RESEARCH PROJECT

ON
INVESTORS PERCEPTION OF COMMODITY FUTURES
(Conducted for Pristine Angel Broking Ltd)
Submitted in partial fulfillment of the requirement for
MBA Degree of Sikkim Manipal University

Submitted by
Patel Hitesh H
Register Number
520782181

INSTITUTE OF BUSINESS MANAGAMENT &

RESEARCH

8/182 , Sunrise park, Nr. Asia School, Drive-inRoad

AHMEDABAD - 380054

GUIDE CERTIFICATE

I hereby declare that the research work embodied

in this
dissertation entitled investors perception of
commodity futures has been undertaken and completed
by Patel Hitesh H under my guidance and supervision.

I also certify that he has fulfilled all the requirements

under the covenant governing the submission of dissertation
to the SIKKIM MANIPAL UNIVERSITY for the award of
MBA Degree.

Place: Ahmedabad
Date:

Dr,Ramkumar baliyan
Internal guide,
IBMR

[2]

ACKNOWLEDGEMENT
I take this opportunity to extend my sincere gratitude
to the respondents who gave all the support and had
been cooperative in providing all the valuable required
information without which I would not have completed
my report.

I would also like to thank Dr.Ramkumar baliyan

director, internal guide, institute of business management,
and Mr. Paresh patel( Angel broking) for the constant
guidance, encouragement and motivation they extended
throughout the study.

I also thank my parents and friends for their cooperation, support

and encouragement extended
throughout the study.

CONTANTS
SR.
TOPIC
NO
1. INTRODUCTION TO THE TOPIC
The Indian financial system.
Guidelines by the RBE pertaining to
commodity future trading.
Security and exchange board of India.
SEBE guidelines for commodity futures
trading.
2. RESEARCH DESIGN
Objective of the study.
Research methodology.

PAGE
NO.
6 -17
6
11
13
15
18-21
19
21

3. COMMODITY FUTURES
The history of trading
Definition of commodity.
Definition of commodity future.
Growth of commodity futures in India.
Commodity trading affect the economy.
Investors choice.
The role of the exchange in future
trading.

22-26
22
23
23
24
25
25
26

4. RISK ASSCIATED WITH COMMODITY

FUTURES TRADING.

27

5. THE VARIOUS RISK MANAGEMENT

TECHINQUES USED IN COMMODITY
FUTURES TRADING.

28-29

[4]

SR.
TOPIC
NO
6.
COMPANY PROFILE
Introduction.
Angel group membership.

PAGE
NO.
30-33
30
31
32

7.

Location.
Angel intensive research process.
SWOT ANALYSIS

33
34

8. DATA ANALYSIS
Angel Services.
Guideline for risk management.
Angel Product.

35-52
35
43
47

9.

53-73

FINDING AND INTRERPRETATION

10. CONCLUSION

74-75

11. APPENDIX
Questionnaire

76-80

12. BIBLIOGRAPHY

81

[5]

INTRODUCTION TO THE TOPIC

THE INDIAN FINANCIAL SYSTEM

The Indian financial system consists of many
institutions, instruments and markets. Financial and
cheques, to the more exotic futures swaps of high finance.

The Indian financial system is broadly classified into 2

broad Groups:1. Organized Sector
2. Unorganized Sector
1. ORGANISED SECTOR:The organized sector consists of: i. Financial institutions:a) Regulatory:The regulatory institutions are the ones, which forms the
regulation and control the Indian financial system. The

Reserve Bank of India is the regulatory body, which

regulates, guides controls and promotes the IFS.
[6]

b) Financial intermediaries:They are the intermediaries who intermediate between the

saver and investors. They lend money as well mobilizes
savings; their liabilities are towards ultimate savers, while
their assets are from the investors or borrowers.

They can be further classified into:-

Banking: All banking institutions are intermediaries.

Non-Banking: Some Non-Banking institutions also act as intermediaries,

and when they do so they are known as Non-Banking
Financial Intermediaries. UTI, LIC, GIC & NABARD are
some of the NBFCs in India.

c) Non intermediaries:-

Non-intermediaries institutions do the loan business but

their resources are not directly obtained from the saver.
ii. Financial Markets:Financial Markets are the centers or arrangements that
provide facilities for buying & selling of financial claims and
services.
[7]

Financial markets can be classified into: Organized markets:These markets comprise of corporations, financial
institutions, individuals and governments who trade in these
markets either directly or indirectly through brokers on
organized exchanges or offices.
Unorganized markets:The financial transactions, which take place outside the wellestablished exchanges or without systematic and orderly
structure or arrangements constitutes the unorganized
markets. They generally refer to the markets in the villages.

[8]

The financial syst

The Financial System

___________________________|__________________________
|
|

Organized sector

Unorganized
sector

|
__________|______________________________________
|
|
|
|

Financial
market
|

Services

Institution

|
Money lender

Instrument
Land lords

|_____

Pawn brokers
Traders
Indigenous

 Other
Non-intermediaries
Intermediaries
Regulatory

Organized

Unorganized

Primary

__________|_____________
|

Capital
market

__________|____________
|
|
|

Money
market

Secondary

Short
term

Medium
term

Long
term

iii. Financial instruments:Financial instruments constitute of securities, assets and

claims. Financial securities are classified as primary and
secondary securities.
The primary securities are issued by the companies directly
to the ultimate savers as ordinary shares and debentures.

While the secondary securities are issued by the financial

intermediaries to the ultimate savers as bank deposits,
insurance policies so and on.
iv. Financial services:The term financial service in a broad sense means
Mobilizing and allocating savings. Thus, it can also be
offered as a process by which funds are mobilized from a
large number of savers and make them available to all those
who are in need of it, particularly to the corporate customers.
2. THE UNORGANIZED SECTOR:The unorganized financial system comprises of relatively
less controlled money lenders, indigenous bankers, lending
pawn brokers, land lords, traders etc. This part of the
financial system is not directly controlled by RBI.
.

[10]

GUIDELINES BY THE RBI PERTAINING TO

COMMODITY FUTURE
TRADING

The guidelines are: These guidelines cover the Indian entities that are exposed
to commodity price risk.
Name and address of the organization:

1. A brief description of the hedging strategy

proposed: Description of business activity and nature of risk.
Instruments proposed to be used for hedging.
Exchanges and brokers through whom the risk is
proposed to be hedged and credit lines proposed to be
available.
The name and address of the regulatory authority in the
country concerned may also be given.
Size/average tenure of exposure/total turnover in a year
expected.
2. Copy of the risk management policy approved
by the Board of Directors covering:

Risk identification
Risk measurements
Guidelines and procedures to be followed with
respect to revaluation/monitoring of positions.

Names and designations of the officials authorized

to undertake transactions and limits.
[11]

3. Any other relevant information: The authorized dealers will forward the application to
Reserve Bank along with copy of the Memorandum on
the risk management policy placed before the Board of
Directors with specific reference to hedging of
commodity price exposure. .
i All standard exchanges traded futures will be permitted

ii. Tenure of exposure shall be limited to 6 months. Tenure

beyond 6 months would require Reserve Banks specific
approval.
iii. Corporate who wish to hedge commodity price exposure
shall have to ensure that there are no restrictions on
import/export of the commodity hedged under the Exim
policy in force.
After grant of approval by Reserve Bank, the corporate
concerned should negotiate with off-shore exchange
broker subject, inter alia, to the following:-

 Brokers must be clearing members of the

exchanges, with good financial track record.
Trading will only be in standard exchangetraded futures contract/options .

[12]

SECURITIES AND EXCHANGE BOARD OF

INDIA
SEBI was setup in April 12,1988. To start with, SEBI was set
up as a non-statutory body.
It took 4 years for the government to bring about a separate
legislation in the name of securities and exchange board of
India Act, 1992, conferring statutory powers over practically
all aspects of capital market operations.
Objectives of SEBI
To protect the interest of investors so that there is a steady
flow of savings into the capital market.

 To regulate the securities market and ensure fair

practices by the issuers of securities, so that they can
raise resources at minimum cost.
To provide efficient services by brokers, merchant
bankers and the other intermediaries, so that they
become competitive and professional.

Functions of SEBI
Sec 11 of the SEBI act specifies the functions as follows: Regulation of the stock exchange and self-regulatory
organizations.
[13]

Registration and regulation of stock brokers, subbrokers, registrar to all issue, merchant bankers,
underwriters, portfolio managers and such other
intermediaries who are associated with securities
market.
Regulation and registration of the working of collective
investment schemes including Mutual funds.
Prohibition of fraudulent and unfair trade practices
relating to security market.

 Prohibit insider trading in securities.

Regulation substantial acquisitions of shares and take
over of companies.

[14]

SEBI GUIDELINES FOR

COMMODITY FUTURES TRADING

 There are many regulatory authorities, which are

monitoring commodity futures trading, one of them is
SEBI. The following Report is one of the regulatory
frameworks for the commodity futures trading.

The following were the recommendations:I)

Participation of Securities Brokers in Commodity

Futures Market

The committee was of the unanimous view that

participation of intermediaries like securities brokers in
the commodity futures market is welcome as it could
inter-alia increase the number of quality players
infuse healthy competition, boost trading volumes in
commodities and in turn provide impetus to the overall
growth of the commodity market.
Since the commodity market falls under the regulatory
purview of a separate regulatory authority viz., Forward
Market Commission, to ensure effective regulatory
oversight by the Forward Market Commission, and to
avoid any possible regulatory overlap, the pre-condition
for such entry by intending participating securities
brokers in the commodity futures market would be
through as separate legal entity, either subsidiary or
otherwise. Such entity should conform from time to time

to the regulatory prescription of Forward Market

Commission, with reference to capital adequacy, net
worth, membership fee, margins, etc.
The committee took note of the fact that the existing
provisions of the Securities Contract (Regulation)Rules
1957 forbid a person to be elected as a member of a
recognized stock exchange if he is engaged as
principal on employee in any business other than that
of securities, except as a broker or agent not involving
any personal financial liability. The Committee
recommended that the above provisions in the
Securities Contract
(Regulations)
Rules
be
removed/amended suitably to facilitate securities
brokers
participation/engagement in commodity
futures.
An important felt need was the necessity to improve
market awareness of trading and contracts in
commodities. The committee there for recommendation
the forward market commission take appropriate
initiatives in training the market participants.
II) Risk containment measures
In the background of the Forward Market Commissions
report on risk containment measures currently obtaining

in commodity markets and the committees

recommendation
to
permit
security
brokers
participation in commodities markets only through a
separate legal entity, the committee considers that
ensuring strict compliance of the regulatory
prescriptions like net worth, capital adequacy, margins,
exposure norms, etc., by the respective market
regulators, and due oversight would be an adequate
safeguard to ensure that the risks are not transmitted
from one market to the other.
[16]

|||) Utilization of existing infrastructure of stock

exchanges
On the issue of convergence/integration the securities
market and commodities market, that is of allowing
stock exchanges to trade in commodity derivatives and
vice versa, the committee was of the view that in the
current statutory and regulatory framework existence of
two separate and established regulators, the issue of
integration of the two markets would require detailed
examination, particularly for the purpose of defining
clearly the scope of regulatory purview and
responsibility. Also, given the concerns raised by a
section of members that such integration may lead to
further fragmentation of volumes and liquidity in the
nascent commodity markets, the committee was of the
view that the issue of markets could be taken up for

consideration at a future date as the two markets

mature further.

[17]

RESEARCH DESIGN
INTRODUCTION
In the present global economic scenario, due to
various factors such as inflation, political factors,
natural factors, the variations in prices of all
commodities are a natural phenomenon. So,
from the point of the cultivators of the commodity
(in case of agricultural products) or dealers in the
metals, there is a genuine need for them, an
instrument with which they can hedge their risks.
Thus, a commodity future is one of the most

important derivative securities. With this they will be

able to reduce risks.
Consequently, the speculators who play an important
part, in determining the price also come in the
picture. Thus with the help of their speculative
expertise, it can also be a very
Lucrative investment opportunity. Through this,
project, an attempt is made to prove that
commodity futures can be used effectively as a
risk reduction instrument and also as a very good
investment opportunity.

[18]

OBJECTIVES OF THE STUDY

The objective of this study is mainly to prove that commodity
futures can be used as a risk reduction instrument and also
as an investment opportunity. In order to do so, the following
are the sub-objectives.

1. To study the various analysis tools used to make price

movement predictions.
2. To study the growth of commodity futures trading.
3. To study the perception of investors of commodity futures
(questionnaire).
OPERATIONAL DEFINITIONS
Short selling
Selling first is known better as shorting or short selling. In
futures trading, since one is taking a future delivery, its just
as easy to sell first and then buy later. To offset the
obligation to deliver, all one needs to do is to buy back the
Contract prior to the expiration of the Contract.
Margin
A margin refers to a good faith deposit made by the person
who wants to buy or sell a Contract in a futures exchange. It
is a small percentage of the value of the underling
commodity represented by the Contract, generally in the
neighborhood of 2 to 10%.

[19]

Leverage
Leverage is the ability to buy or sell $100,000 of a
commodity with a $5000 security deposit, so that small price
changes can result in huge profits or losses.
Maintenance margin
Maintenance margin is the amount which must be
maintained in ones account as long as the position is active.
Margin call
If the equity balance in the account falls bellow the
maintenance margin level, due to adverse market
movement, the account holder will be issued a margin call.
Lot
A lot refers to the number of Contract that one wishes to buy
or sell.
Tick
A tick refers to the minimum price fluctuation, is a function of
how the prices are quoted and set by the exchange.
Float
Float refers to the concept, when an investor who has taken
a position, but does not want to liquidate his position at close
of the market.
Limit up/down

It refers to the maximum amount that the market can move

above or below the previous days close in a single trading
session. If the price moves up it is known an limit up, when
the price moves down its is known as limit down.
[20]

RESEARCH METHODOLOGY

In this study primary analytical research method is used,

which includes questionnaire, tabulation analysis. This is one
of the most important methods.

SOURCES OF DATA
The various sources of data are:
1. Primary Sources, which includes questionnaire, and a
survey.

TOOLS FOR DATA COLLECTION

The questionnaire is the tool used for data collection.

ANALYSIS AND INTERPRETATION

The various tools for analysis used are graphs, charts,
percentage growth, secondary data.
[21]

COMMODITY FUTURES
THE HISTORY OF TRADING
Although the first recorded instance of future trading
Occurred with rice in 17th century Japan, there is some
evidence that there may also have been rice futures traded
in China as long as 6000 years ago.
Futures trading are a natural outgrowth of the problems of
maintaining a year-round supply of seasonal products like
agricultural crops. In Japan, merchant stored rice in warehouses for future use. In order to raise cash, warehouse
holders sold receipts against the stored rice. These were
known as rice tickets. Eventually, such rice tickets became
accepted as a kind of general commercial currency. Rules

came into being to standardize the trading in rice tickets.

In the United States, futures trading started in the grain
markets in the middle of the 19th century. The Chicago
Board of Trade was established in1848. In the 1870s and
1880s the New York coffee, cotton and produce exchanges
were born. Today there are ten commodity exchanges in the
United States. The largest are the Chicago Board of Trade
the Chicago Mercantile Exchange, the New York Mercantile
Exchange, New York Commodity Exchange and the New
York Coffee, Sugar and Cocoa Exchange.
Worldwide there are major futures trading exchanges in over
20 countries including Canada, England, France, Singapore,
Japan, Australia and New Zealand. The products traded
range form agricultural staples like Corn and Wheat to Red
Beans and Rubber.
[22]

What is a commodity?

Corn

coffee

silver

soybean

Commodities are agreements to buy and sell virtually

anything except, for some reason, onions. The primary
commodities that are traded are oil, gold and agricultural
products. Since no one really wants to transport all those
heavy materials, what is actually traded are commodities
futures contracts or options. These are agreements to buy or
sell at an agreed upon price on a specific date.

What is a commodity future?

Commodities futures, or futures contracts, are an agreement
to buy or sell a commodity at a specific date in the future
at a specific price. Just like the price of bananas at the
grocery store, the prices of commodities can change on a
weekly or even daily basis. If the price goes up, the buyer
of the futures contract makes money, because he gets
the product at the lower, agreed-upon price and can now
sell it at the higher, market price. If the price goes down, the
seller makes money, because he can buy the commodity at
the lower market price, and sell it to the buyer at the
higher, agreed-upon price.
Of course, if commodities traders had to actually deliver
the product, very few people would do it. Instead, they can
fulfill the contract by delivering proof that the product is at

the warehouse by paying the cash difference or by providing

another contract at the market price.
Futures contracts perform two important functions : price
discovery and hedging of price risk in a commodity. In
international bourses traders can also use financial
instruments like call and put options, not yet allowed in
India. Futures contracts are useful for the producer
because he can get an idea of the price likely to prevail
and thereby help them quote a realistic price and hedge
risk.

Growth of commodity futures in India

Investment in India has traditionally meant property, gold
and bank deposits. The more risks taking investors choose
equity trading. But commodity trading never forms a part of
conventional investment instruments. As a matter of fact
Future trading in commodities was banned in India in mid
1960s due to excessive speculation.
India has three national level multi commodity exchanges
with electronic trading and settlement systems. The National
Commodity and Derivative Exchange (NCDEX). The Multi
Commodity Exchange of India (MCX) and the National Multi
Commodity Exchange of India (NMCE) the National Board of
[24]

Trading in Derivatives (NBOT), offers trading on a national

level, but is not completely online.

Commodity trading affect the economy

Commodity trading impacts the economy by making public
the analysts forecasts of future prices of the most important
market goods. For example, one of the most widely watched
commodities is oil. The price of oil changes daily, which has
an impact on every good and service produced in the
U.S economy. As traders take into account all information
regarding oil supply and demand, as well as geopolitical
considerations, this affects oil prices. It is these assumptions
behind oil prices that affect the economy so significantly.

Investors choice
The futures market in commodities offers both cash and
delivery- based settlement. Investors can choose between
the two. If the buyer chooses to take delivery of the
commodity, a transferable receipt from the warehouse where
goods are stored is issued in favour of the buyer. On
producing this receipt, the buyer can claim the commodity
from the warehouse. All open contracts not intended for
delivery are cash settled. While speculators and arbitrageurs
generally prefer cash settlement, commodity stock list and
wholesalers go for delivery. The options to square of the

deal or to take delivery can be changed before the last date

of contract expiry. In the case of delivery- based trades, the
margin rises to 20-25% of the contract value and the seller is
required to pay sales tax on the transaction.
[25]

The Role of the exchange in futures Trading.

1) Risk Transfer:In a futures transaction , risk is inherent part of doing
business. The exchange provides a setting where risk can
be transferred from the hedgers to the speculators.

2) Liquidity:If risk is to be transferred efficiently, there must be a large

group of individuals ready to buy or sell. When a hedger
wants to sell futures contracts to protect his business
position, he needs to know whether he can effect the
transaction quickly. The futures exchange brings together a
large number of speculators, thus making quick transaction
possible.
3) Standardization:-

The exchange writes the specifications for each contract,

setting standards of grading, measurement methods of
transfer, and times of delivery. By standardizing the
contracts in this manner, the exchange opens the futures
market to almost anyone willing to hedge risk. In the pits,
then, the auction process is facilitated because only the price
must be negotiated.

[26]

RISK ASSOCIATED WITH

COMMODITY
FUTURES TRADING

The different types of risks in Commodity Futures

Operational risk:The risk that, errors (or fraud) may occur in carrying out
operations, in placing orders, making payments or
accounting for them.
Liquidity risk:Although commodity futures markets are liquid mostly, in few
adverse situations, a person who has a position in the
market, may not be able to liquidate his position.
Market risk:It is the risk of adverse changes in the market price of a
commodity future.

[27]

The various risk management

techniques
used in Commodity Futures
Trading
Considering the risks discussed previously, various risk
management techniques are used in order to
minimize the losses.
There are mainly 3 techniques, they are

1. Averaging
2. Switching
3. Locking
Averaging:Averaging is a technique used when there is an existing
position, and the price moves adversely. And then at that
particular price, enter into a similar new position. Then take
the average of these 2 prices. And when the price moves to
that price liquidate the position.
Switching:Switching is yet another risk management technique, when,
there is an existing position, and the prices move adversely
and gives all indication that it will go in the same direction for
still some while. Then we have to liquidate the first position
and enter a new and opposite position at the same price.
Locking:Locking is yet another risk management technique, where,
when there is an existing position, and the prices move
adversely and give an indication that it will move in that
[28]

direction, but it will come back to its original position. Here

two processes are involved locking and unlocking.

It is the process where there is an existing position, and the

price moves adversely, we lock by entering into a new
opposite position. And then when the second price reaches
a point where it will bounce back, we unlock by liquidating
the second position and book profits, and then finally when
the price reaches somewhere near the first position,
liquidate the position, whereby we can minimize the loss.

[29]

COMPANY PROFILE
INTRODUCTION
Angel broking trust with excellence in customer relation
began more than 20 year ago. Today Angel broking has
emerged as premium investment sub-broker and wealth
management house with an absolute focus on real business
and commitment to provides real value for money to all its
clients.
Promoted by MR.DINESH THAKKAR ,Angel started in 1987
As sub broker is a present across the country provide equity
investment solution to individual clients through multiple
channel retail, phone , trade and internet platform.

The commitment to provides world - class broking service to

the Indian investor and a customer centric work culture has
led to several innovation in the areas of the technical, quality
management , HR process giving Angel unique work culture
and edge over the players in the industry. Clients value
Angel of its strong research led investment ideas superior
clients service track record and exceptional execution skill.
[30]

ANGEL GROUP MEMBERSHIPS

BSE
NSE
NCDEX AND MCX COMMOITIES.
Angel has the largest NO of NSE registered Sub
brokers.
We have the third largest volume on BSE.

ANGEL WAS AWARED THE CONVETED

MAJOR VOLUME DRIVES.

TROPHY FOR 3 CONSECUTIVE YEAR.

2004 2005
2005 2006
2006 2007
[31]

LOCATION

In a span of less than 20 year. Angel has emerged as a

leading retail broking group with a nation side presence
through its:

15 Regional Hubs and 82 branches.

3800 + intermediaries.
Direct team strength of 3000 +.
3.8 lac + customers.

Angel Research team:( A ) Angel broking limited is the first broking house in the
county To have initiated retail focused research since
the year 2000.

( B ) 50 + member team doing fundamental , technical ,

Commodities analysis.

( C ) One of the largest research teams in the industry for

small And mid-cap.

[32]

ANGEL INTENSIVE RESEARCH PROCESS

Industry wise specialized teams:-

( A ) Top down approach:-

Identifying promising sectors and then companies with

Good valuations.
( B ) Bottom-up approach:Identifying under-valued stocks with sound
management.

Company visits and interaction with top and second

line of managers.
Through analysis of company financial data and
industry trends.
estimates for future year earnings based on industry
trends and Company business plans.

[33]

SWOT ANALYSIS

The SWOT analysis is an extremely useful

tool for understanding and decision-making for all
sorts of situations in business and organizations.
SWOT is an acronym for Strengths, Weaknesses,
Opportunities, Threats.

ANGEL BROKING SWOT ANALYSIS:STRENGHTS

Financial resources.
Product skill.
Angel broking team is experienced in the
trading.
WEAKNESSES

Angel broking staff is exceptional.

OPPORTUNITIES

Several additional client groups.

Faster market growth.

Entry into new market.

THREATS
Other trading company.

[34]

DATA ANALYSIS

SERVICES
PROTFOLIO MANAGEMENT SERVICES:Successful investing in Capital Markets
demands ever more time and expertise.
Investment Management is an art and a
science in itself. Professional Investment
Management Services are no longer the
privilege of only large institutional
investors. Portfolio Management Services
(PMS) is one such service that is fast
gaining eminence as an investment
avenue of choice for High Net worth
Investors like you. PMS is a sophisticated
investment vehicle that offers a range of
specialized investment strategies to capitalize on
opportunities in the market. The
Portfolio
Management Service
combined with competent fund management, dedicated
research and technology, ensures a rewarding experience

for its clients.

Angel PMS brings with it years of experience, expertise,
research and the backing of India's leading stock broking
house. At Angel, experienced portfolio management is the
[35]

difference. You will enjoy a relationship with a portfolio

manager equipped to design and implement a portfolio
around your unique needs. We will advise you on a suitable
product based on factors such as your investment horizon
return expectations and risk tolerance. By entrusting the
management of your Portfolios to Angel, you can enjoy
convenience without compromising on quality.

PRIVATE CLIENT GROUP:Angel offers personalized advisory services to affluent HNI

investors and actively assists them in managing their
portfolio. PCG can seek guidance on specific stocks in their
portfolio and can get active advice for timely exit and fresh
investments. Here we also design customized products and
services for our clients based on there risk profile, returns
need and time horizon. Our experienced research team
in-depth analysis and customized value added products and
services give us an immense advantage in assisting you to
generate wealth on a longer and consistent basis.

 INVESTMENT ADVISORY:To derive optimum returns from equity as an asset class

requires professional guidance and advice. Professional
assistance will always be beneficial in wealth creation.
Investment decisions without expert advice would be like
treating ailment without the help of a doctor.
Strong research has always been our forte. Our investment
advisory department is backed by an experience research
team. This team comprises of 12 sector special analysts
[36]

and a Research Head. Their vast experience and expertise

in spotting great investments opportunities has always been
beneficial for our clients.

( A ) Expert Advice:Our expert investment advisors are based at various

branches across India to provide assistance in designing
and monitoring portfolios.

( B ) Timely Entry & Exit:-

Our advisors will regularly monitor your investments and will

guide you to book timely profits. They will also guide you in
adopting switching techniques from one stock to another
during various market conditions.

( C ) De-Risking Portfolio:A diversified portfolio of stocks is always better than

concentration in a single stock. Based on our research, we
diversify the portfolio in growth oriented sectors and stocks
to minimize the risk and optimize the returns.
[37]

DEPOSITORY SERVICES:You must be aware that Angel Broking Ltd has started its
depository services by registering with CDSL. There are
various benefits of holding your demat account with us but
the biggest advantage is that you shall be ensured of a risk
free, prompt and efficient depository process.

DIFFERENCE BETWEEN ANGLE DEPOSITORY

SERVICES & OTHER DEPOSITORY SERVICES.

Since our association is slated for a long time, we are in a

much better position to know your requirement regarding
your holding and transfer of securities.
No physical instructions are required for your sell obligations.
We also offer to our clients the automated pay in facility for
trade done through Angel Broking Ltd / Angel Capital and
Dept Market Ltd.
The transaction charges that are being levied by us are the
lowest in the industry as we believe in providing quality
services at the most affordable costs.
[38]

You have an option of choosing the products offered by

CDSL:-

( A ) Easy facility :-

You can view, download and print the updated holding of

your demat account along with valuation of holding.

( B ) Easiest facility :-

You can, by using this facility, submit your own delivery

instructions on the internet without the intervention of your
DP. This is in addition to all the facilities provided under the
'Easy' facility.
We would like you to know that the state of art technology
being arranged for you is the best in the industry and all this
is done so that you have convenience of accessing
information from any desired location.
[39]

 MUTUAL FUND:-

The Angel Mutual Fund distribution and advisory division

offers you the opportunity to diversify your investment
portfolio. By offering a choice of investment schemes from all
major mutual fund providers we have taken our 100% retailfocused philosophy a step further.

Angel Mutual Fund offers options catering to investors with

varying risk-return profiles. We also help investors to choose
the best mutual fund, based on their investment needs.

EMOTIONS

( A ) SELF DISCIPLINE:The greatest cause of loss in trading commodities is

lack of self-discipline lack of self-discipline to follow your

[40]

game plan; lack of self-discipline to be patient; lack of selfdiscipline to take a loss or profit, lack of discipline to follow
money management concepts. "Luck might play a part in the
short-run, but in the end, only those players who play the
game better will triumph. Acting in a disciplined manner is
essential for success. "

( B ) TAKE PROFITS:Tremendous amounts of money can and are being

made in the commodities markets. Profits are there for the
making, but the real key to trading commodities is not
making money; it is keeping it. It is not basking in the elation
of success; it is taking your profits and looking over your
shoulder.

( C ) BALANCE:Trading commodities is a game of psychology. It is a

game of balance. Emotional extremes create an imbalance.
In your elation at being successful, you will make mistakes of
greed. In your reluctance to take a loss, you will make
mistakes of fear. The tremendous emotional release one
feels after closing out a big losing position is amazing.

Fighting the market, yet knowing it was going to go against

us, but wanting it to go in our direction - pushing it, hoping
for it, worrying about it. After a few days or a few weeks of
that, it felt as though the weight of the world was taken off
our shoulders when we finally take the loss.
[41]

( D ) PROFIT & LOSS CYCLES:Most often, meeting a margin call will only increase
your loss. A margin call means you are wrong in the market
and your position should be closed out. Margin calls are met
because people do not want to admit being wrong and take
a loss; because they hope the market will eventually go in
their direction. Avoid meeting margin calls.

( E ) FEAR & GREED:With the tremendous leverage commodities offer, you

as a commodity trader, are frequently exposed to the basic
emotions of fear and greed. At certain times in your trading
career these emotions can make you completely and
absolutely irrational, oblivious to what is really happening. It
can make you rely on hope; hope that the market will do
what you want it to do because it must! Otherwise, you will
lose all of your risk capital and sometimes much more. Not
surprisingly, that doesn't matter to the markets.

[42]

GUIDELINE FOR RISK MANAGEMENT

" Risk control is an essential part of trading successfully.

Effective risk management requires not only the careful
monitoring of risk exposure, but a strategy to minimize
losses as well. Understanding how to control risk exposure
allows the trader, beginner or veteran, to continue trading
even when the inevitable losses occur. While every trade
involves a degree of risk, some general principles of risk
management, if applied, reduce the potential for loss. A few
of the generally accepted market axioms for controlling risk
are noted below and are applicable to anyone who has
ever traded or ever considered trading.

 Trade with the trend:You will be less likely to incur a loss if you are following the
market trend. The direction of the market does not matter as
long as you are positioned for the trend that occurs. If you
are not well positioned, then systematically reduce your risk
exposure.

Diversify:Portfolio risk is reduced through diversification. Don't bet

everything on one trade. Diversify your risk exposure by
trading no more than 1% to 5% of your capital on any one
position. (Contracts on different maturities of the same
commodity count as one position.) To be effective
diversification must involve commodities that are not highly
correlated (that is, that do not move in the same direction at
the same time). High positive correlation reduces the
benefits of diversification. Predetermined stop orders limit
your risk exposure and will cut your losses in fast moving
markets. Adopt a rigid stop-loss rule (for example, get out of
a trade quickly if it loses 5-7%)

Don't overtrade:-

Reduce your risk exposure by cutting down on the number of

trades you make and keeping your bets small. Be selective
about the risks you take. Restrict your trades to the ones that
are the most attractive. This forces you to do your homework
and reduces impulsive and emotional trades. Because there
will be fewer trades, you will have to be much more patient.

Risk management basically involves four essential steps:-

- Fully understanding the risks of the trade.

- Eliminating unnecessary risks where possible.
- Being selective about which risks to take.
- Acting quickly to reduce risk exposure if the market moves
against you.

[44]

Common mistakes made by traders:-

( A ) Lack of a Game Plan:-

One of the most important moves a futures trader can make

is to develop a game plan consisting of basic guidelines.

( B ) Meeting Margin Calls:Most often, meeting a margin call will only increase your
loss. A margin call means you are wrong in the market and
your position should be closed out. Margin calls are met
because people do not want to admit being wrong and take
a loss; because they hope the market will eventually go in
their direction. Avoid meeting margin calls.

( C ) Lack of Money Management:-

Good money management means you know your profit

objective and the odds of being right or wrong, and control
your risk with stops. You are better off with a trade where
you might lose 1000 if you are wrong, or make 1000 if you
are right, that would work six times out of ten, than to take a
trade where you would make 1500 if you are right and lose
only 500 if you are wrong, but works only one time out of
three.
[45]

( D ) Increasing Your Commitment With Success:One of the most dangerous mistakes you can make in
trading commodities is to increase your exposure, as you
become more successful. Just by being successful you will
risk more per trade because you have more money. But,
because you have more money (and confidence) when
successful, you are also likely to take larger percentage
risks. Not surprisingly, this ruins more futures traders than a
series of small losses. You can overcome this mistake by not
allowing your percentage commitment to increase as you
realize profits and by maintaining your stop/loss discipline.

[46]

PRODUCT

ANGEL OUTSTER FUND:The objective of the scheme is wealth generation by

delivering superior returns over long term through
investments in equities.

Investment strategy:-

( A ) To generate wealth on consistent basic rather out

performed by taking higher risk.
( B ) logic work well and thus will be given weightage along
with financials.

( C ) early identification of stocks to ride through the entire

investment cycle.
( D) Timing of investment is important to generate superior
returns.

[47]

PERAMETER DRIVING INVESTMENT DECISION:-

( A ) Blend of growth and value stocks.

( B )Investments in companies regardless of

market capitalization.

( C )Keen selection of stocks based on potential for value

unlocking based on key events.

( D )Focus on companies which display:- Scalable business potential.

- Large market opportunity.
- Beneficiary of favorable economic cycle.
- Valuation at steep discount to asset value.

[48]

ANGEL BLUE CHIP:The objective of the scheme is to generate capital

appreciation in the medium to long term through
investments in equities and equity related instruments
comprising predominantly large cap companies.
Investment strategy:-

( A ) overweight on large cap stocks. However Quality mid

cap stocks may also be considered for investment.
( B ) the portfolio will however be overweight on large cap
companies.
( C ) combination of top down and bottom up approaches.
Portfolio. To comprise of a combination of growth and value
stocks.
( D ) the portfolio strivers to insulate an investor from cyclical
themes by investing in sector offering secular growth
outlook.
[49]

Parameters Driving Investment Decision:-

( A ) The portfolio strives at all times to achieve an 70%

allocation to large cap companies.

( B ) The portfolio strives to limit the exposure to any sector

to less than 25% of the portfolio size.

( C ) The portfolio strives to limit the exposure to any sector

to less than 10% of the portfolio size.

[50]

ANGEL GROWTH FUND:-

The objective of the scheme is to generate capital

appreciation in the medium to long term through
investments in equities and equity related instruments
comprising of predominantly Mid-Cap and Small-Cap
companies.
Investment strategy:-

( A ) focus on growth themes such as Infrastructure,

services, manufacturing and domestic Consumption.

( B ) overweigh on mid cap and small cap stocks. However

Quality large cap stock may also be considered for
Investment depending on market condition.
( C ) Combination of top down and bottom up approaches.
Portfolio to comprise of a combination of growth and
Value stocks.

[51]

Parameter driving investment decision:-

( A ) The portfolio strives to limit the exposure to any sector

To less then 25% of the portfolio size.
( B ) The portfolio strives to limit the exposure to any Stock
To less then 10% of the portfolio size.

EQUITIES AND DERIVATIVES:-

( A ) To generate moderate returns by deployment into

Equity assets and partially hedging the portfolio using
options and futures & achieving this with a margin of safety.
( B ) Additionally the funds lying idle would be deployed in
arbitrage between cash and future and /or place in low
maturity debt funds and low risk F&O Strategies.

[52]

FINDINGS & INTERPRETATION

OBJECTIVE

To

SEX
Male
Female

NO. OF
PERCERTENGE
80%
RESPONDENTS
20
5

80
20

study the perception of investors

towards commodity futures:-

In this section the data obtained

through the questionnaire from the
investors in commodity futures is
analyzed.

SECTION :- A
SEX

[53]

PROFILE :-

BAR CHART SHOWING THE SEX PROFILE OF

THE RESPONDENTS

Findings
From the above table and chart, it can be seen that
80% of the respondents were male, and 20% were female.

Interpretation
It can be concluded that mainly males invest in commodity
futures.

[54]

AGE PROFILE :-

AGE
GROUP
20 -30
30 - 40
40 - 50
50 Above

NO.OF
RESPONDENTE
13
6
5
1

PERCENTAGE
52%
24%
20%
4%

BAR

CHART SHOWING THE AGE PROFILE OF

THE RESPONDENTS

Findings
From the above table and chart, it can be seen that
52% of the respondents were in the age group of 20-30
years, 24% were in the age group of 30-40 years, and
20% were in the age group of 40-50 years and 4% in the age
group of 50 years and above.

Interpretation
It can be concluded that mainly the young people have
invested commodity futures.
[55]

EDUCATION PROFILE:EDUCATION
No.
QUALIFICATION respondents
0
Higher
secondary
1
P.U.C
Graduate
Post Graduate

15
9

Percentage
0%
4%
60%
36%

BAR CHART SHOWING THR EDUCATION

PROFILE OF THE RESPONDENTS

Findings
From the above table and chart, it can be seen that
60% of the respondents were in the Graduate group,
36% were in the post graduate group, 4% were in the
P.U.C group and 0 % in the higher secondary group invested
in commodity futures.

Interpretation
It can be concluded that mainly the young graduates have
invested commodity futures.

[57]

SECTION:- B

[1] Have you invested in commodity futures?

particular
Yes
No

No. of
Respondents
23
2

Percentage
92%
8%

BAR CHART SHOWING THE

PERCENTAGE OF
RESPONDENTS WHO HAVE INVESTED
IN COMMODITY FUTURES

Findings
From the above table and chart, it can be seen that
92% of the respondents have invested in
commodity futures, and 8% have not invested in
commodity futures.
Interpretation
It can be concluded that most of the
respondents have invested in commodity futures.

[58]

[3] Which are the investment you have made

( excluding
commodity futures)?
particular

Shares

No. of
Respondents

percentage

16

35%

Mutual funds

20%

Bonds

6%

Bank
Deposits

10%

Real estate

15%

Jewellery

9%

Insurance

5%

[60]

BAR CHART SHOWING THE VARIOUS

INVESTMENTS MADE BY
RESPONDENTS

Findings
It can be seen that, out of the respondents
who have invested in other securities, 35% of
them have invested
in shares, 20% Mutual funds, 6% in Bonds, 10%
have invested in bank deposits. 15% in real
estate, 9% have invested in jewellery and the
rest 9% have invested in insurance.
Interpretation

It can be concluded that other than commodity

futures, most of the respondents have invested in
shares.
[61]

6) What is your objective when trading in commodity

futures?
particular
Less risky
investment
Diversificati
on of
portfolio
Very good
returns
other

No. of
Respondent
s
8

percentage
32

36

24

BAR CHART SHOWING THE OBJECTIVE OF THE

INVESTOR TO INVEST IN COMMODITIES FUTURES

Findings
It can be seen that out of the investors in commodity
futures, 32% of them have invested with the
objective a less risky investment, 36% of them
invested with the objective of diversifying hid
portfolio and 24% of them due to the

expectation of very good returns and 4% have

invested due to other reasons.
Interpretation
It can be concluded that most of the investors in
commodity futures, have invested with the objective
of diversifying their portfolio.
[64]
7) What is the amount you have invested in commodity
futures?
particular
No. of
percentage
Respondent
s
2 Lakh
6
24
2-3 Lakh

12

48

3-5 Lakh

24

5-10 Lakh
10 Lakh
more

1
0

4
0

BAR CHART SHOWING THE AMOUNT INVESTED

IN COMMODITIY FUTURES

Findings
It can be seen that out of the investors, 24% of them had
invested Rs. 2 lakhs, 48% of them had invested between Rs.
2-3 lakhs, 24% had invested between Rs. 3-5 lakhs and 4%
had invested between Rs. 5-10 lakhs.
Interpretation
It can be concluded that most of the investors had invested
between Rs. 2-3 lakhs in commodity futures.
8) Which commodities have you traded in the most?
particular
wheat

No. of
Respondent
s
6

percentage

cotton

coffee

corn

BAR CHART SHOWING THE MOSTLY TRADED

COMMODITIES BY THE INVESTORS

Findings
It can be seen that out of the investors in commodity futures,
9% investor invest in wheat, 5% investor invest in cotton,
9% investor invest in coffee, and 7% investor invest in
corn.
Interpretation
It can be concluded that the mostly traded commodity is
wheat and coffee.
[66]

9) What percentage of savings have you invested in

commodity futures?
particular
0-10%

No. of
Respondent
s
2

percentage
8

10-20%

32

20-30%

11

44

30-50%

50%
above

12

BAR CHART SHOWING THE PERCENTAGE OF

SAVING THE INVESTOR HAS MADE IN
COMMODITY FUTURES

Findings
It can be seen that, 44% of the investors have invested between 20-30% of their
savings in commodity futures, 32% of them have invested between 10-20% of
their savings, 12% of them have invested above 50% of their savings, 8% of
them have invested between 0-10% of their savings and 4% of them have
invested between 30-50% of their savings.
Interpretation
It can be concluded that most of the investors have invested between 20-30% of
their savings in commodity futures. [67]

10) How did you get to know about commodity futures

trading?

particular
Friends

No. of
Respondent
s
15

percentage
60

Media

16

Selfresearch
other

24

BAR CHART SHOWING THE MAENS THROUGHT

WHICH INVESTORS GOT TO KNOW ABOUT
COMMODITY FUTURES

Findings
It can be seen that, 60% of the investors got to know about
commodity futures through their friends/family,16% got to
know through media and 24% of the investors got to know
through self-research.
Interpretations

It can be concluded that most of the investors got to know

about commodity futures through friends/family.
[68]

12) What do think about the felicitation fee charged by

your company?
particular

No. of
Respondent
s
Very high
1
High
5
Reasonabl
19
e
Low
0

percentage
4
20
76
0
BAR

CHART SHOWING THE PERCEPTION

TOWARDS THE FACILITY CHARGED BY THEIR
COMPANY.

Findings
It can be seen that, 76% of the investors feel that
the facility fee charged by their company is
reasonable, 20% of them feel that the facility fee
charged by their company is high and 4% of the
investors feel that it is very high.

Interpretations
It can be concluded that most of the investors feel
that the facility fee charged by their company is
reasonable.
[70]

13) What do you think of the return derived from

commodity futures?

particular

No. of
Respondent
s
Good
17
Reasonabl
6
e
Bad
2

percentage
68
24
8

BAR CHART SHOWING THE EXTEND OF

RETURNS DERIVED BY THE INVESTOR
FROM COMMODITY FUTURES

Findings
It can be seen that, 68% of the investors feel that
they got good returns from commodity futures
trading, 24% of them feel that they got reasonable

returns commodity futures, 8% of the investors felt

they got bad returns from commodity futures.
Interpretations
It can be concluded that most of the investors
got good returns from commodity futures.
[71]

14) Do you think risk can be reduced by commodity

futures?
particular
Yes
No

No. of
Respondents
22
3

percentage
88
12

BAR CHART SHOWING THE

INVESTOR
OPINION ON WHETHER RISK CAN BE
REDUCED BY COMMODITY FUTURES

Findings
It can be seen that 88% of the investors feel that risk can be
reduced through commodity futures, and 12% of the

Investors feel that risk cannot be reduced through

commodity futures.
Interpretation
It can be concluded that most of the investors feel that risk
can be reduced through commodity futures trading.
[72]

15) Do you think commodity future is a good investment

opportunity?

particular
Yes
NO

No. of
Respondent
s
22
3

percentage
88
12

BAR CHART SHOWING THE OPINION OF THE

INVESTOR OF WHETHER COMMODITY FUTURE IS A
GOOD INVESTMENT OPPORTUNITY

Findings
From the above table and chart, it can be seen that 92% of
the investors feel that commodity futures is a good
investment opportunity and 8% investors feel that commodity
futures is not a good investment opportunity.
Interpretation
It can be concluded that most of the investors feel that
commodity futures is a good investment opportunity.
[73]

CONCLUSION

The prime objective of this study is to attempt to prove that

commodity futures can be efficiently used to reduce risks of
a person who is directly involved with the trading of the
commodity. Another objective was to prove that it was a
sound investment opportunity.

In order to prove both the objectives, a few sub objectives

were earmarked and analyzed. The first being the trading
system of commodity futures. The trading system included
the exchange where the trade takes place the clearinghouse
which ensures that the money is transferred to the right
person at the right time. The trading system also includes
trading and intermediary participants, who ensure the correct
price discovery. Thus the trading system is one of the factors
which reduce the risk in commodity futures.
Commodity futures trading included the intermediary and
trading participants likes brokers who make use of the
various technical analysis tools in order to make predictions
of the price movements they also take into consideration the
fundamental analysis. Thus with the help of the various
analysis tools, efficient price predictions can be made, where
the investors in commodity futures can benefit from the price
movements. There was also an objective to analyze the
growth of commodity future. From the analysis, it can be
Concluded that, commodity futures trading is experiencing
tremendous growth. This can be emphasized by the fact that
there has been an increasing trend in the volume traded in
[74]

most of the commodities. Thus, commodity futures are a

growing market.

To find out the investors perception towards commodity

futures, questionnaire survey was conducted, where in
various parameters were taken into consideration. From the
questionnaire, it could be concluded that most of the
respondents felt that risk could be reduced through
commodity futures and that it was a sound investment
opportunity.

[75]

APPENDIX
ANGEL BROKING LTD
KNOW YOUR CLIENT ( KYC)
1. ARE YOU AWARE ABOUT THE FOLLOWING SERVICES
OF ANGEL BROKING LTD:
SR.
NO
1.

PRODUCT

NOT AT
ALL

PARTILE

FULL

NSE, BSE, FO

2.

DEMAT ACCOUNT

3.

MCX, NCDX

4.

PMS

5.
6.

INSURANCE
MUTUAL FANDS

2. PLEASE TICK ONE OF THE FOLLOWING STATUMANTS:

[ ] I am totally satisfied & dont want to switch.
[ ] I am satisfied but expect more improvements in service.
[ ] I am totally dissatisfied and switch over.

3. DO YOU HAVE ANY COMPAINS OR SUGGESTION FOR US:

__________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
CLINT ID:- ___________________
CLINT NAME:-________________
CLINT SIGNATURE:-___________
[76]

QUESTIONNAIRE
PART A

1) Name:-

__________________________________

2) Sex:

3) Age:

Male:Female:-

20-30 Years:40-50 Years:4) Education:

secondary:Higher secondary:Graduation:-

30-40 years:Above 50 years:-

Post-graduation:Any other:5) Occupation:

Government employee:Self-employee:Commodity futures investor:Private sector employee:Others Businessman:6) Income:
Below 400000:4,00,001 10,00,000:10,00,001 25,00,000:Above 25,00,000:[77]

PART B

1) Have you invested in commodity futures?

Yes:No:2) Have you invested in any other security?
Yes:No:-

3) Which are the investments you have made (excluding

commodity futures)?
Shares:Bonds:
Mutual funds:Bank deposits:Real estate:Jewellery:Others:
4) What is your experience in your previous investment
(excluding commodity futures)?
Good:Reasonable:Bad:-

5) How often do you trade in commodity futures?

Everyday:Once a week:Trade only when there is a good price:[78]

6) What is your objective when trading in commodity

futures?
Less risky investment:Diversification of portfolio:Very good returns:-

Others:7) What is the amount you have invested in commodity

futures?
2,00,000:2,00,000-3,00,000:3,00,000-5,00,000:5,00,000-10,00,000:Above 10,00,000:8) Which commodities have you traded in the most?
Wheat:cotton:Coffee:Corn:9) What percentage of savings have you invested in
commodity futures?
0-10% :10-20%:20-30%:30-50%:50% and above:10) How did you get to know about commodity futures
trading?
Friends/family:Self-research:-

Media:Others:-

11) Which is the risk management technique, which you

use mostly?
Switching:Averaging:Locking:Cut loss:12) What do think about the felicitation fee charged by
your company?
Very high:High:Reasonable:Low:13) What do you think of the return derived from
commodity futures?
Good:Reasonable:Bad:14) Do you think risk can be reduced by commodity
futures?
Yes:No:-

15) Do you think commodity future is a good investment

opportunity?
Yes:No:-

[80]

BIBLIOGRAPHY

BOOKS:THE INDIAN FINANCIAL SYSTEM BY VASANTH DESAI

Websites
www.rbi.org
www.sebi.com
www.barchart.com
www.angeltraed.com
www.angelcommodity
[81]