RATIO

Gone are the days when the “slow and the stea­dy” used to win the race, now it’s just the “fast and the furious” who snatches the cream and especially in the case of BANK, you aren’t supposed be just ‘fast and furious’ but more importantly accurate!

SO here i am back with another trick on ratio ...
after reading this post you can solve problems without using you pen or pencil....

so lets start with an example........

question . the present ratio between preeti and asha age is 9:13 respectively. 8 years ago the ratio was 7:11 respectively. 

1.what is preeti present age?
2. preeti age 8 years ago?
3. difference in their ages?
4. asha present age?
5. asha age 8 years ago?

every bank aspirant can solve this question but how many can solve it in 10 seconds?
you can after reading and applying this trick..

lets get to question..
after writing the ratio in this form look for first vertical and then horizontal difference

                                     initial ratio =  9:13
                                      final ratio  =  7:11  ( 8years ago)

if the vertical difference between two ratio are equal , we will take the difference of vertical ratio.
difference of vertical ratio = 2
now this change of 2 comes because of 8 yrs (given in question)

                therefore 2( ratio) = 8
                            so 1 (ratio) = 4

NOW LETS GIVE THE ANSWERS..
1.what is preeti present age?
                       present age ratio of preeti = 9 (given in question) 
                      so 9 X 4 = 36 years

2. preeti age 8 years ago? 
preeti age ratio after 8 years is 7 so 7 X 4 = 28 years

3. difference in their ages? 
difference in ratio of ages is 4 so 4 X 4 = 16 years..

REST TRY YOURSELF.....

 now second case when vertical difference is not same...

eg. the ratio between preeti and asha age is 9:13 respectively. after 10 years the ratio becomes 8:11 respectively.

now      initial ratio  =  9:13
              final ratio  =  8:11
 clearly the difference between vertical ratio is not common ( 9-8=1 but 13-11=2)

therefore first we have make them equal...
to do so take the difference between horizontal initial ratio i.e 4 and multiply it to final ratio...
similarly take the difference from final ratio i.e 3 and multiply it to the initial ratio...
now the new ratio becomes      
                                               initial ratio = 27 : 39
                                               final ratio   = 32 : 44
NOTE-  ONCE you have made this new ratio forget every thing about the previous one... now you have to deal with this new ratio to solve your question.....

now you solve it just like above........

NOTE- for clearing the quant section your grip on ratio, percentage and the ultimate trick should be very good.......

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THE ULTIMATE TRICK PART 2

Do not read this article unless you have read the previous article on the ultimate trick

in this article i will be explaining how to use the trick...
all of us know that in bank exam we will not be given question where simple addition, subtraction is required but a combination of both can be there...

so without wasting any time lets start with an example....

THE example i am taking here are the previous year question from different exams...

1. solve 5124 - 829 + 731 - 435 = ?  ( 4591)

solution by trick = 3 - 1 + 2 - 3 
                          = 5 - 4 = 1 ( ans 4+5+9+1 = 1)



2. solve 10789 +3946 - 2310 -1223 = ? ( 11202)

    solution = 7 + 4 - 6 - 8= -3 (minus3)

now here is a catch in the trick...
whenever your answer in the trick comes negative and the option are positive then subtract only the number from 9...
so for above question 9 - 3 = 6 final answer...... ( 1+1+2+0+2 = 6)



3. 3876 X 285 -17620 = ? + 5487 ( no doubt without trick more then 1 min require to solve this question)
 option are A. 1171355   B. 1081553
lets solve it by trick...

but in hindi there is a saying NAKAL KE LYE BHI AKAL KI JARURAT HOTI HAI...

u need presence of mind for cheating therefore from the next time when you use this trick try to find the last digit of the answer 
rewriting the question with a change   3876 X 285 -17620 - 5487 = ?

As in this question when we multiply 6 X5 we get last digit as 0 (ZERO) and when we further subtract (17620) we again get 0( zero).  and then in the last subtraction ( 5487) we get last digit as 3

now apply the trick and get sure shot answer...
6 X 6 - 7 - 6 = -13 = -4 ( MINUS 4 = 5) remember something?
now look at the options both have sum digit of 5 but option B ends with 3 having sum digit 5 therefore it is the correct answer.....



4. -56 X 29 + 435 = ?
options are A. -706440    B. -1189    C. -1860   

apply the trick ..
      -2 X 2 + 3 = -1 (minus1)  therefore the answer option B (-1189)

now as you can see in this question i have not  subtracted the negative value from 9.... why?
because the option given are already in negative value... if they were in positive then only you have to subtract from 9 as in the earlier case.......




5. (24.2)sqr + ( 46.8) sqr - ( 37.2) sqr = ? + 1542.72    
option are 
 A. 150.68 
 B. 160.28 
 C. 155.42
D. NONE OF THESE

honestly tell me how many candidates are going to attempt this question provided that you do not know this trick??
a look on question tell us how much time its gonna take to solve...
but with this trick... lets see.....

(8 X 8) + (9X9) - (3X3)  = ? + 3  
64 + 0 - 0 =? + 3
1- 3 = ? ( minus2) remember something ....
answer will be none of these ( option are positive so you have to subtract from 9)


NOTE- apart from this the trick can be used in DI section to a great extent.... you have to practice this trick a lot

good luck ....

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SQUARE ROOT

Finding square root of any number..

before starting you have to remember this square chart..... look for the last digit of the square....
1 = 1
2 = 4
3 = 9
4 = 6 (16)
5 = 5 (25)
6 = 6 (36)
7 = 9 (49)
8 = 4 (64)
9 = 1 (81)

now all we have have to do is to apply the rule as applied in finding the cube roots CLICK HERE TO KNOW

lets take an example..
eg.  find square root of 3481

step1.  divide number in group of two starting from the back .....   34   and 81
 
step2.  look at the it shows that 1 comes for 9 and 1 both in the last. therefore either root will end with 1 or 9

step3. now we are left with 34 ... square of 5 is 25 which is less than 34 but square of 6 is 36 which is more ...... therefore our answer sud be either 51 or 59...

Now to get the correct answer you must know how to find square of any number ending with 5...
if not then here it is...
square of 25= 625 ( write 25 at the and then multiply the number left with the next higher number)
                   = 2 X 3 ( higher number)= 6
another example 65= 4225
                              = 6 X 7 ( higher number) 42 and write 25 after this= 4225

Lets get back to our chart once again.. you will see that last number repeats itself after crossing the square of 5....

1 and 9 = 1
2 and 8 = 4
3 and 7 = 9
4 and 6 = 6

now square root of 3481 can either be 51 or 59 as explained above...
to know the correct answer simply find the square of 55 ( lies in between 51 and 59) = 3025....
now as  3481 is greater than 3025 therefore 59 is the square root of 3481.....



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MACHINE INPUT- PART 2

In this article we will discuss machine input problems where 2 elements are shifted in one step. To understand this part concept of first part should be clear. ( first part )

The basic concept is similar to the first part ( CLICK HERE ).

How to find that the given machine input is based on 2 element shifting?
look at the last step of given steps.. the arrangement will be in the form of all alphabet  and after that all numbers following 1:1 ratio.
if alphabets are on one side and numbers on the other side then here 2 elements are shifted at a time.

How to solve the question?
1. look at the first two steps to determine the pattern of shifting. 


WHY 1 and 2 step are very necessary to examine?

first to steps explain the pattern of shifting...


What is this pattern of shifting?

 here we have to shift 2 elements ryt?...  alphabets and numbers can be arranged in increasing or decreasing order....  but that is not the main concern here......
the main concern is wheather they are moving from left to right or right to left in the steps... examining this is more important......
confused about this part??????? lets take an example..

 QUESTION-  L , 18 , A , 12 , Q  , 93  , U  , 32  , T  , 46 , W
STEP 1.          A , L , 18 ,  Q , 93  , U  , 32 ,  T   , 46 , W , 12
STEP 2.          L , A ,  Q , 93  , U  , 32 ,  T  , 46  , W , 12 , 18
STEP 3.         Q ,  L ,  A , 93  , U  , T  ,  46 , W  , 12 , 18 , 32
STEP 4.         T ,  Q ,  L ,  A  , 93  , U ,  W , 12  , 18 , 32 , 46
STEP 5.         U ,  T ,  Q ,  L  , A   , W , 12 , 18  , 32 , 46 , 93
STEP 6.        W , U ,  T ,  Q  ,  L    , A , 12 , 18  , 32 , 46 , 93

NOW step one shows that the alphabets are arranged on the left side where as numbers on the right.....

but steps 2 explains that alphabets are arranged in increasing order from LEFT TO RIGHT ( A is being shifted to right side and L comes in its place and so on....)

also the numbers are arranged in increasing order but FROM RIGHT TO LEFT ( 12 is being shifted to the left when 18 comes in 2nd step and so on...)

detecting this part is very important.... after this any question based on this machine input is NOTHING... RYT?

NOTE- marking of the sequence based on this input can be done as explained in the previous post but keep in mind that here you have to mark 2 elements at one time.......

QUESTION - answer the following question based on above machine input...
sequence is- U , 84 , C , 77 , Q , 86 , 13 , B , 11 , S

Q1. what is the 2nd step?
ANS-   C , B , U , 84 , 77 , Q , 86 , S , 11 , 13 

Q2. what is last but one step? ( most candidate gets confused about this statement.. it simply means 2nd last statement)

ANS-   S , Q , C , B , U , 86 , 11 , 13 , 77 , 84


NOTE- all of you have seen one option as CAN NOT BE DETERMINE .....  

when this option is true?

consider the above machine input ( given as example)
now the question is.. base on the above input if the step 2. is A , G , D,  F, G ,D ,1  , 2 , 34 , 4 then find step 1......... if such a question comes then the answer will always be CANT BE DETERMINE..
bur step 3 can be determine...
only the step prior to the given step cant be determine....

SUGGESTIONS ARE WELCOME..

 
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MACHINE INPUT

MACHINE INPUT

I have come across many candidates having problem with machine input question. so here i am providing a very simple trick for solving the same.....
but before going to trick lets understand what are different series that comes in question paper..
1. alphabetical series.
2. numerical series
3. mixed series
now gone are the days when in bank exam you will given alphabetical and numerical series. now mixed series are given mostly. therefore i will be explaining the mixed series as of now...

Mixed series is prepared in 3 ways...
1. alternate              =one 1 element is shifted/changed/ replaced or whatever you want to say that process.
2. alpha- number     = 2 elements are shifted at one time
3. alpha- no. -alpha =  3 elements at a time.

in this article i will be taking first case of mixed series..

first case ALTERNATE arrangement ( 1 element)

QUESTION=   G , 93 , Q  , 46 , 84  , N ,  F , 31
STEP 1.       =   31, G ,  93 ,  Q , 46  ,  84, N , F
STEP 2.       =   31 , Q,  G  ,  93 , 46 , 84 , N , F
STEP 3.       =   31 , Q , 46 ,  G ,  93 , 84 , N , F
STEP 4        =   31 , Q , 46 ,  N ,  G  , 93 , 84 , F
STEP 5        =   31 , Q , 46 ,  N ,  84 , G  , 93 , F

for solving any machine input first look at the last step. last step clearly shows alternate arrangement of the elements.

as the arrangement is alternate,it implies that only one element is shifted  at a time.
now come to the first and 2nd step to find which element was shifted.

once you know this much , you can solve any question based on this input.

the next fault i have seen in candidate is that they start writing the whole input step of the given question based on above given input...
this approach is very time consuming...

by studying the steps we can deduce following conclusions..
1. it is an alternate series.
2. first number is arranged and they are arranged in increasing order.
3. alphabets are arranged in decreasing order.

if you know this then there is no need to write any sequence....
simply mark the step number on the top of the given input just like this...

Now if question is what is the 1st step?
you can directly write the answer from your question ( look for red mark in pic. it has 1 written above 39)

as i have marked element 39 as 1 therefore it sud come on the first place so the answer is..
9,S.H,39,67,A,M,86,59

what is fourth step?
39,S,59,M,67,H,A,86 ( directly from the question... look at last line in the pic)

NOTE- 2 element shifting will be explained in the next article...

PART 2

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THE ULTIMATE TRICK

friends today i am giving to the the ultimate weapon for quantitative section but you have to practice a loy when, where and how this trick can be used.. .
the trick is very very simple to understand..
NOTE- always consider the value of 9 as 0 (zero).

here it goes for addition..
Q. 879 +  6583  = ?   ( 7462)

now every body can solve this question but in bank exam its not only about solving the question, its about solving it in the minimum possible time...

step.  1. simply add the DIGIT in the question till they convert into single digit....

     8+7+9   +  6+5+8+3 =

       15 ( 9=0)   +  22

          6 + 4 = 10  or 1

now add all digit of the answer ( 7462= 7+4+6+2= 19 = 10 or 1), it will always be similar to what you have got from the question........

i have taken only 2 numbers in the example you can apply this trick for N numbers ....

so simply mark the OPTION in the exam by calculating the digits. the beauty of this trick is that it applies to subtraction and multiplication also...

Eg.  6587 -  879 = 5708

                                 8 -  6     =    2 ( 20= 2+0= 2)

Eg. multiply  5674 X 345 =  if u will solve this by my earlier trick , then also its going to take some time but now it can be solved in fraction of seconds...

5 + 6+7+4   X  3+4+5 =   1957530  ( add it u will get 3 as end result)

             4     X 3  =  12 0r 3

The trick can also be applied in combination of addition- subtraction and multiply divide..which i will be telling in next article and trick for solving syllogism.....

NOTE- this trick is very simple therefore all you have to do is know when, where and how to implement it.
 this trick can be used in almost all question of math section in bank exam and by now you have got an idea how much time you can save from this trick...
good luck.......
do give your inputs

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5 QUESTION IN 1 MINUTE....

Dear candidates in bank po all of us have seen this type of question-----

there are total 5 question in quant section of bank exam...
usual time for solving the question is 5-7 minutes but with the help of this trick all 5 question can be solved in max. 1 minute

TRICK-----
            
     SIGN GIVEN IN QUES                          SIGN OF FACTOR WHICH COMES IN THE ANSWER
          1. both sign are positive ( +)                                      both sign will be negative
                                   
          2.   first sign negative but second is positive             both will be positive

          3. first positive and second negative                          bigger factor with negative and smaller factor                                                                                                 with positive sign

          4. both negative                                                           bigger factor positive and smaller factor                                                                                                         negative


now lets take the first example given in the pic.. you can solve it in traditional way..
here m solving by TRICK...........

1.  factors of M will be 7 and 2. ( no need to calculate it)
2. question has first negative and second positive sign.
3. therefore answer will have positive sign for both the question as told above.
4. second part of same question has N with both negative sign and factors are 2 and 1
5. therefore, answer will have 2 as positive sign ( its bigger factor) and 1 will have negative sign.

NOW u can see that if u remember the above table then this question can be solved verbally...
no need to write nythng... just look at the question and give answer..
hope it helps...
if you want tricks for any particular topic feel free to mention here...

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MATHS TRICK

3 DIGIT MULTIPLY 

FINAL PART MULTIPLY TRICK 

CUBE ROOTS IN 5 SECONDS

compound interest in 20 seconds  

5 QESTION IN 1 MINUTE 

THE ULTIMATE TRICK 

MACHINE INPUT PART 1

MACHINE INPUT PART 2 

SQUARE ROOTS

ULTIMATE TRICK PART 2 

RATIO 

SYLLOGS 

PERCENTAGE 1 

DI and PERCENTAGE 

OTHER BANKING TOPICS 

FINAL PART of 3 DIGIT MULTIPLICATION

FOR FIRST PART CLICK HERE 

CONTINUE... 
TRICK NUMBER 2.  FOR SQUARING 3 DIGITS NUMBERS

USE THE FORMULA....

TRICK NUMBER 3-- for multiplying any 3 digit number..

here you can convert any number into simpler form ask explained above.
the advantage of this trick is that u can use it for 3, 4,5 or any digit number.

TRICK NO. 1 AND 3 ARE MY FAVORITE....

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3 DIGIT MULTIPLICATION TRICKS

three digit multiplication trick.......... i will explain 3 ways for multiplication of 3 digit number...

TRICK NUMBER 1.   for numbers between 100 and 199

example....              104 x 108
steps.. 1. multlply the last two digit ie 04 and 08= 32
           2. add last two digit of both numbers and than multiply with 1..... i.e 04+ 08= 12 x1 = 12
           3. write 1 as it is....
now the answer of this question is 11232......
see the pic for detail...

NOTE-  (at * in the pic.) u can see that in base 200, the number is added and then multiplied by 2 because i have taken base 200. if you take base 300 then u have to multiply it by 3 and so on.....
1.the trick is best used when you know the multiplication of last two digit.
2. if last two digits have zero (0), then it is the best trick.
3. this method can't be used when numbers are from different base like 202 x 303.

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FOR FINAL PART CLICK HERE 

 
 
                              

CUBE ROOT OF PERFECT CUBE...

No matter how big a number is.... if it is a perfect cube then you can tell the cube root in 5 seconds......

but you have to remember this chart and cubes from 1 to 9......

cube of 1= 1 ( last digit)
cube of 2=  8 (last digit)
cube of 3=  7 ( 27 but last digit is 7)
cube of 4= 4 ( 64 but last digit is 4 )
cube of 5 = 5 ( 125 last digit is 5)
cube of 6 = 6 ( 256 but last digit is 6)
cube of 7 = 3 ( 343 but last digit is 3)
cube of 8 =  2 ( 512 but last digit is 2)
cube of 9 = 9 ( 729)
as you can i have emphasised on the last digit of every number....
there is nothing to learn in this as you can see that all the have their identity as the cube's last digit except 2, 3, 7 and 8.
if you remember this then volla ......

example. 681472 is a perfect cube..
      and its cube root is 88
explanation 
1. divide the number in group of three starting from the back..
      681    472
2. now as the end part has 2 as last digit therefore cube root's last digit must be 8. ( as from the chart)
3. now 681 is more than 512 ( cube of 8) but less than 729 ( cube of 9). therefore the cube root for this no. must lies in 80s....
4. now we know the first and the last digit of our cube root i.e 88


 example--- consider this 778688

 dividing in groups of 3...     778     688
                       as 778 is more than 729( cube of 9)  and  688 has last digit as 8 , which is the last digit of cube of 2....
therefore the given number is the perfect cube of 92...

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COMPOUND INTEREST IN 20 SECONDS

how to find COMPOUND INTEREST  FOR 2 YEARS IN MOST SIMPLE WAY...

TRICK FOR 2 YEARS COMPOUNDED ANNUALLY...

suppose u have to find C.I on Rs. 19000 for 2 years at 6% annually..

                          6x2 . 6 square

                          12.36

now use the this formula      Principal  x 12.36 / 100


the answer is Rs.2348.4


TRICK FOR THREE (3) YEARS ANNUALLY..

formula --- 

                     6 x 3 .  6 x 6 x 3.  6 x 6 x 6
                     18 /108 /  216
                      19.1016 .... ( how this comes..)
explanation -  
                      18 /108 /  216
                      18 / 108+2 / 16
                       18+1 / 10 / 16 
                      19.1016


NOTE--  there is increase of approx.  4 after 10% in 3 years...
you can find the answer using the traditional formula also but this method will reduce your time consumption to great extent....  

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SHARES AND STOCKS.. explained

lets assume that i have a company ( Reliance mobile) and my company has issued 1000 shares of Rs. 100 each.
you purchased 50 shares of my company by paying Rs. 5000.

this means that you own 50 shares of my company and “stock of Rs.5000” in this company.

• In short, when we talk about shares we refer to the number of papers held by us.
• When we talk about stocks, we refer to the money value of those papers held by us.
• But ultimately, both shares and stocks suggest the same thing: “Equity”. CLICK HERE 

Different type of shares

1. Initial public offering- is when any company makes either a fresh issue of securities for the first time. here first time is the most important thing.
2. Rights issue- You launch IPO, get funds from the public, and started a company
After some years you want more money to expand the company, then you have issue additional shares. But under the companies act, you can issue additional shares to the existing shareholders only. This is called “rights issue of shares”
Here, you give notice to the existing shareholders, offer them to buy your new-shares, you cannot offer any other “outsider” to purchase the shares.     


 NOTE-------- If you do not want “rights issue of shares”, you have to hold a general meeting of shareholders and pass a resolution that “company does not need to offer new shares to the existing shareholders, and these new shares are available for anybody to purchase”

THEN WHAT IS THE IMPORTANCE OF RIGHT ISSUE???

1. The direct use of right issue is generate more money for the business.
2. It is also used to reduce debt to equity ratio.

how to reduce debt to equity ratio?????

i have told earlier that bonds have rating given by  credit rating agency.  CLICK HERE
credit rating agency, before giving any rating looks into the debt to equity ratio.
the company with high  debt to equity ratio means more debt= high interest = lower rating.
therefore its very difficult for such companies to issue shares because of lower rating...

so how can they improve their debt to equity ratio???????????

Simple: offer new equity (shares) to existing shareholders @ a discounted rate. (=Rights issues of shares). You’ve offer it at a discounted rate, else no one would buy it.
example
someone already have 10 shares of my company, if he buy 10 more shares from me (1:1), Each of these shares will have “Worth Rs.100” printed on it but I’ll give it to him for Rs.50 only.
What good does it do to me?  in the legal record, for the calculation of Debt Vs Equity =they’ll calculate using Rs.100 face value. Thus my Debt:Equity ratio will go down, and I’ll look good when credit rating agency. 

 ARTICLE ARCHIVES CLICK HERE

BASEL NORMS...

Friends let me keep this very simple this article gives only the basic idea related to BASEL NORMS.
STRICTLY SPEAKING this article does not deal into extreme details such as exact numbers of Tier 1 and Tier 2, credit valuation adjustment or Net Stable Funding Ratio.

Why Do we Need BASEL norms?

consider a hypothetical  case of punjab national bank...

• PNB gave Rs.2000 as loan to some airline company.
• PNB gave loan of Rs.5000 crores to Telecom players and their license is cancelled ( as in case of 2G)
• What if  those telecom players run away without paying back the loan and airline goes broke?
• Someone spread rumors that PNB itself is going to collapse
  (as it happened in ICICI, Ahmedabad in 2003 in real-life).
• Lakhs of middleclass account holders will run to the nearest PNB branch to take out their deposited money .
• Overnight entire banking sector will collapse.

NOW COMES THE BASEL AS A BACK UP PLAN FOR BANKS......

• It provides detailed guidelines about how much money should a bank keep aside, to deal with such financial crisis.
• Even if loan-takers run away without paying, Bank should have money to give back to deposit holders.
• More risk the bank takes, more money it has to keep aside in reserve to counter the risk.

How basel protects the deposited amount?

WARNING- THE PROVIDED INFORMATION IS TECHNICALLY INCORRECT. IT IS JUST FOR UNDERSTANDING THE WORKING MECHANISM....

If a Bank loans 1 crore rupee to a company with “B” Credit Rating, it must keep capital worth 20 lakhs aside for crisis and out of that 20 lakhs, Rs. 15 lakhs must in form of Tier 1 Capital and 5 lakhs can be in form of Tier 2.

Tier 1
Easily liquid. For example

• currency notes and coins in the bank value
• Stocks held by Bank, can be easily sold off in share-market.

Tier 2

• Not easily Liquid, for example the building or land owned by the bank.

Already existing complex Monetary policies of Central Banks in each country (example RBI’s CRR, SLR, Repo etc.) make it difficult to uniformly implement BASEL norms.

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BONDS and DEBENTURES

Bonds and debenture serve the common purpose of debt. 
(for bonds click here)
Overall, the principle behind Bonds and Debentures is same: They offer fixed interest rate + principal repaid at the specified date.
Ok then what’s the difference?

first difference: Bonds r issued by a Government and thats the reason risk of default is very less. Other side, Debentures r issued by companies where the risk of default is very high. 

Second difference: the different rates of Stamp Duty applied on each of them. 

Third difference:  The interest rate offered by Debenture is (usually) higher than Government Bonds. Because Government more likely to repay = no need to seduce customers with higher interest rate.

Based on ‘convertibility’ the Debentures are of two types

1.Convertible debentures	They can be converted into shares of the company on the expiry of xyz date.
2.Non-Convertible Debentures	They cannot be converted into shares.

• When debenture is converted into shares, it means debt holder becomes an equity holder.
• Both debt vs equity have their own advantages and disadvantages. I’ve discussed it in the earlier article ( for bonds click here).

ARTICLE ARCHIVES CLICK HERE 

Bonds vs Shares, Debt vs Equity,Gilt Edged securities: Meaning, Explained

suppose i want to start a factory. what i need for same?
land, labour and loads of money.......
now how can i arrange the money?
Now, There are two ways to arrange money for starting a company or to expand a company. First is Debt and Second Equity.

DEBT- BOND

as the word suggests it is borrowed money. one can borrow money from bank, friends, relatives...

• I write on a piece of paper: “To whoever pays me Rs.1000, I’ll pay annual 10% interest rate (Rs.100). And after 5 years, I’ll also repay the principle amount Rs.1000. No “ifs” and “buts”.
• This is one type of security paper. We call it “BOND”.
• IF you hold my bonds, I’m liable to pay you money no matter what happens. Whether my company actually makes profit or not. I have to keep paying fixed money to you, every year. 

• there are credit rating companies like CRISIL, S&P, Moody’s etc. They’ll give credit ratings to a bond. (i.e. Am I capable enough to actually pay you?).
• Based on that, they give ratings example AA,A, BBB, BB,C,D etc.

 what are junk bonds?????

if bonds have rating below C  OR  D then it will not attract buyers. so in this case issuer will attract buyers by giving high rate of interest say 25%...
that why it is also called as “High Yield Bond”, because you’re getting higher profit.

what  is Gilt edged security?

• Government also needs finance- at times when tax collection is low and they need some temporary funds.
• They issues treasury bonds. RBI sells these treasury bonds on Government’s behalf.
• Government bonds have higher credit ratings (AA). So, they don’t need to seduce you, they’ll offer very low rate, say 4%.
• Similarly, well known companies with high credit ratings (AA) also issue bonds but pay low  rates.
• If you don’t like to take risks, you’ll invest in such bonds. These are called ‘gilt-edged securities’.

what is a bearer bond?

Bearer bonds are same as regular bonds, but they don’t have “Holder’s Name” on them. These bearer bonds have coupons attached with them. So, if you don’t want to withdraw the whole money, you can cut a few coupons and sell them to a broker to withdraw partial amount.

No one can keep a track of who withdrew the money, who’s buying, who’s selling Because there are no “names”, addresses or records. Although, in real life, it is hard to find Bearer bonds. Because most of the bonds now, exist in Electronic (DEMAT) format and you’ve to give your pan card number (or other similar personal information in foreign countries) to buy or sell  bonds/shares or any similar security papers.

okay enough about borrowing money. lets talk about giving a partenership ( EQUITY)...

EQUITY- I take money from you and in return I offer you partnership. This is called Equity.

• Assuming that I need 1 crore rupees to start my company and I’ve 30 lakhs in my savings. So, I write on a piece of paper: “ I’ll give 0.0001% ownership of my company to whoever gives me Rs.1000”.
• This is again a type of ‘security-paper’. But since I’m sharing a part of ownership with you, in crude terms, we’ll call it “Share”.
• Then I print 10,000 such papers. What’s the value of these papers?
• And since I already have Rs.30 lakhs, I can purchase 3000 shares. (because 3000 papers x Rs. 1000 each = 30 lakhs)
• So out of the Total 10,000 shares that I printed, I will own 3,000 shares, so percentage wise I own 30% of this company’s equity.

Debt vs Equity : good and Bad things

• In real life, companies don’t rely on single source to finance their adventure. They’ll arrange part of the cash from Debt (Borrowing) and part of the cash by issuing IPOs (Equity).
• Each has its own advantage and disadvantage. Let’s check

Good things: bonds vs shares

Debt (Bond)	Equity (IPO/Shares)
I have complete ownership and control over the company. I’m accountable to no body. I don’t have to ‘share’ my profit with anyone. I can claim income tax deduction for paying the loan. It require less paperwork and time to borrow from bank / friend than via sharemarket (SEBI permission, board of directors etc)	If the company makes loss, I don’t have to share any money with the shareholder, just like Kingfisher. So there is no ‘regular’ interest payment, as we do in the loan. Meaning I’ve less tension compared to bank loan/ bonds.

Bad things: bonds vs shares

Debt (Bond)	Equity (IPO/Shares)
Even if I don’t make profit, I’ve to pay interest rate, because basically this is a ‘loan’ just like home loan or car loan. Whether you earn or not, you’ve to pay the EMI. I may have to mortgage something (machinery, building) to get the loan. So in case I default on the loan, the bank/financer can take it away from me.	I don’t get complete ownership and control over the company. I’ve to constitute a board of directors, hold general meetings of shareholders, I’m accountable to them. The board of directors can throw me out of CEO job, if I donot deliver results. It requires heavy paperwork and time to initiate IPO, sharemarket thing (SEBI permission, underwriting etc)

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Difference between FII and FDI

In crude terms:

• FII= when foreign-players invest in shares and stockmarket. CLICK HERE FOR FII

• FDI= when foreign companies invest in India for manufacturing, production, sales etc. by themselves (100%) or by partnering with some Indian firms.

1. FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily.
2. Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability in general.
3. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor

4. While the FDI flows into the primary market, the FII flows into secondary market. 

5. While FIIs are short-term investments, the FDI’s are long term.

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FII and QFI

Foreign institutional investor- 

any foreign player can invest money in stock market. The foreigners have to open a sub account with already registered FII ( eg. Maxwell Assets Manager, BNP PARIBAS, MORGAN STANLEY) with the SEBI.

invest a minimum net worth of $50 million (about Rs. 260 crore) to get a license from SEBI.

note- investment under FII are very vulnerable as a slight change in the market result in the out flow of investment from the country and datsy it is called as HOT MONEY- was responsible for 1997 Asian financial crisis.

QUALIFIED FOREIGN INVESTORS

It means a foreign individual, group or foreign firm can directly invest in Indian stock-market like any normal Indian citizen, without requiring the sub-account with FII. This should bring in some more investors, who’re interested in investing in India but feel turned off because of this sub-account and strict High Net-worth rules.

Requirements for QFI

1. DEMAT account
2.trade account with a depository participants.

what is demat account?

When you purchase shares, you don’t get paper certificates, but those shares get electronically transferred to your demat account in the Depositary. Meaning your shares are not in physical paper (material) form but electronic format. De-materializied= De-mat. No fear of theft, misplacement, delay in transfer etc.

what is depository?

A Depository is like a bank locker where securities (shares) are held in electronic (dematerialised) form.
In India, there are only two Depositories -National Securities Depositories Limited (NSDL) and Central Depository Services Limited (CDSL).

What is Depository Participants (DP)?

DP’s are like bank branches where shares in physical (paper) form need are deposited for converting them in electronic (demat) form and email it to the Depositary.
Examples of Depository Participants (DP) :ICICI, SBI, HDFC etc. You’ve to open a Demat Account with any one DP.

 important points

• QFI is an individual, group or association resident in a foreign country that adheres to anti-money laundering and anti-terrorist financing guidelines as defined by the financial action task force (FATF), a multi-lateral body.
• The QFIs do not include FII/sub-accounts.
• QFIs can own up to 5% of Indian companies while their cumulative investments are capped at 10%. These limits are over and above the FII and NRI investment ceilings prescribed under the portfolio investment route for foreign investment in India
• The QFIs shall be allowed to invest through the SEBI-registered Qualified Depository Participant (DP), with the QFI required to open only one demat account and a trading account with any of the qualified DP and make purchase and sale of equities (shares) through that DP only.

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