PREFACE

Zeal without knowledge is the sister of folly. Knowledge and human power are synonyms, once said the great philosopher Francis Bacon. However based on the experience within todays global markets, he would probably say, The ability to capture, communicate & leverage knowledge to solve problems is human power.

In any movement of decision, the best you can do is the right thing. The worst thing you can do is nothing. So, the best thing which I select is to do a two years M.B.A. degree course. This course not only enabled me to focus firmly on the current trend but also helped to focus on future changes, because the long term planning doesnt deal with future decisions, but with the future of present decisions.

As a part of this M.B.A. degree, students have to undergo a project, which is designed keeping the prerogative and preferences of industry in mind. This particular project allows a student to implement what I have learned within the four walls of classroom. The main reason for training is to make aware the students for the corporate world in future practice.

This report that I am submitting intends to highlight my versatility in sustaining the pulls and pressure of day to day professional life and put to perspective the facts that I am capable enough to deliver whenever a challenge is thrown to me.

This report is divided in two parts. The first part gives the basic information about the project, the industry and the company. The second part consists of Research Analysis and Conclusion on the basis of particular Research Process. At the end I have provided a short list of the reference books and the sites that provided useful information during the project.

ACKNOWLEDGEMENT
No endeavor is complete without acknowledging those who have helped to make this project a success. As such I would like to thank all those who have helped me to complete this project. I am obliged with the Department of Business Administration of Bhavnagar University for granting me the golden opportunity to work as a trainee. I, thanks to Angle Broking Ltd., for providing me the opportunity to work as a trainee. I would also like to express my gratitude to Mr. Apurva Dhami the Branch Manager who welcomed me enthusiastically and helped me in my project report. I would like to thank all the staff persons of Angle Broking Ltd. (Bhavnagar Branch), they provided me with the necessary information/data and advice, and many thanks are due for the same could not have been successful without the valuable input of the customer. I would also like to thank Mr. Devang Andharia and Mr. Himanshu for his active involvement in my research work, her enthusiasm in reviewing my research, and for giving me valuable insights. Your patience and support is greatly appreciated. This study could not have been successful without the valuable input of the clients of the Angle Broking Ltd.

DECLARATION

I under singed the student of M.B.A. Hereby declare that the project work presented in this report is my own work and has carried it out under the guidance of Prof. of Shree Sahajanand Institute of Management.

DATE: PLACE: BHAVNAGAR

SINGNETURE OF GUIDANCE:

EXECUTIVE SUMMARY

With recent growth rates among large countries second only to Chinas, India has experienced nothing short of an economic transformation since the liberalization process began in the early 1990s. In the last few years, with a soaring stock market, significant foreign portfolio inflows including the largest private equity inflows in Asia, and a rapidly developing derivatives market, the Indian financial system has been witnessing an exciting era of transformation. The banking sector has seen major changes with deregulation of interest rates and the emergence of strong domestic private players as well as foreign banks. At the same time, there is some evidence of credit constraints for Indias SME firms that rely heavily on trade credit. Corporate governance norms in India have strengthened rapidly in the past few years. Family businesses, however, still dominate the landscape and investor protection, while excellent on paper, appears to be less effective owing to an overburdened legal system and corruption. In the last few years microfinance has contributed in a big way to financial inclusion and is now attracting venture capital and for-profit companies both domestic and foreign.

My project on awareness of derivatives market gave us a detail picture whether people know about derivative market or not and at what extent they are aware about derivative market. I have conducted study in Bhavnagar city. How the people want learn about stock, derivative market and how much time they are ready to spend. This study reflects about what are the investments instruments people are using in Bhavnagar city. It is also known that people are giving importance to various factors while investing into stock market, which investment option they selected as per the needs and preferences. As the capital market is gaining strengths and touching new highs frequently, there is a trend of more and more people now investing in stocks

Sir no. Particulars

Page no.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

DECLARATIONPREFACE ACKNOWLEDGEMENT DECLARATION EXECUTIVE SUMMARY INDUSTRY OVERVIEW COMPANYS PROFILE: ABOUT TOPIC RESEARCH METHODOLOGY DATA ANALYSIS & INTERPRETATION LIMITATIONS OF THE STUDY FINDINGS RECOMMENDATIONS CONCLUSION BIBLIOGRAPHY ANNEXURE: QUESTIONNAIRE

Indurstey profile

ORIGIN OF INDIAN STOCK MARKET

The origin of the stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. However, for all practical purposes, the real beginning occurred in the middle of the nineteenth century after the enactment of the companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities. An important early event in the development of the stock market in India was the formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in Ahmedabad (1894), Calcutta (1908), and Madras (1937). In addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subsequently. Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life. Without a stock exchange, the saving of the community- the sinews of economic progress and productive efficiency- would remain underutilized. The task of mobilization and allocation of savings could be attempted in the old days by a much less specialized institution than the stock exchanges. But as business and industry expanded and the economy assumed more complex nature, the need for 'permanent finance' arose. Entrepreneurs needed money for long term whereas investors demanded liquidity the

facility to convert your investment into cash at any given time. The answer was a ready market for investments and this was how the stock exchange came into being. Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include:

(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; and (iii) Rights or interest in securities. The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift your positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index.

Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency; the scrip's traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrip's are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.

Brief History of Stock Exchanges

Do you know that the world's foremost marketplace New York Stock Exchange (NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association. News on the stock market appears in different media every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges? Known also as the stock market or bourse, a stock exchange is an organized marketplace for securities (like stocks, bonds, options) featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors. The exchange makes buying and selling easy. For example, you don't have to actually go to a stock exchange, say, BSE - you can contact a broker, who does business with the BSE, and he or she will buy or sell your stock on your behalf.

Company profile

INTRODUCTION TO DERIVATIVES
The emergence of the market for derivatives products most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By your very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors.

History of Derivatives Market:

Early forward contracts in the US addressed merchants concerns about ensuring that there were buyers and sellers for commodities. However credit risk remained a serious problem. To deal with this problem, a group of Chicago businessmen formed the Chicago Board of Trade (CBOT) in 1848. The primary intention of the CBOT was to provide a centralized location known in advance for buyers and sellers to negotiate forward contracts. In 1865, the CBOT went one step further and listed the first exchange traded derivatives contracts in the US, these contracts were called futures contracts. In 1919, Chicago Butter and Egg Board, a spin-off CBOT, was reorganized to allow futures trading. Its name was Chicago to Chicago Mercantile Exchange (CME). The CBOT and CME remain the 2 largest organized futures exchanges, indeed the 2 largest financial exchanges of any kind in the world today.

The first stock index futures contract was traded at Kansas City Board of Trade. Currently the most popular stock index futures contract in the world is based on S&P 500 index, traded in Chicago Mercantile Exchange. During the mid eighties, financial futures become the most active derivative instruments generating volumes many times more than the commodities futures. Index future, futures on The-Bills and Euro-Dollar futures are the 3 most popular futures contract traded today. Other popular international exchanges that trade derivatives are LIFFE in England, DTB in Germany, SGX in Singapore, TOFFE in Japan, MATIF in France, Eurex etc.

Derivatives Defined:
Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, For Ex: - commodity or any other asset. For example, wheat farmers may wish to sell your harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the underlying. In the Indian context the SC(R) A (Securities Contracts (Regulation) Act), 1956 defines derivative to include: 1. 2. A security derived from a debt instrument, share, loan whether secured or A contract which derives its value from the prices, or index of prices, of unsecured, risk instrument or contract for difference or any other form of security. underlying securities Derivatives are securities under the SC(R) A and hence the trading of derivatives is governed by the regulatory framework under the SC(R) A. The following factors have been driving the growth of financial derivatives: Increased volatility in asset prices in financial markets, Increased integration of national financial markets with the international markets, Marked improvement in communication facilities and sharp decline in your costs, Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions costs an compared to individual financial assets.

The Need for a Derivatives Market: The derivatives market performs a number of economic functions: 1. They help in transferring risks from risk averse people to risk oriented people 2. They help in the discovery of future as well as current prices 3. They catalyze entrepreneurial activity 4. They increase the volume traded in markets because of participation of risk averse people in greater numbers 5. They increase savings and investment in the long run

The Participants in a Derivatives Market:

Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset. Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture. Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.

Types of Derivatives:

The most commonly used derivatives contracts are forwards, futures and options which they shall discuss in detail later. Here they take a brief look at various derivatives contracts that have come to be used

FORWARDS: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. These contracts are generally not traded on the stick exchange.

FUTURES: A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts.

OPTIONS: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

WARRANTS: Options generally have lives of up to one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter.

LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of up to three years.

BASKETS: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. Equity index options are a form of basket options.

SWAPS: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The commonly used swaps are:

Interest rate swaps: These involve swapping only the interest related cash flows Currency swaps: These involve swapping both principal and interest between

between the parties in the same currency the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. SWAPTIONS: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating

Economic Functions of Derivatives Market:

The Derivatives Market Performs A Number Of Economic Functions.
First, prices in an organized derivatives market reflect the perception of market

participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of the derivative contract. Thus derivatives help in discovery of future as well as current prices.

Second, the derivatives market help to transfer risks from those who have them but

may not like them to those who have an appetite for them.

Third, derivatives, due to your inherent nature, are linked to the underlying cash

markets. With the introduction of derivatives, the underlying market witnesses higher trading volumes because of participation by more players who would not otherwise participate for lack of an arrangement to transfer risk.

Fourth, speculative trades shift to a more controlled environment of derivatives

market. In the absence of an organized derivatives market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in these kinds of mixed markets. Fifth, an important incidental benefit that flows from derivatives trading is that it acts as a catalyst for new entrepreneurial activity. The derivatives have a history of attracting many bright, creative, well-educated people with an entrepreneurial attitude. They often energize others to create new businesses, new products and new employment opportunities, the benefit of which are immense.

Finally, derivatives markets help increase savings and investment in the long run.

Transfer of risk enables market participants to expand your volume activity.

Exchange-traded vs. OTC derivatives markets:

Derivatives have probably been around for as long as people have been trading with one another. Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price. A primary motivation for pre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest Derivatives that trade on exchange are called Exchange Traded Derivatives, whereas privately negotiated derivatives contracts are called OTC contracts. The OTC derivatives markets have witnessed rather sharp growth over last few years, which have accompanied the modernization of commercial and investment banking and globalization of financial activities. The recent developments in information technology have contributed to a great extent to these developments. While both exchange-traded and OTC derivative contracts offer many benefits, the former have rigid structures compared to the latter. It has been widely discussed that the highly leveraged institutions and your OTC derivative positions were the main cause of turbulence in financial markets in 1998. These episodes of turbulence revealed the risks posed to market stability originating in features of OTC derivative instruments and markets. The OTC derivative markets have the following features compared to exchangetraded derivatives: 1. 2. margining, 3. 4. There are no formal rules for risk and burden-sharing, There are no formal rules or mechanisms for ensuring market stability and The management of counter-party (credit) risk is decentralized and located There are no formal centralized limits on individual positions, leverage, or

within individual institutions,

integrity, and for safeguarding the collective interests of market participants and

5.

The OTC contracts are generally not regulated by a regulatory authority and the

exchanges self-regulatory organization, although they are affected indirectly by national legal systems, banking supervision and market surveillance.

Derivatives market at NSE

The derivatives trading on the exchange commenced with S&P CNX Nifty index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched November 9, 2001. The index futures and options contract on NSE are based on S&P CNX Nifty Index. Currently, the futures contracts have a maximum of 3-months expiration cycles. Three contracts are available for trading, with 1 month, 2 months, 3 months expiry. A new contract is introduced on the next trading day following the expiry of the near month contract.

The structure of Derivative Markets in India

Derivative trading in India takes can place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organization (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment.

December 14, 1995 The NSE sought SEBI's permission to trade index futures. November 18, 1996

The LC Gupta Committee set up to draft a policy framework for index futures. May 11, 1998 The LC Gupta Committee submitted a report on the policy framework for index futures. July 7, 1999 Reserve Bank of India gave permission for OTC forward rate agreements and interest rate swaps. May 24, 2000 SIMEX chose Nifty for trading futures and options on an Indian index. May 25, 2000 SEBI allowed the NSE and the BSE to trade in index futures. June 9, 2000 Trading of the BSE Sensex futures commenced on the BSE.

Market index
To understand the use and functioning of the index derivatives markets, it is necessary to understand the underlying index. In the following section, they take a look at index related

issues. Traditionally, indexes have been used as information sources. By looking at an index, they know how the market is faring. In recent years, indexes have come to the forefront owing to direct applications in finance in the form of index funds and index derivatives. Index derivatives allow people to cheaply alter your risk exposure to an index (hedging) and to implement forecasts about index movements (speculation). Hedging using index derivatives has become a central part of risk management in the modern economy.

Understanding the index number:

An index is a number which measures the change in a set of values over a period of time. A stock index represents the change in value of a set of stocks which constitute the index. More specifically, a stock index number is the current relative value of a weighted average of the prices of a pre-defined group of equities. It is a relative value because it is expressed relative to the weighted average of prices at some arbitrarily chosen starting date or base period. The starting value or base of the index is usually set to a number such as 100 or 1000. For example, the base value of the Nifty was set to 1000 on the start date of November 3, 1995. A good stock market index is one which captures the behavior of the overall equity market. It should represent the market, it should be well diversified and yet highly liquid. Movements of the index should represent the returns obtained by typical portfolios in the country.

A market index is very important for its use 1. 2. 3. as a barometer for market behavior, as a benchmark portfolio performance, as an underlying in derivative instruments like index futures, and

4.

in passive fund management by index funds.

Economic significance of index movements:

Index movement reflects the changing expectations of the stock market about future dividends of the corporate sector. The index goes up if the market thinks that the prospective dividends in the future will be better than previously thought. When the prospect of dividends in the future becomes pessimistic, the index drops. The ideal index gives us instant readings about how the stock market perceives the future of corporate sector. Every stock price moves for two possible reasons 1. News about the company (e.g. a product launch, or the closure of the factory) 2. News about the country (e.g. nuclear bombs, or budget announcement) The job of an index is to purely capture the second part, the movements of the stock market as a whole (i.e. news about the country). This is achieved by averaging. Each stock contains a mixture of two elements stock news and index news. When they take an average of returns on many stocks, the individual stock news tends to cancel out and the only thing left is news that is common to all stocks. The news that is common to all stocks is news about the economy. That is what a good index captures. The correct method of averaging is that of taking a weighted average, Giving each stock a weight proportional to its market capitalization. E.g. suppose an index contains two stocks, A and B. A has a market capitalization of Rs. 1000 crore and B has a market capitalization of Rs. 3000 crore. Then they attach a weight of to movements in A and to movements in B.

Index construction Issues:

A good index is a trade-off between diversification and liquidity. A well diversified index is more representative of the market/economy. However there are diminishing returns to diversification. Going from 10 stocks to 20 stocks gives a sharp reduction in risk. Going from 50 stocks to 100 stocks gives very little reduction in risk. Going beyond 100stocks gibes almost zero reduction in risk. Hence, there is little to gain by diversifying beyond a point. The more serious problem lies in the stocks that they take into an index when it is broadened. If the stock is illiquid, the observed prices yield contaminated information and actually worsen an index.

Types of indexes:
Most of the commonly followed stock market indexes are of the following two types: Market capitalization weighted index, Price weighted index.

In a market capitalization weighted index, each stock in the index affects the index value in proportion to the market value of all shares outstanding.

A price weighted index is one that gives a weight to each stock that is proportional to its stock price. Indexes can also be equally weighted.

Recently, major indices in the world like the S&P 500 and the FTSE-100 have shifted to a new method of index calculation called the Free float method. They take a look at few method of index calculation.

(1) Price weighted index calculation:

In the example below they can see that Grasim Inds and Telco have a similar weighted irrespective of the number of outstanding shares. In a price weighted index, a small capitalization firm could have a much higher weight age than a much larger firm if the small capitalization firm had a high stock price but relatively few outstanding shares. In the present example the base index = 1000 and the index value works out to be 1049.56

Index = 2970.20 * 1000 = 1049.56 2829.75 Company Grasim Inds Telco SBI Share price at time=0 351.55 329.10 274.10 Share price at time=1 340.50 350.30 280.40

Wipro Bajaj Total

1335.25 539.25 2829.75

1428.75 570.25 2970.20

1.

Price weighted index: in a price weighted index each stock is given a weight

proportional to its stock price. The table above gives an example of how a price weighted index is calculated.
2.

Equally weighted index: as the name suggest, in an equally weighted index all the Market capitalization weighted index: in this type of index, the equity prices

components have similar weightage irrespective of your price or your market capitalization.
3.

weighted by the market capitalization of the company (share price * number of outstanding shares). Hence each constituent stock in the index affects the index value in proportion to the market value of all the outstanding shares.

(2) Equally weighted index calculation:

In the example below we can see that Grasim Inds and Wipro have a similar weightage irrespective of their share price and number of outstanding shares. In the present example the base index = 1000 and the index value works out to be 1036.21. 340.50 + 350.30 + 280.40 + 1428.75 + 570.25 Index= 351.75 329.10 5 274.60 1335.25 539.25 * 1000 = 1036.21

Company Grasim Inds Telco SBI Wipro Bajaj Total

Share price at time=0 351.75 329.10 274.60 1335.25 539.25 2829.75

Share price at time=1 340.50 350.30 280.40 1428.75 570.25 2970.20

(3) Market capitalization weighted index calculation:

In the example below we can see that each stock affects the index value in proportion to the market value of all the outstanding shares. In the present example, the base index=1000 and the index value works out to be 1002.62. Company Grasim Inds Telco SBI Wipro Bajaj Total Current market capitalization 1668791.10 872686.30 1452587.65 2675613.30 660887.85 7330566.20 Base market capitalization 1654247.50 860018.25 1465218.80 2669339.55 662559.30 7311383.40

Index= 7330566.20 * 1000 = 1002.62 7311383.20 In the market capitalization weighted method,

Index= Current market capitalization * Base value Base market capitalization\ Where: Current market capitalization = sum of (current market price * outstanding shares) of all securities in the index. Base market capitalization = sum of (market price * issue size) of all securities as on base date

Desirable attributes of index: A good market index should have three attributes:

1. It should capture the behavior of a large variety of different portfolios in the market. 2. The stocks included in the index should be highly liquid 3. It should be professionally maintained

(1) Capturing behavior of portfolios

A good market index should accurately reflect the behavior of the overall market as well as of different portfolios. This is achieved by diversification in such a manner that a portfolio is not vulnerable to any individual stock or industry risk. A well-diversified index is more representative of the market. However there are diminishing returns from diversification. There is very little gain by diversifying beyond a point the more serious problem lies in the stocks that are included in the index when it is diversified. We end up including illiquid

stocks, which actually worsens the index. Since an illiquid stock does not reflect the current price behavior of the market, its inclusion in index results in an index, which reflects, delayed or stale price behavior rather than current price behavior of the market.

(2)Including liquid stocks

Liquidity is much more than trading frequency. It is about ability to tr4ansact at a price, which is very close to the current market price. For example, a stock is considered liquid if one can buy some shares at around Rs.320.05 and sell at around Rs.319.95, when the market price is ruling at Rs.320. a liquid stock has very tight bid-ask spread.

(3)Maintaining professionally

It is now clear that an index should contain as many stocks with as little impact cost as possible. This necessarily means that the same set of stocks would not satisfy these criteria at all times. A good index methodology must therefore incorporate a steady pace of change in the index set. It is crucial that such changes are made at a steady pace. It is very healthy to make a few changes every year, each of which is small and does not dramatically alter the character of the index. On a regular basis, the index set should be reviewed, and brought in line with the current state of market. To meet the application needs of users, a time series of the index should be available.

The S&P Nifty:

What makes a good stock market index for use in an index futures and index options market? Several issues play a role in terms of the choice of index. We will discuss how the S&P CNX Nifty addresses some of these issues. (a) Diversification: As mentioned earlier, a stock market index should be well-diversified, thus ensuring that hedgers or speculators are not vulnerable to individual-company or industry risk.

(b) Liquidity of the index: The index should be easy to trade on the cash market. This is partly related to the choice of stocks in the index. High liquidity of index components implies that the information in the index is less noisy.

(c) Operational issues: The index should be professionally maintained, with a steady evolution of securities in the index to keep pace with changes in the economy. The calculations involved in the index should be accurate and reliable. When a stock trades at multiple venues, index computation should be done using prices from the most liquid market.

(1) Impact cost:

Market impact cost is a measure of the liquidity of the market. It reflects the costs faced when actually trading an index. For a stock to qualify for possible inclusion into the Nifty, it has to have market impact cost of below 105% when doing Nifty trades of half of crore rupees. The market impact cost on a trade of Rs.3 million of the full Nifty works out to be about 0.2%. This means that if Nifty is at 1000, a buy order goes through at 1002, i.e. 1000+(1000*0.002) and a sell order gets 998. i.e. 1000-(1000*0.002)

(2) Hedging effectiveness:

Hedging effectiveness is a measure of the extent to which an index correlates with a portfolio, whatever the portfolio may be. Nifty correlates better with all kinds of portfolios in India as compared to other indexes. This holds good for all kinds of portfolios, not just those that contain index stocks.

Nifty is owned, computed and maintained by India Index Services & Products Limited (IISL), a company set up by NSE and CRISIL with technical assistance from Standard & Poors.

Application of index:
Besides serving as a barometer of the economy/market, the index also has other applications in finance. (1) Index derivatives: Index derivatives are derivative contracts which have the index as the underlying. The most popular index derivatives contract the world over are index futures and index options. NSE market index, the S&P CNX Nifty was scientifically designed to enable the launch of index-based products like index derivatives and index funds. The first derivative contact to be traded on NSE market was the index futures contract with the Nifty as the underlying. This was followed by index options. (2) Index funds: An index fund is a fund that tries to replicate the index returns. It does so by investing in index stocks in the proportions in which these stocks exist in the index. The goal of the index fund is to achieve the same performance as the index it tracts.

(3) Exchange Traded Funds Exchange Traded Funds (ETFs) are innovative product, which first came into existence in the USA in 1993. They have gained prominence over the last few years with over $ 100 billion invested as of end 2001 in about 200 ETFs globally. About 60% of trading volumes on the American stock exchanges are ETFs. Among the popular ones are SPDRs (Spiders) based on the S&P 500 Index, QQQs (Cubes) based on the Nasdaq 100 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang seng Index.

ETFs provide exposure to an index or a basket of securities that trade on the exchange like single stock. They have a number of advantages over traditional open-ended funds as they can be bought and sold on the exchange at prices that are usually close to the actual intra-day NAV of the scheme. They are an innovation to traditional mutual funds as they provide investors a fund that closely tracks the performance of an index with the ability to buy/sell on an intra-day basis. Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows to create new units and redeem outstanding units directly with the fund, thereby ensuring the ETFs trade close to their actual NAVs. The first ETFs in India, Nifty BeEs (Nifty Benchmark Exchange Traded Scheme) based on S&P CNX Nifty, was launched in December 2001 by Benchmark Mutual Fund. It is bought and sold like any other stock on NSE and has all characteristics of an index fund. It would provide returns that closely correspond to the total return of stocks included in Nifty.

INTRODUCTION TO FUTURES AND OPTIONS

In recent years, derivatives have become increasingly important in the field of finance. While futures and options are actively traded on many exchanges, forward contracts are popular on the OTC market. Here we shall take up these three derivatives contracts in detail. Forward contracts: A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contract are normally traded outside the exchanges The salient features of forward contract are:

They are bilateral contracts and hence expose to counter-party risk. Each contract is custom designed, and hence is unique in term of contract size, The contract price is generally not available in public domain. On the expiration date, the contract has to be settled by delivery of the asset. If the party wishes to reverse the contract, it has to compulsorily go to the same However forward contracts in certain markets have become very standardized. Forward contracts are very useful in hedging and speculation. If a speculator has information or analysis, which forecasts an upturn in a price,

expiration date and the asset type and quality.

counterparty, which often results in high prices being charged.

then he can go long on the forward market instead of the cash market.

Limitations of forward markets

Forward markets would-wide are affected by several problems:

Lack of centralization of trading, liquidity, and Counterparty risk

In the first two of these, the basic problem is that of too much flexibility and generality. Counterparty risk arises from the possibility of default by any one party to the transaction, when one of the two sides to the transaction declares bankruptcy, the other suffers. Even when forward markets trade standardized contracts, and hence avoid the problem of illiquidity, still the counterparty risk remains a very serious issue. (A) Introduction to Futures:

Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the future contracts, the exchange specifies certain standard features of the contracts. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, and a standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way.

The standardized items in a futures contract are:

Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement

Futures Trade on an organized exchange Standardized contract terms Hence more liquid Requires margin payments Follows daily settlement

Forwards OTC in nature Customized contract terms Hence less liquid No margin payment Settlement happens at end of period

Distinction between futures and forwards

Future terminology:

Spot price: The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The period over which a contract trades. The index futures contracts

on the NSE have one-month, two-months and three-month expiry cycles which expire on the last Thursday of the month. Thus a January expiration contract expires on the last Thursday of January and February expiration contract ceases trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three-month expiry is introduced for trading.

Expiry date: It is the date specified in the futures contract. This is the last day on Contract size: The amount of asset that has to be delivered less than one contract. For Basis: In the context of financial futures, basis can be defined as the futures price

which the contract will be traded, at the end of which it will cease to exist.

instance, the contract size on NSE futures market is 200 Niftiest.

minus the spot price. There will be a different basis for each delivery month for each contract. Ina normal market, basis will be positive. This reflects that futures prices normally exceed spot price.

Cost of carry: The relationship between futures prices and spot prices can be

summarized in terms of what is known as the const of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset.

Initial margin: The amount that must be deposited in the margin account at the time a Marking-to-marker: In the futures market, at the end of each trading day, the margin

futures contract is first entered into is known as initial margin.

account is adjusted to reflect the investors gain or loss depending upon the futures closing price. This is called marking-to-marker.

Maintenance margin: This is somewhat lower than the initial margin. This is set to

ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.

(B) Introduction to options:

In this section, we look at the ext derivative product to be traded on the NSE, namely options. Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an up-front payment.

Option terminology:

Index options: These options have the index as the underlying. Some options are

European while others are American. Like index futures contracts, index options contracts are also cash settled.

Stock options: Stock options are options on individual stocks. Options currently trade

on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price.

Buyer of an option: The buyer of an option is the one who by paying the option Writer of an option: The writer of a call/put option is the one who receives the option

premium buys the right but not the obligation to exercise his option on the seller/writer.

premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.

There are two basic types of options, call options and put options.

Call option: A call option gives the holder the right but not the obligation to buy an Put option: A put option gives the holder the right but not the obligation to sell an Option price: Option price is the price which the option buyer pays to the option Expiration date: The date specified in the options contract is known as the expiration Strike price: The price specified in the options contract is known as the strike price or American options: American options are options that can be exercised at any time up European options: European options are options that can be exercised only on the

asset by a certain date for a certain price.

asset by a certain date for a certain price.

seller. It is also referred to as the option premium.

date, the exercise date, the strike date or the maturity.

the exercise price.

to the expiration date. Most exchange-traded options are American.

expiration date itself. European options are easier to analyze than American options, and properties of an American option are frequently deduced from those of it European counter part.

In-the-money option: spot price > strike price At-the-money option: spot price = strike price Out-of-the-money option: spot price < strike price Intrinsic value of an option: The option premium can be broken down into two

components intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero.

Time value of an option: The time value of an option is the difference between its

premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an options time value, or else equal. At expiration, an option should have no time value.

Futures and options:

An interesting question to ask at this stage is when would one use options instead of futures? Options are different from futures in several interesting senses. At a practical level, the option buyer faces an interesting situation. He pays for the option in full at the time it is purchased. After this, he only has an upside. There is no possibility of the options position generating any further losses to him (other than the funds already paid for the option). This is different from futures, which is free to enter into, but can generate very large losses. This characteristic makes options attractive to many occasional market participants, who cannot put in the time to closely monitor their future positions.

Buying put options is buying insurance. To buy a put option on Nifty is to buy insurance which reimburses the full extent to which Nifty drops below the strike price of the put option. This is attractive to many people, and to mutual funds creating guaranteed return products.

Distinction between futures and options Futures Exchange traded, with notation Exchange defines the product Price is zero, strike price moves Price is zero Linear payoff Both long and short at risk Options Same as futures. Same as futures. Strike price is fixed, price moves. Price is always positive. Nonlinear payoff. Only short at risk

Index derivatives

Index derivatives are derivative contracts which derive their value from an underlying index. The two most popular indeed derivatives are index futures and index options. Index derivatives have become very popular worldwide. In his report, Dr. L.C. Gupta attributed the popularity of index derivatives to the advantages they offer.

Institutional and large equity-holders need portfolio-hedging facility. Index-

derivatives are more suited to them and more cost-effective than derivatives based on individual stocks. Pension fund in the US are known to use stock index futures for risk hedging purposes. Index derivatives offer ease of use for hedging any portfolio irrespective of its Stock index is difficult to manipulate as compared to individual stock prices, more so composition. in India, and the possibility of cornering is reduced. This is partly because an individual stock has a limited supply, which can be cornered. Stock index, being an average, is much less volatile than individual stock prices. This Index derivatives are cash settled, and hence do not suffer from settlement delays and implies much lower capital adequacy and margin requirements. problems related to bad delivery, forged/faked certificates.

Trading
Futures and Options Trading System:

The futures and options trading system of NSE, called NEAT-F&O trading system, provides a fully automated screen-based trading for Nifty futures & options and stock futures & options on a nationwide basis and an online monitoring and surveillance mechanism. It supports an anonymous order driven market which provides complete transparency of trading operations and operates on strict price-time priority. It is similar to that of trading of equities in the Cash Market (CM) segment.

Membership criteria:

NSE admits members on its derivatives segment in accordance with the rules and regulations of the exchange and norms specified by SEBI. NSE follows 2-tier membership structure stipulated by SEBI to enable wider participation. Those interested in taking membership on F&O segment are required to take membership of CM and F&O segment or CM, WDM and F&O segment. Trading and clearing members are admitted separately. Essentially, a clearing member (CM) does clearing for all his trading members (TM), undertakes risk management and performs actual settlement. There are three types of CMs:

SELF CLEARING MEMBER: A SCM clears and settles trades executed by him only either on his own account or on account of his clients.

TRADING MEMBER CLEARING MEMBER: TN-CM is a CM who is also a TM. TM-CM may clear and settle his own proprietary trades and clients trades as well as clear and settle for other TMs.

PROFESSIONAL CLEARING MEMBER: PCM is a CM who is not a TM. Typically, banks or custodians could become a PCM and clear and settle for TMs.

The TM-CM and the PCM are required to bring in additional security deposit in respect of every TM whose trades they undertake to clear and settle. Besides this, trading members are required to have qualified users and sales persons, who have passed a certification program approved by SEBI.

Future and Option Market Instruments:

1.

Index Futures
2.

3. Individual Stock Options 4. Individual Stock Futures

Index Options

Table for Contract specification

FOR INDEX FUTURES & STOCK FUTURES Contract Specification Underlying Index Exchange of Trading Security Descriptor Contract Size Price Steps Price Bands Trading Cycle Expiry Day ---NSEIL ----Index lot is100 but in Stock As specified by The Exchange (Value 2 lakh) Rs. 0.05 NA 3 Months Last Thursday of month Or Previous Day if Holiday

Settlement Basis Settlement Price

Cash Settlement The+1 Daily Closing price

FOR INDEX OPTIONS & STOCK OPTIONS

Contract Specification Underlying Index Exchange of Trading Security Descriptor Contract Size Price Steps Price Bands Trading Cycle Expiry Day Settlement Basis Style of Option Strike Price Interval Daily Settlement Price Final Settlement Price

---NSEIL ----Index lot is100 but in Stock As specified by The Exchange (Value 2 lakh) Rs. 0.05 NA 3 Months Last Thursday of month Or Previous Day if Holiday Cash Settlement The+1 In Index European & In Stock American In Index Rs.10 & In Stock As specified by The Exchange Premium Value(net)

Closing Value of Index on the last trading day

Settlement Day

In Stock Option Last Trading day

Derivative contracts which are permitted by SEBI Derivative products have been introduced in a phased manner starting with Index Futures Contracts in June 2000. Index Options and Stock Options were introduced in June 2001 and July 2001 followed by Stock Futures in November 2001. Sectoral indices were permitted for derivatives trading in December 2002. Interest Rate Futures on a notional bond and T-bill priced off ZCYC have been introduced in June 2003 and exchange traded interest rate futures on a notional bond priced off a basket of Government Securities were permitted for trading in January 2004.

The eligibility criterion for stocks on which derivatives trading may be permitted A stock on which stock option and single stock future contracts are proposed to be introduced is required to fulfill the following broad eligibility criteria:

The stock shall be chosen from amongst the top 500 stock in terms of average daily market capitalisation and average daily traded value in the previous six month on a rolling basis.

The stocks median quarter-sigma order size over the last six months shall be not less than Rs.1 Lakh. A stocks quarter-sigma order size is the mean order size (in value terms) required to cause a change in the stock price equal to onequarter of a standard deviation.

The market wide position limit in the stock shall not be less than Rs.50 crores.

A stock can be included for derivatives trading as soon as it becomes eligible. However, if the stock does not fulfill the eligibility criteria for 3 consecutive months after being admitted to derivatives trading, then derivative contracts on such a stock would be discontinued.

CLEARING AND SETTLEMENT

NSCCL undertakes clearing and settlement of all deals executed on the NSE F&O segment and guarantees settlement. Here the brief look at the clearing and settlement mechanism

CLEARING:

The first step in clearing process is working out open positions or obligations of members. A CMs open position is arrived at by aggregating the open position of all the TMs and all custodial participants clearing through him, in the contracts in which they have traded. A TMs open position is arrived at as the summation of his proprietary open position and clients open positions, in the contracts in which they have traded. While entering in orders on the trading system, TMs are required to identify the orders, whether proprietary (if they are their own trades) or client (if entered on behalf of clients). Proprietary positions are calculated on net basis (buy-sell) for each contract. Clients positions are arrived at by summing together net (buy-sell) positions of each individual client for each contract. A TMs open position is the sum of proprietary open position, client open long position and client open short position.

SETTLEMENT:

All futures and options contracts are cash settled, i.e. through exchange of cash. The underlying for index futures/options of the Nifty index cannot be delivered. These contracts, therefore, have to be settled in cash. Futures and options on individual securities can be delivered as in the spot market. However, it has been currently mandated that stock options and futures would also be cash settled. The settlement amount for a CM is netted across all their TMs/clients in respect of MTM., premium and final exercise settlement. For the purpose of settlement, all CMs are required to open a separate bank account with NSCCL designated clearing banks for F&O segment.

Risk Management System:

The salient features of risk containment measures on the F&O segment are:

Anybody interested in taking membership of F&O segment is required to take membership of CM and F&O or CM, WDM and F&O An existing member of CM segment can also take membership of F&O segment.

NSCL charges an upfront initial margin for all the open positions of a CM up to client level. It follows the VaR based margining system through SPAN system. NSCCL computes the initial margin percentage for each Nifty index futures contract on a daily basis and informs the CMs. The CM in turn collects the initial margin from the TMs and their respective clients.

NSCCLs on-line position monitoring system monitors a CMs open positions on al real-time basis. Limits are set for each CM based on his base capital and additional capital deposited with NSCCL. The on-line position monitoring system generates alerts whenever a CM reaches a position limit set up by NSCCL. NSCCL monitors the CMs and TMs for mark to market value violation and for contract-wise position limit violation.

 CMs are provided with a trading terminal for the purpose of monitoring the open positions of all the TMs clearing and settling through them. A CM may set exposure limits for a TM clearing and settling through him. NSCCL assists the CM to monitor the intra-day exposure limits set up by a CM and whenever a TM exceeds the limits, it withdraws the trading facility provided to such TM. A separate Settlement Guarantee Fund for this segment has been created out of the capital deposited by the members with NSCCL.

Regulatory Framework
The trading derivatives is governed by the provisions contained in the SC(R)A, the SEBI Act, the rules and regulations framed there under and the rules and bye-laws of stock exchanges. Regulation for Derivatives trading SEBI set up q 24-member committee under the Chairmanship of Dr. L. C. Gupta to develop the appropriate regulatory framework for derivatives trading in India. On May 11, 1998 SEBI accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with stock futures. The provisions in the SC(R) A and the regulatory framework developed there under govern trading in securities. The amendment of SC(R)A to include derivatives within the ambit of Securities in the SC(R)A made trading in derivatives possible within the framework of that Act.

1. The derivatives exchange/segment should have a separate governing council and representation of trading/clearing members shall be limited to maximum 40% of the total members of the governing council. The Exchange must get the prior approval of SEBI. 2. The exchange should have minimum 50 members. 3. The member of existing segment of the exchange would not automatically become the members of derivatives segment.

4. Clearing and settlement house must approved by SEBI. 5. The dealer or Broker must be approved by SEBI.
6.

The minimum net worth for clearing members of the derivatives clearing corporation shall be 300 Lakh. The minimum contract value shall not less than 2 Lakh.

7.

8. The initial margin must be paid by the client for trading 9. The KYC rule and regulation must be fulfilled by the derivatives broker. 10. The trading members are required to qualify approved user and sales person who have passed a certification program approved by SEBI.

PROBLEM IDENTIFICATION

I have conducted study on awareness about derivative segment in stock market. Now, the Angel broking wants to know about the investment instruments used by the people of Bhavnagar city. It also wants to know how to educate people about stock market. It wants to know constraints which are affecting to the decision of client to invest in stock market.

RESEARCH OBJECTIVES

The objectives of the study are as under: 1. To know the awareness of derivatives market. 2. To know the investment habit/pattern of the people of Bhavnagar city. 3. To know the influencing forces behind the decision making while trading in F & O segment. 4. To know constraints which are affecting investment in derivatives market?

RESEARCH INSTRUMENT

QUESTIONNAIRE:

A structured questionnaire was prepared which consisted a 11 set of questions relating to different investment options, Options for trading in derivatives market, level of satisfaction etc.

SAMPLING METHOD: Randomly selection method

SAMPLE UNIT

: Those who are investing in different investment Options

SAMPLE SIZE

: 50 samples

Type of Questionnaire : Structured

Type of Questions

: Closed ended questions

No of Questions

: 11

Place

: BHAVNAGAR CITY

DATA COLLECTION METHOD

There are mainly two sources of data collection that are as under:

(1) Primary

Data

Primary data are those, which are collected by the researcher at the first time, and they are original in character to study a particular problem. Primary data is collected by questionnaires, personal contact of customer.

The normal procedure is to interview some people individually to get a sense of how they feel about stock market. I have put the questionnaire on behalf of different businessman, students, professionals, service class people and they fill up the questionnaires by themselves. So far as my research is concerned, primary data is the main source of information. I have collected data questionnaire and information from respondents.

(2)

Secondary data

When data are collected and compelled from the published nature or any others primary data is called secondary data. So far my research is concerned; I have collected information from Internet, Derivatives Market (dealers) Module Work Book of NCFM, and Derivative Exchange Book of BSE Training

BENEFITS OF THE STUDY

The research that is being conducted by me will be useful in the following respect:

This will help the company, how to make people aware about F & O market by imparting best education.

This will help me to know the investment options used by people and turn them towards Derivative market.

It will help the company to frame effective marketing strategy.

It will also help the company to select right media for advertising to create brand awareness as well as to give knowledge of the products.

It will help to know how the people take decision to invest in derivatives market.

It will help the company to reduce the obstacles, which come in the way for the development of derivative market.

DATA ANALYSIS & INTERPRETATION

(1) AGE

GROUP WISE INVESTORS

Age 21 30 31 40 41 - 50 51 - 60 Above 61 Total No. of Investors 25 34 15 19 7 100 Percentage of Investors 25 34 15 19 7 100

AGE GROUP WISE INVESTORS

40 35 30 25 Percentage of Investors 20 15 10 5 0 21 30 31 40 41 - 50 Ages 51 - 60 Above 61 25 19 15 7 34

INTERPRETATION In the research, the response of the 1st question is shows that the people comes under the group of age 21-30 are 25, 31-40 are 34, 41-50 are 15, 51-60 are 19 and above 61 are only 7 which shows that the people comes under age group 31-40 are more than other group.

(2) EDUCATION

QUALIFICATION WISE INVESTORS

No. of Investors 57 26 17 100 Percentage of Investors 57 26 17 100

Education qualification Under-Graduates Graduates Post-Graduates Total

EDUCATION QUALIFICATION WISE INVESTORS

60 50 40 Percentage of Investors 30 20 10 0 Under-Graduates Graduates Education Qualification Post-Graduates

57

26 17

INTERPRETATION As a chart indicates that the people who are responding from the education qualification point of view, in which the percentage of undergraduate is more than the percentage of graduate and post graduate. The percentage of under graduate is 57%, and percentage of graduate and post- graduates are 26 and 17 respectively.

(3) OCCUPATION

WISE DISTRIBUTION OF INVESTORS

Occupation Professionals Businessmen Employees Students Others Total

No. of Respondents 15 35 17 23 10 100

Percentage of Investors 15 35 17 23 10 100

OCCUPATION WISE DISTRIBUTION OF INVESTORS

40 35 Percentage of Investors 30 25 20 15 10 5 0 Professionals Businessmen Employees Occupation Students Others

35 23 15 17 10

INTERPRETATION In the chart which shows number of people who are responding from the occupation point of view in which we can see that the no. of people who comes under Business group is higher than any other group of people. Here we can see easily that chart suggest that no. of Business group is 35 and others like Professional, Employee, Student, Others are 15, 17, 23, and 10 respectively.

(4) DO YOU MAKE ANY INVESTMETS?

Invest Do Not Invest TOTAL

100% 0% 100%

% OF PEOPLE WHO ARE INVESTORS

0%

% Of People Investment

100%

INTERPRETATION From the above chart we can see that the percentage of people who are in investing is 100%t. The reason of investing respondent is 100% is because in recent time people are aware about the investment for the future purpose, and extra income.

(5) INVESTMENT

IN DIFFERENT INVESTMENT INSTRUMENTS

Investment options Bank Fixed Deposit Mutual Fund Shares Market Insurance Real Estate Govt. Securities Debenture Postal Scheme Pension Fund Gold No. of Investors 57 40 64 75 7 5 4 30 20 43

IN V E S T M E N T IN D IF F E R E N T IN S T R U M E N T S
80 70 60 50 N o . o f 40 In v e s to r s3 0 20 10 0

75 57 40 30 20 7 5 4 64 43

B a n k M u tu a l S h a r e sI n su r a n c eR e a l G o v t. D e b e n tu r P o sta l P e n si o n G o l d e F ix e d F u n d M a rk e t E sta te S e c u r i ti e s S che m e Fu nd D e p o si t

In v e s tm e n t O p tio n s

INTERPRETATION As we know there are lost of option available for making investment in competitive era. We have taken only ten most popular options among them. As the chart indicates that no. of investors are higher in insurance and share market rather then any other option. I.e. in insurance is 75 and share market is 64. The other option are bank deposit 57,

mutual fund 40, real estate 20, government security 10, debenture is hardly 4, postal scheme 35, pension fund 20 and in gold 43.

(6)

HOW TO INVEST IN STOCK MARKET?

Category IPO MARKET CASH MARKET DERIVATIVES MARKET COMMODITIES ALL Total

No. of Investors 27 35 23 10 5 100

Percentage of investors 27 35 23 10 5 100

HOW YOU INVEST IN SHARE/STOCK MARKET

40 35 30 25 20 15 10 5 0

35 27 23 10 5
IPO MARKET CASH MARKETDERIVATIVES COMMODITIES MARKET Ca te gory ALL

Pe rce nta ge of investors

INTERPRETATION

There are no. of ways for making investment in the share market like IPO, Cash market, Commodity and derivative. We can see from above char that no. of investors in cash market is higher than any other option. i.e. 35 While in IPO market it is 27, derivative market it is 23, in commodity market it is only 10, while there are only 5 investors who are making investment in all the options.

(7) HOW

DO YOU INVEST IN DERIVATIVES MARKET?

Instruments Index Future Index Option Stock Future Stock Option All Total

No. of Investors 32 13 26 17 12 100

Percentage of Investors 32 13 26 17 12 100

35 30 25 20
P e rce n ta g e o f In ve sto rs

32

H O W D O YO U IN V E S T IN D E R IV AT IV E S M AR K E T 26 17 13 12

15 10 5 0 In d e x F u tu re

In d e x O p tio n

S to ck F u tu re In stru me n ts

S to ck O p tion

All

INTERPRETATION

As we have seen due to the participation the mutual fund, investment of FII, FDI, the ration of investment in derivative market in increase. As the chart indicates that no. of investors in index future is higher compare to any other. Out of 100, 32 people making investment in future index while trading in derivatives market. On the other hand index option, stock future and stock option the number of people who are investing is 13, 26 and 17 respectively. The no. of investors trading in all instruments is 12.

(8) FACTORS CONSIDERED IN INVESTMENT

Factors High Return Speculation Political Inflation Foreign Crisis

1st Rank 35 30 35 30 22

2nd Rank 22 20 22 23 21

3rd Rank 17 15 17 21 23

4th Rank 13 17 14 15 20

5th Rank 13 18 12 11 14

3rd Rank

23

17
High Return Speculation Political

15 21 17

Inflation Foreign Crisis

4th Rank

20

13

High Return Speculation Political

17 15 14

Inflation Foreign Crisis

5th R ank

14

13

H igh R eturn Speculation Political

11 12

18

Inflation Foreign C is ris

INTERPRETATION

From the above we can easily understand that respondents gave the response of question it terms of rank. Here the Rank is given to each factor by the respondents, from their understanding point of view.

RANK 1: - The chart indicates of Rank 1 that highest no. of people seek to high return from the market i.e. 35 people, but they consider the foreign crises i.e. 22 and speculation, political, and inflation consider by people i.e. 30, 35 and 30 respectively, while taking the decision.

RANK 2: - The second chart indicate in 2nd RANK 22 people consider high return and political factors but 20 and 21 people consider speculation and foreign crisis respectively. While 23 people are consider inflation while taking decision for the investment.

RANK 3: - The 3rd chart indicates that 17 respondents giving 3rd RANK to high return and political issues, but speculation and inflation are not much consider for them. When the investors are more consider foreign crisis for making investment decision.

RANK 4:- The 4th chart indicates the 4th RANK to all categories for investment, in which the more respondents are in favor of foreign crisis, while other considers less.

RANK 5: - In the 5th chart 5 RANK given to factors, while in the highest respondents considering from the 5th Rank point of view give more Speculation, while other Consider less for taking decisions.

(9) THE CONSTRAINTS WHICH ARE AFFECTING THE INVESTMENT IN STOCK MARKET

Constraints Fund availability Risk taking ability Lack of Knowledge Regulatory constraints Others

No. of Investors 47 32 37 15 5

Percentage of Investors 34 24 27 11 4

THE CONSTRAINTS

11%

4% Fund availability Risk taking ability

Percentage of Investors

27%

34%

Lack of Knowledge Regulatory constraints Others

24%

INTERPRETATION As we know that investment in the stock market is risky. There are no. of constrains in this market but we have covered only four major constrains. Out of 100 respondents 49 are suffering from fund availability. While 33 people are considering risk investment, 35 people considers lack of knowledge, 13 people consider regulatory constrains while making investment.

(10) HOW DO YOU TAKE DEISION WHILE MAKING INVESTMENT? Factors Independently Advice from friends/colleagues Broker's/Agent's Advice News Channels Business Newspapers Business Magazines Internet TOTAL Percentage of investors 17 10 30 22 11 5 5
100

D E C I S I O N T A K E N B Y IN V E S T O R F a c t o r s S

4 5%% 17% P e r c e n ta g e o f 1 1 %
In v e s t o r s F a c to r s

In d e p e n d e n t ly A d v ic e fr o m fr ie n d s / c o lle a g u e s B r o k e r ' s / A g e n t 's A d v ic e N e w s C h a n n e ls B u s in e s s N e w s p a p e r s

10% 18% 35%

B u s in e s s M a g a z in e s In t e r n e t

INTERPRETATION While taking the investment decision there are some factors to be considered by investors that are like take decision independently, take advise from brokers, watching news channels, reading magazines organizational surfing from the net. Here the percentage of respondents is higher in who are taking the decisions by whatever advice given by their brokers or advisers. The 30% out of 100% respondents are taking advise while the less percentage of people surfing i.e. 5%.

(11) DOES YOUR BROKER PROVIDE RIGHT QUOTATION PRICES OF F & O YOU INQUIRED?

Criteria Always Often Sometimes Seldom Never

No. of Investors 65 21 5 7 2

No. of In v e s t o r s

70 60 50 40 30 20 10 0

65

No. of Respondents

21 5
A lw a y s O fte n

2
Never

S o m e ti m e s S e l d o m

INTERPRETATION Here the chart shows that when brokers giving quotations of the particular scrip, or some scrips weather the quotations are right given by them or not. So, from that point of view out of 100 respondents 65 reply with that their broker gives them right quotation. But in rare case it happened that their broker giving them wrong quotations of the scrip. It may be happened some time the right quotations are not understood by the investors.

(12) DO BELIEVE IN YOUR BROKERS TIPS & PRECAUTIONARY FOR F & O SCRIPS?

YES NO

65% 35%

% OF RESPONSE

35%
Y ES NO

65%

INTERPRETATION In last but not least the last question of our research is that weather they satisfy with the Tips and Precautionary given by their adviser or brokers. The 65% of respondents say that they are satisfied with the Tips and Precautionary. But there are also some people who are not satisfied because of some technical research report sometime not technically right.

FINDINGS

(1) (2) (3) (4) (5) (6) (7) (8) (9)

From the research I found that the investment in share market is more popular among the age group of 31-40. The most respondents are come under qualification of under graduate i.e. 57%. The most respondents are come from Business group i.e. 35%, rather then any other occupation. The 100% of people making investments. The 64 out of 100 people who are investing in share market rather than other options. There are 23 out of 100 who are trading in Derivatives Market. The investors are more interested in Index future rather than other instruments. The most factors which are considering for investment come are high return, inflation, political issues, speculation and last foreign crisis. The main constraint for investors is lack of fund availability. advice.

(10) Most of the investors who are taking decisions for investment, through brokers (11) The 65% of people are responding for always providing right quotation. (12) The 65% of people are believe in the tips and precautionary whatever given by brokers.

LIMITATIONS OF THE STUDY

Personal bias: People may have personal bias towards particular investment option so that they may not give correct information.

Time limit: The time duration for the research is short, so a census survey is not possible due to time limit, so I have collected data through sample survey.

Area: The survey was limited only to the physical boundary of Bhavnagar city only, so I can not know the degree of literacy about sock market outside the city.

Sample size: I have collected data from 50 samples only, which may not reflect the proper result of the study.

Lack of expertise: This research work is prepared by me, so there is chance of lack of expertise knowledge in the particular field.

RECOMMENDATIONS

As I have examined those different investors are giving priorities to investment instrument as per their need. Accordingly, as per the needs of the client, a product can be recommended to him. Angel Broking Limited has strength in Top Quality Research, Internet Trading, Investment Advisory Services, Value Added Back office services and DP Services.

Angel broking should increase its promotional activities and it should make aware people of Bhavnagar city about its product and services.

Angel broking should turn the existing customer to trade or invest in other products which they are not aware about or not investing in them.

Angel broking should organize seminars and presentation of highly experienced persons. It should provide classroom training to those who are eager to learn about share market. It should distribute documents about product information.

Angel broking should utilize the Newspapers, local T.V advertisement as a medium of promotion.

BIBLIOGRAPHY

(1) Chandra

Prasanna, INVESTMENT ANALYSIS AND PORTFOLIO MANGEMENT, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2nd Edition, Page No. (497to556)

(2) Derivatives Market (Dealers) Module Work Book by NCFM(NSEs Certification in Financial Market)
(3) Kothari

C. R., (1990) Research methodology: methods & techniques, 2nd edition,

Wishwa Prakashan, New Delhi

(4) BSE Derivatives Market (5) http//www.nse-india.com

(6) http://www.derivativesindia.com/scripts/derixchg/index.asp

(7) http://www.indianmba.com/Faculty_Column/FC316/fc316.html1

Questionnaire
The awareness of Derivatives Market

(1) Name

_________________________________________________

(2) Age

21-30

31-40

41-50

51-60

Above 61

(3) Education :

Undergraduate

Graduate

Post Graduate

Professional

Illiterate

(4) Occupation :

Professional

Businessman

Employee

Student

Others

(5) Do you make any Investments?

Yes

No

(6) Out of the Following Investment Options, With Which Are you familiar and Invest into it?

Bank Fixed deposit

Mutual Fund

Share Market

Insurance

Real Estate

Govt. Securities

Bonds/Debenture

Postal Scheme

Pension Fund

Gold

(7) How do you invest in Share Market?

IPO Market

Cash Market

Derivatives Market

Commodities Market

All

(8) How do you investment in Derivatives market

Index Future

Index Option

Stock Future

Stock Option

All

(8) What are the factor do you consider while investing? (Give rank from 1-6)

High Return

Speculation

Political

Inflation

Foreign Crises

(9) What are the constraints that are holding you back to invest in Stock market?

Fund Availability

Risk taking Ability

Lack of Knowledge

Regulatory Constraints

Lack of Guidance

Other (specify) ________________

(10) How do you take decisions if you want to trade in stock market?

Independently

Advice from Friends/Colleagues

Broker/Agents Advice

News Channels

Well-Known Stock Broking House

Business Newspapers

Business Magazines

Internet

(11) Does your broker give you the right quotation of prices of stock you inquired?

Always

Often

Sometimes

Seldom

Never

(12 Do you believe in Tips and Precautionary provided by your broker in F & O market?

Yes

No

THANK YOU