📈 SEBI — Securities Market
Investor Certification Examination | Complete Study Guide
1. Regulatory Framework of the Securities Market
India's securities market is governed by a set of powerful laws and a strong regulator — SEBI (Securities and Exchange Board of India). Think of these laws as the "rule book" that makes sure everyone plays fair in the stock market.
📌 Key Laws and Their Purpose| Act / Law | Year | What It Does (In Simple Words) | Key Points |
|---|---|---|---|
| SEBI Act | 1992 | Created SEBI — the main watchdog of the stock market | SEBI can make rules, investigate fraud, and punish wrongdoers |
| Securities Contracts (Regulation) Act | 1956 | Controls how stocks, bonds and other securities are traded | Regulates stock exchanges and contracts in securities |
| Companies Act | 2013 | Rules for how companies must behave and disclose information | Corporate governance, share issuance, financial reporting |
| Depositories Act | 1996 | Allows shares to be held electronically (no paper certificates!) | NSDL and CDSL created under this act |
- Protects Investors: Makes sure companies don't cheat investors with false information.
- Develops the Market: Introduces new instruments and technology to make markets efficient.
- Regulates Intermediaries: Brokers, sub-brokers, portfolio managers must all be registered with SEBI.
- Checks Insider Trading: People with secret company info cannot use it to trade unfairly.
- Market Surveillance: Watches the market daily for unusual activity or manipulation.
2. Market Segments — Primary & Secondary Market
The securities market is like a two-floor building. The Primary Market is the ground floor where new securities are born. The Secondary Market is the upper floor where existing securities are bought and sold every day.
🏗️ Primary Market — Where New Securities Are Issued| Type | Full Form | Simple Meaning | Who Benefits? |
|---|---|---|---|
| IPO | Initial Public Offer | A company selling its shares to the public for the FIRST time | Company raises money; public can invest |
| FPO | Follow-on Public Offer | A company already listed raises MORE money from the public | Company raises additional funds |
| Rights Issue | — | Existing shareholders get the "right" to buy MORE shares at a discount | Loyal existing shareholders |
| Bonus Issue | — | Company gives FREE extra shares to existing shareholders | Existing shareholders get free shares |
- You buy and pay for shares immediately (on the spot).
- Settlement happens in T+1 (next trading day).
- Best for long-term investors who want to hold shares.
- Example: Buying Reliance shares today on NSE.
- You trade contracts based on underlying assets (shares, indices, commodities).
- Instruments: Futures (agreement to buy/sell later) & Options (right but not obligation to buy/sell).
- Used for hedging risk or speculation.
- Requires margin money, not full payment.
3. Market Infrastructure Institutions (MIIs)
These are the "backbone" institutions that keep the market running smoothly. Without them, trading would be chaotic and unsafe. Think of them as the pillars of a bridge.
🏦 Stock Exchanges| Exchange | Full Name | Established | Key Role |
|---|---|---|---|
| BSE | Bombay Stock Exchange | 1875 (Oldest in Asia) | Provides a platform for trading; home of SENSEX index |
| NSE | National Stock Exchange | 1992 | Largest by volume; home of NIFTY 50 index |
| MSE | Metropolitan Stock Exchange | 2008 | Smaller exchange, focus on SME and currency derivatives |
- NSDL (National Securities Depository Limited) — Promoted by NSE; older and larger.
- CDSL (Central Depository Services Limited) — Promoted by BSE.
- Your Demat Account is with one of these depositories (via your broker).
- They hold shares in electronic form — no paper certificates needed!
- They ensure safe transfer of securities when you buy or sell.
- They act as the middleman between buyer and seller to guarantee the trade happens.
- Even if one party defaults, the clearing corporation ensures the other party is protected.
- Examples: NSCCL (NSE Clearing) and ICCL (BSE Clearing).
- They manage margins and settlement of trades.
4. Types of Securities
Securities are financial instruments that you can buy and sell. There are many types, each with different features, risk levels, and returns.
| Security Type | Simple Meaning | Risk Level | Returns | Best For |
|---|---|---|---|---|
| Equity Shares | Ownership stake in a company (you become a part-owner!) | 🔴 High | Dividends + Capital Gains | Long-term wealth creation |
| Debt Securities | Loans given to companies/government; you earn interest | 🟢 Low–Medium | Fixed Interest (Coupon) | Stable, regular income |
| Futures | Contract to buy/sell an asset at a set price on a future date | 🔴 Very High | Profit/Loss from price movement | Hedgers & Speculators |
| Options | Right (but not obligation) to buy/sell an asset at a set price | 🔴 High | Premium-based profits | Risk management |
| Mutual Funds | Pool of money from many investors, managed by professionals | 🟡 Medium | Varies by fund type (NAV-based) | New investors, diversification |
| ETFs | Like a mutual fund but traded on stock exchange like shares | 🟡 Medium | Market-linked returns | Cost-conscious investors |
- Shareholders have voting rights in company decisions.
- Get dividends when the company makes profit.
- Last to be paid if the company shuts down (highest risk).
- Face value is usually ₹1 or ₹10.
- Also called Bonds or Debentures.
- You lend money and get fixed interest (coupon) regularly.
- Government bonds are the safest.
- Credit rating (AAA, AA, etc.) shows safety level.
5. Investor Procedures — How to Start Investing
Before investing, you need to set up accounts properly. Here's the step-by-step process to become a registered investor in India's securities market.
🔑 Account Opening Process| Step | Process | Documents Needed | Purpose |
|---|---|---|---|
| Step 1 | KYC (Know Your Customer) | PAN Card, Aadhaar, Photo, Bank Proof | Identity verification — mandated by SEBI |
| Step 2 | Open Demat Account | KYC documents + Bank Account | Electronic storage of your shares |
| Step 3 | Open Trading Account | Same as Demat | Allows you to buy and sell on stock exchange |
| Step 4 | Link Bank Account (3-in-1 Account) | Bank passbook/statement | Seamless fund transfers during trades |
| Step 5 | Nomination (Optional but Recommended) | Nominee's name + photo ID | Nominee gets assets in case of investor's death |
- ASBA = Application Supported by Blocked Amount. Your money stays in YOUR bank — just gets blocked until allotment.
- Step 1 — Bidding: Apply for IPO via your bank's app or broker platform. Enter price and quantity.
- Step 2 — Blocking of Funds: Your bank blocks the required amount (it's not debited yet).
- Step 3 — Allotment: If you get shares, money is debited. If not, the block is released immediately.
- UPI-based ASBA lets you apply via any UPI app like BHIM, GPay, PhonePe.
6. Grievance Redressal — Your Rights as an Investor
If something goes wrong — if your broker cheats you, shares are not transferred, or dividends are not received — you have multiple ways to get justice. India has a strong investor protection framework.
| Mechanism | Full Form / Name | How It Works | Contact |
|---|---|---|---|
| SCORES | SEBI Complaints Redress System | Online platform — file complaint against broker/company; SEBI monitors resolution | scores.sebi.gov.in |
| Investor Services Cell | Stock Exchange Help Desk | Complaints against brokers are handled by respective stock exchange (NSE/BSE) | NSE/BSE investor helpline |
| Arbitration | — | Dispute between investor and broker resolved outside court by an independent arbitrator | Stock Exchange Arbitration Desk |
| IEPF | Investor Education and Protection Fund | Unclaimed dividends, shares older than 7 years are transferred here; you can claim back | iepf.gov.in |
- Always check your broker is SEBI-registered before investing.
- Never share your trading password or OTP with anyone, including your broker.
- Check your Demat and trading account statements regularly.
- Report fraud immediately on SCORES portal — quick resolution is guaranteed.
- Unclaimed shares & dividends can be reclaimed from IEPF even after many years.
7. Flowchart — Investor's Journey in the Securities Market
(PAN, Aadhaar, Photo, Bank Proof)
(3-in-1 Account Setup)
(IPO / FPO / Rights)
Funds Blocked in Bank
(T+6 working days)
(BSE / NSE)
via Trading Platform
Trade Executed (T+0)
(Guarantees both buyer and seller get what's owed)
8. Mind Map — Securities Market at a Glance
9. Roadmap — Your Complete Securities Market Learning Journey
📘 Phase 1: Understand the Rules
Learn the Regulatory Framework — SEBI Act 1992, Companies Act 2013, SCRA 1956, Depositories Act 1996. Understand why SEBI exists and what it does to protect you as an investor.
📊 Phase 2: Know Your Market
Understand the two key segments: Primary Market (IPO, FPO, Rights Issue, Bonus Issue) and Secondary Market (Cash Market and Derivatives Market). Know the difference between them clearly.
🏛️ Phase 3: Know the Institutions
Learn about Market Infrastructure Institutions — Stock Exchanges (BSE, NSE, MSE), Depositories (NSDL, CDSL), and Clearing Corporations. These are the pillars that make trading safe and efficient.
🔐 Phase 4: Learn Securities Types
Understand Equity Shares, Debt Securities (Bonds/Debentures), Derivatives (Futures & Options), and Mutual Funds/ETFs. Know the risk-return profile of each. Match them to your investment goals.
👤 Phase 5: Open Your Accounts
Complete KYC, open a 3-in-1 Account (Bank + Demat + Trading). Understand ASBA and UPI-based IPO investment process. Set up nomination and learn about Power of Attorney (PoA).
📈 Phase 6: Start Investing
Apply for IPOs using ASBA/UPI. Buy shares on NSE/BSE through your trading account. Monitor your portfolio via the Demat account. Understand T+1 settlement and margin requirements for derivatives.
🛡️ Phase 7: Know Your Rights & Protect Yourself
Use SCORES to file complaints, approach Arbitration for broker disputes, and reclaim unclaimed shares via IEPF. Always stay informed about investor protection mechanisms. Never share credentials!