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Key Risks in Securities Market Investment
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Key Risks in Securities Market Investment

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Questions and Answers

What is the primary purpose of a Running Account authorization?

  • To collect fees for transactions.
  • To merge multiple accounts into one.
  • To facilitate future settlement of transactions. (correct)
  • To provide tax benefits to investors.

    • How often must the actual settlement of funds and securities occur after authorizing a Running Account?

  • At least once in 30 or 90 days. (correct)
  • Every 15 days.
  • Once a year.
  • Every week.

    • What is generally required as margin money before executing a trade?

  • A subscription fee.
  • A flat fee for each execution.
  • A percentage of the trade value.
  • A deposit of cash, securities, or equivalents. (correct)

    • What is a requirement for investors using the 'early pay-in' facility?

    <p>They must deliver payment before the pay-in date.</p> Signup and view all the answers

    What form of securities was introduced as acceptable for margin provision from September 01, 2020?

    <p>Securities pledged in a designated demat account.</p> Signup and view all the answers

    Which module on exchange websites helps verify trades executed in an account?

    <p>Trade Verification.</p> Signup and view all the answers

    What kind of reports are investors entitled to receive from brokers and depositories?

    <p>Monthly and quarterly reports free of cost.</p> Signup and view all the answers

    What is the effect of Running Account authorization for frequent traders?

    <p>It simplifies the settlement process.</p> Signup and view all the answers

    What is the primary payment mechanism now available for investing in IPOs?

    <p>Unified Payment Interface (UPI)</p> Signup and view all the answers

    Which of the following methods is NOT mentioned for placing an order through a stock broker?

    <p>Direct Stock Purchase Plan</p> Signup and view all the answers

    When trading shares in the secondary market, why is it important to keep a record of orders placed?

    <p>To prevent unauthorized trades</p> Signup and view all the answers

    What does the term 'pay-in day' refer to?

    <p>The day payment is made by brokers to the clearing corporation</p> Signup and view all the answers

    What is the settlement cycle for trades executed after April 01, 2003?

    <p>T+2 rolling settlement</p> Signup and view all the answers

    Which combination of days is mentioned as trading days for the stock exchanges?

    <p>Mondays through Fridays, excluding holidays</p> Signup and view all the answers

    What action must an investor take prior to the pay-in day after purchasing shares?

    <p>Transfer funds to the bank account of the stock broker</p> Signup and view all the answers

    What is the significance of T+2 settlement in trading?

    <p>It ensures timely payment or delivery of securities within two days</p> Signup and view all the answers

    What is the primary risk associated with fluctuations in the overall economy that affects all investments?

    <p>Market Risk</p> Signup and view all the answers

    Which type of risk describes potential loss due to a decline in purchasing power over time?

    <p>Inflation Risk</p> Signup and view all the answers

    Which account is NOT required to invest in equity shares?

    <p>Retirement Account</p> Signup and view all the answers

    What is one effective strategy to mitigate investment risks?

    <p>Asset Allocation</p> Signup and view all the answers

    Which type of risk is specifically related to the performance of a particular company?

    <p>Unsystematic Risk</p> Signup and view all the answers

    What should an investor do when filling the account opening form for trading?

    <p>Sign while indicating preferences for trading</p> Signup and view all the answers

    What should an investor include when filling out the mutual fund application form?

    <p>Name and bank account number</p> Signup and view all the answers

    What is the risk that involves losing money due to changes in foreign currency rates?

    <p>Currency Risk</p> Signup and view all the answers

    Which of the following options is NOT a facility offered by mutual funds for ease of investment?

    <p>Guaranteed Return Plans</p> Signup and view all the answers

    Which risk indicates the chance that an asset cannot be sold quickly at market price?

    <p>Liquidity Risk</p> Signup and view all the answers

    How frequently is the risk-o-meter for mutual funds evaluated?

    <p>Monthly</p> Signup and view all the answers

    Which of the following describes the risk level labelled 'Moderate' on the risk-o-meter?

    <p>Principal at moderate risk</p> Signup and view all the answers

    What advice is given to investors regarding commissions from agents and distributors?

    <p>Ignore the offers and focus on the track record</p> Signup and view all the answers

    What is the purpose of an Exchange Traded Fund (ETF)?

    <p>Tracks an index, commodity, or securities</p> Signup and view all the answers

    What action should investors take when there are changes in their personal information?

    <p>Inform the mutual fund immediately</p> Signup and view all the answers

    What is a common misconception about mutual fund investments?

    <p>Investing based on lower risk guarantees higher returns</p> Signup and view all the answers

    What is one of the common malpractices exhibited by investment advisers?

    <p>Charging exorbitant fees with false promises of high returns.</p> Signup and view all the answers

    Which practice should investors avoid when dealing with investment advisers?

    <p>Dealing with unregistered entities.</p> Signup and view all the answers

    What is a recommendation for clients when seeking investment advice?

    <p>Ensure the adviser has a valid registration certificate.</p> Signup and view all the answers

    How should advisory fees be paid to the investment adviser?

    <p>Through banking channels with proper receipts.</p> Signup and view all the answers

    What is a tactic used by some investment advisers when clients incur losses?

    <p>Promising higher risk products to recover losses.</p> Signup and view all the answers

    What should investors do before accepting investment advice?

    <p>Ask for a thorough risk profiling.</p> Signup and view all the answers

    Which statement is true regarding assured returns in investment?

    <p>The promise of assured returns is misleading and should be avoided.</p> Signup and view all the answers

    What should investors be cautious about when receiving investment advice via calls?

    <p>Transactions based solely on phone calls or messages.</p> Signup and view all the answers

    Study Notes

    Investment Advisers and Caution

    • Investors can consult SEBI registered Investment Advisers for guidance on securities market investments.
    • A list of registered Investment Advisers is available on the SEBI website.
    • Beware of unsolicited advice from unregistered advisers.

    Key Risks in Securities Market

    • Market/Systematic Risk: Affects overall investment performance due to economic factors.
    • Unsystematic Risk: Pertains to specific companies or industries.
    • Inflation Risk: Also known as purchasing power risk, it can erode cash flow value over time.
    • Liquidity Risk: Arises when investments cannot be quickly bought or sold.
    • Business Risk: Involves potential negative impacts on a company’s operations.
    • Volatility Risk: Results from fluctuating stock prices.
    • Currency Risk: Involves losses from fluctuating foreign exchange rates.

    Risk Mitigation Strategies

    • Asset Allocation: Diversify investments across different companies and asset classes to spread risk.

    Prerequisites for Investing

    • To invest in equity shares, three key accounts are needed:
      • Bank Account: For fund transactions.
      • Trading Account: Required to buy/sell securities.
      • Demat Account: For holding securities electronically.

    Account Opening Process

    • Fill out the account opening form and submit KYC documents to a SEBI registered broker.
    • Signatures required for trading preferences.
    • UPI can be used for investing in IPOs.

    Investment through Secondary Market

    • After opening a trading account, shares can be bought/sold via the broker.
    • Orders can be placed through various methods:
      • Online Trading App
      • Mobile Trading App
      • Phone orders
      • Physical orders at broker's office

    Trading Cycles and Regulations

    • Trading occurs all week except weekends and holidays.
    • Payment for purchases must be made prior to the pay-in day.
    • Shares should be delivered to the broker's demat account before the pay-in day.
    • T+2 Settlement Cycle: Trades are settled two working days after execution.

    Running Account Authorization

    • Investors can authorize brokers to maintain a Running Account for easier transactions.
    • Settlements occur at least once every 30 to 90 days based on client preference.

    Margin Money

    • Brokers collect margin money as a form of risk mitigation for trades.
    • Margin can be provided via cash, securities, or cash equivalents like fixed deposits.
    • Early Pay-in: Allows investors to deliver shares/funds before the pay-in date to avoid margin requirements.

    Mutual Fund Investment Process

    • Investors must complete application forms for mutual funds, specifying personal details and bank account information.
    • Options include:
      • Systematic Investment Plans: Regular investments at fixed intervals.
      • Systematic Withdrawal/Bal Transfer Plans: Regular withdrawals or transfers from funds.

    Mutual Fund Risk Labeling

    • Funds are labeled according to risk levels:
      • Low to Very High risk categories.
    • Risk-o-meter updates monthly and is displayed on mutual fund websites to inform investors.

    Exchange Traded Funds (ETFs)

    • ETFs track indices, commodities, bonds, or asset baskets and are traded like stocks.

    Warning Against Malpractices

    • Common issues with investment advisers include:
      • Promises of assured returns.
      • High fees with misleading guarantees.
      • Poor service leading to monetary losses.
    • Investors should only consult SEBI registered advisers.

    Do’s and Don’ts for Dealing with Investment Advisers

    • Do’s:

      • Work with registered advisers.
      • Verify registration details.
      • Request a risk profile before investing.

    • Don’ts:

      • Engage with unregistered advisers.
      • Accept unsolicited stock tips.
      • Trust claims of guaranteed returns.
      • Make payments without proper documentation or through unverified channels.

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    Related Documents

    SEBI - Investor Certification Examination - Securities Market Booklet.pdf

    Description

    This quiz focuses on the key risks associated with investing in the securities market, with a particular emphasis on understanding market risk and the importance of using registered investment advisers. It's essential for investors to be informed about these risks to make educated decisions. The information is based on SEBI guidelines.

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