Rolling settlement is a norm under which the settlement of claims in the market is done within 1 day. With effect from April 1, 2003, all obligations in a market shall be settled and netted on a T + 2 system or by the next day. Therefore, in a rolling settlement system, the trades done on Monday are settled by Tuesday.Why Was the Rolling Settlement Introduced?There is a need for keeping securities in Demat form because every day is a day of settlement in the rolling settlement system.The rolling settlement system makes the process of settling the dues and claims ... Read More

What are Index Funds?The funds created depending on the stock market indices are known as index funds. Sector-specific funds are index funds because they invest depending on a stock market or specific sector indices. The most common two examples of stock market indices are BSE Sensex and NSE Nifty. These indices cover large-cap Indian stocks and shares traded in the markets.The BSE Sensex covers the 30 most active and liquid shares in the Bombay Stock Exchange, while the BSE 100 covers the 100 largest companies.The NSE’s S&P CNX 500 covers 94 percent of total market capitalization and about 98 percent ... Read More

People often get confused with the terms "book value" and "market value" of shares. While there are undoubtedly some good reasons to confuse one for the other, the book value and market value of shares are two distinct terms with different meanings. However, one can be related to the other in some cases when certain forms of values are same in both the cases.How to Calculate the Book Value?The book value of a share is given by its net worth divided by the total number of outstanding shares in the market.$$\mathrm{\mathrm{Book\: Value}\:=\:\frac{\mathrm{Net\: Worth\:of\:a\:Company}}{\mathrm{Total\:Number\:of\:Outstanding\:Shares}}}$$The net worth of a company is made ... Read More

Mutual funds are formed to mobilize the savings of individuals by offering them a certain percentage of income. Mutual funds were introduced in India in 1964. It was Unit Trust of India (UTI). UTI enjoyed a monopoly in the Indian markets till 1987, and thereafter banks were allowed to offer mutual funds. Later on, various other financial institutions and insurance companies started offering mutual funds for individual clients.A Novel Way of InvestmentMutual funds are a novel way of investment because the firms offering them know about the market and can foresee the growing industries to some extent. In that sense, ... Read More

One of the assumptions of the Modigliani-Miller model is that the internal financing (retained earnings) and the external financing (issue of new shares) are equivalent in nature. Therefore, when a company wants to raise funds, it can issue new shares to get the required funds. It is assumed that this issuance of new shares is free of cost for the shareholders. The issuance of shares does not impact the wealth of shareholders, as the transaction is free of cost. However, in practice, this is just the reverse of the process that takes place in a real-world market.What are Transaction Costs?The ... Read More

Capital Market Efficiency indicates the degree to which the present stock prices accurately reflect the current information available in the marketplace. There are three basic forms of capital market efficiency: weak form, semi-strong form, and strong form.Weak Form of Capital Market EfficiencyIn a weak capital market, only the past information of security is available. That means the weak form of capital market efficiency offers a limited window to view the future trends of a share price. It is not possible for analysts to predict the future prices of a share by following the capital market indices. It happens due to the ... Read More

A share split is considered a way to make investments attractive, to signal future growth and profits, and to give higher dividends to the shareholders.Making Shareholding More AttractiveWhen a stock is split, the total outstanding number of shares goes up while the market price of each share goes down. This makes the shares look more attractive and affordable. While there is no change in the net income of wealthy shareholders, the stock split offers a way for smaller shareholders to afford the ownership of large shares that have been split.In a share split, the total value of outstanding shares remains ... Read More

Merchant banks are the most important division of financial assistance to financial institutions in developed nations. They help in improving and running the capital markets smoothly. Merchant banks, also known as investment banks, offer a variety of support and consultation services to corporate firms.In Europe, merchant banks are allowed to engage in commercial banking. This is, however, not the case in the US. In the US, merchant banks are not allowed to carry on with commercial banking. Merchant banks help develop and nurture capital markets in developing countries.With deregulation and liberalization, merchant banks have now become an important institution of ... Read More

Gordon’s Growth Model, also known as the Dividend Discount Model, is a popular method to consider the value of a firm via the dividend valuation of a firm. It shows the strength of an investment project to run without any external support.As no external funds are used and the projects are funded 100% on their own, Gordon’s model is only about an imaginative model which does not care about the day-to-day conditions of dividend payout and the internal funding of projects.Limitations of Gordon's ModelSome of the most prominent limitations of Gordon’s model include the following −No External FinancingLike Walter’s model, ... Read More

Secondary markets play a crucial role in the exchange of securities than the primary markets. Secondary markets are the place of exchange of second-hand securities, i.e., the securities that have already been issued. Therefore, these markets are the ones where the shares are bought and sold for a considerable long time. That is why secondary markets are more influential than primary markets in the case of buying and selling of shares.Functions of Secondary MarketSecondary markets perform some very important economic activities. Some of these are as follows −Maintaining the Fair Price of SharesThe secondary market is a market of already ... Read More