Hello readers, we are happy to announce that our
team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A For Stock
Market Newbies”, to spread the basic stock market knowledge to the
beginners.
This is your go-to resource for demystifying
the stock market from the scratch. Each day, we will present 10 carefully
curated questions with answers that will cover essential concepts, strategies,
and terminologies. Whether you have just entered into the market, or trying to
starting your stock market journey, or looking to strengthen your foundation,
our weekly post will guide you through the basics and beyond, making investing
accessible and understandable for everyone. Happy reading.
Day 6: Basic Stock Market
Concepts
1. What is a Corporate Action?
A corporate action is
an event initiated by a public company generally organized by the board of
directors that affects its shareholders. Common corporate actions include
announcement of dividends, stock splits, mergers, acquisitions, rights issues, changing
company's name or brand, trading symbol changing, liquidation and spin-offs.
These actions can impact the stock price and shareholder value.
2. What is a Preferred Stock?
Preferred stock is a
type of equity that has a higher claim on a company’s assets and earnings than
common stock. Preferred shareholders receive dividends before common
shareholders and typically have a fixed dividend rate, but they usually do not
have voting rights.
3. What is a Margin Call?
A margin call occurs
when the value of an investor’s margin account (which is used to borrow funds
to buy securities) falls below the broker's required minimum. The investor must
deposit more funds or sell some assets to meet the margin requirement and avoid
liquidation of their positions.
4. What is the Rule of
72?
The Rule of 72 is a
simple formula used to estimate the number of years required to double an
investment at a fixed annual rate of return. You divide 72 by the expected
annual return percentage to get the number of years. Suppose, you want to
invest Rs.10000 @10%.per annum. This investment of Rs.10000 will be double in
72÷10=7.2 years. Rule of 70 or rule of 72 both are same.
5. What is a PEG Ratio?
The PEG ratio is a
stock's price-to-earnings (P/E) ratio divided by its expected earnings growth
rate. This metric helps investors determine a stock's value while factoring in
growth. A PEG ratio below 1 is often considered undervalued, while a PEG ratio
above 1 may indicate overvaluation.
6. What is a Price-to-Sales (P/S) Ratio?
The price-to-sales
(P/S) ratio is a valuation metric that compares a company's stock price to its
revenues. It is calculated by dividing the market capitalization by total
revenue. A lower P/S ratio may suggest a stock is undervalued, while a higher
ratio could indicate overvaluation.
7. What is a Sector Fund?
A sector fund is a
type of mutual fund or ETF that invests primarily in companies within a
specific sector or industry, such as technology, healthcare, IT, FMCG or
energy. These funds allow investors to focus on particular sectors that they
believe will outperform the broader market in future. There is higher
volatility in sector funds because, they have no diversification, they only pay
attention to one area of the economy.
8. What is a Dividend Reinvestment Plan (DRIP)?
A Dividend
Reinvestment Plan (DRIP) allows investors to automatically reinvest their cash
dividends into additional shares of the company’s stock, often at no additional
cost and sometimes at a discount. By doing so investors can see growth in their
portfolios by compounding their returns.
9. What is an IRA
(Individual Retirement Account)?
An IRA is a
tax-advantaged investment account designed for retirement savings. There are
different types of IRAs, such as Traditional IRAs, which offer tax-deferred growth,
and Roth IRAs, where contributions are made with after-tax dollars and
qualified withdrawals are tax-free. It is typically a self-managed and
self-funded savings or investment account that can be accumulated for higher
amount of wealth rather than traditional savings or investment account.
10. What is a 401(k) Plan?
A 401(k) is an
employer-sponsored retirement savings plan that allows employees to contribute
a portion of their salary to a tax-advantaged investment account. Employers may
offer matching contributions, and the funds grow tax-deferred until withdrawal
in retirement.
If you have any other questions in your mind
relating to stock market basics or need any clarification, please put your
query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: Previous Topics
𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬: Part-1
𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬: Part-2
𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬: Part-3
𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬: Part-4
𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬: Part-5
