What are the important considerations while undertaking security transactions?
The following steps should be followed in purchase of a security: i) Which security to invest in – Typically this involves deciding on the maturity and coupon. Maturity is important because this determines the extent of risk an investor like an UCB is exposed to – higher the maturity, higher the interest rate risk or market risk. If the investment is largely to meet statutory requirements, it may be advisable to avoid taking undue market risk and buy securities with shorter maturity. Within the shorter maturity range (say 5-10 years) it would be safer to buy securities which are liquid, that is, securities which trade in relatively larger volumes in the market. The information about such securities can be obtained from the website of the CCIL (http://www.ccilindia.com/OMMWCG. aspx), which gives real-time secondary market trade data on NDS-OM. Since pricing is more transparent in liquid securities, prices for these securities are easily obtainable thereby reducing the chances of being m
