The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

• Share allocation ratio
• Bids
• Demand
• Final price

The basis of allotment can vary based on the type of investor in question. Bidders during an IPO for whom a different basis of allotment applies include:

• Retail Individual Investors (RII)
• Qualified Institutional Buyer (QIB)
• Non-Institutional Buyers (NIBs)
• High Net-worth Individuals (HNIs)
• Anchor Investors

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:

• SOV: Only for government bonds
• AAA: Highest
• AA+: High-medium
• A+: Upper-medium
• BBB+: Lower-medium
• BB+: Speculative
• B+: Highlight speculative
• CCC+: Risky
• CC: Extremely risky

Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.

The formula to calculate the Beta coefficient is:

Beta (β) = Covariance (Ri, Rm) / Variance (Rm)

Where:

• Ri = a stock's return
• Rm = overall market's return
• Covariance = ups & downs of stock returns versus ups & downs of market returns
• Variance = the difference between market returns and its average

Generally, Beta values are of four types:

• Beta < 1.0: stock less volatile than the market
• Beta = 1.0: stock just as volatile as the market
• Beta > 1.0: stock more volatile than the market
• Negative Beta: stock shares inverse relation with the market