Equities

Equity, commonly known as shares, is an investment vehicle. It’s the fractional ownership of a listed company. And returns are related with the performance of that company. Promoters need money to expand business, and if they lack sufficient fund of their own they sell off part of their ownership to public to accumulate invest able fund. Those who buy the part ownership become share holders of the company. If company profits, share holders receive part of that profit as dividend.

Derivatives

Derivative is financially engineered instruments which derive its value from price any specific asset. Value of Equity Derivatives is derived from share price of any company or share index. In India trading of two types of derivatives are permitted - Futures and Options.
Any futures contract signify leveraged buy or sell position of any asset while option contract provides right to buy or sell any specific asset at any future date to its holders.
Derivatives insure against price risk of any share or portfolio of shares. Other than that, anybody wants to participate in the market with specific knowledge about price trend can use these instruments for speculative purpose.

Safety Tips - Dealing in Securities

DOs

• Transact only through Stock Exchanges.
• Complete all the required formalities of opening an account properly (client registration, client agreement forms, etc.).
• Ask for and sign 'Know Your Client Agreement'.
• Read and properly understand the risks associated with investing in securities / derivatives before undertaking transactions.
• Assess the risk - return profile of the investment as well as the liquidity and safety aspects before making your investment decision.
• Ask all relevant questions and clear your doubts with your broker before transacting.
• Invest based on sound reasoning after taking into account all publicly available information and on fundamentals.
• Give clear and unambiguous instructions to your broker / sub-broker / depository participant.
• Be vigilant in your transactions.
• Crosscheck details of your trade with details as available on the exchange website.
• Scrutinize minutely both the transaction and the holding statements that you receive from your Depository participant.
• Keep copies of all your investment documentation.
• Handle Delivery Instruction Slips (DIS) Book issued by DP's carefully.
• Insist that the DIS numbers are pre-printed and your account number (client id) be pre stamped.
• In case you are not transacting frequently make use of the freezing facilities provided for your demat account.
• Understand from the intermediary the margin requirements in detail and pay the margin in time to avoid liquidation of exposure due to margin shortfall.
• Deliver the shares in case of sale or pay the money in case of purchase within the time prescribed.
• Always transfer shares to the pool account of main broker while meeting security pay in obligation.
• Ensure that you issue cheques / DD only from your own Bank account. Similarly deliver the shares for payin / margin only from your own DP Account.
• Participate and vote in general meetings either personally or through proxy.
• Be aware of your rights and responsibilities.
• In case of complaints approach the right authorities for redressal in a timely manner.

DON'Ts

• Don't undertake off-market transactions in securities.
• Don't fall prey to promises of unrealistic returns.
• Don't invest on the basis of hearsay and rumours; verify before investment.
• Don't forget to take note of risks involved in the investment.
• Don't be misled by rumours circulating in the market.
• Don't be influenced into buying into fundamentally unsound companies (penny stocks) based on sudden spurts in trading volumes or prices or non authentic favourable looking articles / stories.
• Don't follow the herd or play on momentum - it could turn against you.
• Don't be misled by so called hot tips.
• Don't try to time the market.
• Don't hesitate to approach the proper authorities for redressal of your doubts / grievances.
• Don't leave signed blank Delivery Instruction Slips of your demat account lying around carelessly or with anyone.
• Do not sign blank Delivery Instruction Slips (DIS) and keep them with Depository Participant (DP) or broker to save time. Remember your carelessness can be your peril.