Investing Insights: Weekly Q&A for Stock Market Newbies - Part – 47

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 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 47: Basic Stock Market Concept

 

What is Price Band?

When a company offers its shares in an IPO (initial public offering), it fixes a price range. This price range is called price band. 

Suppose, the price band of an IPO is 150 to 180.This means during the IPO, investors can bid for subscription at any price between this price range of 150 to 180.

 

What is Ex- Dividend Date?

Ex-Dividend date is the last working day before the record date on the announcement by a company to offer a dividend to its share holders.

When a company makes its final list of eligible shareholders for dividend payments that date is called the record date. 

If anyone buys a stock on or after the ex-dividend date, he or she will not be entitled to get its dividend payment.

Example: If XYZ company sets the record date as 16th June, which is Monday, the ex-dividend date will be 13th June (Friday) as 13th is the last working day. If a company sets its record date as 18th June, which is Wednesday, the Ex-Dividend date will be 17th June, (Tuesday).

 

What is Cash Flow Statement?

A Cash-flow Statement is an important indicator showing the quantity of cash coming in and going out of a company.

It's an important document from which we can have a clear idea of how much is the net ‘increase’ or ‘decrease’ in the cash of a company.

We can get clear idea of a company’s capability to pay its debt and keep its operations running smoothly.

Example: Suppose, you compare cash flow statements of two companies.

One of the two companies has a higher amount of cash in hand (cash, bank balance).

It is likely that this company is more capable of dealing with its debt and unexpected expenses better than the other company.

One can find the ‘cash flow statement’ in the quarterly or annual results of companies.

 

What is the Production Capacity of a Company?

Production capacity of a company means the maximum capacity of goods or products the company can produce.

It shows the potential capability of a company in maintaining its core production line in parity with the market demand. It shows the highest possible output. 

The higher capacity means the company has greater potential to produce its products. It also indicates the company has the sufficient capacity to spend money on its production line. 

 

What is Sovereign Gold Bond or SGB?

Sovereign Gold Bond is an investment option to invest in gold without having physical form of gold. 

Through an SGB, you can invest in gold digitally  issued by the Reserve Bank of India on behalf of the Government. RBI issues SGV every year. 

SGBs generally have a lock-in period of 5 years, which means if you invest in gold through SGV, you can't sell it before 5 years of investing.

 

What is Repo Rate?

The interest rate at which RBI gives loans to all banks is called Repo Rate. 

When all the banks like SBI, HDFC Bank, ICICI Bank, etc. need money to maintain their cash flows intact require to repay their debts, they borrow money from the RBI. 

The rate at which these borrowings are charged by RBI is called repo rate. 

RBI uses this tool to control inflation arises in the economy. It keeps changing time the repo rate in accordance with the inflation rate in the country. 

If the repo rate is high, banks also increase the interest rates of the loans they give to the public (home loan, car loan, etc.)

 

What is Forex Reserves?

The kind of assets kept by RBI in the form of currencies are called Forex Or Foreign Exchange reserves.

Example: Cash kept in US dollars, Euros, Or in any foreign currencies are foreign reserves that the RBI holds. It can include another country's bonds such as US Treasury bonds. The central bank of a country wants to use this reserve to make sure their exchange rates are stable. 

Using such reserves, a country's central bank (like India's RBI) can ensure that their exchange rate (USD/INR) remains stable.

 

What is the Full from of REITs?

REITS' full form is Real Estate Investment Trusts are those companies who earn from owning, renting, selling real estate assets. 

REITs collect money from public and private investors to buy property, and then rent it out to earn money.

It is obligatory to pay their shareholders 90 % of their taxable income as dividends.  

They can manage all kinds of properties such as hospitals, residential, manufacturing machineries etc.

There are different types of REITs based on their public shareholding patterns. 

 

What is MPC?

MPC stands for Monetary Policy Committee. It is formed by RBI consisting of 6 persons to decide over repo rates. 

It analyzes the economy and the inflation, to decide if interest rates have to be changed or not.

Controlling over interest rates is one way through which RBI tries to adjust various imbalances of the economy of the country.

MPC generally meets at least 4 times in a financial year to look after the interest rates.

 

What is FPO? 

FPO or Follow on Public Offering is the issue of shares by a company which is already listed in the stock market to raise additional money to function the company. 

FPO is done in two ways:

First, by issuing new shares to the public. This increases the company’s total number of shares in the market, which naturally brings down its share price. 

Secondly, by issuing shares of private stakeholders in the company to the public. It does not affect the company’s total number of shares in the market, and is mainly done to change the ownership pattern in the company. 


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.

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