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GURGAON

A REPORT
ON

Competitive Advantage of
Investment Avenue in
Reliance Money

Submitted By
VIPIN MITTAL
09BS0002723
RELIANCE MONEY
Batch 2011
A REPORT
ON

COMPETITVE ADVANTAGE OF
INVESTMENT AVENUE IN RELIANCE
MONEY
Submitted by:

VIPIN MITTAL
09BS0002723
for:

RELIANCE MONEY
A report submitted in partial fulfillment of the
requirements of MBA program of the ICFAI University-
Dehradun
Distribution List:
Faculty Guide Company Guide

Prof O.P.GUPTA DEVESH MANI

Date of Submission: 14th May 2010

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AUTHORIZATION

This is to certify that the work entitled, “Competitive Advantage of Investment Avenue in
Reliance Money” submitted by Vipin Mittal (0901202723) in fulfillment for the award of degree
of Master of Business Administration from ICFAI University-Dehradun has been carried out
under my supervision. This work has not been submitted partially or wholly to any other
University or Institute for the award of this or any other degree or diploma.

Supervisors:

Prof. O.P. Gupta Devesh Mani Dhaundiyal

Director Center Manager

IBS-G Reliance Money

Gurgaon New Delhi

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ACKNOWLEDGEMENT

This report bears the imprint of many people. I am indeed very happy to acknowledge the
numerous personalities involved in lending their help to make my summer project a successful
one.

Firstly, I would like to thank Reliance Money Ltd. for providing me the opportunity to work on
this project.

I would like to thank my corporate guide Mr. Devesh Mani and all other staff of Reliance Money
including Mr. Nitin, Mr. Ravish & Mr. Vipin for helping me in learning the lessons of
professional management. Their able guidance and valuable inputs have helped me a lot in
successfully completing this project, not only on paper but also in real life.

I express my sincere gratitude to my faculty guide Prof. O. P. Gupta who took a lot of personal
interest in supervising this project and guiding me. His overly enthusiasm and his view for
providing ‘Only high quality work and not less’ has made a deep impression on me. He has been
a constant source of motivation with his valuable enlightening guidance.

This acknowledgement would not be completed without extending my thanks to my friends


specifically Aman, who did their summer internship along with me at Reliance Money Ltd, who
helped me clear any doubts that arose during my internship and for extending their support to me
during my period of internship.

Last, but not the least, I would like to thank everyone who has contributed for successful
completion of this project.

Vipin Mittal

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TABLE OF CONTENTS
AUTHORIZATION………………………………………………………………………………………………………………………….………..3

ACKNOWLEDGEMENT……………………………………………………………………………………………….…………………………..4

EXECUTIVE SUMMARY…………………………………………………………………………………………………………………………..6

LIST OF ILLUSTRATIONS…………………………………………………………………………………………………………….…………8

1. INTRODUCTION………………………………….…………………………………………………………………………..…………9
1.1. PURPOSE OF PROJECT………………………………………………………………………………………………………9
1.2. LIMITATIONS OF STUDY……………………………………………………………………………………………...…..10
1.3. LITERATURE SURVEY……………………………………………………………………………………………………...10
1.4. INVESTMENT AVENUES & ALTERNATIVES………………………………………………………………………11
2. COMPANY PROFILE…………………………………………………………………………………………………………………15
3. FINANCIAL MARKETS…………………………………………………………………………………………………………..….16
3.1. MONEY MARKET……………………………………………………………………………………………………………..16
3.2. CAPITAL MARKET……………………………………………………………………………………………………..…….17
4. TRADING PORTAL……………………………………………………………………………………………………………….….19
5. FINANCIAL PRODUCTS……………………………………………………………………………………………………………22
5.1. MUTUAL FUNDS……………………………………………………………………………………………………….……..22
5.2. LIFE INSURANCE………………………………………………………………………………………………………….…27
5.3. GENERAL INSURANCE………………………………………………………………………………………………….…30
6. SAVING, INVESTMENT & ASSET ALLOCATION…………………………………………………………………..……32
7. WEALTH MANAGEMENT & PRIVATE BANKING…………………………………………………………………..….34
8. OFFSHORE INVESTMENT……………………………………………………………………………………………………….35
9. COMMODITY MARKET…………………………………………………………………………………………………………...36

FINDINGS……………………………………………………………………………………………………………………………………….…..39

CONCLUSION & RECOMMENDATIONS…………………………………………………………………………………………………51

REFERENCES……………………………………………………………………………………………………………………………..……….54

APPENDICES……………………………………………………………………………………………………………………………………….55

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EXECUTIVE SUMMARY

The project is about getting an in depth knowledge of various financial products of the market and
to learn how to minimize the risk involved in these instruments. It involves marketing and
customer handling which lead to an improvement in communication skills. Conducting
presentations and seminars in corporate as an essential part of this project enhances the overall
personality & self confidence and prepares me for my upcoming corporate life. Introduction to
various softwares like Super-trade aims to provide real time exposure with the financial products.
Finally apart from technical and social expertise, implementation of this project in real life
scenario also teaches how to handle other Human factors like stress, fatigue, ethics, teamwork &
grievance. Thus this project eventually leads to an overall personality development and would be
a real life learning experience.

This report does a Comparative Analysis of different Financial Products of the company with its
nearest competitor and develops a Hypothesis for the same to check if there is any advantage of
Investment Avenue in Reliance Money.

The Descriptive Research Methodology was used for Data collection purpose which included
Personal Interviewing, Telephonic Interviewing, Survey Methods Combinations and Closed-
Response Questionnaires. Some Survey Errors like Nonresponse errors due to Refusals,
Inaccuracy in Response and Interviewer Error were also observed. E- Data providing services like
Custom Search Service, Agents & Free Information Providers also helped a lot in gathering
information.

Financial Products & Services in R-Money can be broadly segmented into three domains namely
Equity, Insurance (Life Insurance & General Insurance) and Mutual Funds.

1. Equity:
In Equity Trading, the nearest competitor of Reliance Money is ICICI. The methodology
employed for comparison is Factorial Design (Two-way ANOVA) under Statistical
Hypothesis.
Here, the Null Hypothesis (H01) is accepted which states that Profits generated using Tips
& Techniques of Reliance Money in equity market are equal to the profits generated

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using Tips & Techniques of ICICI Securities. It signifies an excellent performance of the
company in this competitive market.

2. Insurance:
In Insurance schemes, the nearest competitors of Reliance are TATA and LIC. The
methodology employed for comparison is Chi-Square Test of Independence under
Statistical Hypothesis.
Here, the Null Hypothesis (H01) is accepted which states that Investment tendency of
customers in Insurance is independent of company. A Low value of Contingency
Coefficient (C=0.0000575) which measures the strength of Association further verifies
the Independence.
When Product Differentiation is taken into account, the result is again the same.

3. Mutual Funds:
In Mutual Funds, the nearest competitor of Reliance is ICICI Prudential. The
methodology employed for comparison is Factorial Design (Two-way ANOVA) under
Statistical Hypothesis.
Here the Null Hypothesis (H02) is accepted which states that Returns from investment in
Mutual Funds of Reliance Securities is greater than the returns from investment in Mutual
Funds of ICICI Prudential in fluctuating market scenario.
Also using Multiple Regression, we find out that Sharpe ratio is the most important
parameter for observing Expected Returns. Higher the sharpe Ratio, Better would be the
expected returns.

Thus, for sure Reliance Money enjoys a competitive advantage over its rivals as it provides cheap
& superior services to its investors in addition to customer satisfaction and better returns.

This project will be useful for the organization as various new marketing strategies and
calculators are coming into existence on the advancement of every step which is helpful for the
company in generating more revenue.

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LIST OF ILLUSTRATIONS

Figure1: Investment Alternatives………………………………………………………………………………………….…….11

Figure2: Reliance ADA Group…………………………………………………………………………………………….……….15

Figure 3: Concept of Mutual Fund…………………………………………………………………….………………………...22

Figure 4: Classification of Mutual Funds…………………………………………………….……………………………….23

Figure 5: Snapshot of Equity Worksheet……………………………………………………………………………………..39

Figure 6: ANOVA Table for Equity Worksheet…….....................................................................................................40

Figure 7: Snapshot of MF Worksheet-1……………………………………………………………….………………………41

Figure 8: ANOVA Table for MF Worksheet-1……………………………………………………………………………….42

Figure 9: Snapshot of MF Worksheet-2…………………………………………………………….…………………………42

Figure 10: Regression Table MF…………………………………………………………………….…………………………...43

Figure 11: Snapshot of Insurance Worksheet-1………………………………………………..…………………………45

Figure 12: Snapshot of Insurance Worksheet-2…………………………………………………………..………………46

Figure 13: Preference of Investment………………………………………………………………………….……………….47

Figure 14: Awareness on online Share Trading……………………………………………………………………………48

Figure 15: Awareness of Reliance money as a Brand…………………………………………………………………...48

Figure 16: Awareness of Reliance Money Facilities………………………………………………..…………………….49

Figure 17: Customer Satisfaction with Current Broker……………………………………………...………………….49

Figure 18: Frequency of Trading…………………………………………………………………………………………………50

Figure 19: Percentage of Earnings Invested in Share Trading……………………………………….………………50

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INTRODUCTION

Purpose of Project

The project is about getting an in depth knowledge of various financial products of the market and
to learn how to minimize the risk involved in these instruments. It involves marketing and
customer handling which will lead to an improvement in communication skills. Conducting
presentations and seminars in corporate as an essential part of this project will enhance the overall
personality & self confidence and will prepare me for my upcoming corporate life. Introduction to
various softwares like Super-trade aims to provide real time exposure with the financial products.
Finally apart from technical and social expertise, implementation of this project will also teach
how to handle other Human factors like stress, fatigue, ethics, teamwork & grievance. Thus this
project will eventually lead to an overall personality development and would be a real life
learning experience.

Scope of Project

The findings of this project can be utilized by the company for analyzing and comparing the
consumer behavior towards Reliance and its competitors. The critical thresholds can be derived
through the findings and generated Excel sheets.

Source of Database

All the data was being provided by the company itself. References given by the clients also add
up to the existing database. E- Data providing services like Custom Search Service, Agents &
Free Information Providers also helped a lot in gathering information.

Data Collection Methods

The Descriptive Research Methodology was used for Data collection purpose which included
Personal Interviewing, Telephonic Interviewing, Survey Methods Combinations and Closed-
Response Questionnaires.

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Limitations of Study

i. The right time to call a customer cannot be decided, as the customer may in a different
mood at the time of calling.
ii. Population involves only those persons who have purchased at least one financial
instrument from any company.
iii. All mutual funds are broadly classified in three major groups namely Equity Funds, Debt
Funds & Liquid Funds.
iv. Insurance is inclusive of Life Insurance & General Insurance.
v. The effect of Riders is excluded from the study.
vi. The source of entire database is Delhi & NCR region only.
vii. January 2010 is taken as the base for all calculations.

Literature Survey

According to the Webster’s dictionary, literature is “the writings that pertain to a particular branch
of learning, and printed matter”. And review means “to examine again, to study carefully”.

Therefore literature review is the printed matter which we study very carefully during our work.
This project is also a collection of insight into the different printed material.

As this project is specifically related to sales of financial products, so books on investments was
one of the most important study materials.

The main source of data through which this project has taken its shape is the circulars of SEBI
and IRDA. These circulars give description of existing market.

The insurance institute of India has published books which give an insight into the life insurance
products and general insurance products.

Books like “Marketing Management” by “Philip Kotler” and “Financial Management” by “ICFAI
University” provided an in depth knowledge at various stages of learning.

“Marketing Research” by “Aaker”, “Business Statistics” by “Ken Black” helped in developing


various mathematical concepts.

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Last but not the least, the practical experiences of reliance money has given the best ever
exposure on the actually market works in financial products and services.

Investment Avenues & Alternatives

Whether it’s retiring early, saving for children’s education, paying off a loan or to live a secured
and satisfied life everyone has dreams they can achieve by investing their savings. However, the
question that arises is that, should one leave his money tucked away in the bank or plough it into
the stock market where the potential for higher returns is greater but the chances of losing money
is higher? Deciding where to invest depends on one`s attitude towards risk (one`s capacity to take
risk and one`s tolerance towards risk) and the investment horizon and non-availability of
guaranteed-return investment products.

In such a scenario, investing in equity, which offers returns that are higher than the inflation rate,
help to build wealth and to improve the standard of living. It is fine that stock market fluctuates
over time. At present as far as the world economy is concerned it is on a boom. As soon as
globalization and liberalization has come into act it has well shaped the economy. India has
turned out to be the hot destination for the money investors and this has resulted growth in the
sensex .It was never hoped before that BSE will ever touch the mark of 16000 points. But only
due to the new economic opportunities and the confidence of people in India’s economic future it
has been successful .Investing in equity is the way to earn money and to fulfill the dreams. The
risk involved with investing in equity can be moderated by careful stock selection and close
monitoring. Figure1: Investment Alternatives

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Non-marketable Financial Assets - A good portion of financial assets is represented by non-
marketable financial assets. These can be classified into the following broad categories:

• Bank deposits

• Post office deposits

• Company deposits

• Provident fund deposits

Equity Shares - Equity shares represent ownership capital. As an equity shareholder, you have an
ownership stake in the company. This essentially means that you have a residual interest in
income and wealth. Perhaps, the most romantic among various investment avenues, equity shares
are classified into the following broad categories by stock market analysts:

• Blue chip shares

• Growth shares

• Income shares

• Cyclical shares

• Speculative shares

Bonds - Bonds or debentures represent long-term debt instruments. The issuer of a bond promises
to pay a stipulated steam of cash flow. Bonds may be classified into the following categories:

• Government securities

• Government of India relief bonds

• Government agency securities

• PSU bonds

• Debentures of private sector companies

• Preference shares

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Money Market Instruments - Debt instruments which have a maturity of less than one year at
the time of issue are called money market instruments. The important money market instruments
are:

• Treasury bills

• Commercial paper

• Certificates of deposits

Mutual Funds - Instead of directly buying equity shares and/or fixed income instruments, you
can participate in various schemes floated by mutual funds which, in turn, invest in equity shares
and fixed income securities. There are three broad types of mutual fund schemes:

• Equity schemes

• Debt schemes

• Balanced schemes

Life Insurance - In a broad sense, life insurance may be viewed as an investment. Insurance
premiums represent the sacrifice and the assured sum the benefit. The important types of
insurance policies in India are:

• Endowment assurance policy

• Money back policy

• Whole life policy

• Term assurance policy

Real Estate - For the bulk of the investors the most important asset in their portfolio is a
residential house. In addition to a residential house, the more affluent investors are likely to be
interested in the following types of real estate:

• Agricultural land

• Semi-urban land

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• Time share in a holiday resort

Precious Objects - Precious objects are items that are generally small in size but highly valuable
in monetary terms. Some important precious objects are:

• Gold and silver

• Precious stones

• Art objects

Financial Derivatives - A financial derivative is an instrument whose value is derived from the
value of an underlying asset. It may be viewed as a side bet on the asset. The most important
financial derivatives from the point of view of investors are:

• Options

• Futures

Since every individual would like to earn return on their investment but where to invest has
always been a problem. There has always been confusion as to which instrument to invest, which
instrument will give me higher returns, etc. In such a scenario, one need to think as to how he will
take care of all his future needs and build up a corpus that will not only take care of routine
expenses but also provide for extra costs, especially of health care. One need to have a corpus of
funds, post-retirement, which will give him close to 100% of the salary to preserve the lifestyle he
has grown to enjoy.

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COMPANY PROFILE

Reliance Money is promoted by Reliance Capital, one of India's leading and fastest growing
private sector financial services companies, ranking among the top 3 private sector financial
services and banking companies, in terms of net worth. Reliance Capital is a part of the Reliance
Anil Dhirubhai Ambani Group.

Thus, Reliance Money provides a comprehensive platform, offering an investment avenue for a
wide range of asset classes. Its endeavor is to change the way India transacts in financial market
and avails financial services. Reliance Money offers a single window facility, enabling you to
access amongst others, Equities, Equity and Commodity derivatives, Offshore Investments,
IPO’s, Mutual Funds, Life Insurance and General Insurance products.

The main activity of Reliance Money is Equity Trading and cross selling of Mutual Funds and
Insurances. Offshore Investments and Commodities are also traded by the company but the focus
is not much in these two.

Figure2: Reliance ADA Group

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FINANCIAL MARKETS

A financial market can be defined as the market in which financial assets are created or
transferred. Financial assets represent a claim to the payment of a sum of money sometime in the
future and/or periodic payment in the form of interest or dividend. Financial markets are classified
as Money Markets and Capital Markets. Money market deals with all transactions in short term
instruments (with a period of maturity of 1 year or less) whereas Capital Market deals with
transactions related to long term instruments (with a period of maturity of above 1 year).

Money Market

One of the important functions of a well developed money market is to channel savings into
short-term productive instruments like working capital. The important money markets are:

a. CALL MONEY MARKET


ü Day-to-day surplus funds, mostly of banks, are traded
ü Call money loans are of very short duration ranging from 1 to 15 days.
ü Banks borrow in call markets to meet CRR and to meet sudden demands for funds.
b. TREASURY BILLS MARKET
ü Raised to meet short term funds required by the Government of India.
ü High liquidity, assured returns , no default risk & no capital depreciation.
ü Issued for a minimum amount of Rs. 25,000 in the form of a promissory note.
c. MARKETS FOR COMMERCIAL PAPER
ü Unsecured instrument issued in the form of a promissory note at a discount.
ü Transferable by endorsement and delivery, maturity period is 15 days to 1 year.
ü Issued in denominations of Rs. 5 lakh or multiples thereof.
ü Minimum credit rating should be P-2 of CRISIL.
ü Stamp duty on a primary issue of CP is 0.25% for all investors, with a concession
rate of 0.05% for banks. All expenses borne by the issuers.
d. MARKETS FOR CERTIFICATE OF DEPOSITS
ü Lowest risk category investment option and stands next to T-bills.
ü Negotiable promissory note, secure and short term in nature.
ü Issued in denomination of Rs. 1 lakh or multiples thereof.

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ü Maturity period is 7 days to 1 year.
ü Issued only in dematerialized form with no lock-in period.
ü Issuance of CDs will attract stamp duty.
e. MONEY MARKET MUTUAL FUNDS
ü Mutual funds that invest primarily in money market instruments of very high
quality & of very short maturities.
ü Can be set up by commercial banks, RBI and public financial institutions.
ü Minimum lock-in period of 15 days with a minimum size of Rs. 50 crore.

Capital Market

The capital market provides the resources needed by medium and large scale industries for
investment purposes. The capital market consists of following markets:

a. PRIMARY MARKET
ü Creates long term instruments, shares and debentures.
ü Methods of Issue include Public Issue, Rights Issue, Bonus Issue, Private
Placement & Bought-out Deals.
ü Key players include Companies, Intermediaries & Investors.
b. SECONDARY MARKET
ü Also called Stock Market.
ü Provides liquidity and marketability to outstanding instruments.
ü 3 functions include Listing, Trading and Practices of settlements & clearing.

Some other types of markets include:

a. GOVERNMENT SECURITIES MARKET


ü Gilt-edged securities as repayments of principal as well as interest are totally
secured, being the first charge on nation’s purse.
ü Classified as Long-dated, Medium-dated & Short-dated.
ü 3 forms include Stock Certificates, Promissory Notes and Bearer Bonds.
b. INTERNATIONAL CAPITAL MARKETS
ü Consists of Bond Market (Foreign Bonds & Euro bonds) and Equity Market
(Foreign Equity & Euro Equity).

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ü Key Players include Borrowers/Issuers, Lenders/Investors and Intermediaries
(Lead Managers, Underwriters & Custodian).
c. FOREX MARKET
ü International trade using Foreign Exchange (A method of converting one currency
to the other) with a specified Exchange rate quoted in direct or indirect way.
d. DERIVATIVES MARKET
ü Used to minimize the risk arising from the underlying assets.
ü Allow the participants (Hedgers, Speculators and Arbitrageurs) to hedge, speculate
or arbitrage in the markets.
ü All derivatives can be classified into two categories based on the nature of contract
such as Futures and Options or a combination of the two.
ü A futures contract is a form of forward contract which conveys an agreement to
buy or sell a specific amount of a commodity or financial instrument at a particular
price on a stipulated future date.
ü Option is a contract that confers the right, but not an obligation to the holder to buy
(Call option) or to sell (Put option) an underlying asset at a price agreed on a
specified date or by a specific expiry date.

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TRADING PORTAL

Online trading refers to buying and selling of the shares/stocks/contracts/bonds with the use of
internet. In this shares are not issued in physical form rather they are transferred in the
dematerialized form in the Demat account directly.

Online trading portal is one of essential parts of online trading. Let's define first what online
trading portal or in other words financial portal is. Online portal is a website system which gives
both traders and brokers an access to a great variety of financial news and information which
enable traders to take their decisions. These various financial services are provided by a great
number of different companies. That's why choosing a reliable and appropriate online trading
portal is no less important than choosing online trading software on online trading platform. No
matter whether we are going to occupy ourselves with forex online trading, stock option online
trading, currency online trading or any other kind of online trading; we'll certainly need a good
online trading portal. Online trading portals provide their visitors with articles, quotes, analyst
recommendations and research. Some of such portals have also useful links to different relevant
sites, chat rooms, discussion online forums and e-mail accounts.

Reliability is an extremely important point which should be carefully considered. All types of
online trading are based on thorough monitoring and analysis, that's why every trader needs a
reliable and in-time information, because they have to trust this data and take their decisions
accordingly.

Reliance Securities Limited as a SEBI registered Trading Member of NSE and BSE offers
Internet trading on the URL, www.reliancemoney.com. To trade online the customer is provided
with a user id, password and also a security token which flashes a dynamic password number.
This security token displays a new 6 digit number every 36 seconds.

To facilitate trading the following frontend screens have been made available:

Easy Trade , Insta Trade, Fast Trade, & Super Trade

The trading system is totally secured and is SSL (Secure Socket Layer) enabled. All interactions
on the trading system are encrypted using industry standard encryption algorithms.

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EQUITY INVSTMENTS

Equity shares represent ownership capital. As an equity shareholder, you have an ownership stake
in the company. This essentially means that you have a residual interest in income and wealth.
Perhaps, the most romantic among various investment avenues, equity shares are classified into
the following broad categories by stock market analysts:

• Blue chip shares


• Growth shares
• Income shares
• Cyclical shares
• Speculative shares

The equities held by private individuals are often held via mutual funds or other forms of pooled
investment vehicle, many of which have quoted prices that are listed in financial newspapers or
magazines; the mutual funds are typically managed by prominent fund management firms (e.g.
Schroder’s, Fidelity Investments or the Vanguard Group). Such holdings allow individual
investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund
managers in charge of the fund(s). An alternative, usually employed by large private investors and
pension funds, is to hold shares directly; in the institutional environment many clients who own
portfolios have what are called segregated funds as opposed to, or in addition to, the pooled e.g.
mutual fund alternative.

STOCK MARKET

A stock market or equity market is a public market (a loose network of economic transactions not
a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed
price; these are securities listed on a stock exchange as well as those only traded privately.

Participants in the stock market range from small individual stock investors to large hedge fund
traders, who can be based anywhere. Their orders usually end up with a professional at a stock
exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a
method known as open outcry. This type of auction is used in stock exchanges and commodity

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exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of
stock exchange is a virtual kind, composed of a network of computers where trades are made
electronically via traders.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and
sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading
information on the listed securities, facilitating price discovery.

IMPORTANCE

The stock market is one of the most important sources for companies to raise money. This allows
businesses to be publicly traded, or raise additional capital for expansion by selling shares of
ownership of the company in a public market. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive feature of investing
in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics of
economic activity, and can influence or be an indicator of social mood. An economy where the
stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock
market is often considered the primary indicator of a country's economic strength and
development. Rising share prices, for instance, tend to be associated with increased business
investment and vice versa. Share prices also affect the wealth of households and their
consumption. Therefore, central banks tend to keep an eye on the control and behavior of the
stock market and, in general, on the smooth operation of financial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and
enterprise risks promote the production of goods and services as well as employment. In this way
the financial system contributes to increased prosperity.

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FINANCIAL PRODUCTS

MUTUAL FUNDS

A mutual fund represents a vehicle for collective investment. When you participate in a scheme
of a mutual fund, you become a part-owner of the investments held under that scheme. The most
important characteristic of a mutual fund is that the contributors and the beneficiaries of the fund
are the same class of people, namely the investors. The term “MUTUAL” means that investors
contribute to the pool, and also benefit from the pool.

The money held in the trust is divided into shares of equal value called “UNITS”. Investors
become “unit-holders” and are allocated units based on the amount of their investment. The
income earned through these investments and the capital appreciation realized is shared by its unit
holders in proportion to the number of units owned by them.

Investments in securities are spread across a wide cross-section of industries and sectors and thus
the risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual funds are known as
unit holders.

Thus a mutual fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a relatively
low cost.

Figure 3: Concept of Mutual Fund

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TYPES OF MFs

• Portfolioo classification of MFs


Mutual Funds differ from other types of investments because they are designed to meet
the objectives of different types of investors.
• Functional classification of MFs
Mutual Funds are classified based on basic characteristics of mutual fund schemes.
• Geographical classification of MFs
Mutual Funds are classified oon the basis of frontiers of investment.

Portfolio Functional Geographical

• Bond Funds • Open-ended MF • Domestic MF


• Stock Funds • Closed-ended MF • Offshore MF
• Income Funds
• Money Market
Funds
• Specialized Funds
• Leveraged Funds
• Balanced Funds
• Growth Funds
• Performance Funds
• Real Estate Funds

Figure 4: Classification of Mutual Funds

In Open-ended
ended MFs; on reselling the shares, holders will receive the Net Assets Value (NAV) of
the shares. The company can buy or sell its own shares. These companies sell new shares at NAV
plus a loading or management fee and redeem shares at NAV.

NAV is calculated as:

Closed-ended
ended funds channelize funds in secondary market in acquisition of corporate securities.
The NAV & the price at which units of MFs are traded in the market need not always be equal,
the unit may sell for the current NAV of the share.

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There is one another classification of Mutual Funds:

• An EQUITY FUND invests mainly in stocks and shares of companies. EQUITY FUNDS
typically aim to generate long term growth in the unit capital. There are a variety of ways
in which an equity portfolio can be created for investors.
Target market:

They are ideal for investors having a long term perspective, Speculative outlook- the
equity cult, who would like to make gains in the shortest period of time and investors in
their prime earning years-specifically the young who have a decent earning and can take
some kind of risk.

• A DEBT FUND invests mainly in debt instruments like bonds and debentures, with high
and consistent dividend payout. These funds give decent returns but the capital
appreciation is not much. There are a variety of ways in which a debt portfolio can be
created for investors.
Target market:
Retired people and others with a need for stability and regular income and the investors
who need some income to supplement their earnings.
• A BALANCED FUND invests in both equity and debt instruments. It aims to generate
growth and income by periodically distributing its assets over both types of securities.

Target market:

These are ideal for investors looking for a combination of income and moderate growth.

ADVANTAGES OF MUTUAL FUNDS

• Reduced Risk: Mutual fund provides small investors access to reduced investment risk
resulting from diversification, economies of scale in transaction cost, and professional
finance management.
• Diversified Investment: Small investors participate in larger basket of securities and share
the benefits of efficiently managed portfolio by experts, and are freed of keeping any
records of share certificates, etc. of various companies, tax rules, etc.

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• Botheration-free investment: Investors get freedom from emotional stress involved in
buying or selling securities as experts manage mutual funds and they act scientifically
with right innings in buying and selling for their clients.
• Revolving Type of Investment: Automatic reinvestment of dividends and capital gains
provides relief to the members of Mutual Funds.
• Selection and Timings of Investment: Expertise in stock selection and timing is made
available to investors so that invested funds generate higher returns to them.
• Wide Investment Opportunities: Availment of wider investment opportunities that create
an increased level of liquidity for the funds holders becomes possible because of package
of more liquid securities in the portfolio.
• Investment Care: Mutual Funds provide the care for securities thereby relieving the
investors botheration of taking care of various rules and regulations.

MUTUAL FUND SERVICES

• Saving Scheme: A voluntary saving plan can be added to Mutual Funds through which an
investor can save on monthly or quarterly basis. The amount thus saved will be added to
purchase the units in the Mutual Funds.
• Automatic Reinvestment Plan: The amount of dividend and other income accrued on
mutual fund investments is automatically reinvested in purchasing additional units or
shares in the open-ended funds.
• Regular Income Plan: Systematic withdrawal is allowed to investors of their money
locked in mutual fund investments in the form of regular income by way of monthly or
quarterly installments to meet their regular financial needs.
• Shifting Advantage or Conversion Privileges: Mutual funds may provide the investors
with the facility within the family of the plans to shift or convert or exchange them
afterwards from one plan to another at nominal costs or at no costs subject to tax
advantages, if any, available.
• Retirement Pension Plans: Mutual Funds are now very much linked with retirement
pension plans. They facilitate setting up by individuals and companies, the tax deferred
retirement plans for self or their employees respectively.

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PARTIES TO MUTUAL FUND TRUST

• Sponsors: One or more public and private limited companies can jointly sponsor a mutual
fund. The following are the requirements of a competent sponsor. The sponsor has to
locate and appoint both the trustees and the fund managers or the asset management
company.
• Mutual Fund Trust or Trustee: The main functions of Mutual Fund Trust are – planning
and formulating mutual fund schemes, seeking SEBI’s approval and authorization to the
schemes, marketing the schemes for public subscription, etc.
• Fund Managers or the Asset Management Company (AMC): AMC has to discharge
mainly three functions. They are: taking investment decisions and making investments of
the funds through market dealer/brokers in the secondary market securities, realizing fund
position by taking account of all receivables and realizations, moving corporate actions
involving declaration of dividends, etc. to compensate investors for their investments in
units; and maintaining proper accounting and information for pricing the units and
arriving at Net Assets Value (NAV).

CUSTODIANS FOR MUTUAL FUNDS

The institutions, which are acting as professional custodians, are Stock Holding
Corporation of India (SHCI), Citibank, Industrial Investment Trust Ltd., (IITL), Hong
Kong Bank, ABN Amro, ICICI Bank, Citi Bank, and Bank of India Shareholdings Ltd.

In addition to attending to shareholders’ transactional activities viz., to issue, transfer,


exchange, redeem, maintain detailed records of transactions, receipt of dividends,
reimbursement of dividend and purchase of securities, etc custodians also maintain
records of confirmations of transactions, cheque registers, certificates, files, commission
reports, tax reporting, etc.

Securities will be delivered on receipt of cash, and payment will be made only on receipt
of securities. Any discrepancies arising out of the trade settlements are resolved at the end
by the custodian.

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LIFE INSURANCE

Life insurance or life assurance is a contract between the policy owner and the insurer, where the
insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured
individual's or individuals' death or other event, such as terminal illness or critical illness. In
return, the policy owner agrees to pay a stipulated amount at regular intervals or in lump sums.

Life policies are legal contracts and the terms of the contract describe the limitations of the
insured events. Specific exclusions are often written into the contract to limit the liability of the
insurer; for example claims relating to suicide, fraud, war, riot and civil commotion.

Special provisions may apply, such as suicide clauses wherein the policy becomes null if the
insured commits suicide within a specified time. Any misrepresentations by the insured on the
application are also grounds for nullification.

The face amount on the policy is the initial amount that the policy will pay at the death of the
insured or when the policy matures, although the actual death benefit can provide for greater or
lesser than the face amount. The policy matures when the insured dies or reaches a specified age
(such as 100 years old).

TYPES OF LIFE INSURANCE

Life insurance may be divided into two basic classes – temporary and permanent or following
subclasses - term, universal, whole life and endowment life insurance.

Term Insurance

Term assurance provides life insurance coverage for a specified term of years in exchange for a
specified premium. The policy does not accumulate cash value. Term is generally considered
"pure" insurance, where the premium buys protection in the event of death and nothing else.

There are three key factors to be considered in term insurance:

Face amount (protection or death benefit),

Premium to be paid (cost to the insured), and

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Length of coverage (term).

Various insurance companies sell term insurance with many different combinations of these three
parameters. The face amount can remain constant or decline. The term can be for one or more
years. The premium can remain level or increase. Common types of term insurance include Level,
Annual Renewable and Mortgage insurance.

Permanent Life Insurance

Permanent life insurance is life insurance that remains in force (in-line) until the policy matures
(pays out), unless the owner fails to pay the premium when due (the policy expires OR policies
lapse). The policy cannot be canceled by the insurer for any reason except fraud in the
application, and that cancellation must occur within a period of time defined by law (usually two
years). Permanent insurance builds a cash value that reduces the amount at risk to the insurance
company and thus the insurance expense over time.

Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in the policy
guaranteed by the company. The primary advantages of whole life are guaranteed death benefits,
guaranteed cash values, fixed and known annual premiums, and mortality and expense charges
will not reduce the cash value shown in the policy. The primary disadvantages of whole life are
premium inflexibility, and the internal rate of return in the policy may not be competitive with
other savings alternatives. Also, the cash values are generally kept by the insurance company at
the time of death, the death benefit only to the beneficiaries. Riders are available that can allow
one to increase the death benefit by paying additional premium. The death benefit can also be
increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher
or lower than historical rates over time. Premiums are much higher than term insurance in the
short-term, but cumulative premiums are roughly equal if policies are kept in force until average
life expectancy.

Universal life coverage

Universal life insurance (UL) is a relatively new insurance product intended to provide permanent
insurance coverage with greater flexibility in premium payment and the potential for a higher

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internal rate of return. There are several types of universal life insurance policies which include
"interest sensitive" (also known as "traditional fixed universal life insurance"), variable universal
life insurance, and equity indexed universal life insurance.

Endowments

Endowments are policies in which the cash value built up inside the policy, equals the death
benefit (face amount) at a certain age. The age this commences is known as the endowment age.
Endowments are considerably more expensive (in terms of annual premiums) than either whole
life or universal life because the premium paying period is shortened and the endowment date is
earlier.

Endowment Insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15
years) or a specific age (e.g. 65).

Tax Benefits of Insurance

The tax breaks that are available under our various insurance and pension policies are described
below:

• Life insurance plans are eligible for deduction under Sec. 80C.
• Pension plans are eligible for a deduction under Sec. 80CCC.
• Health insurance plans/riders are eligible for deduction under Sec. 80D.
• The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D),
subject to norms prescribed in that section.

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GENERAL INSURANCE

Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General
Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as
Accident and Health Insurance, and liability insurance which covers legal liabilities. There are
also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied perils,
flood storm and inundation, earthquake and so on. There are products that cover property against
burglary, theft etc. The non-life companies also offer policies covering machinery against
breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy
covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against
damages and theft forms a major chunk of non-life insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual value of
the property to avoid being imposed a penalty should there be a claim. Where a property is
undervalued for the purposes of insurance, the insured will have to bear a ratable proportion of the
loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a
loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of
the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite
often not understood by most insured.

Personal insurance covers include policies for Accident, Health etc. Products offering Personal
Accident cover are benefit policies. Health insurance covers offered by non-life insurers are
mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is
offered through Third Party Administrators who have arrangements with various service
providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement
claims. Sometimes the insurers themselves process reimbursement claims.

Accident and health insurance policies are available for individuals as well as groups. A group
could be a group of employees of an organization or holders of credit cards or deposit holders in a
bank etc. Normally when a group is covered, insurers offer group discounts.

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Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s
Compensation Policy etc offer cover against legal liabilities that may arise under the respective
statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some of the covers such
as the foregoing (Motor Third Party and Workmen’s Compensation policy ) are compulsory by
statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many
industries insure against Public liability. There are liability covers available for Products as well.

There are general insurance products that are in the nature of package policies offering a
combination of the covers mentioned above. For instance, there are package policies available for
householders, shop keepers and also for professionals such as doctors, chartered accountants etc.
Apart from offering standard covers, insurers also offer customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family. It is important to protect one’s
property, which one might have acquired from one’s hard earned income. A loss or damage to
one’s property can leave one shattered. Losses created by catastrophes such as the tsunami,
earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating
but insurance could help mitigate them. Property can be covered, so also the people against
Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing
medical treatment whether due to a disease or an injury.

Industries also need to protect themselves by obtaining insurance covers to protect their building,
machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance.
So, most industries or businesses that are financed by banks and other institutions do obtain
covers. But are they obtaining the right covers? And are they insuring adequately are questions
that need to be given some thought. Also organizations or industries that are self-financed should
ensure that they are protected by insurance.

Most general insurance covers are annual contracts. However, there are few products that are
long-term.

It is important for proposers to read and understand the terms and conditions of a policy before
they enter into an insurance contract. The proposal form needs to be filled in completely and
correctly by a proposer to ensure that the cover is adequate and the right one.

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SAVING, INVESTMENT & ASSET ALLOCATION

SAVING

Saving is income not spent, or deferred consumption. Methods of saving include putting money
aside in a bank or pension plan. Saving also includes reducing expenditures, such as recurring
costs. "Saving" differs from "savings." The former refers to an increase in one's assets, an increase
in net worth, whereas the latter refers to one part of one's assets, usually deposits in savings
accounts, or to all of one's assets. Saving refers to an activity occurring over time, a flow variable,
whereas savings refers to something that exists at any one time, a stock variable.

Saving is closely related to investment. By not using income to buy consumer goods and services,
it is possible for resources to instead be invested by being used to produce fixed capital, such as
factories and machinery. Saving can therefore be vital to increase the amount of fixed capital
available, which contributes to economic growth.

However, increased saving does not always correspond to increased investment. If savings are
stashed in a mattress or otherwise not deposited into a financial intermediary like a bank there is
no chance for those savings to be recycled as investment by business. This means that saving may
increase without increasing investment, possibly causing a short-fall of demand (a pile-up of
inventories, a cut-back of production, employment, and income, and thus a recession) rather than
to economic growth. In the short term, if saving falls below investment, it can lead to a growth of
aggregate demand and an economic boom. In the long term if saving falls below investment it
eventually reduces investment and detracts from future growth. Future growth is made possible
by foregoing present consumption to increase investment. However savings kept in a mattress
amount to an (interest-free) loan to the government or central bank, who can recycle this loan.

INVESTMENT

Investment is the commitment of money or capital to purchase financial instruments or other


assets in order to gain profitable returns in form of interest, income, or appreciation of the value
of the instrument. It is related to saving or deferring consumption. Investment is involved in many
areas of the economy, such as business management and finance. An investment involves the
choice by an individual or an organization such as a pension fund, after some analysis or thought,

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to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock,
bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign
currency, that has certain level of risk and provides the possibility of generating returns over a
period of time.

Investment comes with the risk of the loss of the principal sum. The investment that has not been
thoroughly analyzed can be highly risky with respect to the investment owner because the
possibility of losing money is not within the owner's control. The difference between speculation
and investment can be subtle. In the case of investment, rather than store the good produced or its
money equivalent, the investor chooses to use that good either to create a durable consumer or
producer good, or to lend the original saved good to another in exchange for either interest or a
share of the profits. In the first case, the individual creates durable consumer goods, hoping the
services from the good will make his life better. In the second, the individual becomes an
entrepreneur using the resource to produce goods and services for others in the hope of a
profitable sale. The third case describes a lender, and the fourth describes an investor in a share of
the business. In each case, the consumer obtains a durable asset or investment, and accounts for
that asset by recording an equivalent liability. As time passes, and both prices and interest rates
change, the value of the asset and liability also change.

ASSET ALLOCATION

Asset allocation is the strategy used in choosing between the various kinds of possible
investments, in other words, the strategy used in choosing in what asset classes such as stocks and
bonds one wants to invest. A large part of financial planning consists of finding an asset
allocation that is appropriate for a given person in terms of their appetite for and ability to
shoulder risk.

A fundamental justification for asset allocation is the notion that different asset classes offer
returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of
the variability of returns for a given level of expected return. Therefore having a mixture of asset
classes is more likely to meet the investor's wishes in terms of amount of risk and possible
returns. The examples of asset classes include: Cash, Bonds, Stocks, Real Estate, Foreign
Currency, Metals, Luxuries, REITs, Life Settlements, Offshore Investments etc.

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WEALTH MANAGEMENT & PRIVATE BANKING

WEALTH MANAGEMENT

Wealth management is an investment advisory discipline that incorporates financial planning,


investment portfolio management and a number of aggregated financial services. High net worth
individuals, small business owners and families who desire the assistance of a credentialed
financial advisory specialist call upon wealth managers to coordinate retail banking, estate
planning, legal resources, tax professionals and investment management.

Wealth managers can be independent certified financial planners, MBAs, CFA Charter holders or
any credentialed professional money manager who works to enhance the income, growth and tax
favored treatment of long-term investors. Wealth management can also be provided by large
corporate entities, independent financial advisers or multi-licensed portfolio managers whose
services are designed to focus on high-net worth customers. Large banks and large brokerage
houses create segmentation marketing-strategies to sell both proprietary and nonproprietary
products and services to investors designated as potential high net-worth customers. Independent
wealth managers use their experience in estate planning, risk management,and their affiliations
with tax and legal specialists, to manage the diverse holdings of high net worth clients. Banks and
brokerage firms use advisory talent pools to aggregate these same services.

PRIVATE BANKING

Private banking is a term for banking, investment and other financial services provided by banks
to private individuals investing sizable assets. The term "private" refers to the customer service
being rendered on a more personal basis than in mass-market retail banking, usually via dedicated
bank advisers. It should not be confused with a private bank, which is simply a non-incorporated
banking institution.

An institution's private banking division will provide various services such as wealth
management, savings, inheritance and tax planning for their clients. A high-level form of private
banking (for the especially affluent) is often referred to as wealth management.

JPMorgan took the top spot in Euromoney's 2010 poll for "Best private bank for ultra high net
worth ($35m+) 2010."

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OFFSHORE INVESTMENT

Offshore investment is the keeping of money in a jurisdiction other than one's country of
residence. Offshore jurisdictions are a commonly accepted solution to reducing tax burdens levied
in most countries to both large and small scale investors alike. Selected offshore domiciles may
serve as havens for tax evasion, money laundering, or to conceal or protect illegally acquired
money from law enforcement in the investor's country. They also allow legitimate investors to
take advantage of higher rates of return or lower rates of tax on that return offered by operating
via such domiciles. The advantage to offshore investment is that such operations are both legal
and less costly than the solutions offered in the investor's country - or "onshore". Locations
favored by investors for low rates of tax are known as offshore financial centers or (sometimes)
tax havens.

Offshore solutions are accessible to anyone who can meet the minimum investment amount or
pay the obligatory fees required to open such an entity and are widely used.

Tax is the driving force behind most 'offshore' activity. Due to offshore solutions investors are
able to conduct investment activities in a more profitable fashion. Often, taxes levied by an
investor's home country are critical to the profitability of any given investment. Using offshore
domiciled special purpose vehicles an investor may reduce this burden, allowing the investor to
achieve greater profitability overall.

Another reason why 'offshore' investment is considered superior to 'onshore' investment is


because it is less regulated, and the behavior of the offshore investment provider, whether he be a
banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated
environment.

Reasons for Offshore Investment:

• Tax Advantage
• Investment Diversification
• Lower Levels of Regulation
• Money Laundering
• Tax Evasion

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COMMODITY MARKET

Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts.

Commodities are tangible goods that can be used for various purposes. Commodities include all
goods and articles except financial assets. Commodity trading in its most simple form involves
two persons, a buyer and a seller; besides, it may contain three persons including a middleman to
bring producers (sellers) and consumers (buyers) together. Commodities are traded in both the
organized and unorganized markets.

Commodity markets can be divided into the following three groups:

• Agricultural Market
• Metal Market
• Energy Market

AGRICULTURAL COMMODITY MARKET

Agricultural commodity market includes livestock and so-called soft commodities: Cocoa, coffee,
sugar, cotton etc. This market is quite large. There are also different grades of commodities.
Contract months generally revolve around the harvest cycle. More actively traded commodities
usually have more contract months available. Every month, a new type of contract appears to
meet the needs of a continuously growing corporate and institutional market. Agricultural
commodities are traded in every country in different denominations and at different prices.

METAL MARKET

Metals fall into one of the two classifications of commodities: Precious or Industrial. Precious
metals are those, which are in relatively short supply and retain their value irrespective of the
condition of the economy. An industrial material value is closely attached to the demand for and
supply of the metal, which depends mainly on the health of the particular sector of the economy.
Industrial metals like copper, aluminum, zinc, lead, nickel and iron are purchased and used
exclusively for the purpose of relevant industry requirements. Industrial metal prices fluctuate in
an unpredictable manner, and there are no apparent seasonal cycles. As primary inputs to
industrial production, industrial metal prices are related to the strength of the general economy
and to the pace of inflation.

Energy Market

Some of the leading exchanges that deal in these commodities are New York Mercantile
Exchange, Intercontinental Exchange, and Tokyo Commodity Exchange, In India, Multi
Commodity Exchange and National Commodity Exchange deal in energy commodities.

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Globally commodity exchanges have existed for a long time. The Chicago Board of Trade
(CBOT) and Chicago Mercantile Exchange (CME) are the oldest commodity exchanges in the
world.

FUNCTIONING OF COMMODITY MARKETS

The functioning of commodities markets is based on three important steps - Trading, Clearing,
and Settlement.

Trading: Any person who wants to trade in futures has to contact a Futures Commission Merchant
(FCM) or a broker. There are two methods of trading – i) Open outcry, and ii) Electronic trading.

Clearing house:

• In case of futures, both the contracting parties are required to pay variation margins
depending on the price of the underlying asset in the market.
• A buyer of options contract need not make any payments irrespective of the underlying
asset’s price in the market.

Settlement Procedure

• Trading in contract month opens every month on the twenty-first day, three months prior
to the contract month. Once the buyer opts to take the delivery of the commodity, a
transferable receipt from the warehouse where goods are stored, is issued in favor of the
buyer. On producing the receipt, the buyer can claim the commodity from the warehouse.
• The clearing house has a number of members (mostly financial institutions) who are
responsible for the clearing and settlement of commodities traded on the exchange. The
margin accounts for the clearing house members are adjusted for gains and losses at the
end of each day. Thus, depending on a day’s transactions and price movements, the
members either need to add funds or can withdraw funds from their margin accounts at the
end of the day.
• National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades
executed on the NCDEX.

Difference between Commodity and Financial Derivatives

In case of financial derivatives, most of the positions (contracts) are cash-settled whereas in
commodity derivatives, there is a possibility of physical settlement. Financial derivatives do not
need any special facilities for storage whereas commodity derivatives have the need for
warehousing. The concept of ‘varying quality of asset’ does not actually exist in the case of
financial underlying. However, in case of commodities, the quality of the asset underlying a
contract can vary largely. The process of taking physical delivery in commodities is quite
different from the process of taking physical delivery in financial assets. In all commodity
exchanges, delivery notice is required to be supported by a warehouse receipt whereas in
underlying assets it is not required.

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Hedging with the help of Commodity Futures

• Hedging in the futures market involves a two-step process. Depending upon the cash
market position, a hedger initially either will buy or sell futures. For example, a firm that
owns or plans to purchase or produce a cash commodity will sell futures to hedge his cash
position. A long hedge involves the firm purchasing futures to protect itself against a price
increase in a commodity prior to purchasing it in either the spot or forward market.
• In the second stage, once the cash market transaction materializes, the futures position is
no longer required and hence the hedger will close his futures position, i.e., if he has gone
long on a contract, he will sell it.
• Alternatively, if he has initially sold a futures contract, he will buy one. It should be noted
that both the opening and closing positions must be for the same commodity, same
number of contracts and delivery month.

Commodity Futures Contracts

• A futures contract is an agreement for buying or selling a commodity for a predetermined


delivery price at a specific future time.
• Futures are standardized contracts that are traded on organized futures exchanges that
ensure performance of the contracts, and thus remove the default risk.
• The major function of futures markets is to transfer price risk from hedgers to speculators.

Commodity Options Contracts

• The commodity option holder has the right, but not the obligation, to buy (or sell) a
specific quantity of a commodity at a specified price on or before a specified date. Option
contracts involve two parties.
• The seller of the option writes the option in favor of the buyer (holder) who pays a certain
premium to the seller as a price for the option.
• There are two types of commodity options: A ‘call’ option gives the holder a right to buy a
commodity at an agreed price, and
• A ‘put’ option gives the holder a right to sell a commodity at an agreed price on or before
a specified date (called expiry date).

Forward Markets Commission (FMC) is a regulatory authority of commodity markets. It works


under the supervision of Ministry of Consumer Affairs and Public Distribution, Government of
India.

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FINDINGS

EQUITY TRADING

In Equity Trading, the nearest competitor of Reliance Money is ICICI. In order to check
which company provides the better trading platform, we did a Hypothesis Testing of the
same. Here we took the database of those customers who were having their DMAT
accounts with both the companies. The sample size taken was 697. The methodology
employed for comparison is Factorial Design (Two-way ANOVA) under Statistical
Hypothesis.
The required Hypothesis Statements are:
• H01: Profits generated using Tips & Techniques of Reliance Money in equity
market are equal to the profits generated using Tips & Techniques of ICICI Securities.
• Ha1: Profits generated using Tips & Techniques of Reliance Money in equity
market are not equal to the profits generated using Tips & Techniques of ICICI
Securities.
• H02: All Means of Investment-range/month are equal.
• Ha2: Not all means are equal.
• H03: There is no interaction effect.
• Ha3: Interaction effect is present.

Here is a snapshot of the Excel sheet:

Sr. No. ARN RM ARN ICICI Name Address Contact No.(R) Contatct No.(O) Investment range/Month Profits with Reliance Money Profits with ICICI
1 9829 8035 Sansari Lal Mahajan"B-I/32,(G F) Malviya Nagar,"
26689956/26689957 9810512456 0-5L 800 6000
2 9565 20619 Shive Prasad"455,
GuptaSector-A,Pocket-C,Vasant1126894650
Kunj" 0-5L 12000 -4000
3 9352 7949 TCP Mutual Funds & Investments
"W-50,G.K-II," 41436196/41638238 0-5L 4000 8000
4 8503 7948 Hans Raj Seth"7-R,Model Town,Bosa Ram Chowk" 2651784 0-5L -2000 2000
5 8499 7946 Bansi Lal Ahuja
"H. No. 115,Virat Nagar,Model0180-2651176
Town" 4011333 0-5L 7000 500
6 8417 7944 D.L. Aneja "J/8D,Sheikh Sarai-II," 65728467 29258817 0-5L 3000 -1000
7 8239 7943 Usha Gupta "F 6/8, Model Town,," 1127111677 9818620431 0-5L 22000 12000
8 8089 76302 Krishan Kumar Mohindroo
"203,Prasad Nagar,Karol Bagh"011 25713033 011 23721925 0-5L 4000 9000
9 76993 75276 Sudesh"Flat
KumarNoGupta
280 Ea. Aptt Block A-3,Paschim
1125270027
Vihar," 9818727888 0-5L 2000 1500
10 7680 7475 D.Roy "A-300A,Sushant Lok I," 98107-83318 0-5L 5000 1200
11 76705 74542 Naveen "76-D
Adlakha
Pkt-C Sithartha,Extension Behind Librarg," 9810021223 0-5L 2000 -4000
12 76036 74258 Pradeep "208,
Kumar
Sector-3,
KansalPocket-16,SFS DDA Flats,Dwarka" 0-5L 10000 7500
13 75408 73036 Simply Wealth "C-3/11, Basement,Janakpuri," 9811204192 0-5L -6000 300
14 74946 73021 Ankit"G-19A
Chaudhary
School Road,Near Dispensary Uttam
011 28563644
Nagar," 9990989895 0-5L 2000 3000
15 74812 7237 Nitin
"A 52
Ohri
Second Floor Lane No 14 Indra,Park
nitin_ohri@indiatimes.com
Krishna Nagar," 22025037 0-5L 14000 7500
16 74725 72165 Fame Event"A-3,Management
Jangpura-BPvtNear
Ltd
abhisram@famebusinessgroup.com
Rajdoot Hotel,," 011-24373113 0-5L 7000 8000
17 74711 71424 Faisal
"G-17,Noor
Shaheen Bagh Abulfazal Enc-II,,Jamla
noor81@rediffmail.com
Nagar Okhla," 9871526645 0-5L 3000 5000
18 74639 71011"Flat
Rahul
NoKhewal
606, Sargodha Apartments,Plot krishna_satya@hotmail.com
No 13, Sector-7,Dwarka" 1145542410 0-5L 5000 5500
19 74638 74557 Subodh Kumar "32/61 (FF) West ksubodh.growmoney@gmail.com9350688318
Patel Nagar,," 0-5L 1000 -1600
20 74637 70809 Huneet Sethi "#84, Masjid Moth, DDA Flats,Phase-II,"
huneet@hotmail.com 29222208 0-5L 5000 3000
21 74538 "C/o Harish
69711 Sharma
Kapil Kumar
MCD,Goyal
3 A Masjid Moth, II rd Floor
kapilkugoelor@gmail.com
,Near Uday Park Market, 9350907462
Ndse II" 0-5L 11000 10000
22 74449 69708 Subhash"HM-181/30
Hooda Daryao Nagar Nearsubhashhooda@gmail.com
Medical,Mor," 9215599449 0-5L 500 1000

Figure 5: Snapshot of Equity Worksheet

09BS0002723 VIPIN MITTAL Page | 39


The observed ANOVA table is:

ANOVA TABLE
ANOVA
Source Sum of Square df Mean Square Fcal Fcritical(FINV)
SST 4448061700 1 4448061700 0.000542484738225765 3.848345832
SSB 3.30724E+13 20 1.46536E+13 1.78715252876778 1.57831309
SSI 1.45E+13 20 723929702802.21 0.088290325495825 1.57831309
SSE 1.11E+16 1352 8199422742375.58
Total 1.11332E+16 1393
Figure 6: ANOVA Table for Equity Worksheet

Findings:

i. The observed F value for interaction effect is 0.0883. Because this value is less
than the critical table value (1.578), no significant interaction effects are evident.
Thus it is possible to examine the main effects.
ii. The critical value of F at 0.05% significance level is 3.85 for H01 which is more
than the observed F value (1.07); so we accept the NULL Hypothesis (H01). Thus,
Profits generated using Tips & Techniques of Reliance Money in equity market
are equal to the profits generated using Tips & Techniques of ICICI Securities.
iii. The critical value of F at 0.05% significance level is 1.56 for H02 which is less
than the observed F value (398.11); so we reject the NULL Hypothesis (H02).

Thus Reliance Money provides satisfactory Tips & Techniques and thus generates
acceptable revenue for its customers which is atleast equal to the competitors.

The approximately equal value in profits for the customers of both companies confirms
the hypothesis.

09BS0002723 VIPIN MITTAL Page | 40


MUTUAL FUNDS
In Mutual Funds, the nearest competitor of Reliance is ICICI Prudential. Since there are a
large number of funds, we broadly classify them into 3 types namely Equity funds, Debt
Funds & Liquid Funds. The returns for 1, 3 & 5 years are taken with January 2010 as the
calculating month. Entire database including returns is provided on the homepages of the
two companies. The methodology employed for comparison is Factorial Design (Two-
way ANOVA) under Statistical Hypothesis.
The required Hypothesis Statements are:
• H01: Returns of both companies are equal i.e. µreliance = µicici
• Ha1: Returns of both companies are not equal i.e. µreliance ≠ µicici
• H02: Returns in Mutual Funds of Reliance Securities is greater than returns in
Mutual Funds of ICICI Securities in fluctuating market scenario.
• Ha2: Returns in Mutual Funds of Reliance Securities is less than returns in Mutual
Funds of ICICI Securities in fluctuating market scenario.
• H03: There is no interaction effect.
• Ha3: Interaction effect is present.
Here is a snapshot of the Excel sheet:
Returns Returns
Sr. No. Fund Type RELIANCE MF 1 yr( % ) 3 yrs( % )5 yrs( % ) Sr. No. Fund Type ICICI PRUDENTIAL MF 1 yr( % ) 3 yrs( % ) 5 yrs( % )
1 Equity Growth Fund 111.39 25.62 25.32 1 Equity Child Care Plan (GIFT) 58.94 20.44 15.28
2 Equity Vision Fund 94.58 20.5 20.62 2 Equity Discovery Fund 74.78 37.45 24.59
3 Equity NRI Equity 102.44 24.16 22.98 3 Equity Dynamic Plan 48.48 22.87 21.66
4 Equity Banking Fund 102.95 31.96 27.63 4 Equity Emerging S.T.A.R. Fund 71.27 20.78 14.9
5 Equity Diversified Power Sector Fund 96.27 30.79 36.84 5 Equity Growth Plan 34.73 17.3 16.81
6 Equity Pharma Fund 178.66 46.86 33.13 6 Equity Diversified Power Fund 39.87 17.79 16.24
7 Equity Media Fund 96.95 11.92 14.15 7 Equity Tax Plan 64.52 28.24 18.76
8 Equity Equity Opportunities Fund 139.26 27.19 22.62 8 Equity FMCG Fund 40.03 16.46 14.43
9 Equity Regular Savings Fund 114.72 30.02 27.67 9 Equity Infrastructure Fund 27.7 15.8 19.79
Average 115.2467 27.66889 25.66222 10 Equity Technology Fund 72.71 21.46 13.18
10 Debt Monthly Income Plan 26.92 12.53 12.88 11 Equity Index Fund 27.67 15.62 16.72
11 Debt Income Fund 16.59 9.96 8.02 12 Equity Balanced Fund 32.43 12.9 11.51
12 Debt NRI Income Fund 0.78 2.93 3.61 Average 49.4275 20.5925 16.98917
13 Debt Regular Savings Fund 6.06 5.14 4.5 13 Debt Income Multiplier Fund 11.27 10.66 9.86
14 Debt Medium Term Fund 7.56 7.03 5.76 14 Debt Monthly Income Plan 7.53 9.28 8.84
15 Debt Short Term Fund 14.01 10.39 8.65 Average 9.4 9.97 9.35
16 Debt Gilt Securities Fund 4.31 5.39 6.11 15 Liquid Sweep Plan 5.05 5.25 5.54
Average 10.89 7.624286 7.075714 16 Liquid Liquid Plan 5.74 5.53 5.32
17 Liquid Flexible Income Plan 6.39 7.7 7.64
17 Liquid Treasury Plan 7.11 7.53 6.57 18 Liquid Floating Rate Plan 5.82 5.96 5.92
18 Liquid Cash Plan 4.28 5.53 5.32 19 Liquid Long Term Floating Rate Plan 7.2 8.89 7.96
19 Liquid Liquidity Fund 7.37 7.98 7.45 20 Liquid Long Term Plan 5.87 7.49 7.68
Average 6.253333 7.013333 6.446667 21 Liquid Income Plan 6.94 6.46 6.98
22 Liquid Gilt Fund 4.79 5.19 4.96
Average 5.975 6.55875 6.5

Figure 7: Snapshot of MF Worksheet-1

09BS0002723 VIPIN MITTAL Page | 41


The observed ANOVA table is:
ANOVA
Source of Variation SS df MS F P-value F crit
Sample 4876.343 2 2438.171 4.980449 0.0266187 3.885293835
Columns 347.7607 1 347.7607 0.71037 0.4158044 4.747225336
Interaction 762.8562 2 381.4281 0.779143 0.4806831 3.885293835
Within 5874.582 12 489.5485

Total 11861.54 17

Figure 8: ANOVA Table for MF Worksheet-1


The snapshot for Excel Worksheet containing the Volatility Indicators is:
Rf=0.037 VOLATILITY INDICATORS 0.037
Sr. No. Fund Type RELIANCE MF Returns Beta S.D. R Squared Sharpe Ratio Treynor Ratio P.T. Ratio
1 Equity Growth Fund 0.40280691 0.8452 4.4233 0.8601 0.0827 0.432805147 0.58
2 Equity Vision Fund 0.29409968 0.8552 4.3429 0.9122 0.0592 0.300631057 2.28
3 Equity NRI Equity 0.3408124 0.9612 4.9002 0.9052 0.062 0.316076155 1.5
4 Equity Banking Fund 0.61295275 0.9566 5.3577 0.75 0.1075 0.602083159 0.4
5 Equity Diversified Power Sector Fund 0.57976726 0.8498 4.4709 0.8498 0.1214 0.6387 0.5
6 Equity Pharma Fund 0.60868041 0.6202 4.0747 0.5457 0.1403 0.921767833 0.7
7 Equity Media Fund 0.23342728 0.8213 5.0109 0.6319 0.0392 0.239166297 0.35
8 Equity Equity Opportunities Fund 0.29909755 0.8581 4.4803 0.863 0.0585 0.305439401 1.01
9 Equity Regular Balanced Fund 0.37828919 0.6701 3.4861 0.8735 0.0979 0.509310834 7.08
10 Equity Tax Saver ELSS Fund 0.22414092 0.7885 4.2244 0.8207 0.0443 0.237337882 1.69
11 Equity Regular Savings Fund 0.486334 0.8977 4.77 0.8371 0.0942 0.500539156 1.61
12 Equity Investment Equity Fund 0.24208272 0.7628 3.8768 0.9121 0.0529 0.268855165 1.83
13 Equity Long Term Equity Fund 0.25303498 0.6964 3.9066 0.7484 0.0553 0.310216801 0.58
14 Equity Equity Advantage Fund 0.26645825 0.9077 4.8307 0.9729 0.0475 0.252790845 1.56
15 Equity Quant Plus Fund 0.25715425 0.8792 4.7345 0.961 0.0465 0.250402923 1.22
16 Equity Equity Linked Saving Fund 0.2596354 0.7985 6.4532 0.876 0.0345 0.278817032 1.12
17 Equity Natural Resources Fund 0.12625568 0.7575 4.3328 0.8517 0.0206 0.117829281 1.76
18 Equity Banking Exchange Traded Fund 0.29321071 0.9892 7.4697 0.9917 0.0343 0.259007996 0.05

CORRELATION Returns Beta S.D. R Squared Sharpe Ratio Treynor Ratio P.T. Ratio
Returns 1
Beta 0.04198231 1
S.D. -0.046272188 0.628056509 1
R Squared -0.4016362 0.53604331 0.28207246 1
Sharpe Ratio 0.944832252 -0.223910399 -0.334556832 -0.465737722 1
Treynor Ratio 0.935106768 -0.281713109 -0.20708423 -0.559112739 0.969221745 1
P.T. Ratio -0.103861226 -0.389137313 -0.461480425 0.210662899 0.1000259 0.010753883 1

Figure 9: Snapshot of MF Worksheet-2

09BS0002723 VIPIN MITTAL Page | 42


The observed Regression table is:
Regression Statistics BETA Regression Statistics SHARPE RATIORegression Statistics TREYNOR RATIO
Multiple R 0.04198231 Multiple R 0.944832252 Multiple R 0.935106768
R Square 0.001762514 R Square 0.892707985 R Square 0.874424668
Adjusted R Square -0.060627329 Adjusted R Square 0.886002234 Adjusted R Square 0.866576209
Standard Error 0.146338081 Standard Error 0.047976009 Standard Error 0.051903015
Observations 18 Observations 18 Observations 18

SUMMARY OUTPUT MULTIPLE REGRESSION

Regression Statistics
Multiple R 0.996151967
R Square 0.992318742
Adjusted R Square 0.988128964
Standard Error 0.015481757
Observations 18

ANOVA
df SS MS F Significance F
Regression 6 0.340605779 0.05676763 236.8428381 5.63844E-11
Residual 11 0.002636533 0.000239685
Total 17 0.343242312

Coefficients Standard Error t Stat P-value Lower 95%


Intercept -0.189711452 0.052374172 -3.622232945 0.004010765 -0.304986228
Beta 0.188904085 0.101203952 1.866568265 0.088826179 -0.033844311
S.D. 0.034658274 0.011544286 3.002201566 0.012032401 0.009249471
R Squared -0.088197771 0.056434464 -1.562835276 0.146384321 -0.212409187
Sharpe Ratio 5.109169028 1.161834591 4.397501216 0.001067617 2.551988336
Treynor Ratio -0.128843611 0.199649878 -0.645347807 0.53193187 -0.568270029
P.T. Ratio -0.004430398 0.003581746 -1.236938034 0.241866989 -0.012313768

Figure 10: Regression Table MF


Findings:
i. The observed F value for interaction effect is 0.779143. Because this value is less
than the critical table value (3.885294), no significant interaction effects are
evident. Thus it is possible to examine the main effects.
ii. The critical value of F at 0.05% significance level is 3.885294 for H01 which is less
than the observed F value (4.980449); so we reject the NULL Hypothesis (H01).
Thus, Returns are not equal for both the companies.
iii. The critical value of F at 0.05% significance level is 4.747225 for H02 which is
more than the observed F value (0.71037); so we accept the NULL Hypothesis
(H02). Thus, Returns in Mutual Funds of reliance Securities are greater than returns
in Mutual Funds of ICICI Securities in fluctuating market scenario.

09BS0002723 VIPIN MITTAL Page | 43


Thus returns given by the Mutual Funds of Reliance are better than that given by
ICICI.
iv. On comparing different Volatility Parameters with Returns, it is found that
Correlation Coefficient is approximately equal to zero for β, S.D. and Portfolio
Turnover Ratio. It implies that there is no correlation between returns and these
figures. Also Returns are highly positively correlated with Sharpe Ratio and
Treynor Ratio. This fact is further verified by R2 value (Coefficient of
determination).
v. The high value of R square (0.99) for multiple regression signifies high positive
correlation between Returns and variables.
vi. The Regression equation is:


    
    



Here we see that Sharpe Ratio is the most important parameter for determining
Expected Returns.

09BS0002723 VIPIN MITTAL Page | 44


INSURANCE

In Insurance schemes, the nearest competitors of Reliance are TATA and LIC. It was
being observed that the choice of the Insurance Scheme by the customers is not dependent
on the company. Each company was having some unique products. So in order to check if
the investment in Insurance Schemes is independent of company, we did Hypothetical
Testing. We observed that a total of 154 policies were being sold by R-Money in the
month of January 2010 and the customers invested in Reliance, TATA & LIC policies.
The methodology employed for comparison is Chi-Square Test of Independence under
Statistical Hypothesis.

The required Hypothesis Statements are:

H01: Investment tendency of customers in Insurance policies is independent of company.

Ha1: Investment tendency of customers in Insurance policies is dependent of company.

Here is a snapshot of the Excel Sheet:

n=154 No. of persons invested in:-


INVESTMENT(in Rs.) VALUE RELIANCE TATA LIC Row Total pA
≤ 30,000 Observed,O 8 22 19 49 0.318181818181818
Expected,E 17.5 17.8181818181818 13.6818181818182
30T - 50T Observed,O 24 9 7 40 0.25974025974026
Expected,E 14.2857142857143 14.5454545454546 11.1688311688312
50T - 1Lakh Observed,O 7 10 11 28 0.181818181818182
Expected,E 10 10.1818181818182 7.81818181818182
>1 Lakh Observed,O 16 15 6 37 0.24025974025974
Expected,E 13.2142857142857 13.4545454545455 10.3311688311688
Column Total Observed,O 55 56 43 154 1
Expected,E
pL 0.357142857142857 0.363636363636364 0.279220779220779 1

CALCULATIONS CHI OBSERVED Degrees of freedom CHI Table(0.05,6)


RELIANCE TATA LIC 0.000713772 6 12.6
Observed,O 8 22 19
Observed,O 24 9 7
Observed,O 7 10 11 Contingency Coefficient Value Calculation
Observed,O 16 15 6
Expected,E 17.5 17.81818 13.681818 chi square 5.09470973549914E-07
Expected,E 14.285714 14.545455 11.16883 chi square + n=154 154.000000509471
Expected,E 10 10.181818 7.818181 value1 3.3082530640549E-09
Expected,E 13.2142857 13.454545 10.3311688 C 0.0000575174153109726

Figure 11: Snapshot of Insurance Worksheet-1

09BS0002723 VIPIN MITTAL Page | 45


The snapshot considering product differentiation is:

n=467 No. of persons invested in:-


PLANS VALUE RELIANCE TATA LIC,GIC Row Total pA
Whole Life Insurance Observed,O 5 8 6 19 0.0406852248394004
Expected,E 6.75374732334046 6.83511777301927 5.41113490364025
Endowment Observed,O 32 28 25 85 0.182012847965739
Expected,E 30.2141327623127 30.5781584582442 24.2077087794433
Child Observed,O 19 16 18 53 0.113490364025696
Expected,E 18.8394004282655 19.0663811563169 15.0942184154176
Term Observed,O 8 6 10 24 0.051391863
Expected,E 8.53104925053533 8.6338329764454 6.83511777301927
Retirement Observed,O 23 30 28 81 0.173447537
Expected,E 28.7922912205567 29.1391862955032 23.06852248394
Annuity Observed,O 7 11 9 27 0.057815846
Expected,E 9.59743040685224 9.71306209850107 7.68950749464668
Money back Observed,O 6 5 5 16 0.034261242
Expected,E 5.68736616702355 5.7558886509636 4.55674518201285
Fire Insurance Observed,O 13 15 6 34 0.072805139
Expected,E 12.085653104925 12.2312633832976 9.6830835117773
Marine Insurance Observed,O 12 10 7 29 0.062098501
Expected,E 10.3083511777302 10.4325481798715 8.25910064239829
Motor Insurance Observed,O 27 22 10 59 0.12633833
Expected,E 20.9721627408993 21.2248394004283 16.8029978586724
Miscellaneous Observed,O 14 17 9 40 0.085653105
Expected,E 14.2184154175589 14.389721627409 11.3918629550321
Column Total 166 168 133 467 1

pL 0.355460385438972 0.359743040685225 0.284796573875803 1


CALCULATIONS CHI OBSERVED Degrees of freedom CHI Table(0.05,20)
RELIANCE TATA LIC 0.71672218 20 31.41
Observed,O 5 8 6 Contingency Coefficient Value Calculation
Observed,O 32 28 25 chi square 0.513690683630525
Observed,O 19 16 18 chi square + n=154 154.513690683631
Observed,O 8 6 10 value1 0.00332456419465324
Observed,O 23 30 28 C 0.0576590339379116
Observed,O 7 11 9
Observed,O 6 5 5
Observed,O 13 15 6
Observed,O 12 10 7
Observed,O 27 22 10
Observed,O 14 17 9
Expected,E 6.75 6.84 5.41
Expected,E 30.21 30.58 24.21
Expected,E 18.84 19.07 15.1
Expected,E 8.53 8.64 6.84
Expected,E 28.79 29.14 23.07
Expected,E 9.6 9.71 7.69
Expected,E 5.69 5.76 4.56
Expected,E 12.09 12.23 9.69
Expected,E 10.31 10.43 8.26
Expected,E 20.98 21.23 16.81
Expected,E 14.22 14.39 11.39
Figure 12: Snapshot of Insurance Worksheet-2

09BS0002723 VIPIN MITTAL Page | 46


Findings:

i. Here in first snapshot, the Critical value of Chi variable is 12.6 at 0.05
significance level which is more than the observed value (0.000713772). Thus,
the NULL Hypothesis is accepted. Thus, tendency of cu
customers
stomers in Insurance
policies is independent of company.
ii. The Low value of Contingency Coefficient (C=0.00005751742), which measures
the strength of Association, further verifies the independence.
iii. When Product Differentiation is taken into account, the cri
critical
tical value of Chi
Variable is 31.41 at 0.05 significance level which is again more than the observed
value (0.7167). Thus, again as shown in 2nd snapshot, we can say that the tendency
of customers in Insurance is still independent of company.

Thus, customers are indifferent for the company. All they need is just a good policy
meeting their requirements.

PREFERENCE OF INVESTMENT

Figure 13
13: Preference of Investment

Interpretation: This shows that keeping in mind about the market volatility, people want to play
safe; so are investing more in Mutual Funds.

09BS0002723 VIPIN MITTAL Page | 47


AWARENESS ON ONLINE SHARE TRADING

Figure 14
14: Awareness on online Share Trading

Interpretation: With the increase in cyber education, the awareness towards online share trading
has increased by leaps and bounds. This awareness is expected to increase further with the
increase in Internet education.

AWARENESS OF RELIANCE MONEY AS A BRAND

Figure 15:: Awareness of Reliance money as a Brand

Interpretation: This pie-chart


chart shows that reliance money has a reasonable amount of Brand
awareness in terms of a premier Retail stock broking company. This brand image should be
further leveraged by the company to increase its market share over its competitors.

09BS0002723 VIPIN MITTAL Page | 48


AWARENESS OF RELIANCE MONEY FACILITIES

Figure 16
16: Awareness of Reliance Money Facilities

Interpretation: Although there is sufficiently high brand equity among the target audience yet, it is
to be noted that the customers are not aware of the facilities provided by the company meaning
thereby, that, the company should concentrate more towards promotional too
tools
ls and increase its
focus on product awareness rather than brand awareness.

SATISFACTION OF CUSTOMERS WITH CURRENT BROKER

Figure 17:: Customer Satisfaction with Current Broker

Interpretation: This pie-chart


chart corroborate the fact that Strategic marketing, today, has gone
beyond only meeting Sales targets and generating profit volumes. It shows that all the competitors
are striving hard not only to woo the customers but also to make them Brand loyal by generating
customer satisfaction.

09BS0002723 VIPIN MITTAL Page | 49


FREQUENCY OF TRADING

Figure 18
18: Frequency of Trading

Interpretation: In spite of the huge returns that the share market promises, we see that there is still
a dearth of active traders and investors. This is because of the non – transparent structure of the
Indian
ian share market and the skepticism of the target audience that is generated by the volatility of
the stock market. It requires efficient bureaucratic intervention on the part of the Government.

PERCENTAGE OF EARNINGS INVESTED IN SHARE TRADING

Figure 19:: Percentage of Earnings Invested in Share Trading

Interpretation: This shows that people invest only upto 10% of their earnings in the stock market,
again reiterating the volatile and non
non-transparent
transparent structure of the Indian stock market. Hence,
effective
ffective and efficient steps should be undertaken to woo the customers to invest more in the
lucrative stock market.

09BS0002723 VIPIN MITTAL Page | 50


CONCLUSION & RECOMMENDATIONS

SWOT ANALYSIS

Weakness Strength
• Co-operative and Experienced
• Inexperienced Staff Branch Managers
• Low awareness due to lack of • Good Database
advertisement.
• Reliance Brand
• Lack of lo yal clientage
• Low pricing
• Developing product.
Opportunity Threat
• Untapped Market • Reach
• Increased spending power • Stiff competition from existing
• Changing Mindset of players in the market
Customers • Better products
• Unpredictable Sensex

CUSTOMER ACQUISITION PROCESS

• Educate the prospects on the products and services.


• Customize the approach to each of the different customers involved in the sales process.
• Establish a knowledge base for sales people, resellers and partners.
• Ramp up the new salespeople more quickly and keep them on road.
• Track the prospects as they move through the sales process.
• Harvest other types of information from your market to help the company close business
more quickly. The data of the prospects can be used for research and development
purpose.
• Enabling the consistent flow of information to the customer and encouraging feedback
from them.
• Helping the customers do the Financial Planning for future.

Based on the above SWOT analysis and study of the available data I have come to the following
conclusions:

09BS0002723 VIPIN MITTAL Page | 51


HUGE POTENTIAL:

• All though relatively new entrants in the market, Reliance is slowly but surely gaining a
strong hold because it is finally able to grasp the investment climate in Delhi. Secondly
the branch managers at all the branches are very knowledgeable with a lot of experience in
the financial markets so under their leadership can definitely expand its base
• The entire workforce consists of mostly youngsters, which means they can be encouraged
and motivated to do good work because they have a long way to go and most of them are
eager to climb the ladder.
• Right now Reliance is at its nascent stage and will surely grab the major market under its
belt very soon like in other fields.

Huge investments taking place:

• The Stock Market has been very buoyant until now especially in the past 3 years. This
particular trend is very favorable because a soaring SENSEX means higher returns, which
encourages the investors to invest their money in the market.
• So in order to make the best the only thing required is to recruit more field staff who
should be trained in a proper way to get better results.
• In case of insurance, it requires push selling because people always associate it with
emergencies and unpleasant situations like death and they don’t want to think about such
situation let alone prepare for them, which means it requires a lot of conviction on part of
the executives.

Large untapped market:

• People have just opened up to the idea of ULIPs because till now they knew only two
kinds of insurance plans, endowment and term plans so the concept of high returns with
protection is very new to them and slowly and slowly these are becoming popular so there
is a huge market waiting to be tapped.
• In the past few years there has been a tremendous inflow of funds in the Indian market
which has lead to the sky rocketing SENSEX. In fact there has been a tremendous
response from the investors not only in shares but mutual funds as well. The Rs5700Cr

09BS0002723 VIPIN MITTAL Page | 52


infused in the market through the Reliance Equity mutual Funds is an example of the
growing trust of investors who earlier shied from such investments due to stock market
fiascos like the Harshad Mehta scam or the US64 disaster in which investors lost huge
amounts of money as well as their trust in financial instruments.
• With the FDI limits being relaxed, a lot of avenues will open up in the insurance sector
and insurance companies are expected to come up with new plans with a great deal of
customization and flexibility.

RECOMMENDATIONS

Based on the findings of our project I would like to suggest the following:-

• After sales services and follow up calls are important for getting new references so trained
telesales should be appointed for this purpose whose sole work should be to make
feedback calls.
• Reliance is having too many financial products right from Demat account to General
Insurance and not all the salespeople are familiar with each and every product so the work
force should be segregated each group dealing in a specific product and the sales target
should be given likewise.
• While interacting with the investors I found that most of the customers are unaware about
the Mutual fund. Some of the people look upon mutual funds and equity trading as
gambling. Thus a mutual fund awareness program can help to increase the penetration of
mutual funds in the market.
• Rs750 account opening charges are too high when targeting a corporate so the company
should be flexible on this amount.
• Reliance should provide periodic training for updating the product knowledge of various
financial advisors.
• Company should have a scheme of rewards and recognition to employees and the field
persons to boost their motivation.

Thus, overall we can say that Reliance Money enjoys a competitive advantage over its rivals
as it provides cheap and superior services to its investors in addition to customer satisfaction
and better returns.

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REFERENCES

i. Aaker D.A. & Day G.S., 2002, 7th Edition Marketing Research John Wiley & Sons
(Asia) Pte. Ltd
ii. Bhatt, V. V. An Appraisal Of Some Recent Estimates Of Savings and Investments,
ICRNI, Vol. 5, 1963
iii. Icfai University, 2005 Quantitative Methods ICFAI University Press, Hyderabad
iv. Agarwal, J.D. Security Analysis & Portfolio Management: A Review, Finance
India, Vol. II No. 1, March 1989.
v. Douglas A. Hayes and W. Scott Bauman Investments: Analysis and Management",
III Ed., 1976, MacMillan
vi. Malhotra, Naresh Marketing Research and Applied Orientation IV Ed., 2005,
Pearson
vii. http://www.reliancemutual.com/KnowledgeCentre/KnowledgeCentre.aspx
viii. http://www.reliancemutual.com/KnowledgeCentre/Content.aspx?ReportID=65c05
e26-ef22-4dbf-a046-223cce8b71d7
ix. http://www.moneycontrol.com
x. http://www.reliancemoney.com/knowledge-center.aspx?page=knowledge-
center/knowledge-center
xi. http://www.amfiindia.com
xii. http://www.reliancelife.com/rlic/index.aspx
xiii. http://www.reliancegeneral.co.in/pages/index.aspx

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