Securities and Investment Basics
Securities and investment basics connects asset classes, risk and return. The exam tests diversification, mutual funds, bonds and investor protection rather than stock-picking.
Core concepts
- Equity offers ownership and higher uncertainty; debt offers fixed income but carries credit and interest-rate risk.
- Diversification spreads risk across assets, sectors and time horizons.
- A mutual fund pools money; NAV is per-unit value; expense ratio reduces returns.
- SIP invests a fixed amount regularly and averages purchase cost.
- Bonds pay coupons and repay principal at maturity; falling interest rates usually raise bond prices.
- SEBI SCORES is the investor complaint platform.
Worked example
An investor puts ₹5,000 a month in an equity SIP for 10 years and assumes a 12% annual return. The future value factor for 120 monthly periods at 1% per month is about 230.04, so the corpus is approximately ₹5,000 × 230.04 = ₹11.5 lakh. Reasoning: this assumes returns are reinvested and does not guarantee the 12% rate.
Traps that cost marks
- Chasing past returns without checking risk and expense ratio.
- Treating penny stocks as low-risk because the price is low.
- Following unregistered investment advisers.
- Ignoring the difference between direct and regular mutual fund plans.