PROJECT REPORT ON

INVESTMENT PATTERNS IN INDIAN STOCK MARKET

ACKNOWLEDGEMENT

It plunge me in exhilaration in taking privilege in expressing our heart felt appreciation to Ms Shabnam Bano, Branch Manager India Infoline, Kota Branch, for her admirable and valuable guidance, keen interest, encouragement and constructive suggestions during the course of the project. I would like to express our gratitude to Mr. Pramod Vijay, Sr. Relationship Manager, India Infoline, Kota for providing us an opportunity to take this project work & under whose supervision & guidance whole of the project has got its shape. I would also like to express thanks to Mr. Prateek Saxena and Ms Garima Arora, India Infoline Limited, who was closely associated with the project right from the beginning. I consider my proud privilege to express deep sense of gratefulness to Dr. K.C. Goyal, Head of Department, Department of commerce and Management, University Of Kota, who is the strength and an encouragement behind me. My sincere appreciation also go to those clients, investors and persons in India Infoline Ltd. who altruistically revealed important information regarding the Indian stock market and how they trade and invest with the intense help of their respective relationship managers and investment guides. I am very grateful to my parents, family members and friends for their enthusiastic support. Last but not least; report was completed successfully because of the grace of the Almighty God.

ALKA SHARMA

EXECUTIVE SUMMARY

The project which is taken by me with the help of my Faculty and industry Guide mainly focused on Indian Stock Market. The main focus of my project is to gain knowledge about the core areas in which stock market works and what are the trends and investment patterns available in it. Working with India Infoline Limited I really had a learning experience basically related with the stock market the how various components like, equities, stocks, IPOs, derivatives (Future and options), Commodities and the Mutual Funds. These all are important aspects of stock market. Other thing which has I learned that the stock market is divided into two segments Primary market & Secondary market. In the Primary market those companies who are unlisted and who want capital from the public they issue their shares for the first time in the market which is called Primary Market .Secondary market includes Equity shares, Right issues, Bonus shares, Preference shares, Cumulative Preference Shares, Cumulative Convertible Preference Shares, Bonds. The share market which I had seen the guidance of my Industry Guide is the most volatile market. So, the whole project was directed towards how the stock markets work in India and what are the core areas of functioning of the stock market in order to maximum out of the minimum so that the profile of mine and the project topic should match and more and more learning can be done from them.

CONTENTS
CHAPTER 1INTRODUCTION Need of the study Objectives Scope

Page No.
1-2 1 1 2 3 14 - 90 14 17 32 36 50 66 91 93 109 111

CHAPTER 2- PROFILE OF INDIAINFOLINE LIMITED CHAPTER 3- INVESTMENT AVENENUES Overview Investment alternative: A Choice Galore Risk return good and bad Securities analysis and valuation Derivatives Portfolio management

CHAPTER 4- RESEARCH METHODOLOGY CHAPTER 5- DATA ANALYSIS AND INTERPRETATION CHAPTER 6- CONCLUSION, SUGGESTION AND LIMITATION OF THE STUDY BIBLIOGRAPHY WEBSITES ANNEXURE CHECKLIST ABBREVIATIONS

Table No
3.1 3.2 3.3 3.4 3.5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 5.16

Descriptions
Return probability chart Return probability chart Return probability char Expected return on stock Expected Return on stock Age of the investor Occupation of the investor Income Group of the investor Type of investment you prefer Type of the Investment Alternatives Expected rates of return Dependent factor of investment The main purpose of your investment D-Mat account Depository participant) you prefer Market condition while investing Trading motive Your investment advisor Awareness about portfolio management Portfolio can give better return Takes help while managing portfolio

Page No
72 74 75 80 81 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108

Figure No

Descriptions

Page No

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9

Investment avenues Interest chart of different companies Housing finance companies accepting deposits Call option graph Call option graph Buy option graph Risk free rate of return Risk returns trade off Expected return graph Expected return graph Determination of market port folio optimal portfolio strategy Age of the investor Occupation of the investor Income Group of the investor Type of investment you prefer Type of the Investment Alternatives Expected rates of return Dependent factor of investment The main purpose of your investment D-Mat account

14 21 22 59 60 63 69 79 80 82 84 86 93 94 95 96 97 98 99 100 101 6

5.10 5.11 5.12 5.13 5.14 5.15 5.16

Depository participant) you prefer Market condition while investing Trading motive Your investment advisor Awareness about portfolio management Portfolio can give better return Takes help while managing portfolio

102 103 104 105 106 107 108

INTRODUCTION TO INVESTMENT
7

Investment may be defined as an activity that commits funds in any financial form in the present with an expectation of receiving additional return in the future. The expectations bring with it a probability that the quantum of return may vary from a minimum to a maximum. This possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. Investment is an activity that is undertaken by those who have savings. Savings can be defined as the excess of income over expenditure. An investor earns/expects to earn additional monetary value from the mode of investment that could be in the form of financial assets. The three important characteristics of any financial asset are: Return-the potential return possible from an asset. Risk-the variability in returns of the asset form the chances of its value going down/up. Liquidity-the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual preference pattern of investments. Each financial asset will have a certain level of each of these characteristics.

NEED OF THE STUDY

8

We believe that our investors are better served by a disciplined investment approach, which combines an understanding of the goals and objectives of the investor with a fine tuned strategy backed by research.

Stock specific selection procedure based on fundamental research for making sound investment decisions.

Focus on minimizing investment risk by following rigorous valuation disciplines. Capital preservation. Selling discipline and use of Derivatives to control volatility. Overall to enhance absolute return for investors.

The need of the study is to identify the different types of investment alternatives available in the market and analyze their risk and return.

OBJECTIVES OF THE STUDY

Before starting a project, we should keep in mind the clear objective of the project because in the absence of the objective one cant reach the conclusion or the end result of the project. Research objective answer the question Why this study is being conducted For every problem there is a research. As all the research is based on some objective, our research has also some objectives which are as follows:
To identify and study the demand and supply scenario.

To determine and understand dynamics of stock exchange and different Investment alternative.

Primary Objective
To identify and analyze the portfolio management strategies in Indian Sock market.

To measure customers preference towards dealing in derivative market segment The perception held by investors about the financial derivatives Giving conclusion and recommendation.

Secondary Objective
To study which class mostly invest in stock market Evaluate the various investment opportunities for investors
9

 To study the behavior of investor during the market fluctuations

Scope of the study

To know the lack of awareness about stock market amongst most of people. To know the awareness about the portfolio investment. To know problem faced by people in online trading because of lack of knowledge about computers and internet. To know the information regarding tax and many other transactions cost from customers. To know how investing money in stock market for short period is risky. But if investment is made judiciously it gives good returns. To Identify the volatile stock market is more then other country

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CORPORATE PROFILE
COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

INDIA INFOLINE GROUP

The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com The company has a network of 976 business locations (branches and sub-brokers) spread across 365 cities and towns. It has more than 800,000 customers.

INDIA INFOLINE LTD

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

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A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients. INDIA INFOLINE MEDIA AND RESEARCH SERVICES LIMITED. The content services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. Revenue generation is through the sale of content to financial and media houses, Indian as well as global. It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most read Indian brokers. INDIA INFOLINE COMMODITIES LIMITED. India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us with the requisite skills and technologies to allow us offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. We have a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities. INDIA INFOLINE MARKETING & SERVICES India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.
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(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001. (b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. We have applied to IRDA for the insurance broking licence and the clearance for the same is awaited. Post the grant of license, we propose to also commence the general insurance distribution business. INDIA INFOLINE INVESTMENT SERVICES LIMITED Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries. (a) India Infoline Distribution Company Limited (distribution of retail loan products) (b) Moneyline Credit Limited (consumer finance) (c) India Infoline Housing Finance Limited (housing finance)

IIFL (ASIA) PTE LIMITED IIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

13

14

PRODUCTS AND SERVICES

India Infoline is a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology. It provide a bouquet of products to its customer such as-

EQUITIES
India Infoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to India Infoline leveraged technology to bring the convenience of trading to the investors location of preference (residence or office) through computerized access. India Infoline made it possible for clients to view transaction costs and ledger updates in real time. Over the last five years, India Infoline sharpened its competitive edge through the following initiatives:

MULTI-CHANNEL DELIVERY MODEL

The Company is among the few financial intermediaries in India to offer a complement of online and offline broking. The Companys network of branches also allows customers to place orders on phone or visit our branches for trading.

INTEGRATED MIDDLE AND BACK OFFICE

The customer can trade on the BSE and NSE, in the cash as well as the derivatives segment all through the available multiple options of Internet, phone or branch presence.

MULTIPLE-TRADING OPTIONS
The Company harnessed technology to offer services at among the lowest rates in the business membership: The Company widened client reach in trading on the domestic and international exchanges.

TECHNOLOGY
The Company provides a prudent mix of proprietary and outsourced technologies, which facilitate business growth without a corresponding increase in costs.

CONTENT

15

The Company has leveraged its research capability to provide regular updates and investment picks across the short and long-term.

SERVICE
Clients can access the customer service team through various media like toll-free lines, emails and Internet- messenger chat for instant query resolution. The Companys customer service executives proactively contact customers to inform them of key changes and initiatives taken by the Company. Business World rated the Companys customer service as Best in their survey of online trading sites carried out in December 2003.

KEY FEATURES

Membership on the Bombay Stock Exchange Limited (BSE ) and the National Stock Exchange (NSE) Registered with the NSDL as well as CDSL as a depository participant, providing a onestop solution for clients trading in the equities market Broking services in cash and derivative segments, online as well as offline. Presence across 350 cities and towns with a network of over 850 business locations Equity client base of over 500,000 clients Provision of free and world-class research to all clients

PMS (PORTFOLIO MANAGEMENT SERVICE)

Our Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at India Infoline invest your resources into stocks from different sectors, depending on your risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio.

RESEARCH
Sound investment decisions depend upon reliable fundamental data and stock selection techniques. India Infoline Equity Research is proud of its reputation for, and we want you to find the facts that you need. Equity investment professionals routinely use our research and models as integral tools in their work. They choose Ford Equity Research when they can clear your doubts.

COMMODITIES
India Infolines extension into commodities trading reconciles its strategic intent to emerge as a one-stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Companys commodities business provides a contra16

cyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in Indias young commodities market (the MCX commenced operations only in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn. The commodities market has several products with different and noncorrelated cycles. On the whole, the business is fairly insulated against cyclical gyrations in the business.

MORTGAGES
During the year under review, India Infoline acquired a 75% stake in Moneytree Consultancy Services to mark its foray into the business of mortgages and other loan products distribution. The business is still in the investing phase and at the time of the acquisition was present only in the cities of Mumbai and Pune. The Company brings on board expertise in the loans business coupled with existing relationships across a number of principals in the mortgage and personal loans businesses. India Infoline now has plans to roll the business out across its pan-Indian network to provide it with a truly national scale in operations.

HOME LOANS and PERSONAL LOANS

Loan against residential and commercial property Expert recommendations Easy documentation Quick processing and disbursal No guarantor requirement

ONLINE INVESTMENT
India Infoline has made investing in Mutual funds and primary market so effortless. All have to do is register with us and thats all. No paperwork no queues and No registration charges.

INVEST IN MUTUAL FUNDS

India Infoline offers a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly.

APPLY IN INITIAL PUBLIC OFFERS (IPO)

Client could also invest in Initial Public Offers (IPOs) online without going through the hassles of filling ANY application form/ paperwork.

STOCK MESSAGING SERVICE (SMS)

Stay connected to the market remotely. The trader of today, you are constantly on the move. But how to stay connected to the market while on the move? Simple, subscribe to India Infoline's
17

Stock Messaging Service and get Market on the Mobile of client! There are three products under SMS Service: Market on the move. Best of the lot. VAS (Value Added Service)

INSURANCE
An entry into this segment helped complete the clients product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, we have employed a multi pronged approach and reach out to customers via our Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market. The Companys entry into the insurance sector derisked the Company from a predominant dependence on broking and equity-linked revenues. The annuity based income generated from insurance intermediation result in solid core revenues across the tenure of the policy.

WEALTH MANGEMENT SERVICE

Imagine a financial firm with the heart and soul of a two-person organization. A world-leading wealth management company that sits down with you to understand your needs and goals. We offer you a dedicated group for giving you the most personal attention at every level.

NEWSLETTERS
The Daily Market Strategy is your morning dose on the health of the markets. Five intra-day ideas, unless the markets are really choppy coupled with a brief on the global markets and any other cues, which could impact the market. Occasionally an investment idea from the research team and a crisp round up of the previous day's top stories. That's not all. As a subscriber to the Daily Market Strategy, you even get research reports of India Infoline research team on a priority basis. The India Infoline Weekly Newsletter is your flashback for the week gone by. A weekly outlook coupled with the best of the web stories from India Infoline and links to important investment ideas, Leader Speak and features is delivered in your inbox every Friday evening.

18

BUSINESS & OPERATIONS

BUSINESS
Over a period of time RSL has recorded a healthy growth rate both in business volumes and profitability as it is one of the major players in this line of business. The business thrust has been mainly in the development of business from Financial Institutions, Mutual Funds and Corporate.

OPERATIONS
The operations of the company are broadly organized along the following functions.

Research & Analysis

This group is focused on doing daily stock picks and periodical scrip segment specific research. They provide the best of analysis in the industry and are valued by both our Institutional and Retail clientele.

Marketing
This group is focused on tracking potential business opportunities and converting them into business relationships. Evaluating the needs of the clients and tailoring products to meet their specific requirements helps the company to build lasting relationships

Dealing
Enabling the clients to procure the best rates on their transactions is the core function of this group.

Back Office
This group ensures timely deliveries of securities traded, liaison with stock exchange authorities on operational matters, statutory compliance, handling tasks like pay-in, pay-out, etc. This section is fully automated to enable the staff to focus on the technicalities of securities trading and is manned by professionals having long experience in the field
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INFRASTRUCTURE
Offices
The company has offices located at prime locations in Mumbai, New Delhi, Kolkata and Chennai. The offices are centrally located to cater to the requirements of institutional and corporate clients and retails clients, and for ease of operations due to proximity to stock exchanges and banks.

Communications
The company has its disposal, an efficient network of advance communication system and intend to install CRM facility, besides this it is implementing interactive client information dissemination system which enables clients to view their latest client information on web. It has an installed multiple WAN to interconnect the branches to communicate on real time basis. The company is equipped with most advanced systems to facilitate smooth functioning of operations. It has installed its major application on IBM machines and uses latest state of art financial software.

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MANAGEMENT TEAM
Mr. Nirmal Jain

Chairman & Managing Director India Infoline Ltd. Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded Indias leading financial services company India Infoline Ltd. in 1995, providing globally acclaimed financial services in equities and commodities broking, life insurance and mutual funds distribution, among others. Mr. Jain began his career in 1989 with Hindustan Levers commodity export business, contributing tremendously to its growth. He was also associated with Inquire-Indian Equity Research, which he co-founded in 1994 to set new standards in equity research in India. Mr. R Venkataraman Executive Director India Infoline Ltd. R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined the India Infoline board in July 1999. He previously held senior managerial positions in ICICI Limited, including ICICI Securities Limited, their investment banking joint venture with J P Morgan of USA and with BZW and Taib Capital Corporation Limited. He was also Assistant Vice President with G E Capital Services India Limited in their private equity division, possessing a varied experience of more than 16 years in the financial services sector.

The Board of Directors

21

Apart from Mr. Nirmal Jain and Mr. R Venkataraman, the Board of Directors of India Infoline Ltd. comprises:
Mr Nilesh Vikamsey Independent Director India Infoline Ltd.

Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB International, headed the audit department till 1990 and thereafter also handles financial services, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI study group member for Proposed Accounting Standard 30 on Financial Instruments Recognition and Management, Finance Committee of The Chamber of Tax Consultants (CTC), Law Review, Reforms and Rationalization Committee and Infotainment and Media Committee of Indian Merchants Chamber (IMC) and Insurance Committee and Legal Affairs Committee of Bombay Chamber of Commerce and Industry (BCCI). Mr. Vikamsey is a director of Miloni Consultants Private Limited, HLB Technologies (Mumbai) Private Limited and Chairman of HLB India.
Mr Sat Pal Khattar Non Executive Director India Infoline Ltd.

Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in Singapore. He joined the India Infoline board in April 2001. Mr Khattar is a Director of public and private companies in Singapore, India and Hong Kong; Chairman of Guocoland Limited listed in Singapore and its parent Guoco Group Ltd listed in Hong Kong, a leading property company of Singapore, China and Malaysia. A Board member of India Infoline Ltd, Gateway Distriparks Ltd both listed and a number of other companies he is also the Chairman of the Khattar Holding Group of Companies with investments in Singapore, India, UK and across the world.
Mr Kranti Sinha Independent Director India Infoline Ltd. Mr. Kranti Sinha Board member since January 2005 completed his masters from the Agra University and started his career as a Class I officer with Life Insurance Corporation of India. He served as the Director and Chief Executive of LIC Housing Finance Limited from August 1998 to December 2002 and concurrently as the Managing Director of LICHFL Care Homes (a wholly owned subsidiary 22

of LIC Housing Finance Limited). He retired from the permanent cadre of the Executive Director of LIC; served as the Deputy President of the Governing Council of Insurance Institute of India and as a member of the Governing Council of National Insurance Academy, Pune apart from various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen & Toubro Limited, LICHFL Care Homes Limited, Gremach Infrastructure Equipments and Projects Limited and Cinemax (India) Limited. Mr Arun K. Purvar Independent Director India Infoline Ltd.

Mr. A.K. Purvar Board member since March 2008 completed his Masters degree in commerce from Allahabad University in 1966 and a diploma in Business Administration in 1967. Mr. Purwar joined the State Bank of India as a probationary officer in 1968, where he held several important and critical positions in retail, corporate and international banking, covering almost the entire range of commercial banking operations in his illustrious career. He also played a key role in co-coordinating the work for the Bank's entry into the field of insurance. After retiring from the Bank at end May 2006, Mr. Purwar is now working as Member of Board of Governors of IIM-Lucknow, joined IIMIndore as a visiting professor, joined as a Hon.-Professor in NMIMS and he is also a member of Advisory Board for Institute of Indian Economic Studies (IIES), Waseda University, Tokyo, Japan. He has now taken over as Chairman of IndiaVenture Advisors Pvt. Ltd., as well as IL & FS Renewable Energy Limited. He is also working as Independent Director in leading companies in Telecom, Steel, Textiles, Autoparts, Engineering and Consultancy. Shabnam Bano Branch Manager, Kota Branch India Infoline Ltd.

Ms. Shabnam Bano, Branch Manager India Infoline Limited, Kota Branch. She started her career from ICICI Personal Loans DST as a Sales Executive, After that she joined India Bulls Securities Ltd. As Assistant Relationship Manager. In Jan 2007, she join India Infoline Ltd. as Relationship Manager. Then she promoted as Branch Manager for Kota Branch of India Infoline Ltd. She had diploma in Civil Engineering, and MBA in Finance. She is an excellent Team Manager for her team. She is Mentor and guide in this project.
Pramod Vijay Senior Relationship Manager, India Infoline Ltd. Kota

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Mr. Pramod Vijay Sr. Relation Manager, working at Kota Branch of India Infoline Ltd. He join India Infoline as Marketing Executive in the year of 2006. After joining he continuously upgrade himself and got promoted to the designation of Sr. Relation Manager. He got his graduation from MDS University, Ajmer with flying colors. He always ready to lend a hand to his colleagues and team members. He provides excellent guidance in the accomplishment of the project report.

COMPETITIVE ADVANTAGES OF INDIA INFOLINE LTD.

24

Participant on the countrys premier exchange: INDIA INFOLINE LTD. is a member of the countrys premier stock exchange The National Stock Exchange of India (NSE). Clearing membership on Capital & Derivatives segments: It has clearing memberships on both the Capital Market and Derivatives segment of the exchange. We are also authorized to trade the retail debt market. Depository Participants with NSDL & CDSL: We are depository participants with the countrys premier depository service - National Securities Depository Limited (NSDL), as well as with the only other depository with a countrywide reach - Central Depository Services Limited (CDSL). Leading private sector bank as partner: Our banking partner is HDFC Bank, ICICI Bank, Citi Bank, Bank of Baroda The foremost private sector bank in the country, which has the most technologically advanced infrastructure in the country, with Internet banking allowing access to information 24 X 7. Bloomberg Information Services: The worlds two best information services are Bloomberg LP and Reuters. These are prohibitively expensive for all but mutual funds and financial institutions to own terminals of, and subscribe to. We however have two connections to the Bloomberg Information Service, the premier service, both in Delhi and Mumbai, and these provide us information ahead of the general public, and at par with the financial institutions. Access to breaking news from across the globe, and across asset classes, and superior research and analysis capabilities. Prime Office Locations: We have prime office locations in the nations political capital and the business capital Delhi and Mumbai, in the heart of the city. Research Capabilities: We have a dedicated team of analysts in our Bombay office They provide fundamental analysis of stocks and markets, which are fundamentally strong, and provide above market returns to investors, but over a slightly longer time frame Typically 6 months and above. Technical Analysis: A daily technical newsletter is published by our in-house technical analyst, who is a recognized leading practitioner of the science. He has a success rate of over 73%. He tracks the progress of the calls on a real-time basis, and advises of any change in the profit points or stop loss levels.

. All Services under one roof: India has moved to a T+2 settlement system,

where

all

trades and settled on a rolling basis. However this gives the clients no time to arrange deliveries to their broker, through a separate depository participant. INDIA INFOLINE LTD., being a trading-clearing member, as well as a depository participant, allows seamless transfer of securities under the same roof, with minimum delay, and constant monitoring
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INDIA INFOLINE LTD. PORTFOLIO MANAGEMENT SERVICE

India Infoline Ltd. offers PMS to address varying investment preferences. As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors. India Infoline Ltd. PMS currently extends five portfolio management schemes - Panther, Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping in mind the varying tastes, objectives and risk tolerance of our investors

INVESTMENT AVENUES
There are a large number of investment avenues for savers in India. Some of them are marketable and liquid, while others are
26

non-marketable. Some of them are highly risky while some others are almost risk less. Investment avenues can be broadly categorized under the following heads: Corporate securities Equity shares. Preference shares. Debentures/Bonds. Derivatives. Others.

Corporate Securities Joint stock companies in the private sector issue corporate securities. These include equity shares, preference shares, and debentures. Equity shares have variable dividend and hence belong to the high risk-high return category; preference shares and debentures have fixed returns with lower risk.

The classification of corporate securities that can be chosen as investment avenues can be depicted as shown below:

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Equity Share

Preferenc e shares

Bonds

Warrant s

Derivative s

Equity shares

By investing in shares, investors basically buy the ownership right to the company. When the company makes profits, shareholders receive their share of the profits in the form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companys shares goes up in the market. This allows shareholders to sell shares at a profit, leading to capital gains. Investors can invest in shares either through primary market offerings or in the secondary market. The shares. primary market has shown abnormal returns to

investors who subscribed for the public issue and were allotted

Stock Exchange:
In a stock exchange a person who wishes to sell his security is called a seller, and a person who is willing to buy the particular stock is called as the buyer. The rate of stock depends on the simple law of demand and supply. If the demand of shares of
28

company x is greater than its supply then its price of its security increases. In Online Exchange the trading is done on a computer network. The sellers and buyers log on to the network and propose their bids. The system is designed in such ways that at any given instance, the buyers/sellers are bidding at the best prices.

The transaction cycle for purchasing and selling shares online is depicted below:

Tra nsaction Cycle

Member/ Broking firm. Stock Exchange

Member/ Broking firm.

Client

Client

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Investment avenues

Non-marketable Financial Assets

Equity Shares

Bonds

Money Market Instruments

Mutual Fund Schemes

Life Insurance Policies

Real Estate

Precious Objects

Financial Derivatives
Figure: INVESTMENT AVENUES

Non Marketable Financial Assets: A good portion of financial assets is represented by

non marketable financial assets. These can be classified in to the following broad categories. Bank Post office Company deposit Provident fund deposit

Equity share: Equity share represent the ownership capital. As an equity share holder, you
have an ownership stake in the company. This essentially means that you have an residual interest in income and wealth. Perhaps the most romantic among various investment avenues, equity share are classified in to the following broad categories by stock market analyst. Blue chip shares Growth shares Income shares Cyclical shares Speculative shares
30

Bonds: Bonds or debenture represent long term debt instruments. The issuer of bonds promises
to pay a stipulated stream of cash flow bond may be classified in to following securities Government securities. Government of India relief bonds PSU bonds Debenture of private sector companies Preference Shares

Money market instruments: Debt instruments which have a maturity of less than one year
at the time of issue are called money market instrument. The important money market instruments are: Treasury bills Commercial papers Certificate of deposit

Mutual funds: Instead of directly buying the equity shares and fixed income securities, you
can participate in various schemes floated by mutual funds which invest in equity shares and fixed income securities. There are three broad types of mutual fund scheme are Equity scheme Debt scheme Balance scheme

Life insurance: in a broad sense, life insurance may be viewed as an investment. Insurance
premium represent the sacrifice and the assured sum the benefit. The important types of insurance policies in India are Endowment insurance policy Money back policy Team assurance policy

Real Estate: for the bulk of the investor the most important assets in their portfolio is a
residential house. in addition to residential house, the most affluent investor likely to be interested in the following type of real estate. Agriculture land Semi urban land Time share in a holiday resort

31

Precious object: Precious object are the item that are generally small in size but highly
valuable in monetary terms. Some important precious objects are Gold and silver Precious stones Art object

Financial derivative: A Financial derivative is an instrument whose value is derived from

the value of an underline asserts. It may be viewed as a side bet on the asset. The most important financial derivatives from the point of view of the investor are Option Future

INVESTMENT ALTERNATIVE: CHOICE GALORE

A confuse range of investment alter native is available. They fall in to broad categories. viz. financial assets and real assets. Financial assets are paper or electronic claim on such issuer such as government or the corporate body. The important financial assets are equity share, corporate debenture, government securities, deposit wit policy, bank, mutual funds, shares insurance policy, and derivative instrument, real assets are represented by tangible assets like a residential house, a commercial property, an agricultural farm, gold precious stone and art object. Although discussion is fairly up to date, the rapid change in the world of investment leads to the creation of new investment alternatives. if you understand the basis characteristic of major investment alternative currently available , you will have the background to understand new alternative as they appear

NON MARETABLE FINANCIAL ASSETS

Bank Deposits:
A Bank account (SB account) is meant to promote the habit of saving among the people. It also facilitates safekeeping of money. In this scheme fund is allowed to be withdrawn whenever required, without any condition. Hence a savings account is a safe, convenient and affordable way to save your money. Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India with regard to several policy and operational parameters. Bank also pays you a minimal interest for keeping your money with them. the interest rate of savings bank account in India varies between 2.5% and 4%.

32

Post office term deposit:

A popular scheme of post office, deposits meant to provide regular month income to the depositors .The silent features of this scheme are as follows:

1. Duration 2. Rate of Interest 3. Who can invest ?

8 years 7 months 8.25% i). An individual (above 18 years) (ii). Two / three individuals in joint names. (iii). A guardian on behalf of a minor. (iv). A Trust for Denomination of certificates .

4. Withdrawal

i). On maturity (8 years and 7 months) (ii). Premature after 2 years and 6 months.

5..tax exemption

with in certain limit u/s sol of income tax

Kisan Vikas Patra:

A scheme of post office has the following feature:

Minimum Investment Rs. 500/- No maximum limit. Rate of interest 8.40% compounded annually. Money doubles in 8 years and 7 months. Two adults, Individuals and minor through guardian can purchase. Companies, Trusts, Societies and any other Institution not eligible Non-Resident Indian/HUF are not eligible to purchase. Patras can be pledged as security against a loan to Banks/Govt. Institutions. Patras are transferable to any Post office in India. Patras are transferable from one person to another person before maturity Nomination facility available.
33

to purchase.

Facility of purchase/payment of Kisan vikas Patras to the holder of Power of attorney. Rebate under section 80 C not admissible. Interest income taxable but no TDS

National Savings Certificate: issued at post office:

National Savings Certificates (NSC) are certificates issued by department of post, Government of India and are available at all post office counters in the country It is a long term safe savings option for the investor. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. Features of this scheme are

Interest rate of 8% per annum payable monthly. Maturity period is 6 years. Minimum investment amount is Rs.1000/- or in multiple thereof. Maximum amount is Rs. 3 lacs in single account and Rs. 6 lacs in a joint account. Account can be opened by an individual, 2/3 adults jointly and a minor through a guardian. Facility of premature closure of account after one year @ 3.50% discount. No deduction of 3.5% if account is closed on completion of three years. Rebate under section 80 C not admissible. Interest income is taxable, but no TDS . Deposits are exempt from Wealth

Public Provident Fund:

The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. Feature of this scheme are The Scheme is for 15 years. The rate of interest is 8% compounded annually.
The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year. 34

 The deposit can be in lumpsum or in convenient installments, not more than 12 Installments in a year or two installments in a month subject to total deposit of Rs.70,000/-.
A Power of attorney holder can neither open or operate a PPF The grand

father/mother cannot open a PPF behalf of their minor grand son/daughter. Pre-mature closure of a PPF Account is not permissible except in case of death.
PPF account can be extend for any period in a block of 5 years on each time.

Account is transferable from one Post office to another and from Post office Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
The interest on deposits is totally tax free. And deposits are exempt from wealth tax

COMPANY DEPOSIT 1. Non-banking Financial Company:

In terms of section 45 - I subsection (f) of Reserve Bank of India Act, 1934, Non Banking Financial Company is defined as (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner ; (iii) such others non-banking institution or class of such institutions as the RBI may, with the previous approval of the Central Government and by notification in the Official Gazette, specify) Interest chart of different companies

Name of the Companies

Durations BAJAJ AUTO FINANCE LTD.

Rate of Interest %
12M 24M 6.50 36M 6.00 7.00 48M 60m -

CHOLAMANDALAM FIN. LTD. 6.00

35

ESCORTS FINANCE LTD.

8.25

8.75

9.00

FIRST LEASING COMPANYOF 6.50 INDIA LTD.

7.50

8.00

8.00

8.00

2. Finance Company:
Finance company means a company engaged in the business of financing, whether by making
loans or advances or otherwise, of any industry, commerce or agriculture and includes any company engaged in the business of hire-purchase, lease financing and financing of housing.

HOUSING FINANCE COMPANIES ACCEPTING DEPOSITS

Debenture:
36

They are securities of fixed interests that are issued for long terms with an amortization period of five or more years Non-financial private companies issue them although on certain occasions banks, saving banks and government institutions will also issue them. The objective they go after with the emission for the market of these securities is to attract great amounts of capital sums at a less cost that if using other financial sources as is to go to banking institutions to ask for a loan.

MONEY MARET INSTRUMENT:

The Debt instruments which have the maturity of less than one year at the time of issue are called Money market instruments. The important Money market Instrument are Treasury bills , Commercial paper, Certificates of deposits etc.

Treasury Bills:
The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury Bill holder the full face value. The Treasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns.

Certificate of Deposit:
The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk. Advantages of Certificate of Deposit as a money market instrument
Since one can know the returns from before, the certificates of deposits are

considered much safe.

One can earn more as compared to depositing money in savings account.

They are very safe since the financial situation of the corporation can be anticipated over a few months.

Banker's Acceptance: I
It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker's Acceptance is traded in the Secondary market. The banker's acceptance is mostly used to finance exports, imports and other transactions in goods. The banker's acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable.
37

REPO:
The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due government backing

BONDS
A bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity). Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. There are various types of bonds which are available in the market.

Convertible Bond
This lets a bondholder exchange a bond to a number of shares of the issuers common stock.

Exchangeable Bond
This allows for exchange to shares of a corporation other than the issuer.

Fixed Rate Bonds

which have a coupon that remains constant throughout the life of the bond

Zero Coupon Bonds

The bonds which do not pay any interest. They trade at a substantial discount from par value. The bond holder receives the full principal amount as well as value that has accrued on the redemption date. An example of zero coupon bonds are Series E savings bonds issued by the U.S. government Zero coupon bonds may be created from fixed rate bonds by financial institutions by "stripping off" the coupons. In other words, the coupons are separated from the final principal payment of the bond and traded independently. .

Bearer Bond
38

The bonds which are an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen.

Bonds Issued By Foreign Company

Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies as it may appear to be more stable and predictable than their domestic currency. Issuing bonds denominated in foreign currencies also gives issuers the ability to access investment capital available in foreign markets. The proceeds from the issuance of these bonds can be used by companies to break into foreign markets, or can be converted into the issuing company's local currency to be used on existing operations. Foreign issuer bonds can also be used to hedge Foreign exchange rate risk. Some of these bonds are called by their nicknames, such as the "samurai bond."

RBI Relief Bonds

RBI Relief Bonds are instruments that are issued by the RBI, and currently carry an 8.5 per cent rate of interest, which was reduced from 9 per cent early this year. The interest is compounded half-yearly. Maturity period of RBI Bonds is five years, and interest received is tax-free in the hands of the investor. you can opt to receive interest either on a half-yearly basis or on maturity of the instrument, along with the principal invested. If you opt for the first option, i.e., to receive interest on a half-yearly basis, you will receive interest every six months from the date of issue of the bond up to 30th June or 31st December, whichever is earlier. Interest is paid on 1st July and 1st January each year. The RBI Relief Bond continues to be one of the most popular investment instruments in the country today. It is very attractive for a variety of reasons: The Relief Bond comes closest to being risk free among all investment instruments. Attractive interest rate of 8% pa for 5 years (as compared to a 10 year G-Sec which offers only about 6.5%).The interest income is totally tax free. Examples of relief bonds are: a) Infrastructure Bonds under Section 88 of the Income Tax Act, 1961 b) Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961 c) RBI Tax Relief Bonds

MUTUAL FUND:
39

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy. The ne t asset value of the fund is the cumulative market value of the assets fund net of its ies. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit".

Calculation Of NAV:
The most important part of the calculation is the valuation of the asset owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value = sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid Details on the above items for liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc.
40

BENEFITS OF INVESTING IN MUTUAL FUNDS: Professional management:

Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification:
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration:
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient

Return Potential:
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

Transparency
41

You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Choice Of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI

Types of Mutual Fund

Mutual fund schemes may be classified on the basis of its structure and its investment objective. By Structure: they are two types of Mutual Funds

Open-ended Funds:
An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. .The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund

42

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

Closed-ended Funds:
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

Interval Funds:
Interval funds combine the features of open-ended and close endedschemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective:
Different types of funds are available in the market some of them are discussed over here

Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

Income Funds
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income
43

securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

MEASURING EXPECTED RETURN AND RISK Risk premiums

Investor assume risk so that they are rewarded in the form of higher return. Hence risk premium may be defined as the additional return investor expect to get , investor earned in the past, for assuming additional risk . risk premium may be calculated between two classes of securities that differ in their risk level.

There are three well known risk premiums: Equity Risk Premium: equity stocks as a class and the risk free rate represented commonly
by the return on treasury bills.

44

Bond Origin Premium: This is the difference between the return on long term government
bonds and the return on treasury bills.

Bond Default Premium: This is the difference between the return on long term scorporate
bonds (which have some probability of default) and the return on long term government bonds (which are free from default risk) .

SECURITY ANALYSIS AND VALUATIONS

1. FUNDAMENTAL ANALYSIS
A method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price in hopes of figuring out what sort of position to take with that security (under priced = buy, overpriced = sell or short). For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors, such as interest rates and the overall state of the economy, and information about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this method uses revenues, earnings, future growth, return on equity, profit margins and other data to determine a company's underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on the financial statements of a the company being evaluated. The biggest part of fundamental analysis involves delving into the financial statements. Also known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's future performance. A good part of this tutorial will be spent learning about the balance sheet, income statement, cash flow statement and how they all fit together.
45

When talking about stocks, fundamental analysis is a technique that attempts to determine a securitys value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements.

Why fundamental analysis :

Is the companys revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out its competitors in the future? Is it able to repay its debts? Is management trying to "cook the books"?

Fundamentals: Quantitative and Qualitative

The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isnt all that different from their regular definitions.

Qualitative It is related to or based on the quality or character of something, often

as opposed to its size or quantity. These are the less tangible factors surrounding a business - things such as the quality of a companys board members and key executives, its brand-name recognition, patents or proprietary technology

Quantitative Quantitative fundamentals are numeric, measurable characteristics

about a business. Its easy to see how the biggest source of quantitative data is the financial statements. You can measure revenue, profit, assets and more with great precision.

QUALITATIVE FACTORS : The Industry

46

Each industry has differences in terms of its customer base, market share among firms, industrywide growth, competition, regulation and business cycles. Learning about how the industry works will give an investor a deeper understanding of a company's financial health.

Customers
Some companies serve only a handful of customers, while others serve millions. In general, it's a red flag (a negative) if a business relies on a small number of customers for a large portion of its sales because the loss of each customer could dramatically affect revenues.

Market Share
Understanding a company's present market share can tell volumes about the company's business. The fact that a company possesses an 85% market share tells you that it is the largest player in its market by far. Furthermore, this could also suggest that the company possesses some sort of "economic moat," in other words, a competitive barrier serving to protect its current and future earnings, along with its market share. Market share is important because of economies of scale. When the firm is bigger than the rest of its rivals, it is in a better position to absorb the high fixed costs of a capital-intensive industry.

Industry Growth
One way of examining a company's growth potential is to first examine whether the amount of customers in the overall market will grow. This is crucial because without new customers, a company has to steal market share in order to grow. In some markets, there is zero or negative growth, a factor demanding careful consideration.

Competition
Simply looking at the number of competitors goes a long way in understanding the competitive landscape for a company. Industries that have limited barriers to entry and a large number of competing firms create a difficult operating environment for firms. One of the biggest risks within a highly competitive industry is pricing power. This refers to the ability of a supplier to increase prices and pass those costs on to customers. Companies operating in industries with few alternatives have the ability to pass on costs to their customers. A great example of this is Wal-Mart. They are so dominant in the retailing business, that WalMart practically sets the price for any of the suppliers wanting to do business with them. If you
47

want to sell to Wal-Mart, you have little, if any, pricing power.

Regulation
Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. As important as some of these regulations are to the public, they can drastically affect the attractiveness of a company for investment purposes.

GDP
The monetary value of all the finished goods and services produced within a country's
borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX
where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital

"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

Inflation:
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. As the inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year. Most countries' central banks will try to sustain an inflation rate of 2-3%.

QUANTITATIVE FACTORS : Financial Statements

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Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use the quantitative information gleaned from financial statements to make investment decisions. Before we jump into the specifics of the three most important financial statements - income statements, balance sheets and cash flow statements - we will briefly introduce each financial statement's specific function, along with where they can be found.

The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities and equity at a particular point in time. The balance sheet is named by the fact that a business's financial structure balances in the following manner: Assets = Liabilities + Shareholders' Equity

Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery and buildings. The other side of the equation represents the total value of the financing the company has used to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity represents the total value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years.

The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. The income statement presents information about revenues, expenses and profit that was generated as a result of the business' operations for that period.

Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over a
49

period of time. Typically, a statement of cash flows focuses on the following cash-related activities:

Operating Cash Flow (OCF): Cash generated from day-to-day business operations Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or long-term assets Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds

The cash flow statement is important because it's very difficult for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason some investors use the cash flow statement as a more conservative measure of a company's performance.

Balance Sheet's Main Three

Assets, liability and equity are the three main components of the balance sheet. Carefully analyzed, they can tell investors a lot about a company's fundamentals. Assets There are two main types of assets: current assets and non-current assets. Current assets are likely to be used up or converted into cash within one business cycle - usually treated as twelve months. Three very important current asset items found on the balance sheet are: cash, inventories and accounts receivables. Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash offers protection against tough times, and it also gives companies more options for future growth. Growing cash reserves often signal strong company performance. Indeed, it shows that cash is accumulating so quickly that management doesn't have time to figure out how to make use of it Liabilities There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt. You usually want to see a manageable amount of debt. When debt levels are falling, that's a good
50

sign. Generally speaking, if a company has more assets than liabilities, then it is in decent condition. By contrast, a company with a large amount of liabilities relative to assets ought to be examined with more diligence. Having too much debt relative to cash flows required to pay for interest and debt repayments is one way a company can go bankrupt.

Equity Equity represents what shareholders own, so it is often called shareholder's equity. As described above, equity is equal to total assets minus total liabilities. Equity = Total Assets Total Liabilities

The two important equity items are paid-in capital and retained earnings. Paid-in capital is the amount of money shareholders paid for their shares when the stock was first offered to the public. It basically represents how much money the firm received when it sold its shares. In other words, retained earnings are a tally of the money the company has chosen to reinvest in the business rather than pay to shareholders. Investors should look closely at how a company puts retained capital to use and how a company generates a return on it. Most of the information about debt can be found on the balance sheet - but some assets and debt obligations are not disclosed there. For starters, companies often possess hard-to-measure intangible assets. Corporate intellectual property (items such as patents, trademarks, copyrights and business methodologies), goodwill and brand recognition are all common assets in today's marketplace. But they are not listed on company's balance sheets. There is also off-balance sheet debt to be aware of. This is form of financing in which large capital expenditures are kept off of a company's balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep the debt levels low. Ther some fundamental ratios to analysis the investment. Some of them are follows.

Profitability Ratios:

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A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Profit margin
Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control.

Price-Earnings Ratio - P/E Ratio

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as:

For example, if a company is currently trading at rs.43 a share and earnings over the last 12 months were Rs.1.95 per share, the P/E ratio for the stock would be 22.05 (Rs.43/ Rs 1.95). EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third
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variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay Rs. 20 for Rs 1 of current earnings

Return on Equity ROE

A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as:

The ROE is useful for comparing the profitability of a company to that of other firms in the
same industry. There are several variations on the formula that investors may use: 1. Investors wishing to see the return on common equity may modify the formula above by subtracting preferred dividends from net income and subtracting preferred equity from shareholders' equity, giving the following: return on common equity (ROCE) = net income preferred dividends / common equity. 2. Return on equity may also be calculated by dividing net income by average shareholders' equity. Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a period to the shareholders' equity at period's end and dividing the result by two.

Earnings per Share EPS

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The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Calculated as:

In the EPS calculation, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time For example, assume that a company has a net income of rs.25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be or example, assume that a company has a net income of rs.25 million. If the company pays out or example, assume that a company has a net income of rs.25 million. If the company pays out rs.1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be rs.1.92 (24/12.5). First, the rs.1 million is deducted from the net income to get rs.24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M). An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation.

LIQUIDITY RATIO
A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short-term debts in an emergency.
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Current ratio
A liquidity ratios are that measures a company's ability to pay short-term obligations. Calculated as:

The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

Other ratio:
Stockholders' Equity Ratio
Stockholders' Equity Ratio = Stockholders' Equity Total Assets Relative financial strength and long-run liquidity are approximated with this calculation. A low ratio points to trouble, while a high ratio suggests you will have less difficulty meeting fixed interest charges and maturing debt obligations. Total Debt to Net Worth Total Debt to Net Worth Ratio = Current + Deferred Debt Tangible Net Worth Rarely should your business's total liabilities exceed its tangible net worth. If it does, creditors assume more risk than stockholders. A business handicapped with heavy interest charges will likely lose out to its better financed competitors.

DERIVATIVES
A Financial Instrument that derives its value from an underlying security. In other words, a derivative is a financial instrument that is derived from an underlying asset's value; rather than
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trade or exchange the asset itself, market participants enter into an agreement to exchange money, assets or some other value at some future date based on the underlying asset. Examples of assets could be anything from bars of gold, to a stock, or even an interest rate. A simple example is a futures contract: an agreement to exchange the underlying asset (or equivalent cash flows) at a future date. The exact terms of the derivative (the payments between the counterparties) depend on, but may or may not exactly correspond to, the behavior or performance of the underlying asset.

Why Derivatives?
The advantage of derivatives are two: leverage and liquidity The uses are three: speculation, hedging and arbitrage.

USAGES Insurance and hedging

One use of derivatives is as a tool to transfer risk. For example, farmers can sell futures contracts on a crop to a speculator before the harvest. The farmer offloads (or hedges) the risk that the price will rise or fall, and the speculator accepts the risk with the possibility of a large reward. The farmer knows for certain the revenue he will get for the crop that he will grow; the speculator will make a profit if the price rises, but also risks a loss if the price falls. It is not uncommon for farmers to walk away smiling when they have lost out in the derivatives market as the result of a hedge. In this case, they have profited from the real market from the sale of their crops. Contrary to popular belief, financial markets are not always a zero-sum game. This is an example of a situation where both parties in a financial markets transaction benefit.

Speculation and arbitrage

Of course, speculators may trade with other speculators as well as with hedgers. In most financial derivatives markets, the value of speculative trading is far higher than the value of true hedge trading. As well as outright speculation, derivatives traders may also look for arbitrage opportunities between different derivatives on identical or closely related underlying securities.

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Derivatives such as options, futures, or swaps, generally offer the greatest possible reward for betting on whether the price of an underlying asset will go up or down. Other uses of derivatives are to gain an economic exposure to an underlying security in situations where direct ownership of the underlying is too costly or is prohibited by legal or regulatory restrictions, or to create a synthetic short position. In addition to directional plays (i.e. simply betting on the direction of the underlying security), speculators can use derivatives to place bets on the volatility of the underlying security. This technique is commonly used when speculating with traded options.

Types of Derivatives

Forwards Futures
Options

FORWARDS : A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk, for example currency exposure risk (e.g. forward contracts on USD or EUR) or commodity prices (e.g. forward contracts on oil). One party agrees to sell, the other to buy, for a forward price agreed in advance. In a forward transaction, no actual cash changes hands. If the transaction is collaterised, exchange of margin will take place according to a pre-agreed rule or schedule. Otherwise no asset of any kind actually changes hands, until the maturity of the contract. The forward price of such a contract is commonly contrasted with the spot price, which is the price at which the asset changes hands (on the spot date, usually two business days). The difference between the spot and the forward price is the forward premium or forward discount.A standardized forward contract that is traded on an exchange is called a futures contract. The forward price of such a contract is commonly contrasted with the spot price, which is the price at which the asset changes hands (on the spot date, usually two business days). The difference between the spot and the forward price is the forward premium or forward discount.

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Futures A standardized forward contract that is traded on an exchange is called a futures

contract.

What It Is:
Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. The assets often traded in futures contracts include commodities, stocks, and bonds. Grain, precious metals, electricity, oil, beef, orange juice, and natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bandwidth, and certain financial instruments are also part of today's commodity markets.There are two kinds of futures traders: HEDGERS AND SPECULATORS Hedgers do not usually seek a profit by trading commodities futures but rather seek to stabilize the revenues or costs of their business operations. Their gains or losses are usually offset to some degree by a corresponding loss or gain in the market for the underlying physical commodity. Speculators are usually not interested in taking possession of the underlying assets. They essentially place bets on the future prices of certain commodities. Thus, if you disagree with the consensus that wheat prices are going to fall, you might buy a futures contract. If your prediction is right and wheat prices increase, you could make money by selling the futures contract (which is now worth a lot more) before it expires (this prevents you from having to take delivery of the wheat as well). Speculators are often blamed for big price swings, but they also provide liquidity to the futures market. Futures contracts are standardized, meaning that they specify the underlying commodity's quality, quantity, and delivery so that the prices mean the same thing to everyone in the market. For example, each kind of crude oil (light sweet crude, for example) must meet the same quality specifications so that light sweet crude from one producer is no different from another and the buyer of light sweet crude futures knows exactly what he's getting. Futures exchanges depend on clearing members to manage the payments between buyer and seller. They are usually large banks and financial services companies. Clearing members guarantee each trade and thus require traders to make good-faith deposits (called margins) in order to ensure that the trader has sufficient funds to handle potential losses and will not default
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on the trade. The risk borne by clearing members lends further support to the strict quality, quantity, and delivery specifications of futures contracts. REGULATION: The Commodity Futures Trading Commission (CFTC) regulates commodities futures trading through its enforcement of the Commodity Exchange Act of 1974 and the Commodity Futures Modernization Act of 2000. The CFTC works to ensure the competitiveness, efficiency, and integrity of the commodities futures markets and protects against manipulation, abusive trading, and fraud. FUTURES EXCHANGE: There are several futures exchanges. Common ones include The New York Mercantile Exchange, the Chicago Board of Trade, the Chicago Mercantile Exchange, the Chicago Board of Options Exchange, the Chicago Climate Futures Exchange. Why It Matters: Futures are a great way for companies involved in the commodities industries to stabilize their prices and thus their operations and financial performance. Futures give them the ability to "set" prices or costs well in advance, which in turn allows them to plan better, smooth out cash flows, and communicate with shareholders more confidently. Futures trading is a zero-sum game; that is, if somebody makes a million dollars, somebody else loses a million dollars. Because futures contracts can be purchased on margin, meaning that the investor can buy a contract with a partial loan from his or her broker, futures traders have an incredible amount of leverage with which to trade thousands or millions of dollars worth of contracts with very little of their own money. These are similar to forwards in length of time. However, profits and losses are recognized at the close of business daily, Mark-tomarket. Transactions go through a clearinghouse to reduce default risk. 90% of all futures contracts are delivered to someone other than the original buyer.

OPTIONS
Options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. More specifically, a call option is an agreement in which the buyer (holder) has the right (but not the obligation) to exercise by buying an asset at a set price (strike price) on (for a European style option) or not later than (for an American style option) a future
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date (the exercise date or expiration); and the seller (writer) has the obligation to honor the terms of the contract. A put option is an agreement in which the buyer has the right (but not the obligation) to exercise by selling an asset at the strike price on or before a future date; and the seller has the obligation to honor the terms of the contract. Since the option gives the buyer a right and the writer an obligation, the buyer pays the option premium to the writer. The buyer is considered to have a long position, and the seller a short position. For every open contract there is a buyer and a seller. An Option is the right, not the obligation to buy or sell an underlying instrument.

OPTION TERMS

Put: the right to sell @ a certain price Call: the right to buy @ a certain price Long: to purchase the option Short: to sell or write the option Bullish: feel the value will increase Bearish: feel the value will decrease
Strike/Exercise Price: Price the option can be bought or sold.

Important terms in options

1. Strike Price - This is the stated price per share for which an underlying stock may be

purchased (for a call) or sold (for a put) upon the exercise of the option contract.
2. Expiry Date - This is the termination date of an option contract. 3. Volume - This indicates the total number of options contracts traded for the day. 4. Bid - This indicates the price someone is willing to pay for the options contract. 5. Ask - This indicates the price at which someone is willing to sell an options contract. 6. Open Interest - This is the number of options contracts that are open; these are contracts

that have neither expired nor been exercised.

7. Underlying Security- An equity option's underlying security is the stock that will change

hands when the option is exercised. An option is classified as a derivative security because its value is derived from the value and characteristics of this underlying stock
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8. Unit of Trade- An option's unit of trade (which is sometimes referred to as its contract

size) is simply the number of shares that change hands when its holder chooses to exercise the contract. Generally this unit is a standardized 100 shares of the option's underlying stock.

Opportunities for Investors in Options

1. Flexibility. Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply "the stock will go up" or "the stock will go down." 2. Leverage. An investor can gain leverage in a stock without committing to a trade. 3. Limited Risk and unlimited returns. Risk is limited to the option premium (except when writing options for a security that is not already owned). 4. Hedging. Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying position. Risks for Investors in Options Trading 1. Costs: The costs of trading options (including both commissions and the bid/ask spread) is significantly higher on a percentage basis than trading the underlying stock, and these costs can drastically eat into any profits. 2. Liquidity: With the vast array of different strike prices available, some will suffer from very low liquidity making trading difficult. 3. Complexity: Options are very complex and require a great deal of observation and maintenance. 4. Time decay: The time-sensitive nature of options leads to the result that most options expire worthless. This only applies to those traders that purchase options - those selling collect the premium but with unlimited risk some option positions, such as writing uncovered options, are accompanied by unlimited risk.

Option are two types ie. calls and put

Calls : A call option is a financial contract between two parties, the buyer and theseller of this
type of option. Often it is simply labeled a "call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the
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underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. The buyer of a call option wants the price of the underlying instrument to rise in the future; the

seller either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for (a) the premium (paid immediately) plus (b) retaining the opportunity to make a gain up to the strike price (see below for examples). Call options are most profitable for the buyer when the underlying instrument is moving up, making the price of the underlying instrument closer to the strike price. When the price of the underlying instrument surpasses the strike price, the option is said to be "in the money". The initial transaction in this context (buying/selling a call option) is not the supplying of a physical or financial asset (the underlying instrument). Rather it is the granting of the right to buy the underlying asset, in exchange for a fee - the option price or premium. Exact specifications may differ depending on option style. A European call option allows the holder to exercise the option (i.e., to buy) only on the option expiration date. An American call option allows exercise at any time during the life of the option. Call options can be purchased on many financial instruments other than stock in a corporation options can be purchased on futures on interest rates, for example (see interest rate cap) - as well as on commodities such as gold or crude oil. A tradeable call option should not be confused with either Incentive stock options or with a warrant. An incentive stock option, the option to buy stock in a particular company, is a right granted by a corporation to a particular person (typically executives) to purchase treasury stock. When an incentive stock option is exercised, new shares are issued. Incentive stock options are not traded on the open market. In contrast, when a call option is exercised, the underlying asset is transferred from one owner to another.

Buy a call: buyer expects that the price may go up.

Pays a premium that buyer will never get back. Buyer has the right to exercise the option at the strike price.

Write a call: writer receives the premium..

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if buyer decides to exercise the option, writer has to sell the stock at the strike price. Example of a call option on a stock: An investor buys a call on a stock with a strike price of 50 and an option expiration date of June 16, 2006 and pays a premium of 5 for this call option. The current price is 40. Assume that the share price (the spot price) rises, and is 60 on the strike date. The investor would exercise the option (i.e., buy the share from the counter-party), and could then hold the share, or sell it in the open market for 60. The profit would be 10 minus the fee paid for the option, 5, for a net profit of 5. The investor has thus doubled his money, having paid 5 and ending up with 10. If however the share price never rises to 50 (that is, it stays below the strike price) up through the exercise date, then the option would expire as worthless. The investor loses the premium of 5. Thus, in any case, the loss is limited to the fee (premium) initially paid to purchase the stock, while the potential gain is theoretically unlimited (consider if the share price rose to 100).From the viewpoint of the seller, if the seller thinks the stock is a good one, (s)he is better (in this case) by selling the call option, should the stock in fact rise. However, the strike price (in this case, 50) limits the seller's profit. In this case, the seller does realize the profit up to the strike price (that is, the 10 rise in price, from 40 to 50, belongs entirely to the seller of the call option), but the increase in the stock price thereafter goes entirely to the buyer of the call option. Prior to exercise, the option value, and therefore price, varies with the underlying price and with time. The call price must reflect the "likelihood" or chance of the option "finishing in-themoney". The price should thus be higher with more time to expiry (except in cases when a significant dividend is present) and with a more volatile underlying instrument. The buyer and seller must agree on the initial value (the premium), otherwise the exchange (buy/sell) of the option will not take place.(Option Premium)

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Fig.3.4 call option graph

Buying a call option : This is a graphical interpretation of the payoffs and profits generated by a call option as seen by the buyer. A higher stock price means a higher profit. Eventually, the price of the underlying security will be high enough to fully compensate for the price of the option.

fig.3.5 call option graph

Writing a call option - This is a graphical interpretation of the payoffs and profits generated
by a call option as seen by the writer of the option. Profit is maximized when the strike price exceeds the price of the underlying security, because the option expires worthless and the writer keeps the premium.

Long a call. Person buys the right (a contract) to buy an asset at a cretin price. They feel that
the price in the future will exceed the strike price. This is a Bullish position.

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Short a Call. Person sells the right (a contract) to someone that allows them to buy a asset at a
cretin price. The writer feels that the asset will devalue over the time period of the contract. This person is Bearish on that asset.

PUTS : A put option (sometimes simply called a "put") is a financial contract between two
parties, the buyer and the writer (seller) of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer (seller) of the option at a certain time for a certain price (the strike price). The writer (seller) has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option. Note:That the writer of the option is agreeing to buy the underlying asset if the buyer exercises the option. In exchange for having this option, the buyer pays the writer (seller) a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus taking a short position in the option, they are not the only sellers. An option holder can also sell his long position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price, whereas the option holder is merely selling his long position, and is not contractually obligated by the sold option.) Exact specifications may differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration. An American put option allows exercise at any time during the life of the option. The most widely-known put option is for stock in a particular company. However, options are traded on many other assets: financial - such as interest rates (see interest rate floor) - and physical, such as gold or crude oil. The put buyer either believes its likely the price of the underlying asset will fall by the exercise date, or hopes to protect a long position in the asset. The advantage of buying a put over shorting the asset is that the risk is limited to the premium. The put writer does not believe the price of the underlying security is likely to fall. The writer sells the put to collect the premium. Puts can also be used to limit portfolio risk, and may be part of an option spread
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Buy a Put: Buyer thinks price of a stock will decrease.

Pay a premium which buyer will never get back. The buyer has the right to sell the at strike price.

Write a put: Writer receives a premium, if buyer exercises the Option, writer will buy the
stock at strike price, If buyer does not exercise the option, Writers profit is premium

Example of a put option on a stock I purchase a put contract to sell 100 shares of XYZ Corp. for 50. The current price is 55, and I pay a premium of 5. If the price of XYZ stock falls to 40 per share right before expiration, then I can exercise my put by buying 100 shares for 4,000, then selling it to a put writer for 5,000. My total profit would equal 500 (5,000 from put writer - 4,000 for buying the stock - 500 for buying the put contract of 100 shares at 5 per share, excluding commissions). If, however, the share price never drops below the strike price (in this case, 50), then I would not exercise the option. (Why sell a stock to someone at 50, the strike price, if it would cost me more than that to buy it?) My option would be worthless and I would have lost my whole investment, the fee (premium) for the option contract, 500 (5 per share, 100 shares per contract). My total loss is limited to the cost of the put premium plus the sales commission to buy it. This example illustrates that the put option has positive monetary value when the underlying instrument has a spot price (S) below the strike price (K). Prior to exercise, the option value, and therefore price, varies with the underlying price and with time. The put price must reflect the "likelihood" or chance of the option "finishing in-themoney". The price should thus be higher with more time to expiry, and with a more volatile underlying instrument. The buyer and seller must agree on this value initially.

Buying a put option - This is a graphical interpretation of the payoffs and profits generated
by a put option as seen by the buyer of the option. A lower stock price means a higher profit. Eventually, the price of the underlying security will be low enough to fully compensate for the price of the option.

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fig.3.6 :buy option graph

Writing a put option - This is a graphical interpretation of the payoffs and profits generated
by a put option as seen by the writer of the option. Profit is maximized when the price of the underlying security exceeds the strike price, because the option expires worthless and the writer keeps the premium. Long a Put. Buy the right to sell an asset at a pre-determined price. You feel that the asset will devalue over the time of the contract. Therefore you can sell the asset at a higher price than is the current market value. This is a bearish position.

Short a Put. Sell the right to someone else. This will allow them to sell the asset at a specific
price. They feel the price will go down and you do not. This is a bullish position.

What is the difference between a futures contract and a contract

forward

Both a futures contract and a forward contract are used to hedge investments. They trade securities, currencies, or commodities contracts that settle on a future date. Since the trading is of contracts and not the actual instruments these trades are referred to as derivative trading. In the confusing world of derivative trading it is important to know exactly what you are investing in and how. Although very similar a futures contract and a forward contract have some distinct differences.A futures contract is a type of financial contract where two parties come to an agreement on a future transaction. The buyer of the futures contract agrees to buy a commodity at a certain future date for a specific price. Most futures contracts do not actually end with a transfer of the physical commodity. Futures contracts, like most derivatives, are often used to hedge an investment. The
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accounts are settled daily in the cash market. The potential for gain is virtually unlimited but so is the potential for loss. For example, suppose you believe that this year Hawaii will produce a poor crop of coffee. Currently on the commodities market coffee is trading at 5 dollars a pound. You agree to buy 1000 pounds of coffee in two months at 5 dollars a pound, 5000 dollars. The coffee grower agrees to sell you those 1000 pounds in two months. Fifteen days later ideal conditions lead investors to believe there will be a bumper crop, the price of coffee drops. What happened? You agreed to buy at 5 dollars; coffee is now trading at 3 dollars. Your account, which is settled daily, has been debited 2 dollars a pound, 2000 dollars. You could call it quits and settle, loosing the 2000 dollars or you could await the end of the contract and hope a hurricane comes and ruins the crop driving up prices. A forward contract is very similar. It allows for a buyer to contract to buy at a later date at a specific price. In contrast, however, the forward contract is not traded on an exchange, which means that it is not settled in cash daily. Returning to our example, on that fifteenth day you, the buyer, would not see a decline in your cash account of 2000 dollars. You would simply be anxiously hoping for a recovery of the price of coffee so that on day 30 you can make a profit.Futures are common in the FOREX market where companies and organizations use currency futures to hedge against the change in a currencies value. For example, if you have agreed to accept payment in Yen on a day two months in the future you may purchase a future contract on the Japanese Yen. You would want to be guaranteed that you could sell those Yen for a specific USD amount. Whether the value of the Yen rises or falls you now have the guarantee that you will not make any less than the value of your contract.Commodity futures trading and forward contracts can be very risky. The assistance of commodity futures brokers can be invaluable. Commodity trading using futures and forwards are not for novice investors.

BSE SENSEX 30 FUTURE HOW TO PURCHASES

Step 1 You feel that the Sensex will close at 5000 on the last Thursday of July (all the contracts whether for one month, two month or three month expire on the last Thursday of the month) for the one month contract. Then, you have to choose the minimum quantity of transaction akin to market lot in the spot market. In the case of the Sensex, it is fixed at 50 times the index. In other words, you are required to buy a minimum of 50 contracts of Sensex futures. Step 2 At this stage, you have to calculate what is called the Tick size which is nothing but the
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minimum movement of the Sensex futures. This is taken at 0.1 percent which is equivalent to Rs.5. That is to say, the price of each contract is Rs.5. Step 3 You decide to buy 50 July contracts of Sensex futures. With the Sensex futures for July pegged at 5000, your contract value is Rs.12.5 lacks (5000 x 50 (contracts) x Rs.5) Step 4 You are not required to pay the entire money now as all that is needed from you is the initial margin which is fixed at 5 percent. i.e., Rs.62,500 on the total value of the contract of Rs.12.5 lacks. Step 5 On the next trading day, if the Sensex rises to 5200, your July futures contract will have gained 200 points and you will have made a profit of Rs.50, 000 (200 x 50 x 5) which the seller will pay you. On the other hand, if the Sensex falls by a similar margin, you are obliged to pay the seller a similar sum. Step 6 This kind of transaction can be undertaken on a daily basis till the July contract expires. Alternatively, you can carry on in this fashion till the final settlement is done. Step 7 When the final settlement falls due, one fact must be borne in mind. On this day, the actual Sensex is related to the Sensex futures of the preceding day, which is the last Thursday of July. Even if the actual Sensex is at 5400 while the Sensex futures is fixed at 5200, you stand to gain Rs.50, 000 (200 x 50 x 5), this being the sum payable by the seller

Portfolio Management
Portfolio (finance)
In finance, a portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.

Management
Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected return from portfolios comprised of different asset bundles are
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compared. The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than other Some of the financial models used in the process of Valuation, stock selection, and management of portfolios include:

Maximizing return, given an acceptable level of risk. Modern portfolio theorya model proposed by Harry Markowitz among others. The single-index model of portfolio variance. Capital asset pricing model. Arbitrage pricing theory. The Jensen Index. The Sharpe Diagonal (or Index) model

Returns
Portfolio returns can be calculated either in absolute manner or in relative manner. Absolute return calculation is very straight forward, where return is calculated by considering total investment and total final value. Time duration and cash flow in portfolio doesn't influence final return.

To calculate more accurate return of your investments you have to use complicated statistical models like Internal rate of return or Modified Internal Rate of Return. The only problem with these models are that, they are very complicated and very difficult to compute by pen and paper. You need to have scientific calculator or some software. Both of these model consider all cash flow(Money In/Money Out) and provide more accurate returns than absolute return. Time is a major factor in these models.

Market Portfolio
A market portfolio is a portfolio consisting of a weighted sum of every asset in the market, with weights in the proportions that they exist in the market (with the necessary assumption that these assets are infinitely divisible). Richard Roll's critique (1977) states that this is only a theoretical concept, as to create a market portfolio for investment purposes in practice would necessarily include every single possible available asset, including real estate, precious metals, stamp collections, jewelry, and anything with any worth, as the theoretical market being referred to would be the world market. As a result, proxies for the market (such as the FTSE100 in the UK or the S&P500 in the US) are used in practice by investors. Roll's critique states that these proxies cannot provide an accurate representation of the entire market. The concept of a market portfolio plays an important role in many financial theories and models, including the Capital asset pricing model where it is the only fund in which investors need to invest, to be supplemented only by a risk-free asset (depending upon each investor's attitude towards risk).

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Capital Asset Pricing Model - CAPM

A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

Assumptions of CAPM

All investors have rational expectations. There are no arbitrage opportunities. Returns are distributed normally. Fixed quantity of assets. Perfectly efficient capital markets. Investors are solely concerned with level and uncertainty of future wealth Separation of financial and production sectors. Thus, production plans are fixed. Risk-free rates exist with limitless borrowing capacity and universal access. The Risk-free borrowing and lending rates are equal. No inflation and no change in the level of interest rate exists. Perfect information, hence all investors have the same expectations about security returns for any given time period.

The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. The time value of money is represented by the risk-free (rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. The other half of the formula represents risk and calculates the amount of compensation the investor needs for taking on additional risk. This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium. Using the CAPM model and the following assumptions, we can compute the expected return of a stock: if the risk-free rate is 3%, the beta (risk measure) of the stock is 2 and the expected market return over the period is 10%, the stock is expected to return 17%(3%+2(10%-3%)).capital asset pricing model

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Fig.3.7: risk free rate of return The Security Market Line, seen here in a graph, describes a relation between the beta and the asset's expected rate of return.

The Capital Asset Pricing Model (CAPM) is used in finance to determine a theoretically appropriate required rate of return (and thus the price if expected cash flows can be estimated) of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The CAPM formula takes into account the asset's sensitivity to nondiversifiable risk (also known as systematic risk or market risk), in a number often referred to as beta () in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. The model was introduced by Jack Treynor, William Sharpe, John Lintner and Jan Mossin independently, building on the earlier work of Harry Markowitz on diversification and modern portfolio theory. Sharpe received the Nobel Memorial Prize in Economics (jointly with Harry Markowitz and Merton Miller) for this contribution to

The formula
The CAPM is a model for pricing an individual security (asset) or a portfolio. For individual security perspective, we made use of the security market line (SML) and its relation to expected return and systematic risk (beta) to show how the market must price individual securities in relation to their security risk class. The SML enables us to calculate the reward-to-risk ratio for any security in relation to that of the overall market. Therefore, when the expected rate of return for any security is deflated by its beta coefficient, the reward-to-risk ratio for any individual security in the market is equal to the market reward-to-risk ratio, thus: Individual securitybeta = Markets securities (portfolio)
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Reward-to-risk ratio =

, The market reward-to-risk ratio is effectively the market risk premium and by rearranging the above equation and solving for E(Ri), we obtain the Capital Asset Pricing Model (CAPM).

Where:

is the expected return on the capital asset is the risk-free rate of interest (the beta coefficient) the sensitivity of the asset returns to market returns, or also,

is the expected return of the market is sometimes known as the market premium or risk premium (the difference between the expected market rate of return and the risk-free rate of return). Note 1: the expected market rate of return is usually measured by looking at the arithmetic average of the historical returns on a market portfolio (i.e. S&P 500). Note 2: the risk free rate of return used for determining the risk premium is usually the arithmetic average of historical risk free rates of return and not the current risk free rate of return. An estimation of the CAPM and the Security Market Line (purple) for the Dow Jones Industrial Average over the last 3 years for monthly data.

Asset pricing
Once the expected return, E(Ri), is calculated using CAPM, the future cash flows of the asset can be discounted to their present value using this rate (E(Ri)), to establish the correct price for the asset. In theory, therefore, an asset is correctly priced when its observed price is the same as its value calculated using the CAPM derived discount rate. If the observed price is higher than the
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valuation, then the asset is overvalued (and undervalued when the observed price is below the CAPM valuation). Alternatively, one can "solve for the discount rate" for the observed price given a particular valuation model and compare that discount rate with the CAPM rate. If the discount rate in the model is lower than the CAPM rate then the asset is overvalued (and undervalued for a too high discount rate).

\Asset-specific required return

The CAPM returns the asset-appropriate required return or discount rate - i.e. the rate at which future cash flows produced by the asset should be discounted given that asset's relative riskiness. Betas exceeding one signify more than average "riskiness"; betas below one indicate lower than average. Thus a more risky stock will have a higher beta and will be discounted at a higher rate; less sensitive stocks will have lower betas and be discounted at a lower rate. The CAPM is consistent with intuition - investors (should) require a higher return for holding a more risky asset. Since beta reflects asset-specific sensitivity to non-diversifiable, i.e. market risk, the market as a whole, by definition, has a beta of one. Stock market indices are frequently used as local proxies for the market - and in that case (by definition) have a beta of one. An investor in a large, diversified portfolio (such as a mutual fund) therefore expects performance in line with the market.

Risk and diversification

Investors purchase financial assets such as shares of stock because they desire to increase their wealth, i.e., earn a positive rate of return on their investments. The future, however, is uncertain; investors do not know what rate of return their investments will realize. In finance, we assume that individuals base their decisions on what they expect to happen and their assessment of how likely it is that what actually occurs will be close to what they expected to happen. When evaluating potential investments in financial assets, these two dimensions of the decision making process are called expected return and risk. The concepts presented in this paper include the development of measures of expected return and risk on an indivdual financial asset and on a portfolio of financial assets, the principle of diversification, and the Captial Asset Pricing Model (CAPM).

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Expected Return
The future is uncertain. Investors do not know with certainty whether the economy will be growing rapidly or be in recession. As such, they do not know what rate of return their investments will yield. Therefore, they base their decisions on their expectations concerning the future. The expected rate of return on a stock represents the mean of a probability distribution of possible future returns on the stock. The table below provides a probability distribution for the returns on stocks A and B. Table3.1:return probability chart State Probability Return on Stock A Return on Stock B

1 2 3 3

20% 30% 30% 20%

5% 10% 15% 20%

50% 30% 10% -10%

In this probability distribution, there are four possible states of the world one period into the
future. For example, state 1 may correspond to a recession. A probability is assigned to each state. The probability reflects how likely it is that the state will occur. The sum of the probabilities must equal 100%, indicating that something must happen. The last two columns present the returns or outcomes for stocks A and B that will occur in the four states. Given a probability distribution of returns, the expected return can be calculated using the following equation:

where

E[R] = the expected return on the stock, N = the number of states, pi = the probability of state i, and Ri = the return on the stock in state i.

Expected Return on Stocks A and B Stock A

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Stock B

So we see that Stock B offers a higher expected return than Stock A. However, that is only part of the story; we haven't yet considered risk.

Measures of Risk - Variance and Standard Deviation

Risk reflects the chance that the actual return on an investment may be very different than the expected return. One way to measure risk is to calculate the variance and standard deviation of the distribution of returns. Consider the probability distribution for the returns on stocks A and B provided below.

Table3.2: Return probability chart

State 1 2 3 3 Probability 20% 30% 30% 20% Return on Stock A 5% 10% 15% 20% Return on Stock B 50% 30% 10% -10%

The expected returns on stocks A and B were calculated on the Expected Return page. The expected return on Stock A was found to be 12.5% and the expected return on Stock B was found to be 20%. Given an asset's expected return, its variance can be calculated using the following equation:

where

N = the number of states, pi = the probability of state i, 76

Ri = the return on the stock in state i, and E[R] = the expected return on the stock.

The standard deviation is calculated as the positive square root of the variance.

Variance and Standard Deviation on Stocks A and B Note: E[RA] = 12.5% and E[RB] = 20% Stock A

Stock B

Although Stock B offers a higher expected return than Stock A, it also is riskier since its variance and standard deviation are greater than Stock A's. This, however, is only part of the picture because most investors choose to hold securities as part of a diversified portfolio..

Portfolio Risk and Return

Most investors do not hold stocks in isolation. Instead, they choose to hold a portfolio of several stocks. When this is the case, a portion of an individual stock's risk can be eliminated, i.e., diversified away. This principle is presented on the Diversification page. First, the computation of the expected return, variance, and standard deviation of a portfolio must be illustrated. Once again, we will be using the probability distribution for the returns on stocks A and B. Table3.3:rReturn probabilitychart State 1 2 3 3 Probability 20% 30% 30% 20% Return on Stock A 5% 10% 15% 20% Return on Stock B 50% 30% 10% -10%

From the Expected Return and Measures of Risk pages we know that the expected return on Stock A is 12.5%, the expected return on Stock B is 20%, the variance on Stock A is .00263, the
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variance on Stock B is .04200, the standard deviation on Stock S is 5.12%, and the standard deviation on Stock B is 20.49%.

Portfolio Expected Return

The Expected Return on a Portfolio is computed as the weighted average of the expected returns on the stocks which comprise the portfolio. The weights reflect the proportion of the portfolio invested in the stocks. This can be expressed as follows:

where

E[Rp] = the expected return on the portfolio, N = the number of stocks in the portfolio, wi = the proportion of the portfolio invested in stock i, and E[Ri] = the expected return on stock i.

For a portfolio consisting of two assets, the above equation can be expressed as

Expected Return on a Portfolio of Stocks A and B Note: E[RA] = 12.5% and E[RB] = 20% Portfolio consisting of 50% Stock A and 50% Stock B

Portfolio consisting of 75% Stock A and 25% Stock B

Portfolio Variance and Standard Deviation

The variance/standard deviation of a portfolio reflects not only the variance/standard deviation of the stocks that make up the portfolio but also how the returns on the stocks which comprise the portfolio vary together. Two measures of how the returns on a pair of stocks vary together are the covariance and the correlation coefficient. The Covariance between the returns on two stocks can be calculated using the following equation:

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where

s12 = the covariance between the returns on stocks 1 and 2, N = the number of states, pi = the probability of state i, R1i = the return on stock 1 in state i, E[R1] = the expected return on stock 1, R2i = the return on stock 2 in state i, and E[R2] = the expected return on stock 2.

The Correlation Coefficient between the returns on two stocks can be calculated using the following equation:

where

r12 = the correlation coefficient between the returns on stocks 1 and 2, s12 = the covariance between the returns on stocks 1 and 2, s1 = the standard deviation on stock 1, and s2 = the standard deviation on stock 2.

Covariance and Correlation Coefficent between the Returns on Stocks A and B Note: E[RA] = 12.5%, E[RB] = 20%, sA = 5.12%, and sB = 20.49%.

Using either the correlation coefficient or the covariance, the Variance on a Two-Asset Portfolio can be calculated as follows:

The standard deviation on the portfolio equals the positive square root of the the variance. Variance and Standard Deviation on a Portfolio of Stocks A and B Note: E[RA] = 12.5%, E[RB] = 20%, sA = 5.12%, sB = 20.49%, and rAB = -1. Portfolio consisting of 50% Stock A and 50% Stock B

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Portfolio consisting of 75% Stock A and 25% Stock B

Notice that the portfolio formed by investing 75% in Stock A and 25% in Stock B has a lower variance and standard deviation than either Stocks A or B and the portfolio has a higher expected return than Stock A. This is the essence of Diversification, by forming portfolios some of the risk inherent in the individual stocks can be eliminated.

RISK RETURN TRADE OFF

The risk/return tradeoff could easily be called the "ability-to-sleep-at-night test." While some people can handle the equivalent of financial skydiving without batting an eye, others are terrified to climb the financial ladder without a secure harness. Deciding what amount of risk you can take while remaining comfortable with your investments is very important. In the investing world, the dictionary definition of risk is the chance that an investment's actual return will be different than expected. Technically, this is measured in statistics by standard
deviation. Risk means you have the possibility of losing some, or even all, of our original

investment. Low levels of uncertainty (low risk) are associated with low potential returns. High levels of uncertainty (high risk) are associated with high potential returns. The risk/return tradeoff is the balance between the desire for the lowest possible risk and the highest possible return. This is demonstrated graphically in the chart below. A higher standard deviation means a higher risk and higher possible return.

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Fig.3.8: risk return trade off

Diversification
A portfolio formed from risky securities can have a lower standard deviation than either of the individual securities. The benefits of diversification, i.e., the reduction in risk, depends upon the correlation coefficient (or covariance) between the returns on the securities comprising the portfolio. Consider stocks C and D. Stock C has an expected return of 8% and a standard deviation of 10%. Stock D has an expected return of 16% and a standard deviation of 20%. The concept of diversification will be illustrated by forming portfolios of stocks C and D under three different assumptions regarding the correlation coefficient between the returns on stocks C and D.

Correlation Coefficient = 1
The table below provides the expected return and standard deviation for portfolios formed from stocks C and D under the assumption that the correlation coefficient between their returns equals

Table3.4 expected return Weight of Stock C 100% 90% 80% 70% 60% 50% 40% 30% Portfolio Expected Return 8% 8.8% 9.6% 10.4% 11.2% 12% 12.8% 13.6% Portfolio Standard Deviation 10% 11% 12% 13% 14% 15% 16% 17%
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20% 10% 0%

14.4% 15.2% 16%

18% 19% 20%

Fig3.9 expected return graph When the correlation coefficient between the returns on two securities is equal to +1 the returns are said to be perfectly positively correlated. As can be seen from the table and the plot of the opportunity set, when the returns on two securities are perfectly positively correlated, none of the risk of the individual stocks can be eliminated by diversification. In this case, forming a portfolio of stocks C and D simply provides additional risk/return choices for investors.

Correlation Coefficient = -1 The table below provides the expected return and standard
deviation for portfolios formed from stocks C and D under the assumption that the correlation coefficient between their returns equals -1.

Table3.5 Expected Return on stock

Weight of Stock C 100% 90% 80% Portfolio Expected Return 8% 8.8% 9.6% Portfolio Standard Deviation 10% 7% 4%
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70% 66.67% 60% 50% 40% 30% 20% 10% 0%

10.4% 10.67% 11.2% 12% 12.8% 13.6% 14.4% 15.2% 16%

1% 0% 2% 5% 8% 11% 14% 17% 20%

Fig3.10: expected return graph

When the correlation coefficient between the returns on two securities is equal to -1 the returns are said to be perfectly negatively correlated or perfectly inversely correlated. When this is the case, all risk can be eliminated by investing a positive amount in the two stocks. This is shown in the table above when the weight of Stock C is 66.67%.

Shortcomings of CAPM
The model assumes that asset returns are (jointly) normally distributed random variables. It is however frequently observed that returns in equity and other markets are not normally

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distributed. As a result, large swings (3 to 6 standard deviations from the mean) occur in the market more frequently than the normal distribution assumption would expect. The model assumes that the variance of returns is an adequate measurement of risk. This might be justified under the assumption of normally distributed returns, but for general return distributions other risk measures (like coherent risk measures) will likely reflect the investors' preferences more adequately. The model does not appear to adequately explain the variation in stock returns. Empirical studies show that low beta stocks may offer higher returns than the model would predict. Some data to this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes. Either that fact is itself rational (which saves the efficient markets hypothesis but makes CAPM wrong), or it is irrational (which saves CAPM, but makes EMH wrong indeed, this possibility makes volatility arbitrage a strategy for reliably beating the market). The model assumes that given a certain expected return investors will prefer lower risk (lower variance) to higher risk and conversely given a certain level of risk will prefer higher returns to lower ones. It does not allow for investors who will accept lower returns for higher risk. Casino gamblers clearly pay for risk, and it is possible that some stock traders will pay for risk as well. The model assumes that all investors have access to the same information and agree about the risk and expected return of all assets. (Homogeneous expectations assumption) The model assumes that there are no taxes or transaction costs, although this assumption may be relaxed with more complicated versions of the model. The market portfolio consists of all assets in all markets, where each asset is weighted by its market capitalization. This assumes no preference between markets and assets for individual investors, and that investors choose assets solely as a function of their risk-return profile. It also assumes that all assets are infinitely divisible as to the amount which may be held or transacted. The market portfolio should in theory include all types of assets that are held by anyone as an investment (including works of art, real estate, human capital...) In practice, such a market portfolio is unobservable and people usually substitute a stock index as a proxy for the true market portfolio. Unfortunately, it has been shown that this substitution is not innocuous and can lead to false inferences as to the validity of the CAPM, and it has been said that due to the in
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absorbability of the true market portfolio, the CAPM might not be empirically testable. This was presented in greater depth in a paper by Richard Roll in 1977, and is generally referred to as Roll's Critique. Theories such as the Arbitrage Pricing Theory (APT) have since been formulated to circumvent this problem. Because CAPM prices a stock in terms of all stocks and bonds, it is really an arbitrage pricing model which throws no light on how a firm's beta gets determined.

Modern Portfolio Theory - MPT

A theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward.

Investopedia Says:
According to the theory, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk. This theory was pioneered by Harry Markowitz in his paper "Portfolio Selection," published in 1952. There are four basic steps involved in portfolio construction: -Security valuation -Asset allocation -Portfolio optimization -Performance measurement

Capital Market Line - CML

A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio.

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fig3.11: determination of market port folio

Investopedia Says: The CML is derived by drawing a tangent line from the intercept point on the efficient frontier to the point where the expected return equals the risk-free rate of return. The CML is considered to be superior to the efficient frontier since it takes into account the inclusion of a risk-free asset in the portfolio. The capital asset pricing model (CAPM) demonstrates that the market portfolio is essentially the efficient frontier. This is achieved visually through the security market line (SML).

Security Market Line - SML

The line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The X-axis represents the risk (beta), and the Y-axis represents the expected return. The market risk premium is determined from the slope of the SML. It is a useful tool in determining if an asset being considered for a portfolio offers a reasonable expected return for risk. Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued since the investor can expect a greater return for the inherent risk. And a security plotted below the SML is overvalued since the investor would be accepting less return for the amount of risk assumed.

Optimal portfolio theory

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On proportionately more risk for a lower incremental return. On the other end, low risk/low return portfolios are pointless because you can achieve a similar return by The optimal portfolio concept falls under the modern portfolio theory. The theory assumes (among other things) that investors fanatically try to minimize risk while striving for the highest return possible. The theory states that investors will act rationally, always making decisions aimed at maximizing their return for their acceptable level of risk. The optimal portfolio was used in 1952 by Harry Markowitz, and it shows us that it is possible for different portfolios to have varying levels of risk and return. Each investor must decide how much risk they can handle and than allocate (or diversify) their portfolio according to this decision. The chart below illustrates how the optimal portfolio works. The optimal-risk portfolio is usually determined to be somewhere in the middle of the curve because as you go higher up the curve, you take investing in risk-free assets, like government securities.

fig3.12: optimal portfolio strategy

You can choose how much volatility you are willing to bear in your portfolio by picking any other point that falls on the efficient frontier. This will give you the maximum return for the amount of risk you wish to accept. Optimizing your portfolio is not something you can calculate in your head. There are computer programs that are dedicated to determining optimal portfolios by estimating hundreds (and sometimes thousands) of different expected returns for each given amount of risk.

Diversification
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An investor can reduce portfolio risk simply by holding instruments which are not perfectly correlated. In other words, investors can reduce their exposure to individual asset risk by holding a diversified portfolio of assets. Diversification will allow for the same portfolio return with reduced risk. If all the assets of a portfolio have a correlation of 1, i.e., perfect correlation, the portfolio volatility (standard deviation) will be equal to the weighted sum of the individual asset volatilities. Hence the portfolio variance will be equal to the square of the total weighted sum of the individual asset volatilities. If all the assets have a correlation of 0, i.e., perfectly uncorrelated, the portfolio variance is the sum of the individual asset weights squared times the individual asset variance (and volatility is the square root of this sum). If correlation is less than zero, i.e., the assets are inversely correlated, the portfolio variance and hence volatility will be less than if the correlation is 0. The lowest possible portfolio variance, and hence volatility, occurs when all the assets have a correlation of 1, i.e., perfect inverse correlation.

Capital allocation line

The capital allocation line (CAL) is the line of expected return plotted against risk (standard deviation) that connects all portfolios that can be formed using a risky asset and a riskless asset. It can be proven that it is a straight line and that it has the following equation

CAL: E( rc ) = rf +c [E(rp)- rf]/ p

In formula P is the risky portfolio, F is the riskless portfolio, C is the combination of P & F.

Applications to Project Portfolios and Other "Non-Financial" Assets

Some experts apply MPT to portfolios of projects and other assets besides financial instruments. When MPT is applied outside of traditional financial portfolios, some differences between the different types of portfolios must be considered. 1. The assets in financial portfolios are, for practical purposes, continuously divisible while portfolios of projects like new software development are "lumpy". For example, while we can compute that the optimal portfolio position for 3 stocks is, say, 44%, 35%, 21%, the optimal position for an IT portfolio may not allow us to simply change the amount spent on a project. IT projects might be all or nothing or, at least, have logical units that cannot be separated. A portfolio optimization method would have to take the discrete nature of some IT projects into account. 2. The assets of financial portfolios are liquid can be assessed or re-assessed at any point in time while opportunities for new projects may be limited and may appear in limited windows of time and projects that have already been initiated cannot be abandoned without the loss of the sunk costs (i.e., there is little or no recovery/salvage value of a half-complete IT project).

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Neither of these necessarily eliminate the possibility of using MPT and such portfolios. They simply indicate the need to run the optimization with an additional set of mathematicallyexpressed constraints that would not normally apply to financial portfolios. Furthermore, some of the simplest elements of MPT are applicable to virtually any kind of portfolio. The concept of capturing the risk tolerance of an investor by documenting how much risk is acceptable for a given return could be and is applied to a variety of decision analysis problems. MPT, however, uses historical variance as a measure of risk and portfolios of assets like IT projects don't usually have an "historical variance" for a new piece of software. In this case, the MPT investment boundary can be expressed in more general terms like "chance of an ROI less than cost of capital" or "chance of losing more than half of the investment". When risk is put in terms of uncertainty about forecasts and possible losses then the concept is perfectly transferable to any type of investment.

Some tools applied in portfolio management Jensen's Alpha

In finance, Jensen's alpha (or Jensen's Performance Index) is used to determine the excess return of a stock, other security, or portfolio over the security's required rate of return as determined by the Capital Asset Pricing Model. This model is used to adjust for the level of beta risk, so that riskier securities are expected to have higher returns. The measure was first used in the evaluation of mutual fund managers by Michael Jensen in the 1970's. To calculate alpha, the following inputs are needed:

the realized return (on the portfolio), the market return, the risk-free rate of return, and the beta of the portfolio.

Jensen's alpha = Portfolio Return - (Risk Free Rate + Portfolio Beta * (Market Return Risk Free Rate) ) Alpha is still widely used to evaluate mutual fund and portfolio manager performance, often in conjunction with the Sharpe ratio and the Treynor ratio.

Treynor ratio
The Treynor ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (i.e. Treasury Bill) (per each unit of market risk assumed). The Trey nor ratio (sometimes called reward-to-volatility ratio) relates excess return over the risk-free rate to the additional risk taken; however systematic risk instead of total risk is used. The higher the Treynor ratio, the better the performance under analysis.

T = ( rp - rf)/
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Where: T= Treynor rp= Portfolio return rf = Risk free return = Portfolio beta
Like the Sharpe ratio, the Treynor ratio (T) does not quantify the value added, if any, of active portfolio management. It is a ranking criterion only. A ranking of portfolios based on the Treynor Ratio is only useful if the portfolios under consideration are sub-portfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with identical systematic risk, but different total risk, will be rated the same. But the portfolio with a higher total risk is less diversified and therefore has a higher unsystematic risk which is not priced in the market. An alternative method of ranking portfolio management is Jensen's alpha, which quantifies the added return as the excess return above the security market line in the capital asset pricing model.

Sharpe ratio
The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return (or Risk Premium) per unit of risk in an investment asset or a trading strategy. Since its revision made by the original author in 1994, it is defined as : S = E[R-Rf ] / = E[ R- Rf ]/ var[ R- Rf ] where R is the asset return, Rf is the return on a benchmark asset, such as the risk free rate of return, E[R Rf] is the expected value of the excess of the asset return over the benchmark return, and is the standard deviation of the excess return (Sharpe 1994). Note, if Rf is a constant risk free return throughout the period, var[R-Rf] = var[R] Sharpe's 1994 revision acknowledged that the risk free rate changes with time. Prior to this revision the definition was S = (E[R]-Rf) / assuming a constant Rf. The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken. When comparing two assets each with the expected return E[R] against the same benchmark with return Rf, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. Sharpe ratios, along with Treynor ratios and Jensen's alphas, are often used to rank the performance of portfolio or mutual fund managers.

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This ratio was developed by William Forsyth Sharpe in 1966. Sharpe originally called it the "reward-to-variability" ratio in before it began being called the Sharpe Ratio by later academics and financial professionals. Recently, the (original) Sharpe ratio has often been challenged with regard to its appropriateness as a fund performance measure during evaluation periods of declining markets (Scholz 2007).

Research Methodology

When we talk about the research methodology we not only talk of the research method but also consider the logic behind the method. It is ways to systematically solve the research problem that may be understand as a science of study how research is done scientifically, it is necessary for the researcher to know not only the research method or techniques but also methodology.

Type of the study:

Our type of study is Descriptive. Descriptive research is to describe something- usually market characteristics or functions. A vast majority of marketing research studies involves descriptive research, which incorporates the following major methods: Secondary data Surveys

Sample Size:
Sample size refers to the number of elements to be included in the study. Our sample size was 50respondents.

Research approach: Survey method

Survey method
The survey method involves a structured questionnaire given to respondents of different sector and designed to elicit specific information. Thus, this method of obtaining information is based on the questioning of respondents.

Research Instruments - Questionnaire

Questionnaire
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A Questionnaire consists of a number of questions printed or typed in definite order on a form or set of forms. The questionnaire includes multiple questions, open ended questions.

Data Collection Methods The data required for the research would be from Primary and Secondary sources.

Primary Data:
Primary data have collected through a structured questionnaire, doing market survey, telephonic survey and personally meetings.

Secondary Data:
Secondary data have collected by two sources. 1- Internally: Provided by the company/organization 2- Externally Books Websites(Internet)

Age of the investor

Table5.1: Age of the investor

Age 18-25

N. Of respondent 8
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25-35 35-45 Above 45 Total

10 8 24 50

AGE OF THE INVESTOR

30 N. OF INVESTOR 25 20 15 10 5 0 18-25 25-35 AGE 35-45 above 45 Series1

Fig5.1

Analysis: As from the survey result it has been cleared the mostly invest is above the 45 years age group person who

Occupation of the investor

Table5.2: Occupation of the investor

Occupation Businessman Serviceman House hold Student Others Total

N. of the investor

20 12 8 8 2 50
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Occupation of the investor

25 NO. of invester 20 15 Series1 10 5 0 BUSINESS SERVICEMAN STUDENT Occupation HOUSE HOLD OTHER

fig5.2 Analysis:
Mostly person who invest in securities is the business man and service man is followed by business man

Income Group of the investor

Table5.3: Income Group of the investor

INCOME GROUP (Annual) Less Than 2.5 Lacks 2.5 lacks 4.5 Lacks 4.5 lacks - 6.5 lacks Above 6.5 lacks Total

N. OF INVESTOR 8 20 12 10 50

94

10

12

20

LESS THAN 2.5 LAKH 2.5 LAKHTO 4.5 LAKH 4.5 LAKH TO 6.5 LAKH MORE THAN 6.5 LAKHS

fig5.3: Income Group of the investor

Analysis: Mostly person who invest in different securities their income group is above 2.5 lacks to 4.5 lacks.

1. Which type of investment you prefer?

Table 5.4: type of investment you prefer

LONG TERM MEDIUM TERM SMALL TERM Total

25 20 N. Of Investor 15 10 5 0 LONG TERM

10 20
type of Investment you prefer

20 50

95
MEDIUM TERM Type of Investment SMALL TERM

Fig.5.4

Analysis: The survey result shows that normally persons invest in small and medium term securities. 20 out of 50 persons invest in small and medium term securities. 10 out of 50 persons invest in long term securities.

2.Where do you park your money?

Table5.5: Type Of The Investment Alternatives

Investment alternatives Mutual funds Insurance Property Share market Bank Other Total

N. of investors 8 8 5 20 5 4 50

96

Types of investment alternatives

25 N. of investor 20 15 Series1 10 5 0 Mutual fund Insurance property share market banks other

Investment alternatives

Fig.5.5

Analysis: The survey result shows that 20 out of 50 persons invest in share market. 8 out of 50 persons invest in mutual fund and insurance respectively

3.

What would be your expected rate of return per annum?

Table5.6: Expected rates of return

Expected rates of return LESS TAN 50% 50% - 100% 100% - 150% MORE THAN 150% Total

N. of investor 10 20 15 5 50
Expected Rate of return

25 N.of Investor 20 15 10 5 0 Less than 50% 50%-100% 100%-150% More Than250% Rate of return Series1

97

fig 5.6

Analysis It has been concluded normally persons expect 50%-100% per annum. 20 out of each 50 persons.15 out of each 50 person expect 100%- 150% per annum.

4.How much to invest depends upon?

table5.7: Dependent factor of investment

Depend factor Risk pro file Time horizon Saving Rate of return Total
25 20 N. of investor 15

N. of Investor 10 10 10 20
Depedent factor of investment

50

Series1 10 5 0 Time horizon risk profile Saving Rate of return Depedent factor

98

Fig5.7

Analysis : Survey result shows that rate of return is most influencing factor of investing.

4.

The main purpose of your investment is

Table5.8: The main purpose of your investment

Purpose Future Needs Risk Protection Tax Shelter Others Total

Total Number 15 10 20 5 50

The main purpose of your investment

25 N. of Investment 20 15 Series1 10 5 0 Future needs risk protection Tax shelter Other Purpose of your investment

99

Fig 5.8

Analysis : It can be concluded The Tax shelter is the main aim of Investing. 20 out of 50 investors invest for tax saving. And future needs is the secondary. 15 out 50 investors invest for future needs.

6.

Are you having a D-Mat account?

Table5.9: D-Mat account

Yes No Total

40 10 50

10

yes No

40

fig.N.5.9: D-Mat account

100

Analysis : As from the are having the survey result it is cleared 80% persons are having the D-Mat a/c

7. Which DP (depository participant) you prefer?

Table5.10: Depository participant) you prefer

Depository Participant Religare securities Indian bulls ICICI DIRECT Share khan Others None of these Total

N. of investment 20 8 5 5 2 10 50
Depostiory participant you prefer

25 N. of the investor 20 15 Series1 10 5 0 religare india bulls Depostiory participant

Fig 5.10

icici direct

share khan

other

none

fig 5.10 Analysis :

101

It can be concluded that mostly person prefer the Religare Securities Ltd. for depository services. 40% people prefer only Religare.

8.Under which market condition you like to invest?

Table5.11: Market condition while investing

Market condition Bull market (up market Bear market (down market) None Of These

N. Of Investor 25 10 15

Market condition while investing

30 25 N. of investors 20 15 10 5 0 Bull market Bear market Market conditioan none of these

Fig 5.11

Analysis :
102

Survey result shows that while the market trend goes up, people like to invest. 50% persons invest under bull market condition.

9. What is your trading motive?

Table5.12: trading motive

Trading motives Speculative arbitrage Investment Total

N. of investor 15 20 15 50

Tading MOtives
25 20 15 Series1 10 5 0 Speculative Arbitrage Tading MOtives investment

N. of investor

fig 5.12

Analysis : Arbitrage is the main trading motive. Speculative and investment is the secondary motive.

103

10 Whom you consult while investing.

Table5.13:your investment advisior

Your friends and relatives Financial Consultants News papers and magazines OTHERS Total

15 25 8 2 50

Your investment advisior

30 25 N. of investor 20 15 10 5 0 friends finincial consultant News paper Others investment advisior Series1

Fig5.13

Analysis : Mostly Investors take the advice from financial consultants while investing. 50% persons take help from financial consultants. And 30% prefer the friends and relative.

104

11. Are you aware about portfolio management?

Table5.14: awareness about portfolio management

Yes No Total

40 10 50

10

yes
40

no

Fig 5.14: awareness about portfolio management

Analysis : 80% people are aware about portfolio management.

12. Do you think in portfolio you will get more return than other investment?
105

Table5.15: Portfolio can give better return

Yes No Cant` say Total

35 5 10 50

port folio can give better return

yes no cant`say

fig 5.15

Analysis: Survey result shows that 70% people believe that a sound portfolio will give the better return. 10% said no. and 20% said cant say.

13.You manage yours portfolio with the help of

Table5.16: takes help while managing portfolio

Portfolio Managers Financial Consultants

N. of the investor 5
106

Depository Participants Fund manager Yourself Total

20 10 15 50

Takes help while managing portfolio

25 N. of investor 20 15 10 5 0 Finincial consultant Depository participant Fund manager your self Series1

Portfolio manager

Fig 5.16

Analysis : 40% person manage their portfolio with the help of depository participants. 30% person manage their portfolio their selves.

CONCLUSIONS
Now the trend shows that persons are moving towards share market. Liquidity continues to be the key driver for many emerging markets

107

 Given the influence of the domestic and international factors, the markets will continue to be volatile in the short run. A return of 50-100 per cent per annum can be expected from the markets over the next 510 years Earnings growth has mostly outpaced stock price gains. Religare is the first choice of share market investor. Over the next five years, stock market returns will be led not just by continuing earnings growth, but also by a re-rating of the market in terms of its valuation. Before investing make a sound portfolio Strategy for best return.

SUGGESTION FOR THE INVESTMENT DECISION

Basic guide line the Ten Commandments
I here are the ten commandments of investing which should serve as basic guidelines for all invest ors. They a re as follows: 1. Accord top priority to a residential house 2. Integrate life insurance in your insurance plan. 3. Choose a risk posture consistent with your stage in investor lifecycle. 4. Tiptoe through the world of precious object. 5. Avail for tax shelter. 6. Adopt a suitable formula plan.
7. Select fixed income group judiciously. 8. Focus on fundamental, but keep an eye on technical.

9. Diversify moderately. 10. Periodically review and revise the portfolio.

Limitations
This is a two months study only.
108

 Data available was not sufficient, there was lack of availability of data as

most of it

was confidential for the companies. Sample size is two small. This study is for long-term purpose not to bring out returns for short-term investors. Study has been basically done taking into consideration the retail investors. Study has been done on Indian environment only. Common ratios have been taken up for the entire sectors in the study. Data have been taken of from different sources so there may be biasness in the study. Portfolio requires the churning of proportion of investment in each sector as well as company from time to time to give better returns.

APPENDIX
109

QUESTIONNAIRE
Q1. In which of these Financial Instruments do you invest into? Shares Derivatives Mutual Funds Bonds

Q2. Are you aware of online Share trading? Yes No

Q3. Heard about India Infoline Ltd.? Yes No

Q4. Do you know about the facilities provided by India Infoline Ltd.? Yes No

Q5. With which company do you have your DEMAT account? Reliance Money India Bulls ICICI Direct INDIA INFOLINE LTD.

Others (please specify)

Q6. What differentiates your Share trading company from others? (in regards of brokerage, satisfaction, services, products )

110

Q7. Are you currently satisfied with your Share trading company? Yes No

Q8. How often do you trade? Daily Yearly Weekly Monthly

Q9. What percentage of your earnings do you invest in share trading? Up to 10% Above 50% Up to 25% Up to 50%

Q13. How do you rate these share trading companies? money a. Reliance
b. ICICI Direct c. India Bulls d. India Infoline e. Others (Please specify)

1.

2.

3.

4.

5.

Q14. What more facilities do you think you require with your DEMAT account?

Personal Information

Name : Age :
111

Sex Phone No Occupation :

: :

Male

Female

BIBLOGRAPHY

Books:

1. NCFM- Derivatives market module

2. Richard I. Levin, David S. Rubin, Statistics For Management; Prentice Halt

Publication, 7th edition 2006

3. Schindler & Kooper, Research Methods In Business; Pearson Education

Publication, 6h edition 2007

Websites:www.nseindia.com www.igidr.ac.in/~ajayshah www.derivativesindia.com www.capitalmarket.com www.wikipedia.com www.religare.in www.bloomberg.com

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