NCFM Financial Markets (Beginners) cheat sheet

Equity shares represent residual ownership: holders rank last in claims on income and assets, after lenders and preference shareholders.

NSE wholesale debt and equity cash segments settle on T+1; the exchange guarantees settlement through its clearing corporation.

A market order executes immediately at the best available price; a limit order executes only at the stated price or better.

Circuit limits on individual scrips are commonly 2%, 5%, 10%, or 20%; a scrip hitting its band may enter a cooling period.

Price band, tick size (Re 0.01 for most scrips), and lot size are set per security by the exchange.

Insider trading is prohibited under SEBI (Prohibition of Insider Trading) Regulations; UPSI must remain confidential.

A rights issue gives existing holders a pre-emptive right, usually at a discount; a bonus issue is free and dilutes per-share value.

Delivery versus payment means securities move only against funds; short delivery is closed out by the clearing corporation.

An index is a weighted average of selected securities; weights may be free-float market capitalisation, full market cap, or price based.

Nifty 50 uses free-float market capitalisation weights and is reviewed periodically by the Index Maintenance Sub-Committee.

Free-float excludes promoter holdings, government holdings, and strategic stakes that are not freely tradable.

Index divisor adjusts for corporate actions such as splits, bonus issues, and constituent changes so the index level stays continuous.

Index level = (current aggregate free-float market cap / base market cap) x base index value.

A stock's weight in the index = its free-float market cap divided by total index free-float market cap.

Sectoral indices track a single industry; broad indices track the overall market and serve as benchmarks for funds.

Index derivatives settle in cash against the underlying index; the lot size is fixed by the exchange per contract.

Emerge is NSE's dedicated platform for small and medium enterprises; BSE's equivalent platform is BSE SME.

An SME issuer must be a company incorporated in India with at least three years of operations and positive net worth in the latest year.

Post-issue paid-up capital limits and net worth thresholds are prescribed by SEBI and the exchange for SME eligibility.

SME issues use a 100% book-building or fixed-price process and must have a market maker for at least three years post-listing.

Minimum application size and lot are set per issue; retail participation is allowed but subject to the stated lot.

Trading on Emerge occurs in the normal equity segment with price bands; liquidity is typically lower than main-board scrips.

Migration to the main board requires meeting SEBI/NSE criteria such as minimum paid-up capital, profitability, and shareholder count.

SME issuers must file a simplified offer document with the exchange and obtain in-principle approval before opening the issue.

NAV = (total assets minus total liabilities) / number of units outstanding, computed at end-of-day prices.

Open-ended schemes allow continuous purchase and redemption at NAV; closed-ended schemes have a fixed unit count and a fixed maturity.

SEBI categorises equity, debt, hybrid, and solution-oriented schemes; each category has a defined asset allocation rule.

Total expense ratio (TER) is capped by SEBI by scheme category and is disclosed daily on the AMC website.

Exit load is a redemption charge paid back into the scheme; it is disclosed in the Scheme Information Document.

Direct plans have no distributor commission and therefore a lower TER than regular plans of the same scheme.

SIP purchases units at the applicable NAV on the SIP date; a systematic withdrawal plan redeems units periodically.

A fund's benchmark and riskometer level are stated in the Scheme Information Document and Key Information Memorandum.

A futures contract obligates both parties; an option gives the buyer a right, and the seller an obligation, on payment of premium.

Payoff for a long futures position = spot at expiry minus entry price, multiplied by lot size.

Call option buyer's payoff = max(0, spot at expiry minus strike) minus premium paid; put buyer's payoff = max(0, strike minus spot) minus premium.

Intrinsic value of a call = max(0, spot minus strike); of a put = max(0, strike minus spot); time value = premium minus intrinsic value.

Contracts are cash-settled in India; the exchange prescribes lot size, strike intervals, and expiry day per underlying.

Initial margin plus exposure margin must be maintained; mark-to-market losses are settled daily in cash.

Open interest is the number of outstanding contracts; a rise in price with rising OI is read as a long build-up.

Greeks: delta measures change in premium per unit change in spot; theta measures time decay; vega measures volatility sensitivity.

NSE's currency derivatives segment trades USD/INR, EUR/INR, GBP/INR, and JPY/INR futures and options.

USD/INR contracts are quoted as rupees per US dollar; JPY/INR is quoted per 100 yen.

Contract size for USD/INR futures is 1,000 USD; EUR/INR, GBP/INR lots are 1,000 units and JPY/INR is 100,000 yen.

Contracts expire on the last business day of the month, two working days before the last working day of the month.

Residents may take positions in currency derivatives only for hedging an underlying exposure; positions must be supported by a declaration.

A forward contract locks an exchange rate for a future date; a futures contract is exchange-traded, standardised, and margined.

A hedger who will receive dollars sells USD/INR futures; one who must pay dollars buys USD/INR futures.

Final settlement is in rupees based on the RBI reference rate on the expiry date.

Commodity futures are exchange-traded agreements to buy or sell a specified quantity and grade at a future date.

NSE's commodity derivatives segment trades non-agricultural commodities; agricultural commodities trade on other recognised exchanges.

Contract specifications state trading unit, quotation, tick size, delivery grade, and delivery centres.

A contango market has futures prices above spot; backwardation has futures prices below spot.

Hedging transfers price risk: a producer fearing a price fall sells futures; a consumer fearing a rise buys futures.

Warehouse receipts and exchange-approved vaults underpin physical delivery; delivery period and penalty are specified per contract.

Margins include initial margin, exposure margin, and additional volatility margin; daily MTM is settled in cash.

Open interest and volume indicate liquidity; illiquid contracts carry wider bid-ask spreads and higher impact cost.

Interest rate futures are standardised contracts on a debt instrument; in India the underlying is a notional 6.79% or 7.26% Government of India bond.

Contract size is Rs 2 lakh face value; the contract is quoted as a price per Rs 100 face value.

A rise in interest rates lowers bond prices; a fall in rates raises bond prices.

Duration measures a bond's price sensitivity to yield changes; modified duration approximates percentage price change per 1% yield change.

Interest rate swaps exchange fixed for floating interest payments on a notional principal; OIS is the standard rupee swap.

A borrower expecting rates to rise can sell interest rate futures to offset higher future interest cost.

The cheapest-to-deliver bond determines the delivery price in a bond futures contract.

Interest rate futures are cash-settled in India, with settlement based on the exchange's reference yield.

Bond price is the present value of future coupons and principal, discounted at the required yield.

Yield to maturity is the single discount rate equating the bond's cash flows to its price.

Coupon rate is fixed on face value; current yield = annual coupon / market price.

Bond prices and yields move inversely; the relationship is convex, so price rises more for a yield fall than it falls for an equal yield rise.

Credit rating grades, from AAA downward, indicate default risk; a downgrade widens the credit spread over the benchmark.

G-secs carry sovereign guarantee; T-bills are zero-coupon instruments issued at a discount with maturities up to 364 days.

Accrued interest is the coupon earned since the last payment; clean price plus accrued interest equals the dirty price.

Call and put options in bonds favour the issuer and investor respectively and affect the yield offered.

An IPO raises capital from the public; the issuer files a draft red herring prospectus (DRHP) with SEBI and the exchange.

Book building collects bids across a price band; the cut-off price is the price at which the issue is finally priced.

SEBI prescribes minimum investor allocation categories for retail, non-institutional, and qualified institutional bidders.

Retail investors may bid up to Rs 2 lakh; HNI and QIB categories have higher or no upper limits as prescribed.

Application money is blocked in the investor's bank account, not debited, until allotment is finalised.

Allotment is by lottery within each category where the issue is oversubscribed; refunds are released for unallotted bids.

Listing gains depend on the difference between the issue price and the listing price on the exchange.

Anchor investors are allotted shares before the issue opens, subject to lock-in and SEBI allocation rules.

Settlement cycle for equity cash trades on NSE is T+1, with pay-in and pay-out handled by the clearing corporation.

A stop-loss order becomes a market order once the trigger price is reached and then executes at the best available price.

Circuit limits on individual scrips are commonly 2%, 5%, 10%, or 20%, and a scrip at its band may enter a cooling period.

Rights issue gives existing holders a pre-emptive right at a discount; a bonus issue is free and reduces per-share value.

Insider trading is prohibited under SEBI (Prohibition of Insider Trading) Regulations, and UPSI must remain confidential.

Delivery versus payment means securities move only against funds, and short delivery is closed out by the clearing corporation.

Index level = (current aggregate free-float market cap / base market cap) x base index value.

Nifty 50 uses free-float market capitalisation weights and is reviewed by the Index Maintenance Sub-Committee.

Free-float excludes promoter holdings, government holdings, and strategic stakes that are not freely tradable.

The index divisor is adjusted for corporate actions and constituent changes to keep the index level continuous.

A stock's weight in the index = its free-float market cap divided by total index free-float market cap.

Index derivatives settle in cash against the underlying index, and the exchange fixes lot size per contract.

Emerge is NSE's dedicated platform for small and medium enterprises; BSE runs the equivalent BSE SME platform.

An SME issuer must be an Indian company with at least three years of operations and positive net worth in the latest year.

SEBI and exchange rules prescribe post-issue paid-up capital limits and net worth thresholds for SME eligibility.

SME issues use 100% book building or fixed price, and a market maker must be appointed for at least three years post-listing.

Migration to the main board requires meeting SEBI/NSE criteria such as minimum paid-up capital, profitability, and shareholder count.

SME issuers file a simplified offer document with the exchange and need in-principle approval before the issue opens.

NAV = (total assets minus total liabilities) / number of units outstanding, computed at end-of-day prices.

Open-ended schemes allow continuous purchase and redemption at NAV; closed-ended schemes have a fixed unit count and maturity.

SEBI caps the total expense ratio (TER) by scheme category, and the AMC discloses it daily on its website.

Exit load is a redemption charge paid back into the scheme and is disclosed in the Scheme Information Document.

Direct plans carry no distributor commission and therefore a lower TER than regular plans of the same scheme.

A SIP buys units at the applicable NAV on the SIP date, and a systematic withdrawal plan redeems units periodically.

A futures contract obligates both parties; an option gives the buyer a right and the seller an obligation on payment of premium.

Payoff for a long futures position = (spot at expiry minus entry price) x lot size.

Call buyer payoff = max(0, spot minus strike) minus premium; put buyer payoff = max(0, strike minus spot) minus premium.

Intrinsic value of a call = max(0, spot minus strike); time value = premium minus intrinsic value.

Initial margin plus exposure margin must be maintained, and mark-to-market losses are settled daily in cash.

Open interest is the number of outstanding contracts; rising price with rising OI is read as a long build-up.

Delta measures change in premium per unit change in spot; theta measures time decay; vega measures volatility sensitivity.

NSE's currency derivatives segment trades USD/INR, EUR/INR, GBP/INR, and JPY/INR futures and options.

USD/INR futures have a contract size of 1,000 USD; EUR/INR and GBP/INR lots are 1,000 units, and JPY/INR is 100,000 yen.

JPY/INR is quoted as rupees per 100 yen; other pairs are quoted as rupees per unit of foreign currency.

Contracts expire two working days before the last working day of the month.

Residents may take currency derivative positions only to hedge an underlying exposure, supported by a declaration.

A hedger who will receive dollars sells USD/INR futures; one who must pay dollars buys USD/INR futures.

Final settlement is in rupees based on the RBI reference rate on the expiry date.

Commodity futures are exchange-traded agreements to buy or sell a specified quantity and grade at a future date.

Contract specifications state trading unit, quotation, tick size, delivery grade, and delivery centres.

A contango market has futures prices above spot; backwardation has futures prices below spot.

A producer fearing a price fall sells futures; a consumer fearing a rise buys futures to hedge price risk.

Warehouse receipts and exchange-approved vaults underpin physical delivery, and delivery period and penalty are specified per contract.

Margins include initial margin, exposure margin, and additional volatility margin, with daily MTM settled in cash.

Open interest and volume indicate liquidity; illiquid contracts carry wider bid-ask spreads and higher impact cost.

In India, interest rate futures use a notional Government of India bond as the underlying, with Rs 2 lakh face value per contract.

The contract is quoted as a price per Rs 100 face value.

A rise in interest rates lowers bond prices; a fall in rates raises bond prices.

Modified duration approximates the percentage price change for a 1% change in yield.

Interest rate swaps exchange fixed for floating interest payments on a notional principal; OIS is the standard rupee swap.

A borrower expecting rates to rise can sell interest rate futures to offset higher future interest cost.

The cheapest-to-deliver bond determines the delivery price in a bond futures contract.

Bond price is the present value of future coupons and principal, discounted at the required yield.

Yield to maturity is the single discount rate equating the bond's cash flows to its price.

Current yield = annual coupon / market price; the coupon rate itself is fixed on face value.

Bond prices and yields move inversely, and the relationship is convex, so price rises more on a yield fall than it falls on an equal yield rise.

G-secs carry sovereign guarantee; T-bills are zero-coupon instruments issued at a discount with maturities up to 364 days.

Accrued interest is the coupon earned since the last payment; clean price plus accrued interest equals the dirty price.

A credit downgrade widens the credit spread over the benchmark, lowering the bond's price.

An IPO raises capital from the public; the issuer files a draft red herring prospectus (DRHP) with SEBI and the exchange.

Book building collects bids across a price band, and the cut-off price is the price at which the issue is finally priced.

SEBI prescribes minimum allocation categories for retail, non-institutional, and qualified institutional bidders.

Retail investors may bid up to Rs 2 lakh; HNI and QIB categories have higher or no upper limits as prescribed.

Application money is blocked in the investor's bank account, not debited, until allotment is finalised.

Allotment is by lottery within each category where the issue is oversubscribed, and unallotted bids are released.

Anchor investors are allotted shares before the issue opens, subject to lock-in and SEBI allocation rules.