earn profit quickly. In this, the return
comes quickly, but the risk is also high.
 Types of Trading
1. Intraday Trading
• Intraday trading, a stock has to be bought and sold within the same trading day.
The purpose of making profit in this is to catch very small price movements.
• This trading requires fast decision, strong technical analysis and the ability to
understand the momentum of the market.
2. Swing Trading
• In swing trading, the trade is held for a few days to a week or two. In this,
traders take entry and exit using indicators like short-term trends, technical
breakouts, and moving averages.
• This trading is better for those who cannot sit in front of the screen full-time,
such as working professionals or part-time traders.
• The risk level is medium and stable returns can be obtained with the right
strategy.
• Traders often keep losses under control by using stop losses.
 Types of Trading
3. Positional Trading
• In positional trading, a stock is held for a few weeks to several months. This
trading is for those traders who want to catch longer trends using both technical
and fundamental analysis.
• In this, the quality of the stock, sector trends and economic conditions are also
taken into account.
• In this trading style, the daily movement of the market does not have much
effect, so it is also called low-risk trading.
4. Trading in Futures
• A futures contract is an agreement to buy or sell an asset at a fixed price on a
future date. In trading, you don’t usually take delivery of the asset (like oil
barrels or stocks). Instead, you settle differences in price.
• Example: You buy a Reliance futures contract at ₹2,500 for expiry next month. If
Reliance rises to ₹2,600, you gain ₹100 per share (lot size applies). If it falls, you
lose.
 Types of Trading
5. Trading in Options
• An option contract gives the right, but not the obligation, to buy or sell an asset
at a pre-decided price before/on expiry.
• Two types:
• Call Option → Right to buy at a set price (you expect prices to rise).
• Put Option → Right to sell at a set price (you expect prices to fall).
• Example: Nifty is at 20,000. You buy a Call Option with strike price 20,200. If
Nifty rises to 20,500, your option gains value. If Nifty falls, you can just let the
option expire (loss limited to the premium paid).
 Power of Attorney (PoA)
• A Power of Attorney (PoA) in the stock market is a legal document that allows an
investor to authorise a broker to handle specific transactions, primarily the
debiting and transferring of shares from the investor’s Demat account when
selling securities.
• While PoA is not needed to buy shares, it is essential for brokers to process sales
efficiently. Without a PoA, shares can be sold using alternative methods like the
Central Depository Services Limited’s Transaction Personal Identification Number
(CDSL TPIN) (with daily limits) or the Delivery Instruction Slip (DIS), which can be
time-consuming.
Types of PoA
• Limited PoA: Authorises only specific actions (e.g., debiting shares for sales).
• Full PoA: Allows broader powers such as pledging shares for margin and managing corporate
actions.
 Demat Debit and Pledge Instruction (DDPI)
• The authorisation granted by the PoA empowers brokers to debit holdings from clients'
Demat accounts. Some brokers misused the Power of Attorney for pledging client
securities and securing loans against them without the clients' proper authorisation.
• Due to the risks involved in PoAs, SEBI implemented the Demat Debit and Pledge
Instruction (DDPI) document in 2022, which greatly reduces the risks associated with
PoAs.
• DDPI authorisation grants brokers the power to debit or pledge securities held in an
investor's Demat account as per specified instructions.
• This innovation allows traders to pledge their shares for purposes such as margin funding
without transferring them to the broker's pool account. The client does not have to enter
the CDSL T-PIN and OTP to sell shares once the DDPI is submitted.
Securities and Exchange Board of India (SEBI)
• The Securities and Exchange Board of India (SEBI) is the regulatory authority
established in 1988 to oversee India’s securities market, becoming a statutory
body in 1992.
• SEBI’s primary role is to protect investors, ensure fair and transparent market
practices, and promote the growth and stability of the securities market in India.
• SEBI's responsibilities include regulating and supervising various participants in
the securities market, such as stock exchanges, brokers, merchant bankers,
mutual funds, and other financial intermediaries.
• By setting guidelines and standards, SEBI ensures that market players adhere to
practices that foster trust and confidence among investors.
• It also takes necessary actions against fraudulent activities, insider trading, and
other malpractices that could harm the stability of the market.
 Objectives of SEBI
• Protect investors by ensuring access to accurate information and preventing fraudulent
activities.
• Promote a fair, transparent, and efficient securities market to build trust among
participants.
• Regulate market intermediaries such as brokers, merchant bankers, mutual funds, and
stock exchanges by setting standards and ethical guidelines.
• Prevent malpractices like price rigging, insider trading, and other fraudulent activities
to maintain market integrity.
• Foster the development and modernization of the securities market, including
technological advancements and financial innovations.
• Maintain systemic stability by minimizing risks and ensuring smooth market
operations.
• Promote investor education to increase awareness about risks and informed decision-
making.
 Functions of SEBI
SEBI’s functions can be categorized into three types:
1. Protective Functions:
• Prevent price rigging and market manipulation.
• Prohibit insider trading by monitoring insiders’ transactions.
• Educate investors on market risks and trading practices.
• Prohibit fraudulent and unfair trade practices.
• Promote fair practices and codes of conduct for market participants.

2. Regulatory Functions:
• Regulate intermediaries like brokers, underwriters, credit rating agencies to ensure
transparency and ethical conduct.
• Grant registration to entities operating in the securities market.
• Frame rules, guidelines, and conduct inquiries to ensure orderly market functioning.
• Supervise stock exchanges and intermediaries to enforce compliance.
 Functions of SEBI
3. Developmental Functions:
• Promote innovative trading systems and infrastructure upgrades for efficiency.
• Introduce reforms like dematerialization of securities to reduce risks and improve
convenience.
• Encourage research and development for financial market innovation.
• Train market intermediaries and promote investor education programs..
 SEBI Complaint Redress System (SCORES)
• SCORES is an online grievance redressal platform by SEBI.
• It allows investors to lodge complaints related to securities market issues.
• If issues remain unresolved by entities concerned, SEBI intervenes through SCORES to
ensure timely and transparent complaint resolution.
• Investors can track complaints online, reinforcing investor protection and trust.