Finance & Stock Market learnings

06 Jul 2025

Read educational articles online from Zerodha Varsity, Upstox, Groww, Smallcase followed folks on Youtube/Twitter/WebArticles, asked doubts to GPT etc., and wrote below notes.

In this article I will write about my learnings around indian stock market, fundamental & technical analysis of stocks, etc., which I have been doing for some months. Although, work keeps me busy, I try my best to keep track of the markets and rotate my finances whenever necessary.

Table of Contents

Market Fundamentals

Market Structure and Infrastructure

Stock Exchanges

India operates two primary stock exchanges that form the backbone of its capital markets:

Both exchanges operate under strict regulatory oversight and provide electronic trading platforms for seamless transactions.

Market Participants

The Indian stock market ecosystem comprises diverse participants, each playing a vital role:

Individual Investors
Institutional Investors

Regulatory Framework

The Securities and Exchange Board of India (SEBI) serves as the market regulator, ensuring:

SEBI continuously updates regulations to align with global best practices and protect investor interests.

Market Intermediaries and Account Structure

Essential Intermediaries

Your journey in the stock market involves three key intermediaries:

1. Stockbrokers

Your gateway to market access, stockbrokers enable you to:

2. Depositories

Financial intermediaries offering Demat (Dematerialized) account services:

Both operate under SEBI regulations with virtually no functional differences. The Demat account holds your securities in electronic format, replacing the old paper certificate system (pre-1996).

3. Banks

Provide the bank account for fund transfers and settlements.

The Three-Account System

Successful trading requires three interconnected accounts:

All three accounts operate electronically and are seamlessly integrated for smooth transactions.

Clearing and Settlement

NSE Clearing Limited and Indian Clearing Corporation (ICCL) are wholly-owned subsidiaries of NSE and BSE respectively. These clearing corporations ensure guaranteed settlement of all trades, providing counterparty risk protection to investors.

Market Timings and Sessions

Understanding market timings is crucial for effective trading and investment decisions.

Pre-Opening Session (9:00 AM - 9:15 AM)

This session sets the stage for the trading day through three distinct phases:

Order Entry Period (9:00 AM - 9:08 AM)
Price Discovery (9:08 AM - 9:12 AM)
Transition Period (9:12 AM - 9:15 AM)

Normal Trading Session (9:15 AM - 3:30 PM)

The primary trading session where:

Post-Closing Session (3:30 PM - 4:00 PM)

Closing Price Calculation (3:30 PM - 3:40 PM)
After-Market Orders (3:40 PM - 4:00 PM)

Special Trading Sessions

Muhurat Trading: Despite being generally closed on Diwali, the market opens for one ceremonial hour during this auspicious festival, allowing investors to make symbolic investments.

Types of Market Participants by Trading Style

Day Traders

Scalpers (Subset of Day Traders)

Swing Traders

Long-term Investors

Order Types and Trading Strategies

Understanding different order types is essential for executing your investment strategy effectively.

Basic Order Types

Market Order
Limit Order
Stop Loss Order

Advanced Order Types

Cover Order
Bracket Order
After Market Order (AMO)
Immediate-or-Cancel (IOC) Order
Day Order vs. Good-Till-Cancelled (GTC)

Delivery vs. Intraday Trading

Delivery Trading
Intraday Trading

Clearing and Settlement Process

Understanding the settlement cycle is crucial for planning your trades and managing cash flows.

T+2 Settlement Cycle

T Day (Trade Day)
T+1 Day
T+2 Day
T+3 Day

Important Note: Bank or depository holidays on T+2 may delay settlement, but shares still appear in T1 holdings.

Corporate Actions

Corporate actions significantly impact your investments and require understanding for informed decision-making.

Dividends

Companies share profits with shareholders through dividend payments.

Dividend Process Timeline
  1. Dividend Declaration Date: Board approves dividend at Annual General Meeting (AGM)
  2. Record Date: Company reviews shareholder register (typically 30 days after declaration)
  3. Ex-Dividend Date: Set two business days before record date due to T+2 settlement
  4. Payment Date: Actual dividend distribution
Key Concepts

Example: If ITC trading at ₹335 declares ₹5 dividend, price drops to approximately ₹330 on ex-date.

Bonus Shares

Free additional shares given to existing shareholders in fixed ratios.

Common Ratios
Benefits

Stock Split

Increases number of shares while proportionally reducing share price.

Mechanism

Reverse Stock Split: Combining shares (negative indicator for company health)

Rights Issue

Opportunity for existing shareholders to buy additional shares at discounted price.

Features

Share Buyback

Company repurchases its own shares from the market.

Benefits

Investment Considerations and Tax Implications

Financial Year and Tax Structure

India’s financial year runs from April 1st to March 31st, affecting your tax planning.

Important Terminology

Tax Participation Context

Only about 5% of India’s 130+ crore population files income tax returns, with less than 1.5% actually paying income tax. This compares to over 45% in developed economies like the USA, highlighting the growth potential of India’s formal economy.

Alternative Investment Avenues

Commodity Markets

India offers robust commodity trading through multiple exchanges:

Major Commodity Exchanges
Commodity Categories

Derivatives Market

Futures and Options (F&O)

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Market Jargon

Basic Trading Terms

Position Management

Square Off: The action of closing an existing position by executing an opposite transaction. Think of it as completing a trade cycle - if you bought shares, you square off by selling them, and vice versa.

Long Position: When you buy and hold securities expecting their price to rise. You’re “long” on optimism about the asset’s future performance.

Short Position: When you sell securities you don’t own (borrowed through your broker) expecting their price to fall. You profit when you can buy them back at a lower price to return to the lender.

Price Reference Points

Last Traded Price (LTP): The most recent price at which a stock was traded. This gives you a real-time snapshot of market valuation and serves as the starting point for your next trade decision.

52-Week High/Low: The highest and lowest prices a stock has reached in the past year. These levels often act as psychological barriers and reference points for investors to gauge whether a stock is expensive or cheap relative to its recent history.

All-Time High/Low: The highest or lowest price a stock has ever reached since it began trading. Breaking these levels often signals significant market events or company developments.

OHLC Data: Open, High, Low, and Close prices that summarize a stock’s price movement during a specific time period (day, week, month). This data helps you understand the trading range and price volatility, forming the basis for technical analysis.

Trading Mechanisms

Volume: The number of shares traded during a specific period. High volume often indicates strong interest and conviction in price movements, while low volume suggests uncertainty or lack of interest.

Upper Circuit/Lower Circuit: Price bands set by exchanges that limit how much a stock can move up or down in a single trading session. These circuits prevent extreme volatility and give investors time to react to news. When a stock hits an upper circuit, it can only move up to that level, and when it hits a lower circuit, it cannot fall below that price.

Market Conditions and Sentiment

Bull and Bear Markets

Bull Market: A period of rising prices and optimistic investor sentiment. Like a bull that attacks by thrusting upward, prices move higher. Bull markets are characterized by strong economic fundamentals, high employment, and investor confidence.

Bear Market: A period of declining prices and pessimistic sentiment. Like a bear that attacks by swiping downward, prices fall. Bear markets typically involve economic uncertainty, rising unemployment, and widespread selling pressure.

Financial Performance Metrics

Company Fundamentals

Topline: A company’s total revenue or sales figures, appearing at the top of the income statement. This represents the company’s ability to generate business and market share.

Bottomline: The net profit after all expenses, taxes, and costs have been deducted from revenue. This appears at the bottom of the income statement and represents the actual money the company earned for shareholders.

Earnings Per Share (EPS): Net profit divided by the number of outstanding shares. This metric helps you understand how much profit each share represents. A higher EPS generally indicates better profitability per share, but it should be compared with industry peers and historical performance.

Stock Performance Indicators

Alpha: Measures how much a stock outperforms or underperforms compared to a benchmark index like Nifty or Sensex. A positive alpha means the stock performed better than the index, while negative alpha indicates underperformance.

Beta: Measures a stock’s volatility relative to the overall market. A beta of 1 means the stock moves in line with the market, above 1 indicates higher volatility, and below 1 suggests lower volatility than the market.

Investment Strategies and Concepts

Trading Approaches

Momentum Investing: A strategy that involves buying securities showing upward price trends and selling those showing downward trends. This approach assumes that trends will continue in the short term, riding the wave of market sentiment.

Tax Gain/Loss Harvesting: A strategic approach to minimize tax liability by timing the sale of investments. For gains, you can sell investments just before they exceed the tax-free threshold and reinvest immediately to reset the cost basis. For losses, you can book losses to offset future gains, effectively reducing your tax burden.

Investment Returns

Dividends: Regular payments companies make to shareholders from their profits. Think of dividends as your share of the company’s success. There are two ways to earn from investments: capital appreciation (stock price increase) and dividend income (regular payments).

Capital Appreciation: The increase in an investment’s value over time. This represents the difference between what you paid for an asset and its current market value.

Taxation Framework

Capital Gains Tax Structure

Long Term Capital Gains (LTCG) Tax: Applied to profits from stocks held for more than one year. Long-Term Capital Gains (LTCG) on shares and equity-oriented mutual funds in India are taxed at a 12.5% rate (plus surcharge and cess) if they reach Rs. 1.25 lakh in a fiscal year.

Short Term Capital Gains (STCG) Tax: Applied to profits from stocks held for one year or less. Currently, short term capital gains on shares are taxed at a rate of 20% under Section 111A with effect from 23 July 2024.

Dividend Taxation

Since April 2020, dividends are taxed as per your income tax slab rather than being tax-free.

Monetary Policy and Economic Indicators

Interest Rate Framework

Repo Rate: The rate at which the Reserve Bank of India lends money to commercial banks. When RBI increases repo rates, borrowing becomes expensive, reducing money supply and potentially slowing economic growth. Stock markets typically react negatively to repo rate increases.

Reverse Repo Rate: The rate at which RBI borrows money from banks. This tool helps RBI absorb excess liquidity from the banking system.

Cash Reserve Ratio (CRR): The percentage of deposits that banks must maintain with RBI. Higher CRR reduces money available for lending, tightening liquidity in the economy.

Banking Metrics

Credit to Deposit Ratio (CD Ratio): Measures how much of banks’ deposits are being lent out. A higher ratio indicates aggressive lending, while a lower ratio suggests conservative banking practices. This affects credit availability and economic growth.

Economic Health Indicators

Inflation: The sustained increase in general price levels. India typically targets inflation around 4-6%. Moderate inflation indicates healthy economic growth, while high inflation erodes purchasing power and can negatively impact stock markets.

Index of Industrial Production (IIP): Measures the performance of India’s industrial sector, including manufacturing, mining, and electricity. It provides insights into economic activity and industrial growth trends.

Purchasing Managers’ Index (PMI): A leading indicator of economic health based on surveys of purchasing managers in manufacturing and services sectors. A PMI above 50 indicates expansion, while below 50 suggests contraction.

Consumer Price Index (CPI): Measures inflation by tracking changes in prices of goods and services consumed by households. This directly impacts interest rate decisions and monetary policy.

Government Securities and Safe Investments

Treasury Bills

Short-term government securities with maturities of 91, 182, or 364 days. These are considered the safest investments as they’re backed by the government. They’re sold at a discount to face value and redeemed at full value, with the difference representing your return.

Example: A 91-day treasury bill with face value ₹120 might be available at ₹118.40. After 91 days, you receive ₹120, earning ₹1.60 as profit.

Understanding Market Indices

What is an Index?

A stock index represents a group of shares that collectively indicate the performance of a sector, exchange, or economy. Think of it as a representative sample that tells you how the overall market is performing.

Examples:

Indices serve as benchmarks for mutual funds and help investors understand market trends without analyzing individual stocks.

Understanding IPOs

The IPO Process

IPO Pricing Explained

Share Allocation Rules

Critical IPO Terms

Red Flags & Investment Strategy

Reality Check

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Investment Instruments

Traditional Banking Products

Fixed Deposits (FDs)

Fixed Deposits represent the foundation of conservative investing in India. When you invest in an FD, you’re essentially lending money to a bank for a predetermined period at a guaranteed interest rate. Think of it as a promise from the bank - they guarantee to return your principal plus interest after the agreed timeframe.

Key Features:

When to Choose FDs: FDs work best for emergency funds, short-term goals (1-3 years), or when you need absolute capital protection. They’re ideal for risk-averse investors who prioritize safety over returns.

Example: If you invest ₹1 lakh in a 1-year FD at 6% interest, you’ll receive ₹1,06,000 after maturity, with ₹6,000 as taxable interest income.

Recurring Deposits (RDs)

Recurring Deposits encourage disciplined saving by requiring you to invest a fixed amount monthly. They’re perfect for building the habit of regular investing while earning slightly better returns than savings accounts.

Mechanism: You commit to depositing a fixed amount every month for a predetermined period. The bank compounds the interest on your accumulated deposits.

Example: Monthly deposit of ₹1,000 for 12 months at 5.5% interest yields approximately ₹12,330 at maturity - your ₹12,000 investment plus ₹330 in interest.

Returns: Typically 3-5% annually, making them suitable for short-term goals and emergency fund building.

Strategic Use: RDs serve as excellent stepping stones to more sophisticated investments like SIPs (Systematic Investment Plans) in mutual funds, helping you develop consistent investment discipline.

Mutual Funds: Professional Money Management

Mutual funds pool money from multiple investors to create diversified portfolios managed by professional fund managers.

Direct Plans: Purchased directly from the fund house, typically through their website or app. These have lower expense ratios as they don’t include distributor commissions, resulting in higher returns over time, hence better choose them.

Regular Plans: Purchased through intermediaries like brokers or financial advisors. While they have higher expense ratios due to commission payments, they may provide valuable advisory services.

Equity Mutual Funds

These funds invest primarily in stocks, offering potential for higher returns but with increased volatility. They’re suitable for long-term wealth creation and beating inflation over time.

Types and Applications:

Tax Efficiency: Equity mutual funds held for more than one year qualify for Long Term Capital Gains (LTCG) tax.

Debt Mutual Funds

Debt funds invest in fixed-income securities like government bonds, corporate bonds, and money market instruments. They’re ideal for investors seeking regular income with lower risk than equity funds.

Categories by Duration:

Understanding Interest Rate Risk: When interest rates rise, bond prices fall, affecting your fund’s value. Longer-duration funds are more sensitive to interest rate changes. The inverse relationship between interest rates and bond prices exists because of how bonds work. When you buy a bond, you’re essentially lending money to the issuer (like a government or corporation) in exchange for regular interest payments at a fixed rate. For example, imagine you buy a $1,000 bond that pays 3% annually. You’ll receive $30 per year until the bond matures. Now, here’s where interest rate risk comes in. If market interest rates rise to 5%, newly issued bonds will offer this higher rate. Your existing 3% bond suddenly becomes less attractive because investors could buy new bonds paying 5% instead. To compensate for this disadvantage, your bond’s price must fall in the secondary market. Someone would only buy your 3% bond if they could get it at a discount that makes its overall return competitive with the new 5% bonds. The opposite happens when rates fall. If new bonds only pay 2%, your 3% bond becomes more valuable, and its price rises. This price movement affects bond funds directly because they hold many bonds and must mark their portfolio to market daily. When rates rise, the value of all the bonds in the fund falls, reducing the fund’s net asset value (NAV). You experience this as a loss in your fund’s value, even though you haven’t sold anything. Duration measures how sensitive a bond or bond fund is to interest rate changes. It’s expressed in years and roughly tells you how much the bond’s price will change for each 1% change in interest rates. A bond fund with a duration of 5 years would lose approximately 5% of its value if interest rates rose by 1%. Conversely, it would gain about 5% if rates fell by 1%. Longer-duration funds are more sensitive because they typically hold bonds with longer maturities or lower coupon rates. The further into the future a bond’s cash flows extend, the more those future payments are affected by changes in discount rates (interest rates). Think of it this way: a 30-year bond has payments stretching three decades into the future, while a 2-year bond will return your principal relatively soon. The 30-year bond’s price must adjust much more dramatically to remain competitive when rates change. This sensitivity isn’t necessarily bad—it’s simply a characteristic to understand. In falling rate environments, longer-duration funds can provide substantial gains. However, in rising rate environments, they can experience significant losses.

Tax-Saving Mutual Funds (ELSS)

Equity Linked Savings Scheme (ELSS) funds offer the dual benefit of tax savings and wealth creation. They invest predominantly in equity markets while providing tax deductions under Section 80C.

Unique Advantages:

Strategic Insight: ELSS funds can serve as your primary equity exposure while simultaneously reducing your tax burden, making them excellent for young professionals in higher tax brackets.

Index Funds and ETFs

Index funds and Exchange Traded Funds (ETFs) track specific market indices, offering broad market exposure at low costs. They represent a passive investment approach, eliminating the need to pick individual stocks or fund managers.

Benefits of Index Investing:

ETF Considerations:

Popular ETFs: BeES (Benchmark Exchange Traded Scheme), Nifty ETFs, and sector-specific ETFs.

ETF vs. Index Funds: ETFs trade like stocks on exchanges, allowing intraday buying and selling, while index funds can only be bought/sold at end-of-day prices. Choose ETFs for flexibility and index funds for systematic investing.

International Mutual Funds

These funds invest in global markets, providing geographical diversification and exposure to developed economies. They’re particularly valuable for hedging against domestic market risks and currency fluctuations.

Popular Options:

Tax Considerations: International funds are taxed as capital gains - gains held for less than 3 years are taxed as per your income slab, while gains beyond 3 years are taxed at 20% with indexation benefits.

Government-Backed Investment Options

Public Provident Fund (PPF)

PPF represents one of India’s most attractive long-term investment options, combining tax benefits with decent returns and complete safety. It’s designed to encourage long-term savings for retirement.

Triple Tax Benefit (EEE):

Strategic Features:

Power of Compounding Example: Monthly investment of ₹12,500 (₹1.5 lakh annually) at 7.1% for 15 years grows to approximately ₹40 lakh, with ₹17.5 lakh as tax-free interest.

National Savings Certificate (NSC)

NSC offers a government-guaranteed investment option with a 5-year lock-in period. It’s particularly suitable for conservative investors seeking tax benefits with assured returns.

Features:

Sukanya Samriddhi Yojana (SSY)

This scheme promotes financial security for girl children through attractive interest rates and comprehensive tax benefits. It’s designed to support education and marriage expenses.

Eligibility and Benefits:

Strategic Advantage: SSY currently offers one of the highest government-guaranteed returns available to retail investors, making it an excellent choice for parents planning their daughter’s future.

Government Welfare Schemes

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

A pure term life insurance scheme offering affordable life coverage for low-income families.

Features:

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

An accident insurance scheme providing affordable coverage against accidental death and disability.

Coverage Details:

Pradhan Mantri Awas Yojana (PMAY)

A housing scheme providing interest subsidies for home loans to economically weaker sections.

Eligibility and Benefits:

Example: A Middle Income Group (MIG-I) buyer with income ₹12 lakh annually buying a ₹50 lakh house gets 4% interest subsidy on ₹9 lakh of the loan amount, with maximum subsidy of ₹2.35 lakh.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

An immediate annuity scheme for senior citizens providing guaranteed pension for life.

Features:

Insurance as an Investment Tool

Understanding insurance requires recognizing its dual nature - protection and investment. While insurance’s primary purpose is risk mitigation, certain products can serve investment goals when chosen wisely.

Aspect Term Insurance Health Insurance Life Insurance (Traditional / ULIPs)
Purpose Pure life cover – pays nominee if the insured dies during the policy term Covers medical expenses and hospitalization Combines life cover with investment/savings component
Coverage High death benefit (e.g., ₹1 crore) Hospitalization & treatment costs up to sum insured Lower life cover + maturity benefit
Policy Duration 10–45 years 1–3 years (renewable) 5–30 years
Premium Cost ₹10,000–25,000/year for ₹1 crore cover (age-dependent) Varies with age, sum insured, and pre-existing conditions Higher than term plans due to investment component
Death Benefit Full sum assured if death occurs during the term Not applicable Life cover + fund value (for ULIPs) or bonus (for traditional plans)
Maturity Benefit None (no return if you survive) None Maturity value (returns often 4–6% annualized)
Key Benefits • High coverage at low cost
• Financial security for family
• Covers liabilities
• Tax benefits (Sec 80C)		 • Protection from rising medical costs
• Cashless hospitalization
• Critical illness cover
• Tax benefits (Sec 80D)		 • Enforced savings
• Life cover + maturity benefit
• Tax benefits (Sec 80C / 10(10D))
Ideal Coverage 10–15× your annual income ₹5–10 lakh (individual/family floater) Often insufficient as standalone life cover
Why Choose Most cost-effective way to protect dependents financially Healthcare inflation is ~10–15% annually Only if you seek bundled insurance + disciplined savings
Why Be Cautious N/A N/A • High charges (2–3%+ annually)
• Complex and less transparent
• Lower returns vs. mutual funds
• May not provide adequate cover
Better Strategy Buy term insurance for life cover Buy sufficient health insurance early Buy term plan + invest separately (e.g., mutual funds) for better flexibility and returns

Additional Insurance Features:

Retirement Planning Instruments

Employee Provident Fund (EPF)

EPF forms the foundation of retirement planning for salaried employees. Both employee and employer contribute, creating a substantial retirement corpus over time.

Contribution Structure:

Compounding Power: EPF currently offers around 8.5% annual returns, compounded annually. A 25-year-old earning ₹50,000 basic salary can accumulate over ₹1.5 crore by retirement through EPF alone.

Employee Pension Scheme (EPS)

EPS is a government-backed pension scheme that works alongside EPF, providing monthly pension after retirement. It’s funded by employer contributions and government support (and not the employee).

Key Features:

Feature EPF EPS
Employee Contribution 12% Nil
Employer Contribution 3.67% 8.33%
Deposit Limit No predetermined limit Maximum ₹1,250 per month
Age Limit for Withdrawal Not required 58 years for regular pension, 50 years for early pension
Interest Rate Interest received is tax-exempt No interest rate applied
Withdrawal of Funds After 58 years or unemployment for 60+ days Monthly pension after 58 years
Premature Withdrawal Complete balance can be withdrawn Amount based on years of service

EPS Benefits:

Calculation Example: An employee with 35 years of service and average salary of ₹15,000 can expect monthly pension of approximately ₹4,500-5,000.

Atal Pension Yojana (APY)

APY provides guaranteed pension for unorganized sector workers and those not covered by EPF/EPS. It’s a government-backed scheme ensuring basic income security in old age.

Pension Structure:

Example: A 25-year-old contributing ₹210 monthly will receive ₹5,000 monthly pension from age 60, with spouse pension and nominee benefits.

Alternative Investment Avenues

Bonds and Debentures

A bond and debenture both are debt instruments used for fund raising. Bonds are issued by the government & debentures by public companies to raise money. Hence bonds are low risk, low reward & debentures high risk, high reward (but it may depend). In simple words; When a company raises money to expand or grow business, they have different methods:

Government Bonds:

Corporate Debentures:

Investment Strategy: Focus on high-quality bonds (AA+ or AAA rated) for safety, or consider debt mutual funds for professional management and diversification.

Treasury Bills

Government-issued short-term securities with maturities of 91, 182, or 364 days. They’re considered the safest investment as they’re backed by the government.

How They Work:

Example: A 91-day treasury bill with face value ₹120 might be available at ₹118.40. After 91 days, you receive ₹120, earning ₹1.60 as risk-free profit.

Sovereign Gold Bonds (SGBs)

SGBs provide exposure to gold prices without the hassles of physical gold storage. They’re issued by the government, ensuring complete safety. Though, as per latest news, they are stopped.

Advantages Over Physical Gold:

Investment Strategy: SGBs work best for long-term gold allocation, typically 5-10% of your portfolio for diversification.

Real Estate Investment Trusts (REITs)

REITs democratize real estate investing by allowing small investors to own shares in large commercial properties. They provide exposure to real estate without the challenges of direct property ownership.

How REITs Work:

Types of REITs:

Popular REITs: Embassy Office Parks REIT, Brookfield India Real Estate Trust, Mindspace Business Parks REIT.

Tax Implications: Dividends from REITs are taxable, and capital gains follow equity taxation rules.

Commodity Investments

Commodities provide inflation protection and portfolio diversification. They often perform well when traditional assets struggle.

Major Commodity Exchanges:

Commodity Categories:

Investment Methods:

Real Estate Direct Investment

Key Considerations for Property Investment:

Approved Project Financial (APF) Number: Always verify this unique code before investing. It indicates: Builder’s financial credibility, Government clearances, Dispute-free property status, Faster home loan approval.

Pre-EMI Options: For under-construction properties, consider paying only interest during construction period:

Pradhan Mantri Awas Yojana Benefits: Leverage government subsidies for affordable housing to reduce effective interest rates.

Peer-to-Peer (P2P) Lending

P2P lending platforms connect borrowers directly with lenders, potentially offering higher returns than traditional fixed deposits.

How P2P Works:

Expected Returns: 10-15% annually, significantly higher than FDs but with credit risk.

Risk Management: Never invest more than ₹50,000 per platform (regulatory limit) and diversify across multiple borrowers.

Chit Funds

A traditional savings-cum-loan scheme where contributors pool money monthly, with the total amount auctioned to the lowest bidder each month.

How It Works:

Example: 20 contributors paying ₹1,000 monthly for 12 months:

Expected Returns: Around 8%, but higher risk due to potential defaults.

Risks: Organizer default, member defaults, and regulatory concerns.

Credit Cards as Financial Tools

Credit cards can be valuable financial instruments when used strategically for rewards and cash flow management.

Benefits of Strategic Credit Card Use:

Credit Card Against Fixed Deposit:

Golden Rules:

Emerging Investment Opportunities

Cryptocurrency

Digital currencies represent a new asset class with potential for high returns but significant volatility. Indian regulations are evolving, requiring careful consideration.

Key Considerations:

Fractional Investing

Technology platforms now allow small investors to buy fractions of expensive stocks, making diversification more accessible.

Benefits:

Smallcase Investing

Smallcases offer professionally designed portfolios around specific themes, strategies, or ideas. They provide a middle ground between individual stock picking and mutual fund investing.

Advantages:

Successful investing requires balancing different asset classes based on your age, risk tolerance, and goals.

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Technical Ratios and Metrics

Note that, while using these ratios, you have to take into account the company you are analyzing, its industry, and the current market conditions. Ratios can vary significantly across sectors, so always compare with industry averages. We’ll cover fundamental analysis ratios that help evaluate a company or financial instrument’s health, performance, etc. And after that we’ll cover technical analysis ratios (more inclined towards instruments like market stocks).

Stock Metrics

Valuation Ratios

Profitability Metrics

Financial Health Indicators

Growth Metrics

Cash Flow Metrics

Ownership & Management Metrics

Efficiency Ratios

Mutual Fund Analysis

Performance Metrics

Risk Metrics

Portfolio Metrics

Insurance Sector Metrics

Life Insurance Metrics

Health Insurance Considerations

Technical Analysis for Trading

Trend Indicators

Momentum Indicators

Volume Indicators

Volatility Indicators

Pattern Recognition

Qualitative Analysis Factors

Alternative Valuation Methods

Special Situation Investing

Beyond traditional value investing, special situations offer unique opportunities for those willing to do deep research and sometimes take contrarian positions.

Institutional Activity Tracking

Portfolio Risk Measurement

Risk management separates professional investors from gamblers. It’s not about avoiding risk entirely - that’s impossible in investing - but about understanding, measuring, and controlling it.

Keep your portfolio diversified investing in different instruments. Do other analysis like:

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Tax Saving Strategy

Earning money is great, but being able to minimize taxes legally is even better.

Tax Planning Fundamentals

Capital Gains Tax Strategies

Property and Real Estate Benefits

Investment-Based Deductions

Medical and Health Deductions

Education and Special Loans

Rental and Housing Benefits

Charitable Giving and Donations

Agricultural and Rural Benefits

Gift Tax Optimization

Advanced Planning Techniques

Quick Reference: Maximum Deductions

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Futures Options

(Touching things at a high level)

Part 1

B. Put Options (The right to SELL) You buy a Put if you think the price will go down. Detailed Example: You own Stock Y at $100. You fear a crash, so you buy a Put Option with a strike of $100 for a $5 premium. Scenario A (Price drops to $60): You exercise your right to sell at $100. Net Result: Even though the market price is $60, you sold at $100. Your “profit” on the option ($40 - $5 premium = $35) offsets the loss on your actual stock. Scenario B (Price rises to $150): You don’t want to sell at $100! You let the option expire and keep your stock. Loss: Only the $5 premium.


- Another way to explain: An Option gives the buyer the right (but not obligation) to buy/sell. The seller (writer) has the obligation.
- The Basics
  - Call Option (CE): Buy if you think the market will go UP.
  - Put Option (PE): Buy if you think the market will go DOWN.
  - Strike Price: The price at which you agree to buy/sell.
  - Premium: The price you pay to buy the option contract.
- Moneyness
  - ITM (In The Money): Has intrinsic value (e.g., Call Strike 100, Spot is 110).
  - ATM (At The Money): Strike ≈ Spot.
  - OTM (Out of The Money): No intrinsic value, purely time value (e.g., Call Strike 120, Spot is 110).
  - The Option Greeks 
  - Delta: How much option price changes for a 1 point move in the underlying.ATM Delta is usually 0.5. If Nifty moves up 100 points, ATM Call increases by 50.
  - Gamma: Rate of change of Delta. Explains how fast Delta changes. High Gamma = Explosive moves (common on Expiry day).
  - Theta: Time Decay. How much value the option loses every day as it nears expiry. This is the "enemy" of the buyer and "friend" of the seller.
  - Vega: Sensitivity to Volatility. If Volatility (IV) goes up, option premiums become expensive.4.  
- Volatility Terms
  - India VIX: The "Fear Index."High VIX (>20): Expect wild swings; Option premiums are expensive (good for selling spreads).Low VIX (<12): Market is complacent; Premiums are cheap (good for buying).
  - IV (Implied Volatility): The market's expectation of future volatility for that specific stock.

| Feature | Futures | Options |
| :--- | :--- | :--- |
| **Obligation** | **Mandatory** for both parties to fulfill the contract. | **Optional** for the buyer; **Mandatory** for the seller if the buyer exercises. |
| **Risk** | **Unlimited** potential for both profit and loss. | **Limited** to the Premium for the buyer; **Unlimited** for the seller. |
| **Upfront Cost** | **Margin** (A refundable deposit, though subject to daily mark-to-market). | **Premium** (A non-refundable fee paid by the buyer to the seller). |
| **Profit Potential** | **Unlimited** as the price moves in your favor. | **Unlimited** for Call buyers; **High** for Put buyers. |

- Why use one over the other?: Use Futures if you are very confident in the direction of the market and want to avoid paying a premium. It is a high-stakes, high-reward tool. Use Options if you want to limit your "downside" (loss) while still participating in the "upside" (gain). It acts like an insurance policy for your portfolio.
- OTC vs. Exchange Traded:
  - OTC (Over-the-Counter): Private agreements between two parties (e.g., You and a friend agree to exchange dollars next month). High counterparty risk (the other guy might run away). Forwards are OTC contracts.
  - Exchange Traded: Standardized contracts traded on a regulated exchange (NSE/BSE). The exchange guarantees the trade, removing counterparty risk. Futures and Options are exchange-traded

- Margin Types
  - SPAN Margin: The base margin calculated based on risk/volatility (covers 99% of worst-case moves).
  - Exposure Margin: Additional margin blocked by brokers (safety net).
  - Total Margin: SPAN + Exposure.
  - Margin Call: If your account balance falls below the required margin, the broker demands more money. If not paid, they square off your position.
- Order Types like: MIS (Margin Intraday Square-off): Intraday only, Lower margin, but auto-squared off at 3:15 PM; Cover order (discussed in past), etc... 
  
- Shorting
  - Spot Market: You can short (sell first, buy later) only for Intraday. You must buy them back before 3:20 PM. You cannot carry it overnight.
  - F&O Market: You can short Futures or Buy Puts and carry them overnight/days/weeks. This is the only way to hold a bearish position for days.

- Data Analysis & Indicators
  - Open Interest (OI): Total number of open contracts in the market.
    - Price UP + OI UP: Long Build-up (Bullish).
    - Price DOWN + OI UP: Short Build-up (Bearish).
    - Price DOWN + OI DOWN: Long Unwinding (Weak Bullish trend ending).
    - Price UP + OI DOWN: Short Covering (Bears are exiting, explosive upmove possible).
  - PCR (Put Call Ratio): Total Put OI / Total Call OI.
    - PCR > 1.5: Oversold (Market might bounce).
    - PCR < 0.5: Overbought (Market might fall).
  - Max Pain: The strike price where the option writers (sellers) will lose the least amount of money. The market often "gravitates" to this price on expiry.
  - Option Chain: A table showing OI, Volume, IV, and Premiums for all strikes. Used to identify Support (High Put OI) and Resistance (High Call OI).

- Strategies
  - Bullish Strategies
    - Long Call: Buy CE. (High risk, defined loss).
    - Bull Call Spread: Buy ATM Call + Sell OTM Call. (Reduces cost, caps profit, hedges volatility).
    - Call Ratio Back Spread: Sell 1 ITM Call + Buy 2 OTM Calls. (For unlimited upside with limited downside).
  - Bearish Strategies
    - Long Put: Buy PE.
    - Bear Put Spread: Buy ATM Put + Sell OTM Put.
    - Bear Call Ladder: Sell ATM Call + Buy OTM Call + Buy another higher OTM Call.
  - Neutral / Range Bound Strategies (Theta Eaters)
    - Short Straddle: Sell ATM Call + Sell ATM Put. (Profits if market stays flat).
    - Short Strangle: Sell OTM Call + Sell OTM Put. (Safer than straddle).
    - Iron Condor: A Strangle with "wings" (hedges). Sell OTM Call + Buy Far OTM Call (Protection) AND Sell OTM Put + Buy Far OTM Put (Protection). Defined risk, defined reward.
  - Volatility Strategies
    - Long Straddle: Buy ATM Call + Buy ATM Put. (Profits if market moves massively in any direction). Use before big events (Election results, Budget).

- Trailing Stop Loss (Protecting Profits): Instead of a fixed Stop Loss (SL) at 100, you use a Trailing SL. Example: You buy at 100. SL at 90. Price moves to 110. You move SL to 100 (Cost). Price moves to 120. You move SL to 110. Benefit: If the market crashes from 120, you exit at 110, locking in a profit, rather than exiting at your original 90 loss.

- The "Physical Settlement" Danger Zone
  - This is unique to Indian Stock F&O (Does not apply to Nifty/BankNifty).
  - The Rule: If you hold a Stock Future or an In-The-Money (ITM) Option until the moment of expiry (Thursday 3:30 PM), you generally cannot just settle in cash. You must physically take/give delivery of shares.
  - The Delivery Margin Trap (Expiry Week): 
    - Friday (E-4 days): Exchange asks for 10% of full contract value.
    - Monday (E-3 days): 25% margin.
    - Tuesday (E-2 days): 45% margin.
    - Wednesday/Thursday: Up to 100% of contract value.
  - Real World Example: You bought 1 lot of Reliance Calls. Premium paid: ₹5,000. If you hold till expiry and it expires ITM, you might suddenly be asked to pay ₹6 Lakhs (Contract Value) to take delivery of 250 shares.
  - Solution: Always close Stock F&O positions by the Tuesday of expiry week unless you actually want to buy/sell the shares for crores.

- Cash Carry Arbitrage (Risk-Free Returns)

This is a strategy used by wealthy traders/funds to earn interest-like returns. Concept: Futures usually trade at a Premium to Spot prices. Spot Price: 100 Future Price: 101 (The ₹1 difference is the interest/cost of carry). The Trade: Buy 1 Lot of Shares in Cash Market (Spot) @ 100. Sell 1 Lot of Futures @ 101. The Result: On expiry day, Spot and Future prices MUST become equal. If price goes to 110: You gain ₹10 in Cash shares, lose ₹9 in Futures. Net Profit = ₹1. If price goes to 90: You lose ₹10 in Cash shares, gain ₹11 in Futures. Net Profit = ₹1. Why do it? It acts like a fixed deposit. If the spread is high (e.g., Future is trading 1% higher for a 1-month expiry), you lock in a 12% annualized return risk-free. ```

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