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Questions and Answers
What is the primary purpose of a Running Account authorization?
What is the primary purpose of a Running Account authorization?
How often must the actual settlement of funds and securities occur after authorizing a Running Account?
How often must the actual settlement of funds and securities occur after authorizing a Running Account?
What is generally required as margin money before executing a trade?
What is generally required as margin money before executing a trade?
What is a requirement for investors using the 'early pay-in' facility?
What is a requirement for investors using the 'early pay-in' facility?
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What form of securities was introduced as acceptable for margin provision from September 01, 2020?
What form of securities was introduced as acceptable for margin provision from September 01, 2020?
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Which module on exchange websites helps verify trades executed in an account?
Which module on exchange websites helps verify trades executed in an account?
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What kind of reports are investors entitled to receive from brokers and depositories?
What kind of reports are investors entitled to receive from brokers and depositories?
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What is the effect of Running Account authorization for frequent traders?
What is the effect of Running Account authorization for frequent traders?
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What is the primary payment mechanism now available for investing in IPOs?
What is the primary payment mechanism now available for investing in IPOs?
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Which of the following methods is NOT mentioned for placing an order through a stock broker?
Which of the following methods is NOT mentioned for placing an order through a stock broker?
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When trading shares in the secondary market, why is it important to keep a record of orders placed?
When trading shares in the secondary market, why is it important to keep a record of orders placed?
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What does the term 'pay-in day' refer to?
What does the term 'pay-in day' refer to?
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What is the settlement cycle for trades executed after April 01, 2003?
What is the settlement cycle for trades executed after April 01, 2003?
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Which combination of days is mentioned as trading days for the stock exchanges?
Which combination of days is mentioned as trading days for the stock exchanges?
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What action must an investor take prior to the pay-in day after purchasing shares?
What action must an investor take prior to the pay-in day after purchasing shares?
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What is the significance of T+2 settlement in trading?
What is the significance of T+2 settlement in trading?
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What is the primary risk associated with fluctuations in the overall economy that affects all investments?
What is the primary risk associated with fluctuations in the overall economy that affects all investments?
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Which type of risk describes potential loss due to a decline in purchasing power over time?
Which type of risk describes potential loss due to a decline in purchasing power over time?
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Which account is NOT required to invest in equity shares?
Which account is NOT required to invest in equity shares?
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What is one effective strategy to mitigate investment risks?
What is one effective strategy to mitigate investment risks?
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Which type of risk is specifically related to the performance of a particular company?
Which type of risk is specifically related to the performance of a particular company?
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What should an investor do when filling the account opening form for trading?
What should an investor do when filling the account opening form for trading?
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What should an investor include when filling out the mutual fund application form?
What should an investor include when filling out the mutual fund application form?
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What is the risk that involves losing money due to changes in foreign currency rates?
What is the risk that involves losing money due to changes in foreign currency rates?
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Which of the following options is NOT a facility offered by mutual funds for ease of investment?
Which of the following options is NOT a facility offered by mutual funds for ease of investment?
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Which risk indicates the chance that an asset cannot be sold quickly at market price?
Which risk indicates the chance that an asset cannot be sold quickly at market price?
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How frequently is the risk-o-meter for mutual funds evaluated?
How frequently is the risk-o-meter for mutual funds evaluated?
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Which of the following describes the risk level labelled 'Moderate' on the risk-o-meter?
Which of the following describes the risk level labelled 'Moderate' on the risk-o-meter?
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What advice is given to investors regarding commissions from agents and distributors?
What advice is given to investors regarding commissions from agents and distributors?
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What is the purpose of an Exchange Traded Fund (ETF)?
What is the purpose of an Exchange Traded Fund (ETF)?
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What action should investors take when there are changes in their personal information?
What action should investors take when there are changes in their personal information?
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What is a common misconception about mutual fund investments?
What is a common misconception about mutual fund investments?
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What is one of the common malpractices exhibited by investment advisers?
What is one of the common malpractices exhibited by investment advisers?
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Which practice should investors avoid when dealing with investment advisers?
Which practice should investors avoid when dealing with investment advisers?
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What is a recommendation for clients when seeking investment advice?
What is a recommendation for clients when seeking investment advice?
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How should advisory fees be paid to the investment adviser?
How should advisory fees be paid to the investment adviser?
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What is a tactic used by some investment advisers when clients incur losses?
What is a tactic used by some investment advisers when clients incur losses?
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What should investors do before accepting investment advice?
What should investors do before accepting investment advice?
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Which statement is true regarding assured returns in investment?
Which statement is true regarding assured returns in investment?
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What should investors be cautious about when receiving investment advice via calls?
What should investors be cautious about when receiving investment advice via calls?
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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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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.
