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PROJECT REPORT ON STUDY OF STOCK MARKET AND DISTRIBUTION OF MUTUAL FUNDS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION ACEDMIC SESSION: 2010-2012

SUPERVISED BY: SUBMITTED BY: Miss. SUBHA BHASIN SINGH R OLLNO-2211 MBA 4th Sem GHANSHYAM

L.R. INSTITUTE OF MANAGEMENT

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JABLI-KYAR, P.O. OACHGHAT, SOLAN (H.P.)

L.R Institute of Management Studies

Jabli-Kyar, P.O., Ochghat, Solan H.P. 173223 ------------------------------------------------------------------------------------------------

CERTIFICATE

This is to certify that this project entitled Study on stock market and distribution of mutual fund- at Religare stock broking ltd, submitted in partial fulfilment of the requirement for the degree of Master of Business Administration of Himachal Pradesh University, Shimla -5, by Mr Ghanshyam Singh, Roll No. 2211has been executed under my supervision and guidance. The data reported in it are pure. The assistance and help received during the course of this investigation has been duly acknowledged. It is further certified that it is original piece of work and it is working for the degree of Master of Business Administration.

Project Advisor Miss Subha Bhasin

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INDEX
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ACKNOWLEDGEMENT EXECUTINE SUMMARY OBJECTIVE OF THE STUDY HISTORY OF THE RELIGARE GROUP CORPORATE PROFILE OF RELIGARE STOCK BROKING LTD ACHIEVEMENTS OBJECTIVES OF THE ORGANIGATION SERVICES OF THE RELIGARE GROUP SUMMARY OF INDIAN FINANCIAL SYSTEM PARTS OF IFS NATIONAL STOCK EXCHANGE ORGANIGATION STRUCTURE OF RELIGARE STOCK BROKING LTD RESEARCH METHODOLOGY DATA INTERPRETATION AND ANALYSIS FINDINGS TOOL AND TECHNIQUES CONCLUSION BIBILIOGRAPHY ANNEXURE

ACKNOWLEDGEMENT

I hereby express my profound gratitude to all those respected people who supported me in the completion of this project. It is indeed a matter of great pleasure and privilege to be able to present this project on study of stock market and distribution of mutual funds at Religare Securities Ltd. The completion of the project is a milestone in a students life & its execution is inevitable in the hands of our guides. I am highly indebted to the project guide Miss Subha Basin for her invaluable guidance and appreciate her for giving form and substance to this project. I am also thankful to Religare Securities Ltd. for giving me this valuable opportunity for doing this project. I would like to express my deep regards and gratitude to our Centre Head Mr.Nitin Roxwell. It is due to their enduring efforts, patience and enthusiasm, which has given a sense of direction and purposefulness to this project and ultimately made it a success. I would also like to thank our non- teaching staff and our friends who have helped me all the time in one way or other. Finally I sincerely thank to all those who have rendered their valuable service either directly or indirectly & helped us for making the project successful.

EXECUTIVE SUMMARY

The project is about writing a study of stock market and distribution of mutual funds It required extensive reading. I had to start from the very basics of capital markets, what are they and what role do they perform. Its classification into primary and secondary markets and the features and functions of both followed this. Valuation of securities and financial analysis was then incorporated to let the investors know how to assess their investments. Procedures of the stock exchanges with respect to trading and clearing as well other aspects like , regulations concerning stock exchanges, trading, mutual funds and every other relevant aspect has been covered in the guide.

Thus it is a comprehensive guide on understanding the share markets and mutualfunds and how to invest in them. My entire focus in writing the guide was to make it simple, brief and concise. A lot of material was read and referred to before the final draft of the material was made. Websites like www.nseindia.com, bseindia.com, investopedia.com, religare.in and mutualfunds India.com were of great help in this.

This project has covered many criteria and it also helped the retail investor and online traders, as they are moving in direction to self-learning. More and more customers are trying the option of online trading and investment in mutual funds because they feel it as a very comfortable and one get more knowledge about the security of their investment.

OBJECTIVES OF THE STUDY

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1. To enable the investors to know about the various investments in stocks & in mutual fund. 2. To explain the investors about the functioning of markets (NSE, BSE) 3. To enable to comprehend the concept of distributing and marketing the mutual funds

INTRODUCTION
RELIGARE GROUP Religare, a Ranbaxy promoter group company, is one of Indias largest and fastest growing integrated financial services institutions. The company offers a large and diverse bouquet of services ranging from equities, commodities, insurance broking, to wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services. The services are broadly clubbed across three key business verticals- Retail, Wealth management and the Institutional spectrum. Religare Enterprises Limited is the holding company for all its businesses, structured and being operated through various subsidiaries. Religares retail network spreads across the length and breadth of the country with its presence through more than 900 locations across more than 300 cities and towns. Having spread itself fairly well across the country and with the promise of not resting on its laurels, it has also aggressively started eyeing global geographies. Religare a company promoted, controlled and managed by the promoters of Ranbaxy was founded with the vision of providing integrated financial care driven by relationship of trust. To realize its vision, the company provides both, fund-based and non-fund based financial services to its clients. These services include Broking (Stocks and Commodities), Depository Participant Services, and Advisory on Mutual Fund Investments. The clients of the company greatly benefit by its strong research capability, which encompasses fundamentals as well as technicals. Religare provides integrated financial solutions to its corporate, retail and wealth management clients through Religare Securities Limited, Religare Finvest Limited, Religare Commodities Limited and Religare Insurance Broking Limited. Today, we provide various financial services which include Investment Banking, Corporate Finance, Portfolio Management Services, Equity & Commodity Broking, Insurance and Mutual Funds. Plus, theres a lot more to come your way. Religare in recent past has been constantly innovating in terms of the product and services, which it offers, and in this respect it has started a premium NRI, FIs, HNIs, and Corporate Servicing group. This group specifically caters to the growing investment needs of these premium client categories by taking all their portfolio investment decisions depending upon their risk / return parameter.

Religare has a very credible team in its Research & Analysis division, which not only caters to the needs of our Institutional clients but also gives valuable input to Investment Dealers / Investors. Religare is also giving in house depository services to its clients and it is amongst the leading Depository service providers in the country managing more than Rs. 6000 crores worth of shares under its electronic custody. Religare among capital market investment fraternity has carved a niche in performance levels. We endeavor constantly to our motto of providing customized services to our clients. Religare Business Partner Concept has resulted in opening our branches all over the country, thereby pioneering the concept of partnership to reach multiple locations. We do this in partnership with existing market participants, who can utilize our corporate backing coupled with our technical and back office support to enhance the business opportunities available to them from their area.

ACHIEVEMENTS
Among the top 5 stock brokers in India (4% of NSE volumes) India's No. 1 Registrar & Securities Transfer Agents Among the to top 3 Depository Participants Largest Network of Branches & Business Associates ISO 9002 certified operations by DNV Largest Distributor of Financial Products Adjudged as one of the top 50 IT uses in India by MIS Asia Full Fledged IT driven operations.

OBJECTIVES
To achieve and retain leadership, RELIGARE shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, RELIGARE will strive to exceed Customer's expectations.
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As per the Quality Policy, RELIGARE will:

Build in-house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services.

Establish a partner relationship with its investor service agents and vendors that will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients.

Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of same.

Strive to keep all stake-holders(shareholders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied.

The Group
Pharma Healthcare

Diagnostics

Financial Services

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GROUP ENTITIES

Among top 10 generic Pharma co. across the globe and largest Pharma Company in India Manu factu ring oper ation s in 7 coun tries Prod ucts sold in 125 coun tries Largest in India Sales of US $ 1.17 billio n Manu factu res & Mark ets Gene rics and Bran ded Gene rics

South & South East Asias largest Asia Pathology labs network Global accreditations and Compliance Comprehensive range of tests Focus on R&D 550 Sample Collection Centres in 360 cities across the globe Over 1.5 mn satisfied customers every year

One of the second largest hospital chain in India Currently1600 beds across India; target of 5,500 hospital Beds by 2008 8 hospitals in National Capital Region; 25 hospitals across India Engaged in healthcare, Telemedicine, education & research

Religare is among Indias India largest financial services house reaching more than 180 destinations with more than 150 own offices and more than 300 partner locations

Largest in South East Asia

Second Largest in India

Among Largest in India

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Geographical Spread
More than 150 branch offices across India and more than 300 partner locations covering approximately more than 180 cities & towns.

THE RELIGARE TEAM

Qualification
17% 37%

21% 25% Graduates Post-Graduates MBA/PGDBM Professional

THE RELIGARE TEAM

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Aver age Age o n Bo ar d

>40 yrs 5% >35 <40 yrs 10% <25 yrs 25%

> <35 yrs 30 20%

>25 <30 yrs 40%

<25 yrs >25 <30 yrs >30 <35 yrs >35 < yrs 40 >40 yrs

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THE RELIGARE TEAM

Industry Experience
more t han 10 Y ears
Upto 3 y ear s

3 - 10 years

Upto 3 years

3 - 10 years

more than 10 Years

RELIGARE STOCK BROKING LIMITED

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Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). RELIGARE Stock Broking Limited, flows freely towards attaining diverse goals of the customer through varied services. Creating a plethora of opportunities for the customer by opening up investment vistas backed by research-based advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping the customer create waves in his portfolio and empowering the investor completely is the ultimate goal. STOCK BROKING SERVICES It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth management and wealth accumulation option. The difference between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one & rescues options with care. This is what we provide in our Stock Broking services. We offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. More importantly, we make trading safe to the maximum possible extent, by accounting for several risk factors and planning accordingly. We are assisted in this task by our in-depth research, constant feedback and sound advisory facilities. Our highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure result-oriented information on market trends, market analysis and market predictions. This crucial information is given as a constant feedback to our customers. Our foray into commodities broking has been path breaking and we are in the process of converting existing traders in commodities into the more organized mainstream of trading in commodity futures, both as a trading and risk hedging mechanism. In the future, our focus will be on the emerging businesses and to meet this objective, we have enhanced our manpower and revitalized our knowledge base with enhances focus on Futures and Options as well as the commodities business.

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Interest on margin money:

With the growth of the internet as a medium for buying and selling of shares the brokerage rates of the brokers in the US have also come down dramatically. When Internet trading started the brokerage was $19.95 per trade and now it is possible for $9.95 per trade, which means a fall of 50.12%. Meanwhile the cost of research has been spiraling, as the brokerage houses have to keep track of everything that is happening in the financial world. So how do the brokerage houses give facilities at such low costs? The answer lies in putting up the margin money for their clients and earning interest income. This works in two ways; first they earn interest incomes and secondly since they are putting up the margin money the clients have more money with which they can buy shares and are hence increasing the brokerage margin.

Overview of Indian Financial System

The capital markets perform an important function in the allocation of resources. The allocation of resources is dependent on the health of the various sectors of the economy. In a market driven economy, resources are channelized to those sectors, which are doing well. The capital markets through organized exchanges ensure liquidity for funds invested in the corporate sector. Liquidity of the stock market is therefore an important factor affecting growth. Many profitable projects which have longer gestation periods require long term finance; however investors may not wish to keep their investments locked for the entire period of the project. A liquid stock market ensures a quick exit route without incurring heavy costs. Thus development of a vibrant and efficient market is necessary for creating a conducive climate for investment and economic growth. The Indian financial system has several facets. A classification from the point of view of regulators is:

Regulatory Authorities

RBI Commercial Banks Foreign Exchange Markets Financial Institutions

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SEBI Primary Market Secondary Market Derivatives Market

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Primary Dealers

Commercial Banks include the Public Sector banks, Private Banks and Foreign Banks. The Commercial Banks are regulated by the RBI under the Banking Regulation Act and Negotiable Instruments Act. Financial Institutions may be of all India level like IDBI, IFCI, ICICI, NABARD or sectoral financial institutions like EXIM, TFCIL etc. IFCI was the first term lending institution to be set up. IDBI is the apex development financial institution set up to provide funds for the rapid industrialization in India.
The participants in the Foreign Exchange markets include banks, financial institutions and are regulated by the RBI. Primary Dealers are the registered participants of the wholesale debt market. They bid at auctions for Government Debt, treasury bills, which are then retailed to banks and financial institutions who invest in these papers to maintain their Statutory Liquidity Ratio (SLR).

Reserve Bank of India (RBI)

The Reserve Bank of India is the central banking institution in India. It is the sole authority for issuing bank notes and the supervisory body for banking operations in India. Even though the Indian currency (rupee) is now floated in the market, the RBI supervises and administers exchange control and banking regulations, and administers the government's monetary policy. It is also responsible for granting licenses for new bank branches.

Securities and Exchange Board of India (SEBI)

SEBI was set up as an autonomous regulatory authority by the Government of India in 1988 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto." It is empowered by two acts namely the SEBI Act, 1992 and the Securities Contract (Regulation) Act, 1956 to perform the function of protecting investors rights and regulating the capital markets.

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Overview of the Indian Financial Markets

The Indian Financial Markets comprises of Capital Market, the Money Market and the Debt Market. The Capital Market consists of A. Primary Market B. Secondary Market

A. Primary Market
The Primary Market is the place where the new offerings by Companies are made either as an Initial Public Offering (IPO) or Rights Issue. IPOs are offerings made by the Company for the first time while rights are offerings made to the existing shareholders.

B. Secondary Market
Secondary Markets consists of the Stock Exchanges where the buy-orders and sell orders are matched in an organized manner. The functions of the stock exchange are as follows: 1) It ensures a measure of safety and fair dealing. 2) It translates short-term and medium term investments into long-term funds for companies. 3) It directs the flow of capital to the area of maximum returns and ensures ample investment options for the investors depending on their risk preference. 4) It induces the companies to raise their standards of performance.

C. Derivatives Market
Derivatives Market is the market for financial instruments whose value is derived from an underlying stock, commodity or currency. There are innumerable derivative instruments; common amongst them are futures, options, warrants and swaps. Derivatives trading made its debut in Indian market with the introduction of Sensex and Nifty futures in June 2000.

Derivatives market has the following roles:

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1) Derivatives allow hedging of market risk. 2) It allows for a separate market to be developed for lending of funds and securities to the market. 3) It helps in making the underlying cash market more liquid. 4) It helps in innovations and the creation of new financial products.

D. Role of Capital Markets

a)The Capital Market is the indicator of the inherent health of the economy. b)The Capital Market is the largest sources of funds with long or indefinite maturity for companies and thereby enhances capital formation in the economy. c)The Capital Market offers a number of investment avenues to investors. d)It helps in channelising the savings pool in the economy towards investments, which are more efficient and give a better rate of return thereby helping in optimum allocation of capital in the country.

1.4.Self Regulatory Organizations (SROs)

Securities and Exchange Board of India (SEBI) is authorized to promote and regulate Self-Regulatory Organizations (SROs) in the Capital markets in India. SROs are practical and effective tools for regulating various kinds of participants in the securities market. They have byelaws and codes of conduct to bind their members.

Currently, the SROs related to the securities market whose regulatory framework is well established and which have actually been functioning are the stock exchanges. Other non-registered SRO is Association of Merchant Bankers of India (AMBI).

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1.6. Investment Instruments A. Fixed Income

Fixed Income instruments include bank deposits, Government securities, Bonds, Debentures, Commercial Papers (CPs), and Certificates of Deposit (CDs). Criteria for Investment in Fixed Income Products: 1) Yield to maturity 2) Credit rating of the Security 3) Risk Preference For fixed income securities, credit risk and interest yield are major decisive factors. Credit rating of the security published periodically helps the investor in credit risk assessment. Types of fixed income instrument are explained below : a) Government Securities Government securities include T-Bills (364,182, 91 & 14 Days); Bonds issued by the Central & State Government, State Financial Institutions, Municipal Bodies, Post Trusts, Electricity Bodies etc. T-Bills are discounted instruments and these may be traded with a repurchase clause which are called repos. Repos are allowed in 364,182 & 91 day T-bills and the minimum repo term is 1 day. These securities are purchased by the Banks, Financial Institutions and Provident Fund Trusts for their SLR (Statutory Liquidity Ratio) requirements and are normally referred to as gilt-edged securities.

b) Bonds Bonds may be of many types - they may be regular income, infrastructure, tax saving or deep discount bonds. These are investment products with a fixed coupon rate and a definite period after which these are redeemed. The bonds may be regular income with the coupons being paid at fixed intervals or cumulative in which the interest is paid on redemption. Infrastructure bonds are bonds issued by companies/institutions for utilisation in infrastructure projects. Investment in these bonds usually are eligible for favourable tax treatment under section 88 of Income Tax Act. Deep Discount Bonds are bonds, which are issued at a discount to the face value, and an investor is paid the face value on redemption. c) Debentures
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Debentures may be of three types - fully convertible debentures (FCDs), Partly convertible debentures (PCDs) and nonconvertible debentures (NCDs).

FCDs are debentures whose face value is converted into a fixed number of Equity shares at a fixed price. The price of each equity share received by way of converting the face value of the convertible security i.e. debenture is called the conversion price. The number of equity shares exchangeable per unit of the convertible security i.e. debentures is called the conversion ratio. PCDs are debentures where a portion of the face value is converted into equity shares and the non-convertible part, called the khoka is redeemed on maturity. d) Public Deposits Corporates can raise funds from the public in the form of Fixed Deposits. These deposits are unsecured and are mainly used for the working capital requirements. These unsecured public deposits are governed by the Companies (Acceptance of Deposits) Amendment Rules 1978. Under this rule: i) Public Deposits cannot exceed 25% of the share capital and free reserves ii) The maximum maturity period is 3 years while the minimum is 6 months.
e) Certificate of Deposits Certificates of Deposits are short term funding instruments issued by Banks and Financial Institutions at a discount to the face value. Banks can issue CDs for a duration of less than 1 year while FIs can only issue it for more than 1 year. The issuing bank or financial institution cannot repurchase these instruments. These are normally used by corporate for meeting their short-term requirements.

f) Commercial Papers (CPs) CPs represents short term unsecured promissory notes issued by firms with a high credit rating. The maturity of these varies from 15 days to a year sold at a discount to the face value and redeemed at the face value. CPs can be issued by companies which have a minimum networth of Rs.4 Crores and needs a mandatory credit rating of minimum P2 (CRISIL), D2 (Duff & Phelps), PR2 (Credit Analysis & Research), A2 (ICRA). The rating should not be more than 2 months old. It can be issued for a minimum amount of Rs.25 lakhs and more in multiples of Rs.5 Lakh.
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B. Equity Shares Equity share denotes a unit of owners capital of a corporate. It may further be classified as either a) Ordinary or b) Preference. Ordinary shares do not carry any fixed rate of return but carry voting rights. The equity shareholders are paid dividend depending on the profitability of the firm, which is proposed by the Board and passed in the Annual General Meeting of the company. Preference Shareholders are entitled to a fixed percentage of dividend per year and they have preference in the payment of dividend over the ordinary shares. The preference shares can also be of Convertible or the non- Convertible types. Sometimes shares issued at the time of the initial offering (IPOs) or Rights Issue may be accompanied by a warrant which entitles the holder to subscribe to a fixed number of shares after a mentioned period of time at a fixed price. These warrants are sometimes listed and traded on the exchange as a security.

Mutual Fund Units Contents:

1 History 2 Usage 3 Net asset value 4 Turnover

TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE Open Ended Closed Ended

BY NATURE OF INVESTMENT
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Equity Bond Gilt Money Market Debt Sector Index Hybrid

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BY INVESTMENT OBJECTIVE

Growth Income Value Balanced

Tax-Saving 7 Mutual funds vs. other investments o 7.1 Share classes o 7.2 Load and expenses 8 Criticism of managed mutual funds o 8.1 Scandals 9 References
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Mutual fund
A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States. Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. In the United Kingdom and western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, Including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds. In Australia the term "mutual fund" is generally not used; the name "managed fund" is used instead. However, "managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in which investors' money is managed by a third party (NB: usually an investment professional or organization). Most managed funds are open-ended (i.e., there is no established maximum number of shares that can be issued); however, this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on when money invested in it can be accessed. History: Massachusetts Investors Trust was founded on March 21, 1924, and, after one year, had 200 shareholders and $392,000 in assets. The entire industry, which included a few closed-end funds, represented less than $10 million in 1924.
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The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock market crash, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that a fund be registered with the Securities and Exchange Commission (SEC) and provide prospective investors with a prospectus that contains required disclosures about the fund, the securities themselves, and fund manager. The SEC helped draft the Investment Company Act of 1940, which sets forth the guidelines with which all SECregistered funds today must comply. With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, there were approximately 270 funds with $48 billion in assets. The first retail index fund, the First Index Investment Trust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior thesis at Princeton University. It is now called the Vanguard 500 Index Fund and is one of the largest mutual funds ever with in excess of $100 billion in assets. One of the largest contributors of mutual fund growth was individual retirement account (IRA) provisions added to the Internal Revenue Code in 1975, allowing individuals (including those already in corporate pension plans) to contribute $2,000 a year. Mutual funds are now popular in employer-sponsored defined contribution retirement plans (401(k)s), IRAs and Roth IRAs. As of April 2006, there are 8,606 mutual funds that belong to the Investment Company Institute (ICI), the national association of investment companies in the United States, with combined assets of $9.207 trillion. Usage: Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield or junk bonds, investment-grade corporate bonds), type of issuers (e.g., government agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds). Most mutual funds investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the funds stated investment objective. A mutual fund is administered through a parent management company, which may hire or fire fund managers. Mutual funds are liable to a special set of regulatory, accounting, and tax rules. Unlike most other types of business entities, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions.

BY STRUCTURE
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Open-ended fund An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets Closed-ended fund A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demands for the shares are high they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price.

BY NATURE OF INVESTMENT
Equity fundsAn equity fund, which mainly consists of stock investments, is the most common type of mutual fund. Equity funds hold 49 percent of total funds invested in mutual funds in the United States. Oftentimes equity funds focus investments on particular strategies and certain types of companies.

Bond funds Bond funds account for 18% of mutual fund assets. Types of bond funds include term funds, which have a fixed set of time (short, medium, long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk. Gilt Funds Gilt funds are those that invest in several different types of medium and long-term government securities in addition to top quality corporate debts. Gilts originated in Britain. Gilt funds differ from bond funds because
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Bond funds invest in corporate bonds, government securities and money market instruments. Gilt funds stick to high quality-low risk debt, mainly government securities. Money market funds Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least risk, as well as lower rates of return. Unlike certificate of deposits (CDs), assets in money market funds are liquid and redeemable at any time. Sector Funds Sector funds invest in individual industries such as banks or technology. Of the 912 new funds created in 2000,most were sector funds mainly representing the Internet sector. When a sector is very narrow, it is called Fad Funds. Sometimes they start off with a spectacular flash earning 100%or more. Hybrid Funds These are sometimes referred to as balanced funds. Theyre mutual funds that invest in a mix of stocks and bonds (typically 60% stock, 40% bond). They give investors a single option for achieving diversification Hybrid funds are great for investors who are looking for a single investment vehicle to create a diversified portfolio. If you dont want to mess around with owning a number of different mutual funds, a hybrid fun will take care of all of this

BY INVESTMENT OBJECTIVE
Growth Funds A mutual fund whose aim is to achieve capital appreciation by investing in growth stocks. They focus on companies that are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. The hope is that these rapidly growing companies will continue to increase in value, thereby allowing the fund to reap the benefits of large capital gains. In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets. Income Funds

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Mutual fund designed to produce current income for shareholders. Some examples of income funds are government, mortgage-backed security, municipal, international, and junk bond funds. Several kinds of equityoriented funds also can have income as their primary investment objective, such as utilities income funds and equity income funds. All distributions from income funds are taxable in the year received by the shareholder unless the fund is held in a tax-deferred account such as an IRA or Keogh or the distributions come from taxexempt bonds, such as with a municipal bond fund. Value Funds Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that the market has overlooked, and stocks that have fallen out of favour with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry. Balanced Funds Fund that buys common stock, preferred stock, and bonds in an effort to obtain the highest return consistent with a low-risk strategy.

Net asset value: The net asset value, or NAV, is the current market value of a fund's holdings, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. Open-end funds sell and redeem their shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes. Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives; or they may be private investments in unregistered financial instruments (such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

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Turnover: Turnover is a measure of the funds securities transactions, usually calculated over a years time, and usually expressed as a percentage of net asset value. This value is usually calculated as the value of all transactions (buying, selling) divided by 2 divided by the funds total holdings; i.e., the fund counts one security sold and another one bought as one turnover. Thus turnover measures the replacement of holdings. In Canada, under NI 81-106 (required disclosure for investment funds) turnover ratio is calculated based on the lesser of purchases or sales divided by the average size of the portfolio (including cash). Turnover generally has tax consequences for a fund, which are passed through to investors. In particular, when selling an investment from its portfolio, a fund may realize a capital gain, which will ultimately be distributed to investors as taxable income. The process of buying and selling securities also has its own costs, such as brokerage commissions, which are borne by the funds shareholders.

Functioning of Primary Market

2.1 Introduction
Primary market is a place where a corporate may raise capital by way of a a) Public Issue: Sale of securities to members of the Public. b) Rights issue: Method of raising further capital from the existing shareholders/ debenture holders by offering additional shares to them on a pre-emptive basis. c) Private placement: As its name suggests it involves selling securities privately to a group of investors.

All issues by a new company has to be made at par and for existing companies the issue price should be justified as per Malegam Committee recommendations by : 1.The earnings per share (EPS) for the last three years and comparison of pre-issue price to earnings (P/E) ratio to the P/E ratio of the Industry. 2.Latest Net Asset Value, 3.Minimum return on increased net worth to maintain pre-issue EPS. A company may also raise finance from the international markets by issuing GDRs and ADRs.

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2.2 Principal steps of a Public Issue A) Vetting of prospectus by SEBI

A draft prospectus is prepared giving out details of the Company, promoters background, Management, terms of the issue, project details, modes of financing, past financial performance, projected profitability and others. Additionally a Venture Capital Firm has to file the details of the terms subject to which funds are to be raised in the proposed issue in a document called the placement memorandum:

a)Appointment of underwriters: The underwriters are appointed who commit to shoulder the liability and subscribe to the shortfall in case the issue is under-subscribed. For this commitment they are entitled to a maximum commission of 2.5 % on the amount underwritten.

b)Appointment of Bankers: Bankers along with their branch network act as the collecting agencies and process the funds procured during the public issue. The Banks provide temporary loans for the period between the issue date and the date the issue proceeds becomes available after allotment, which is referred to as a bridge loan.

c)Appointment of Registrars: Registrars process the application forms, tabulate the amounts collected during the Issue and initiate the allotment procedures.

d)Appointment of the brokers to the issue: Recognized members of the Stock exchanges are appointed as brokers to the issue for marketing the issue. They are eligible for a maximum brokerage of 1.5%. e)Filing of prospectus with the Registrar of Companies: The draft prospectus along with the copies of the agreements entered into with the Lead Manager, Underwriters, Bankers, registrars and Brokers to the issue is filed with the Registrar of Companies of the state where the registered office of the company is located. f)Printing and dispatch of Application forms: The prospectus and application forms are printed and dispatched to all the merchant bankers, underwriters, brokers to the issue.

g) Filing of the initial listing application: A letter is sent to the Stock exchanges where the issue is proposed to be listed giving the details and stating the intent of getting the shares listed on the Exchange.
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h)Statutory announcement: An abridged version of the prospectus and the Issue start and close dates are published in major English dailies and vernacular newspapers.

i)Processing of applications: After the close of the Public Issue all the application forms are scrutinized, tabulated and then shares are allotted against these applications.

j)Establishing the liability of the underwriter: In case the Issue is not fully subscribed to, then the liability for the subscription falls on the underwriters who have to subscribe to the shortfall, incase they have not procured the amount committed by them as per the Underwriting agreement. k)Allotment of shares: After the issue is subscribed to the minimum level, the allotment procedure as prescribed by SEBI is initiated.

L)Listing of the Issue: The shares after having been allotted have to be listed compulsorily in the regional stock exchange and optionally at the other stock exchanges.

B) Cost of a Public issue

The cost of a public issue works out between 8% to 12% depending on the issue size but the maximum has been specified by SEBI as under:
For Equity & Convertible debentures For Non Convertible debentures When the issue size is upto 5 crores = Mandatory costs +2% When the Issue size is greater than 5 crores : Mandatory costs + 1%

When the issue size is upto 5 crores = Mandatory costs + 5% When the issue size is greater than 5 crores : Mandatory costs + 2%

**Mandatory costs includes underwriting commission, brokerage, fees of the lead managers of the issue, expenses on statutory announcements, listing fees and stamp duty.

C) Eligibility for an IPO

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An Indian Company is allowed to make an IPO if: 1.The company has a track record of dividend paying capability for 3 out of the immediately preceding 5 years. 2.A public financial institution or scheduled commercial banks has appraised the project to be financed through the proposed offer and the appraising agency participates in the financing of the project to the extent of at least 10% of the Project cost. Typically a new company has to compulsorily issue shares at par, while for companies with a track record the shares can be issued at a premium. Before the advent of SEBI the prices of shares were valued as per the Controller of Capital Issues (CCI).

2.3 Rights Issue

The rights issue involves selling of securities to the existing shareholders in proportion to their current holding. When a company issues additional equity capital it has to be offered in the first instance to the existing shareholders on a pro-rata basis as per Section 81 of the Companies Act, 1956. The shareholders may by a special resolution forfeit this right, partially or fully by a special resolution to enable the company to issue additional capital to the public or alternatively by passing a simple resolution and taking the permission of the Central Government.

2.4 Private Placement

A private placement results from the sale of securities by the company to one or few investors. The distinctive features of private placement is that: There is no need for a formal prospectus as well as underwriting arrangement The terms of the issue are negotiated between the company and the investors

The issuers are normally the listed public limited companies or closely held public or private limited companies which cannot access the primary market. The securities are placed normally with the Institutional investors, Mutual funds or other Financial Institutions.

2.5 SEBI Guidelines for IPOs

1. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue. 2. Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange. For listing an IPO on the NSE firstly, Paid up capital should be Rs.20 Crores, secondly the issuer or the promoting company should have a track record of profitability and thirdly the project should be appraised by a financial Institution, banks or Category I merchant bank. For knowledge based
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companies like IT the paid up capital should be Rs.5 Crores, but the market capitalization should be at least Rs.50 Crores. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. 3. A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till the expiry of 3 years from the date of issuance of securities. 4. In an Issue of more than Rs. 100 crores the issuer is allowed to place the whole issue by book-building 5. Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares. 6. All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list. 7. There should be at-least 5 investors for every 1 lakh of equity offered. 8. Quoting of permanent Account number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above. 9. Firm Allotment to permanent and regular employees of the issuer is subject to a ceiling of 10% of the issue amount. 10. Indian development financial institutions and Mutual Fund can be allotted securities upto 75% of the Issue Amount. 11. Allotment to categories of FIIs and NRIs/OCBs is upto a maximum of 24% which can be further extended to 30% by an application to the RBI - supported by a resolution passed in the General Meeting.

12.

10% individual ceiling for each category a) Permanent employees b) Shareholding of the

promoting companies.
13. Securities issued to the promoter, his group companies by way of firm allotment and reservation have a lock-in period of 3 years. However shares allotted to FIIs and certain Indian and multilateral development financial institutions and Indian Mutual Funds are not subject to Lock-in periods. 14. The minimum period for which a public issue has to be kept open is 3 working days and the maximum for which it can be kept open is 10 working days. The minimum period for a rights issue is 15 working days and the maximum is 60 working days. 15. A public issue is effected if the issue is able to procure 90% of the Total issue size within 60 days from the date of earliest closure of the Public Issue. In case of over-subscription the company may have the right to retain the excess application money and allot shares more than the proposed issue which is referred to as the green-shoe option. 16. A rights issue has to procure 90% subscription in 60 days of the opening of the issue.

17. 20% of the total issued capital , if the company is an unlisted one with a three year track record of consistent profitability Else in all cases the following slab rate apply :
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Size of Capital issued (Including Premium) Less than Rs.100crores > 100 crores upto 300 crores > 300 crores up to 600 crores > 600 crores

Contribution % 50% 40% 30% 15%

18. Promoters contribution is subject to a lock-in period of 3 years. 19. Refund orders have to be dispatched within 30 days of the closure of the Public Issue. 20. Refunds of excess application money i.e. for un-allotted shares have to be made within 30 days of the closure of the Public Issue.

2.6. Listing on Stock Exchanges

The Stock Exchange, Mumbai has notified new listing guidelines from 1st December, 2000 for companies listed on other Stock Exchange and seeking listing at BSE, the threshold limit will be Rs. 3 crores of minimum issued equity capital and the following criteria will be applicable: 1. Company should have profit making track record for at least three years. 2. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excluding revaluation reserves). 3. Minimum market capitalization of the listed capital should be Rs.20 crores, based on average price of last six months. 4. Number of days traded during last six complete months should be minimum 50% of the total trading days during the same six months on any stock exchange. 5. Minimum Average volume traded per day during the last three complete months should be 1000 shares and minimum 5 trades per day. 6. Minimum 25% of the company's issued capital should be with public (inclusive of bodies corporate) and minimum 15 shareholders per Rs.1 lakh of capital in the public category.

7. The company should be agreeable to sign an agreement with CDSL & NSDL for demat trading etc.
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The Stock Exchange, Mumbai has decided that for new companies whose draft offer documents are received w.e.f. 1st December, 2000 the threshold limit for listing on The Stock Exchange will be issued equity capital of Rs.10 crores and post issue net worth (equity capital + free reserves excluding revaluation reserve) of Rs.20 crores. The Exchange has also decided that for new companies in high technology (i.e. information technology, internet, e-commerce, telecommunication, media including advertisement, entertainment etc.) whose draft offer documents are received w.e.f. 1st December, 2000, the following criteria will be applicable:
1. The total income/sales from the main activity, which should be in the field of information technology, internet, e-commerce, telecommunication, media including advertisement, entertainment etc. should not be less than 75% of the total income during the two immediately preceding years as certified by the Auditors of the company. 2. The minimum post-issue paid-up equity capital should be Rs.5 Crores. 3. The minimum market capitalization should be Rs.50 Crores. (The capitalization will be calculated by multiplying the post issue subscribed number of equity shares with the Issue price). 4. Post issue networth (equity capital + free reserves excluding revaluation reserve) of Rs.20 Crores.

2.7 GDR And Its Features

Global Depositary Receipts means any instrument in the form of a depositary receipt or certificate (by whatever name it is called) created by the Overseas Depositary Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company. A GDR issued in the USA is an American Depositary Receipt (ADR). Among the Indian companies Reliance Industries Limited was the first company to raise funds through a GDR issue.

A) Salient Features of a GDR

1) The holder of a GDR does not have voting rights 2) The proceeds are collected in foreign currency thus enabling the issuer to utilize the same for meeting the foreign exchange component of project cost, repayment of foreign currency loans, meeting overseas commitments and for similar other purposes.

3) It has less exchange risk as compared to foreign currency borrowings or foreign currency bonds. 4) The GDRs are usually listed at the Luxembourg Stock Exchange as also traded at two
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other places besides the place of listing e.g. on the OTC market in London and on the private placement market in USA. 5) An investor who wants to cancel his GDR may do so by advising the depositary to request the custodian to release his underlying shares and relinquishing his GDRs in lieu of shares held by the Custodian. The GDR can be canceled only after a cooling-period of 45 days. The depositary will instruct the custodian about cancellation of the GDR and to release the corresponding shares, collect the sales proceeds and remit the same abroad. 6) Marketing of the GDR issue is done by the under-writers by organizing road shows which are presentations made to potential investors. During the road shows, an indication of the investor response is obtained by equity called the Book Runner. The issuer fixes the range of the issue price and finally decides on the issue price after assessing the investor response at road shows.

Functioning of Secondary Market

Secondary Market is a market in which securities that have been issued at some previous point of time are traded through the intermediaries in an organised exchange. These intermediaries may be Stockbrokers or Sub-brokers.

3.1. Stock Exchange

Stock Exchange is a place where the buyers and sellers meet to trade in shares in an organized manner. There are at present 24 recognized stock exchanges in the country and are governed by the Securities Contracts (Regulation) Act, 1956.

3.2. Stock Brokers

According to Section 2 (e) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, a stockbroker means a member of a recognized stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unless he or she holds a certificate granted by SEBI.

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A stockbroker applies for registration to SEBI through a stock exchange or stock exchanges of which he or she is admitted as a member. A stockbroker may take the form of sole proprietorship, partnership or corporation.

3.3. Sub-Brokers
Sub-broker is a person who intermediates between investors and trading members. Stockbrokers of Indian stock exchanges are permitted to transact with sub-brokers.

3.4. Capital Adequacy Norms For Brokers

Each stockbroker is subject to capital adequacy requirements consisting of two components: 1. Base minimum capital, and 2. Additional or optional capital related to volume of business.

The amount of base minimum capital varies from exchange to exchange. A SEBI regulation requires stockbrokers of The Stock Exchange, Mumbai to maintain an absolute minimum of Rs.500,000. The form in which the base minimum capital has to be maintained is also stipulated by SEBI. Exchange may stipulate higher levels of base minimum capital at their discretion.

3.5. The Stock Exchange, Mumbai (BSE)

The Stock Exchange, Mumbai which was established in 1875 as "The Native Share and Stockbrokers Association" (a voluntary non-profit making association), has evolved over the years into its present status as one of the premier stock exchanges in the country. It may be noted that the Stock Exchange is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. Sensex of BSE comprises of 30 companies.

The Stock Exchange, Mumbai (BSE) is generally referred to as the Gateway to the capital market in India. As Indian economy is opening up, the Exchange has brought its operations at par with international standards. However, the objectives and the role of the Stock Exchange, Mumbai has remained the same as enunciated by the charter. These objectives are: 1. To safeguard the interest of investing public having dealings on the Exchange and the members. 2. To establish and promote honourable and just practices in securities transactions.
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3. To promote, develop and maintain a well regulated market for dealing in securities. 4. To promote industrial developments in the country through efficient resource mobilisation by way of investment in corporate securities.

A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), an Executive Director, three Government nominees, a Reserve Bank of India nominee and five public representatives, is the apex body which regulates the Exchange and decides its policies.
A President, Vice-President and an Honorary Treasurer are annually elected from among the elected directors by the Governing Board following the election of directors.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. 3.6.National Stock Exchange
The National Stock Exchange (NSE) has been set up as a public limited company, owned by the leading institutions of the country. Industrial and Development Bank of India (IDBI) is a major shareholder of NSE. The ownership and management of the Exchange is completely separated from the right to a trading members, to trade on the NSE. The Exchange is managed by a Board of Directors. Decisions relating to market operations are delegated by the Board to an Executive Committee, which includes representatives from Trading Members, public and the management.

The NSE has an automated order driven trading system. Member workstations are spread-out throughout the country and NSEs network is one of the largest interactive VSAT based networks.

Major Indian Indices A. BSE Sensitive Index (Sensex)

The BSE Sensex comprises of 30 stocks representing a sample of large, well diversified and financially sound companies. The Sensex represents 14 significant sectors of the Indian economy. The Sensex scrips on an average account for 52% of trading volumes on a daily basis. The selection criteria for inclusion in the Sensex are:
1. The security should figure in the top 100 companies listed by market capitalization and should account for a minimum 0.5% of weightage of the index. 2. The scrip should have been traded on every day for the last one year.
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3. The scrip should be among the top 150 scrips listed by average number of trades and average volume per trade.

B. S&P CNX Nifty

This index is calculated and maintained by India Index Services & Products Ltd. (IISL). This company has been promoted by National Stock Exchange and CRISIL with technical oversight by Standard & Poor Corporation. The constituent stocks in the Nifty index has been selected based on 2 criteria: 1. Market capitalization of the company should be at least Rs. 5 billion 2. Impact cost for Rs. 5 million portfolio should be less than 1.5% and should have traded on at least 85% of trading days.

Concept of Impact cost

Impact cost is defined as the cost of executing a transaction in a security in proportion to the weightage of its market capitalization as against the index market capitalization at any point of time.
Calculation - This is the percentage mark up suffered while buying/selling the desired quantity of a security compared to its (best buy + best sell)/2 ideal price, i.e.,

Order Book Buy(Qty.) 1000 2000 1000 Buy(Price) 98 97 96 Sell(Qty.) 1000 1500 1000 Sell(Price) 99 100 101

To Buy 1500 Shares

IDEAL PRICE = (99 + 98)/2 = 98.5 ACTUAL BUY PRICE = (1000 X 99 + 500 X 100)/1500 = 99.33
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(FOR 1500 SHARES) IMPACT COST = (99.33 - 98.5)/98.5 X 100 = 0.84%

C. S&P CNX 500 Equity Index

The S&P CNX 500 includes most companies which are leaders in or are representative of their industries, and reflect the market as closely as possible. S&P CNX 500 Equity Index currently contains 79 industry groups, including one group for diversified companies and one group for miscellaneous. However, the number of industries in the Index and the number of companies within each industry have been kept flexible, in order to ensure that the Index retains its objective of being an efficient market indicator.

The criteria for inclusion of a stock in the index are:

1. S&P CNX 500 Equity Index includes only those companies which have a minimum listing record of six months and a portion of their outstanding share capital held with the public. In addition these companies must have demonstrated trading liquidity, in terms of quantum of shares traded and the frequency with which they are traded.

2. S&P CNX 500 Equity Index includes companies that have minimum record of three years with a positive net worth. The objective here is to screen the companies for sustainability of operations so that the turnover on the index is minimized.

Trading System of the Stock Exchanges

4.1. Trading System of the National Stock Exchange
The NEAT system is the trading system provided by the National Stock Exchange to its trading members. The term NEAT is an acronym for National Exchange for Automated Trading. The NEAT CM system supports an order driven

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market, wherein orders match automatically. Order matching is essentially on the basis of security, its price, time and quantity.

4.2. Basic Trading Terminology A. Market Phases

The system is normally made available for trading on all days except Saturdays, Sundays and other holidays. A trading day typically consists of number of discrete market phases:

a) Pre-Open Phase
The Pre-Open period is applicable only to normal market. Order matching takes place at the end of the session, based on which an opening price is computed and assigned to all trades of pre-open. Simple Regular Lot and Stop Loss orders can be entered in this phase.

b) Opening
In this period, all orders that have been entered during the pre-open phase are matched. During this phase, the trading member cannot login to the system.

c) Open Phase
The open period indicates the commencement of trading activity. During this phase, orders are matched on a continuous basis. Several activities such as Order Entry, Order Modification and Order Cancellation are allowed during this phase.

d) Market Close
When the market closes, trading in all instruments for that market comes to an end. A message to this effect is sent to all trading members. No further orders are accepted, but the user is permitted to perform activities like inquiries. e) Surcon Surveillance and Control (SURCON) is that period after market close during which, the users have inquiry access only. After the end of SURCON period, the system processes the data and prepares the system for the next trading day. When the system starts processing data the interactive connection with the trading system is lost and a message to that effect is displayed at the trader workstation.

4.3. Market Types The Capital Market system has four types of markets. These are A.Normal
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B.Odd Lot C.ALBM and D.Auction Market. A. Normal Market All orders in Normal Market have to be of regular lot size or multiples thereof. The Normal market consists of various book types wherein orders are segregated as Regular Lot orders, Special Term orders, Negotiated Trade Orders and Stop Loss orders depending on their attributes.

B. Odd Lot Market An order is called an odd lot order if the order size is less than regular lot size. In an odd-lot market, both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. C. ALBM Market The ALBM market refers to the Automated Lending and Borrowing market offered by the NSE. This market is available for normal market ALBM transactions on Wednesdays and everyday for rolling market. D. Auction Market In the Auction Market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. There are 3 types of participants in this market.
a) b) c) Initiator: The party who initiates the auction process is called an initiator. Competitor: The party who enters orders on the same side as of the initiator is called a Competitor. Solicitor: The party who enters orders on the opposite side as of the initiator is called a Solicitor.

4.4. The Corporate Hierarchy

A trading member has the facility of defining a hierarchy among the users of the NEAT system within his firm. This hierarchy comprises the Corporate Manager, the Branch Manager and the Dealer. The significance of each type is explained below:
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Corporate Manager

Branch 1

Branch 2

Dealer 11

Dealer 12

Dealer 21

Dealer 22

Dealer 23

A. Corporate Manager
The Corporate Manager is a term assigned to a user placed at the highest level in a trading firm. Such a user can perform all functions such as order and trade related activities, receiving End of Day reports for all branches of the trading member. The Corporate Manager can define order limits for all branches and users within the firm. For this, the Corporate Manager is given the facility to set Branch Order Value Limits and User Order Value limits for his firm. He can view order and trade information for all Branch Managers and Dealers under him. A corporate manager can also modify or cancel orders and trades entered by any dealer or Branch Manager under him.

B. Branch Manager The Branch Manager is a term assigned to a user who is next in hierarchy to the Corporate Manager. Such a user can perform and view order and trade information for all dealers under that branch. He can also modify or cancel orders and trades entered by dealers under him. He receives End of Day reports for all dealers in that branch. C. Dealer Dealers are users at the lowest level of the corporate hierarchy. A Dealer can enter orders and view order and trade information only for him. He does not have access to information of any other dealer. He receives End of Day report for his Id alone.

4.5. Order Types And Conditions

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The system allows the trading members to enter orders with various conditions attached to them as per their requirements. Members can enter O (Open) orders for opening a transaction on the system and C (Close) orders for closing out an existing position in the participant code field in the order entry screen. These conditions are broadly divided into the following categories:

A. Time Conditions
a) DAY - A DAY order is an order which is valid for the day on which it is entered. If the order is not executed during the day, the system cancels the order automatically at the end of the day. b) GTC - A Good Till Cancelled (GTC) order remains in the system until it is cancelled by the user. Consequently, it spans trading days, if not traded on the day the order is entered. The Exchange notifies the maximum number of days an order can remain in the system. Currently, all GTC orders get purged on Tuesdays. Each day counted is a calendar day inclusive of holidays. The days counted are inclusive of the day on which the order is placed and the order is cancelled from the system at the end of the day of the expiry period.

c) GTD - A Good Till Days (GTD) order allows the user to specify the number of days/date till which the order should stay in the system if not executed. The maximum day allowed by the system is same as in GTC order. At the end of this days/date, the order is cancelled from the system. Each day/date counted is a calendar day and inclusive of holidays. The days/date counted are inclusive of the day/date on which the order is placed and the order is cancelled from system at the end of the day/date of the expiry period.

d) IOC - An Immediate or Cancel (IOC) order allows the user to buy or sell a security as soon as the order is released into the system, failing which the order is cancelled from the system. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

B. Quantity Conditions
a) DQ - An order with a Disclosed Quantity condition allows the user to disclose only a portion of the total order quantity to the market. For e.g. If the order quantity is 10,000 and the disclosed quantity is 2,000, then only 2,000 is disclosed to the market. After this quantity is fully matched, a subsequent quantity of 2,000 is disclosed. Thus, totally five disclosures with the same order number are shown one after the other in the market. The DQ must be at least 10% of the order quantity. b) MF - A Minimum Fill (MF) order allows the user to specify the minimum quantity for which an order should be traded. The quantity of trade involving such an order condition should be at least this minimum quantity specified. Minimum Fill orders are kept in special terms book in the system.
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C. Price Conditions A) Limit Orders which specify the rate at which the trader wishes to execute his trade are called Limit Orders. b) Stop-Loss - Stop Loss orders are released into the market when the last traded price for that security in the normal market reaches or surpasses the trigger price. The trigger price is the price at which an order gets triggered from the Stop Loss Book. Before triggering, the order does not participate in matching and cannot get traded.
c)Market - Market orders are orders for which price is specified as MKT at the time of order entry. For such orders, the system determines the price.

4.6. Neat Screen

a) Ticker Ticker displays the series, market type, stock symbol, volume and price at which each successive trade takes place on the Exchange. b) Snap Quote

The 'Snap Quote' feature allows a trading member to get immediate market information on any desired security.
c) Most Active Securities

'Most Active Securities' gives a list of the securities with the highest traded value during the day.
d) MBP

'Market by Price' displays the best 5 price points available in each security along with the total order quantity at these 5 prices.
e) Market Movement

'Market Movement' provides hourly details of particular scrip like buy order quantity, sell order quantity, high price, low price etc.
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f) Outstanding Order

'Outstanding Order' provides details of orders not traded, in a security.

g) Previous Trades

Previous trades screen provides details of all trades in a security for the day.

4.7. Trading System of The Stock Exchange, Mumbai The BSE On-Line Trading system (BOLT) is CMC's implementation of the screen-based on-line trading system for Bombay Stock Exchange. The BOLT system aims at converting the Open Outcry system of trading to a screen-based system. Members who are traders on the BOLT system can input both quotes and orders. They can also report the deals that they executed for any scrip.

4.8. Basic Trading Terminology

A. Pre-Opening Session
In this session, one is allowed to enter only limit orders. This is because the system does not do any matching to generate trades. This session is meant for entry of orders based on which the opening price of scrips will be calculated by the system. User may enter orders one by one at the screen or may wish to batch up the orders for quick entry into the system, using a previously created file. The time period for this session is approximately from 9:30 a.m. to 9: a.m.

B. Opening Session
One cannot enter quotes, orders or deals during this session, which lasts for about 5 minutes. This is because the system computes the opening price for every scrip according to the algorithm defined in the BRS. All possible trades at opening price are executed and unmatched orders are returned at end of session. At the end of this session, the opening price of the scrips is displayed on the screen in the Touchline Window. The time period for this task is approximately 9:45 a.m. to 10:00 a.m.
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C. Continuous Trading Session

During this session user will be allowed to enter quotes, orders, and deals (Negotiated non- computer deals and Crossed deals) into the system and carry on his trading activities. User will receive confirmations of the trades executed by him and have the facility to view his net position and break-even position in scrip. He will also receive the latest market information and news.

The continuous trading session lasts approximately from 10:00 a.m. to 3:30 p.m.

D. Closing Session
As in the opening session, user will not be allowed to enter quotes, orders or deals. This session lasts for a maximum of 10 minutes. In this session, the Closing prices of scrips will be computed based on the trades that took place during the day, including trades at opening price, according to the algorithm defined in the BRS. At the end of this session, user will receive the closing price for each scrip on his workstation in the Touchline window. The closing session is approximately from 3:30 p.m. to 3:45 p.m.

E. Post-Closing Session
This session is after the closing session and is meant for matching of orders at closing price only. User can enter orders, which will be matched at closing price. User can also enter negotiated and crossed deals. All unmatched orders entered during this session will be killed. It is only in this session that a member broker can see ALL the trades of all his traders on his workstation.

This session lasts approximately from 3:45 p.m. to 4:05 p.m.

F. Breakup Opening
Data processing goes on at backend. During this session traders can not logon. This session lasts approximately from 4:05 p.m. to 4:15 p.m.

G. Broker Query
During this session the broker can logon as trader 1 and download all the trades done via all his trading work stations.
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This session lasts approximately from 4:15 p.m. to 4:45 p.m.

H. Daily Breakup
Type 1 member can redistribute his trades among 6 different clients for carry forward or delivery. Broker has to logon as trader 1. This session lasts approximately from 4:45 p.m. to 6:30 p.m.

4.9. Order Types And Conditions

There are five types of orders you can enter into the BOLT system. They are :

A. Price Conditions
a)Limit - Orders which specify the rate at which the trader wishes to execute his trade are called Limit Orders. b)Stop-Loss - Stop Loss orders are released into the market when the last traded price for that security in the market reaches or surpasses the trigger price. The trigger price is the price at which an order gets triggered from the Stop Loss Book. Before triggering, the order does not participate in matching and cannot get traded. c)Market - Market orders are orders which are to be executed at the prevailing market price. For such orders, the system determines the price.

B. Quantity conditions
a)Min Fill/Rest Kill is a facility provided for quick order execution. Let us say, you are watching the 'Touchline' and suddenly you find something suitable. To make a quick deal, select the scrip and enter the quantity. Click on the Sell Min/None or Buy Min/None button as the requirement may be. The order will be matched at touchline price to a quantity greater than or equal to minimum quantity and less than or equal to total quantity. The unexecuted quantity of the order will be killed and a suitable message will be flashed in the reply box. Hence, they are called 'Min Fill or Rest Kill' orders. b)All/None is a facility to enable trader to fill in the entire order quantity at one shot or then no fills at all below the quantity. c)Revealed Quantity This refers to the quantity that the trader wishes to reveal to the market. The revealed quantity should be at least 10% of the total order quantity.
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C. Time conditions
a)EOTODY- Is a default time condition meaning that the order will be in force for the day it is entered. At the end of the day, the order will be automatically cancelled by the system. b)EOSESS Is a time condition which specifies that the order will be retained in the system only till the end of the ongoing session. c)EOSTLM- Is an order that is retained in the system till the end of the settlement. If the order remains unexecuted till the end of the settlement, the order will get cancelled.

Clearing Systems of the Stock Exchange

5.1. Introduction
The Indian capital market has been plagued by clearing and settlement deficiencies such as member to member settlement, irregular settlement cycles, lack of transparency in settlement procedures, lack of enforcement of rules and regulations and lack of organised risk containment measures. The need for prompt and timely settlement of trades led to the setting up of the National Securities Clearing Corporation Ltd. The BOI Shareholding Ltd. carries out the clearing function for The Stock Exchange, Mumbai.

5.2. National Securities Clearing Corporation Ltd. (NSCCL)

National Securities Clearing Corporation Ltd. (NSCCL) a wholly-owned subsidiary of National Stock Exchange Of India Ltd. (NSE), carries out the clearing and settlement activity for the National Stock Exchange. It was incorporated as a limited company on 31st August, 1995 under the Companies Act, 1956. NSCCL has been promoted to address these issues as also to meet several other objectives such as: To bring and sustain confidence in clearing and settlement of securities To promote and maintain short and consistent settlement cycles To provide counter party risk guarantee To operate a tight risk containment system

In order to guarantee settlement, NSCCL has set up a Settlement Guarantee Fund contributed by the clearing members of the Corporation. It is the first of its kind in India and represents an important step in upgrading clearing and settlement of the securities for investors and bringing Indian financial markets in line with international markets. The settlement performance of NSCCL has remained efficient and consistently time bound. Unlike the experience with the market prior
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to the setting up of the NSE, there have been no instances of delays or clubbing of settlement or defaults. As a counterparty to settlement obligations, NSCCL guarantees financial settlement. As a result, though there have been a few defaults by member firms, the Clearing Corporation has stepped in to complete settlement and avoided market disruption. It is of importance to note that short deliveries have averaged less than 1.70% of every settlement and bad deliveries unrectified have been less than 0.3% on an average in contrast to 10% across the market. Short deliveries and unrectified bad deliveries are automatically auctioned by NSCCL so that settlement is completed within a well defined time frame. All this has been made possible on account of the comprehensive approach to risk management taken earlier by NSE and now NSCCL which encompasses the quality of clearing members, tight monitoring mechanism, strict margining, efficient settlement systems cushioned by a large settlement guarantee fund. The market is currently in a transitional phase. From a purely physical securities environment with its concomitant problems of time required for settlement, administrative issues of custody, bad deliveries, fakes etc, the market is moving towards a depository environment. The Clearing Corporation, as the key link with the depository, has made a smooth transition to provide delivery versus payments settlement in a risk contained environment.

A. Clearing Members
NSCCL clears and settles deals on behalf of its clearing members. Presently, there are two categories of clearing members viz., trading members of NSE and custodians. All trading members of the Exchange are entitled to become clearing members. Custodians may register as clearing members and will be responsible for settling funds and securities of custodial participants. Following the introduction of derivatives trading, the NSCCL has permitted Professional Clearing members. These members are usually banks and corporates which provide settlement function for a fee.

B. Custodial Participants
Custodial participants are typically banks, financial institutions, mutual funds and large corporates. Custodial participants use trading members to trade on NSE and services of custodians to settle their trades. Each custodial participant may be associated with one or more custodians and vice versa.

C. Clearing House
NSCCL operates its own clearing house. The actual physical handling of securities i.e., the delivery and receipt of securities for the settlements is carried out at the clearing house. While trading has extended beyond Mumbai to over 292 towns and cities, clearing and settlement was limited to Mumbai till recently. Regional clearing centers at New Delhi, Calcutta, Madras have now commenced operations to facilitate security settlement. However, since the introduction of the depository, the Clearing House function has lost much of its relevance.

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D. Settlement Cycle for Regular Market

Day 1-7 8 14 Particulars Wednesday-Tuesday Wednesday Tuesday Activity Trading Period Custodians report trades which they will not settle. Such trades will be added to the member obligation. Pay-In of securities in dematerialized form by the delivering members through the depository Pay-In of funds by members through the Clearing Bank. Shortage identification at Clearing House 15 Wednesday Pay-Out day for securities and funds. Auction for shortages 17 18 Friday Saturday Auction pay-in day for securities and funds Auction pay-out

NSCCL operates an account period or a periodic settlement cycle. Trading period on the NSE starts on Wednesday and ends on Tuesday of the next week. At the end of each trading day the Clearing Corporation determines the cumulative obligations of each member and electronically transfers the data to clearing members. The clearing process i.e. the process of identifying, confirmed obligations of all concerned entities is automated. Settlement is carried out on a physical basis and electronic form as well requiring the delivery and receipt of documents and sending instructions to the depository. NSCCL operates a clearing house for managing the settlement of securities in physical form and interacts with the depository for settlement of securities received in electronic form. All trades concluded during a particular trading period are settled during the next week. A multilateral netting procedure is adopted to determine the net settlement obligations (delivery/receipt positions) of clearing members. The Clearing Corporation then allocates or assigns delivery of securities to receipts to arrive at the delivery and receipt obligation of members.

E. Security Shortage (Auction procedure)

Each clearing member communicates to the clearing house on the pay-in day the securities, it is delivering and those it is unable to deliver. The clearing house identifies short deliveries on Tuesday and the Clearing Corporation conducts a buying-in auction on the pay-out day through the NSE trading system. The clearing member is also debited by an amount equivalent to the securities not delivered and valued at a valuation price (the closing price as announced by NSE on the
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Friday previous to the day of the valuation). If the buy-in auction price is more than the valuation price, the clearing member is required to make good the difference. All shortages not bought-in are deemed closed out at the highest price between the first day of the trading period till the day of squaring off or closing price on the auction day plus 20%, whichever is higher. This amount is credited to the receiving member's account on the auction pay-out day.

F. Rolling Settlement
Each trading day is considered as a trading period and trade taking place in this trading period are settled on the 5 th working day. Typically trades taking place on Monday is settled on the next Monday, Tuesday's trades settled on the next Tuesday and so on. Custodial confirmation takes place on/or before T+2 working day. All unconfirmed trades revert back to the TM clearing members and the settlement obligation and delivery information provided on T+2 day. Both securities and funds are settled on T+5 working day Day T T+2 working days T+5 working days T+6 working days On the auction day Activity Trading Period Custodial Confirmation Pay in of funds/securities and Pay Out of funds/securities Auction of shortages Custodial confirmation for auction offer

G. Securities Clearing Accounts

In order to settle trades carried out in the depository segment, a clearing member needs to open a clearing account with a depository participant of the depository. Each clearing account consists of three sub-accounts ; Pool Account : This is used by the clearing member to interface with his clients. The clients deliver securities to this account of the clearing member. The clearing member pools all client deliveries in this account before making a delivery to the clearing corporation. Delivery Account : This is used by the clearing member to deliver securities to clearing corporation. The clearing member moves a net deliverable quantity of shares from the pool account to the delivery account from where it comes to the clearing corporation. Receipt Account : The clearing corporation gives pay-out to the clearing member in the receipt account from where it is transferred to the pool account of the clearing member.

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H. Securities Settlement
Before pay-in, selling investors instruct depository participants to transfer security balances from their accounts to clearing members' pool accounts. On or before the time and day specified for pay-in by NSCCL, the clearing member instructs his depository participant to move the required balance from his pool account to his delivery account. On the pay-in day, the relevant depository moves balances from the CM delivery accounts to a NSCCL settlement account within the depository system. On receipt of pay-out instructions from NSCCL, the Depository credits the receipt accounts of the receiving clearing members. These balances are then moved back to the clearing members' pool accounts by the clearing member. From the pool account, the clearing member distributes the receipts to the buying clients by issuing instructions to his participant.

5.3. Settlement on The Stock Exchange, Mumbai

The trades done by the members during the weekly trading period from Monday to Friday are settled by payment of money and delivery of securities in the following week. All deliveries of securities are required to be routed through the Clearing House, except for certain off-market transactions which, although are required to be reported to the Exchange, may be settled directly between the members concerned.

A. Settlement procedure
The Information Systems Department of the Exchange nets off all deliverable trades (purchases and sales in each scrip) done by a member during a settlement and generates delivery/receive orders and money statements which are downloaded by the members in their back offices. However, in the Odd Lot segment, the generation of delivery/receive orders is on a trade-for-trade basis and no netting off is permitted. The delivery orders provide information like scrip, quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. The Money Statement provides details of payments/receipts for the settlement. The bank accounts of members maintained with Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd. Standard Chartered Bank Ltd. and Centurion Bank Ltd., the five clearing banks, are directly debited/credited through computerized posting on the pay-in/pay-out day for their settlement/receivable dues. Day Monday to Friday Saturday Wednesday Activity Trading Period
Carry Forward Session (for A Group Securities) and downloading of money statement. Pay-in of physical securities in the Clearing House without any time slot upto 4:00 p.m. and between 4:00 p.m. and 6:00 p.m. as per time slot.

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Thursday

Pay-in of demat securities at 3:00 p.m. Reconciliation of securities delivered and amounts claimed.

Friday Saturday

Pay-out of physical and demat securities Funds pay-out

The securities, as per delivery orders issued by the Exchange, are to be delivered in the Clearing House on the day designated for securities pay-in, i.e., on Wednesday without any time slot upto 4:00 p.m. and as per time slot between 4:00 p.m. and 6:00 p.m. and on Thursday as per prescribed time slots upto 2:00 p.m. The members can, however, submit deliveries between 2:30 p.m. and 4:00 p.m. on Thursday on payment of late delivery charges. The members have to deliver the securities in special closed pouches issued by the Exchange along with the relevant details (distinctive numbers, scrip code, quantity, and receiving member) on a floppy. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems. If there are no discrepancies, then a scroll number is generated and a scroll slip is issued. The members then submit the securities at the receiving counter.

B. Securities Settlement
The members can effect demat pay-in either through CDSIL or NSDL. In case of NSDL, the members give instructions to their Depository Participant (DP) specifying settlement no., settlement type, effective pay-in date, quantity, etc. The securities are transferred to the Pool Account. The members are required to give delivery-out instructions so that the securities are considered for pay-in. The possibility of auto D.O. processing is currently under consideration and is likely to be implemented shortly. As regards CDSL, the members give pay-in instructions to their DP. The securities are transferred to Clearing Member (CM) Principal Account. The members are required to given confirmation to their DP, so that securities are processed towards pay-in obligations. Alternatively, members may also effect pay-in from clients' beneficiary account for which member is required to do break-up on the front end software to generate obligation and settlement ID.

C. Securities Shortage (Auction)

The members download delivery/receive orders based on their netted positions for transactions entered into by them during the settlement of A, B1, B2 and Z groups of securities and the seller member has to deliver the shares in the Clearing House of the Exchange as per the delivery orders downloaded. If the seller member is unable to deliver the shares by the last day of Pay-in, then he submits a document called "shortage memo" which, inter alia, indicates the undelivered quantity. The members bank account is then debited at the standard rate
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fixed by the Exchange for the quantity of shares short delivered. The shortage memo contains details such as name & code of scrip short-delivered/not delivered, quantity short-delivered/not delivered, the clearing number of receiving member and the standard rate of scrip not delivered. These details are also required to be submitted by the members on a floppy.
The Clearing House tallies the shortage memos delivering memberwise and generates the final shortage report. The seller members are then informed about the shares not delivered or short delivered by them. The intimation is given to the seller members to rectify any possible discrepancy/error to prevent any wrong auction against them. Subsequently, an Auction Tender Notice is issued by the Exchange to the members informing them about the names of the scrips, quantity slated for auction and the date and time of the auction session on the BOLT. The auction for the undelivered quantities is conducted on Monday and auction offers received in batch mode are electronically matched with the auction quantities so as to award the best price. Members who participate in the auction session can download the delivery orders on the same day, if their offers are accepted. The members are required to deliver the shares in the Clearing House on the auction Pay-In day, i.e., Tuesday. Pay-Out of auction shares and funds is done on the next day, i.e., Wednesday. The various auction sessions relating to shortages, objections not rectified and bad deliveries are now conducted during normal trading hours on BOLT. Thus, it is possible to schedule upto three auction sessions on a single day.

D. Close out
There are cases when no offer for a particular scrip is received in an auction or when members who offer the scrips in auction, fail to deliver the same. In the former case, the original seller members account is debited and the buyer members account is credited at the close-out rate. In the latter case, the offeror members account is debited and the buyer members account is credited at the close-out rate. The close-out rate is higher of the following rates : a) respective settlement. b) respective settlement. 20% above the closing rate as on the day prior to the day of auction of the The highest rate of the scrip from the first day (trading day in case of

Rolling demat segment) to the day prior to the day on which the auction is conducted for the

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5.4. Automated Lending and Borrowing Mechanism (ALBM)

A. Introduction
The Automated Lending and Borrowing Mechanism (ALBM) is a scheme envisaged specifically for Participants [Trading Members / Clearing Members] to borrow/lend securities at market determined rates. The scheme is structured to facilitate borrowing of securities to meet immediate settlement requirements at reasonable cost and low risk. Under the securities lending scheme, the Approved Intermediary is required to ensure the return of the equivalent securities back to the lender. Normally this requires the intermediary to keep adequate collateral to cover price risks. Under this scheme market risk is sought to be minimized. The borrower first executes a purchase transaction in the manner specified by the Approved Intermediary, to indicate an intention to borrow securities. Similarly, the lender first executes in the manner specified by the Approved Intermediary, a sale transaction to indicate an intention to lend securities. The Approved Intermediary subsequently gives effect to the lending/borrowing.

B. Procedure
A Participant who wishes to borrow a security or lend funds for a particular security executes a borrow transaction in the Neat Trading system (ALBM session). Similarly, the Participant who wishes to lend the security and borrow funds executes a lend transaction. These transactions entered into in the ALBM session are primarily meant for the purpose of determining the intention to borrow/lend securities and the lending fees. These are not a part of the cleared deals on the NSE and shall not constitute a part of the settlement obligations of the Participant as a Clearing Member. The net obligation of the Participant for the security for the transactions executed in the ALBM session will determine the intention of the Participant to lend or borrow the security. A net purchase position for a security implies a firm and irrevocable intent to borrow the security whereas a net sale position for a security implies a firm and irrevocable intent to lend the security. Based on this NSCCL will give effect to lending/borrowing transactions at the securities lending price. The securities lending price shall be announced to the Participants prior to the commencement of the ALBM session.

The securities lending price will typically be the closing price of the security on the previous day. For example, if the ALBM session takes place on Wednesday, the closing price as of Tuesday, if available, shall be the lending price for the security. If the closing price as of Tuesday is not available, the last available closing price prior to Tuesday shall be used as the lending price.

The difference in the value at which transactions is executed in the ALBM session and the transactions valued at the lending price shall determine the notional lending fee.
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The Approved Intermediary ensures the return of equivalent securities to the lender by creating respective obligations for the lender and the borrower. For the purpose of returning the securities borrowed to the lender concerned, the Participant shall authorize the National Securities Clearing Corporation Limited to create for that particular security for the relevant settlement (i) an obligation to return the securities borrowed and the right to receive back the corresponding funds in respect of the securities borrower and (ii) a right to receive back the securities lent and an obligation to return the corresponding funds in respect of the securities lender. Consequentially, the net obligation of the Participant as a Clearing Member will be adjusted for the obligation and the right of the Participant concerned, created as above, for completing the return of the lent securities. The return of the lent securities and the corresponding return of funds will be deemed to have been completed once the securities and funds pay out for the relevant settlement takes place to the extent of such adjustment. To the extent that pay-in of securities and/or funds in respect of the unadjusted portion does not take place, consequential action, same as the process prescribed under the Bye Laws and Regulations of NSCCL for Non-delivery and Nonpayment shall be taken and upon completion of the same, the obligation to return securities and/or the right to receive funds shall be deemed to have taken place. To the extent that pay-out of securities and/or funds in respect of the unadjusted portion does not take place, consequential action, same as the process prescribed under the Bye Laws and Regulations of NSCCL for Non-delivery and Non-payment shall be taken and upon completion of the same, the obligation to return securities and /or the right to receive funds shall be deemed to have taken place. The payment of total lending fee payable/receivable will be effected along with funds pay-in/pay-out of the relevant settlement. The pay out of lending fees shall take place to the extent of fees actually collected by the Approved Intermediary.

C. Securities Eligible for the ALBM

All securities which are in the list of compulsory demat securities issued by SEBI which also is an index stock (S&P CNX Nifty or CNX Nifty Junior Indices) are eligible for inclusion in ALBM session. However, if these Securities fall in the No-delivery period for the normal market, they are not eligible for the ALBM session."

In the event of any corporate action announcement in any of the eligible securities, the approved Intermediary may permit lending/borrowing in such a security only if one of the following conditions is satisfied: If both the securities lending and the return of equivalent securities takes place on cum basis If both the securities lending and the return of equivalent securities takes place on ex basis.

D. Objectives of The Securities Lending And Borrowing

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From the Participants point of view, the following can be broadly listed as the objectives: Cover short sales. Optimize yield on portfolio. Facilitate timely settlement.

5.5. Carry forward System (Badla)

The Carry Forward system (CF system) of transactions has been in practice for several decades in the Stock Exchange, Mumbai. The CF system serves three needs of the stock market :
It is a quasi-hedging mechanism : If an investor feels that the price of a particular share is

expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. It is a stock lending mechanism : If he wishes to short sell without owning underlying security, It is a financing mechanism : If he wishes to buy the share without paying the full the stock lender steps into the CF system and lends his stock for a charge. consideration, the financier steps into the CF system and provides the finance to fund the purchase.

Introduction to Depository
The Government of India enacted the Depositories Act in August 1996, paving the way for setting up of depositories in India. The National Securities Depository was inaugurated as the first depository in India, paving way for a paperless settlement of securities. Soon after, the second depository, Central Depository Services Ltd. was inaugurated. Under the depository system, physical certificates are eliminated and replaced by electronic entries in the books of the depository. The depository functions with the help of Depository Participants (DP). This is similar to opening an account with any branch of a bank in order to utilise the services of the bank The depository holds these shares in its name, however the beneficial ownership of these shares remain with the persons who are clients with the Depository Participants.

6.1. Need for a Depository

Before the advent of the depository system, settlements were characterised by inefficiencies of handling of share certificates. They exposed investors to higher costs and unwanted risks. Some of the problems and risks associated with paper based trading and settlement were: Unwarranted delay in transfer of shares. Possibility of forgery on various documents leading to bad deliveries, legal disputes etc Theft of share certificates leading to defective title in shares purchased and subsequent litigation
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Prevalence of fake certificates in the market Mutilation or loss of share certificates in transit

6.2. Benefits of a Depository

The benefits to an investor of participating in a depository are: No bad deliveries Immediate transfer of shares No stamp duty on transfer of shares Reduction in handling large volumes of paper Elimination of risks associated with physical certificates such as loss, theft, mutilation, forgery etc; Reduction in transaction cost.

6.3. Facilities offered by a Depository

The Depository offers certain facilities to investors. These are listed below: Dematerialization i.e., converting physical certificates to electronic form Dematerialization which is the opposite of dematerialization Transfer of securities Settlement of trades executed in stock exchanges Pledging/hypothecation of dematerialized securities Electronic credit in public offerings of companies Receipt of corporate benefits such as bonus, rights in electronic form Distribution of dividends to investors

6.4. Processes A. Dematerialization (Demat)

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investors DP account.

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B. Trading and Settlement

Buying and selling in demat stocks is similar to buying/selling physical shares. Once the buying/selling is done on the exchange, the investor has to follow certain transactions.The transactions relating to purchase of shares are: Investor purchases shares in the exchange and arranges to make payment to broker Broker arranges to make payment to the Clearing Corporation Broker receives credit in his clearing account with his DP on the pay-out day. Broker gives instructions to his DP to debit his clearing account and credit his clients account Investor gives instruction to his DP for receiving credit in his investor account If the instructions match, investors account with his DP is credited. An investor can give standing instructions for receiving securities in his account. The transactions relating to sale of shares are: Investor sells shares in the stock exchange through a broker Investor gives instruction to his DP for debit of his account and credit of his brokers clearing member pool account. On the pay-in day investors broker gives instructions to his DP for delivery to clearing corporation of the stock exchange The broker receives payment from the clearing corporation Investor receives payment from the broker for the sale of the securities.

C. Corporate Benefits
In the event any company declares benefits such as dividends, rights, bonus or stock split, the Depository will forward the details of the all the clients having electronic holdings in that security as of the record date to the registrar of the company. The registrar will calculate the corporate benefits due to all the shareholders. The distribution of all cash benefits will be done by the registrar, whereas the Depository will do the distribution of securities entitlements. In recent times, NSDL has begun distributing dividends to accounts of shareholders directly.

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Laws and Regulatory Framework

7.1. Companies Act, (1956) and Rules (1957)
Since the Capital Markets are a major source of funds for the corporate sectors therefore some of the provisions of the Companies Act indirectly affects the capital market. The major provisions of the Companies Act are as follows: a)Debentures carrying voting rights cannot be issued (Sec -117). b)Dividends are payable only out of profits after setting aside a certain percentage towards reserves. Such dividend declared has to be paid within 42 days from the date of declaration (Sec 207) and the amount remaining unpaid after the expiry of this period has to be transferred to the Unpaid Dividend Account within 7 days. If it still remains unpaid for a period of 7 years has to be transferred to Investor Education and Protection Fund (Sec 205A). c)The Board of Directors of the company shall at every Annual General Meeting lay before the company a Balance Sheet and Profit & Loss account.(Sec 210) d)A bonus issue is to be made out of genuine profits, free reserves and share premium collected in cash only excluding revaluation reserve if any. e)Every company shall within three months after the allotment of any of its shares/debentures and within 2 months after the application for the registration of the transfer of any such shares/debentures deliver the certificates of all shares/debentures to the shareholders/debenture-holders.(Sec - 113) f)The company can close the register of members for a maximum period of 45 days in a year and 30 days at any one time (Sec 154). As per listing agreement the minimum time gap between two book closures must be 90 days. Book Closures refers to the period in which all share transfer activity is suspended for the purpose of updating the Register of Members of the company and ascertaining the shareholders entitlement to corporate benefits. In certain cases, the companies instead of closing the register of members announce the record date for the purpose of ascertaining the shareholders entitlement to corporate benefits. g)The company has to give intimation of Book Closure/record date, at least 42 days in advance (30 days in respect of securities which are announced by SEBI to be compulsorily delivered in demat form by all investors) to the stock exchanges where the shares are listed. (Listing Agreement) h) Company has to inform the stock exchange where its shares are listed immediately after the meeting of Board of Directors to consider quarterly results, dividend, rights/bonus issues about decisions taken at the board meeting and within 48 hours has to be published in an English daily (Listing Agreement).

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i)A Company which has issued physical share certificates has to file a distribution schedule giving the details of the shareholding, its categories, details of lock-in etc with the Stock Exchanges where the shares are listed after its Annual General Meeting. (Listing Agreement) j)A listed company is required to furnish to the Stock Exchanges where its shares are listed and to publish a) the quarterly un-audited financial results within one month from the expiry of the quarter b) quarterly audited results within two months from the expiry of the quarter and companies have to explain the reasons for discrepancy of more than 20% between the audited and un-audited results (Clause 41 of the Listing Agreement). Announcement of quarterly results is also a requirement under the SEBI Rules for listed companies. k)A Director, who is required by the Articles of Association of the company to hold qualification shares, shall obtain such shares within two months from the date of appointment as a Director. The nominal value of the qualification shares shall not exceed Rs.5000/- or the nominal value one share where it exceeds Rs.5000/- (Sec 270) l)Books of Accounts and other details have to be preserved by the company for a minimum period of eight years. (Sec 209(4-A)) m)The minimum number of Board Meetings held during the year shall be four (Sec 285). The absence by a director for three consecutive Board Meetings without obtaining a leave of absence is a ground for vacating the office as a Director (Sec 283). A person can be a director in a maximum of 20 companies (Sec 275). Every company having a paid-up capital of more than Rs.5 Crores shall have a Managing or a Whole-time Director or a Manager (Sec - 269 read with Schedule XIII)

n)The maximum amount of shares that can be bought back under the buyback scheme is 25% of the total paid-up capital and free reserves.
o)In case where the average annual turnover of a private company is more than Rs.25 crores then the private company shall become a deemed public company (Sec 43A).

7.2. Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956 was enacted to prevent undesirable transactions in securities by regulating the business of dealing therein and by providing for certain other matters connected therewith. The term Securities has been defined in the SC(R)A to include(i) (ii) (iii)
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shares, scrips, stocks, bonds, debentures, debenture stock or any other marketable securities of a derivative units or any other instrument issued by any collective investment scheme to the investors in such

like nature in or of any incorporated company or other body corporate;

schemes;

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RESEARCH METHODOLOGY

RESEARCH PROBLEM:
The role of marketing in a stock broking firm particularly in distribution of mutual funds has become indispensable. To understand the concept of mutual fund one has to comprehend the stock market as well. As their may be some myths about the mutual funds in the mind of the customers or the general public. This project guide which I have undertaken answers to all such questions.

METHODS OF DATA COLLECTION: Secondary DataI. Information available in Religare consultant for study through printed and electronic media including information available on the Internet. II. In house guidelines printed manuals and related materials etc. were also examined during the project. III. Financial newspapers like magazines and relevant journals had also been considered during the course of study.

ANALYSIS AND FINDINGS

Distribution of mutual funds in a stock broking firms is not restricted to selling of one type of funds only . It means that it has tie ups with many mutual funds company and it gets brokerage on selling the respective funds of the company. But it mostly depends on the marketing of the funds and what is the peoples perception regarding the funds.after marketing the funds and getting the view point of different sections of people following analysis and findings were made: 1. A new fund offer always starts at Rs 10 per unit and it seems to be more cheap than a running fund which will be of a higher NAV. But it is not so because when the market appreciates the funds values increases in the proportion of their respective values only. If market increases by ten percent than the NFO increases to 11 but the fund at nav of 100 will increase to 110. 2. General perception of people was to be that mutual funds is as risky proposition as investing in share market.

3. The money under mutual funds is not only invested in share market but also in gilt stocks and government securities and call money.

FUND PERFORMANCE SCORECARD

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The scorecard provides accurate and up to date category wise performance of various mutual fund schemes operating in India across different time frames. The schemes are benchmarked against their respective indices and peer groups average performance and contains vital information such as NAVs, inception date, and fund size. Category toppers and laggards are also highlighted through a separate report. This report allows you to keep a daily hassle free track of major schemes in different categories thereby, reducing non-productive and non-sales effort to a minimum. The report provides all the information about a scheme's performance at a glance and informs the investors about top performing schemes in a particular category. Report Inside

Category-wise NAVs of different mutual fund schemes. Sorted on 1 months and 1-year basis - depending on the nature - for easy reference. Scheme's ranking in all time frames for comparison of schemes returns vis--vis its benchmark and peer group average. Contains other vital information about the scheme such as - inception date, fund size, etc.

Frequency----daily

MARKET WRAP The report gives you comprehensive information and updates on the latest in the mutual funds, equity and debt markets. The reports ease your efforts to gather and learn more on the events and happenings having an impact on the investment decisions. Report Inside

Forthcoming Dividends. News bytes about the new launches. Fund house specific news and action. Industry statistics and other related news. Weekly Performance update. Equity and Debt market round up.

FACT SHEETS
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The concise one-pager report gives an insight into the key portfolio and performance attributes of a scheme. It highlights the investment philosophy, investment objectives, performance snapshots, risk return profile, market cap data, asset allocation, portfolio composition among others. A short and crisp commentary on the fund performance adds value to the report. Report Inside

Scheme snapshot in a beautiful format, with over 60 schemes to choose from each month. Key Portfolio attributes and other statutory details. Investment philosophy and fund investment objectives to give you an insight into the scheme. Performance snapshot. Top ten equity and industry positions. Risk-Return matrix. Asset allocation pattern. Capitalization exposure information. Maturity profile and Credit quality ratings report

FrequencyMonthly PORTFOLIO COMPOSITION

An analytical report giving complete portfolio breakup of all schemes in each category and comparing their position within the peer group and comparing their position with the peer group and as against the benchmark. It provides important details such as AUM Concentration, average exposure, top holdings, sector allocation and other key attributes like P/E, P/B, and dividend yield and capitalization bias
Report Inside

Category-wise portfolio reports in two different formats for equity and debt schemes. Important details like benchmark index, AUM, Category average etc. Additional analytical details like concentration analysis, Average exposure and top 3 holdings. Sector allocation details. Key attributes such as P/E, P/B, Dividend Yield and Capitalization bias. Category average and a particular scheme's positioning. Other information for Debt fund like credit quality, average maturity and asset allocation

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FrequencyMonthly NFO ANALYSIS A one-pager report that provides detailed analysis of the NFO; its unique characteristics and features, past performance of the AMC and the fund manager along with the comparison of schemes in similar category. Report Inside

Statutory Scheme Features Load Structure Mandated asset allocation AMC Information such as AUM growth and Pedigree Quartile Analysis of other schemes floated by the same AMC. Performance analysis of schemes with similar investment objectives. Our unbiased recommendations

Frequencyas and when RISK ADJUSTED PERFORMANCE REPORT

The report along with providing basic information on NAVs AUM and returns also details out various statistical ratios and risk adjusted measures such as Beta, Standard Deviation, Sharpe, Treynor, Downside Probability, Sortino, Jenson, R Squared, etc
Report Inside

Standard information on scheme's NAV, AUM and returns. Risk measures like Standard deviation, R-squared, Beta etc. Risk-reward measures like Sharpe, Treynor, Jenson, Sortino etc. Benchmark and peer group average for easy reference and understanding.

FrequencyFortnightly

TOOLS AND TECHNIQUES

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COLD CALLING
Cold calling is a hardcore concept of marketing. The person has to go directly to a perspective customer without sharing any prior information with him. The client may turn up as an informative or a person who doesnt really know about the product , but this gives an opportunity to have knowledge about the customer perceptions about the product and the company concerned. In a stock broking firm one has tie ups with major players of the mutual fund industry, like Reliance State Bank of India, franklin templeton, ICICI, DSP Merilynch, HDFC, to name a few. This covers the distribution of mutual funds in a stock briking firm. One can present the customers to choose from different schemes of different companies.one has to give a good presentation about the concept of the fund and the functioning to the customer TELECALLING Another very important concept is telecalling. Telecalling means to speak to the customers directly through telephone and giving them insights about your product and taking an appointment for further meeting. Any competent firm today provides the employees with this facility of tele callings . its saves time and money. Only the interested customers give meetings so the person can go well prepared.The telephone numbers of the customers can be taken from directories or other databases.

OTHER ACTIVITIES PERFORMED AT THE COMPANY:

During the summer internship I with the guidance of my company guide was given the task to develop the telecalling script which was used by me to call prospective candidates who were interested in making investment in mutual funds and in equity. The script was basically designed to filter out candidates so that I would only pursue positive leads. In case the people called were not interested in making the imvestment then I asked for atleast two to three references from them who might be interested. At the time of my initial calls I also got to know that there are certain people who get ready to have a meeting just because they want to know the product of the competitors or what his competitors offer. The telecalling script helped me avoid these people so that I could utilize that time for the work which gave me much more productive results.

CONCLUSIONS

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The concept of mutual funds is that it lot depends on the stock market. Govt. securities etc. But the working or the concept is not the same as investing in the stock market directly . When a person or an individual invests in stock market he is in direct contact of the value or money he has invested and he or his broker is said to be the manager of the money invested. But in mutual funds the money of different investors is pooled and then invested in the market. And it is taken care by the expert fund manager appointed by the asset management company. This basic fact is not so clear in the mind of the common people. Therefore the people needed to be told about all this mechanism. Moreover , in a stock broking firm one has the privilege to sell funds of different companies.therefore wise comparisons have to be made watchfully so that the best performing funds can reach out to the customers. It is also important for the firm to have good relationships or tie ups with the leading companies. So that they have the opportunity of selling best funds in the market. There is another problem which a stock broking firm has to face in marketing or distributing of mutual funds i.e whats the role of the stockbroking firm in selling another companies funds. The answer to this problem is that the stockbroking firm does not take any thing from the customer . It takes the brokerage from the company whose funds it has sold. The stock broking firm also has to compete sometimes with the online system of investment in mutual funds . Therefore it has to render best of the extra services to the customer which helps in getting the best of the results.

BIBLIOGRAPHY
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WEBSITES: www.mutualfundsindia.com www.karvymf.com www.nseindia.com www.bseindia.com

NEWSPAPERS AND MAGAZINES Business World Economic Times Mutual Fund articles BOOKS All about mutual funds

ANNEXURE-1
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Questionnaire
(Please fill in the following details) 1. Name: -----------------------------------2. Age: ------------------------------------3. Occupation: Business Self-employed Unemployed 4. Do you want to increase your savings? Yes No 5. Have u ever invested in Mutual funds? Yes No 6. How often do you visit Caf Coffee Day? Once a week More than once a week Once a fortnight Once a month 7. Would you like such surveys to be conducted at Caf Coffee Day? Yes No Cant say 8. Contact No.:---------------------------- Salaried Student

Thank You

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ANNEXURE 2

( Tele calling Script)

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Hello, Good morning / Afternoon,

Can I speak to--------------------?

This is------------------------------ calling form Religare Securities Ltd. We have business opportunity presentation in our company, in which we are promoting our companys policies and investment plans and making people aware about Religare Securities Ltd. This business opportunity presentation will help you to increase your knowledge & awareness about mutual funds and many other investment plans in equity and how the money collected from these mutual funds will be invested in different equities and in debt markets. So in all this is not only help to increase your savings and earning potential by investing in mutual funds but it also increase your knowledge about to market scenario. We have this business opportunity presentation on Saturday 5.00 PM at our office at Rajpur road opposite Hotel Meedo Grand in Laxmi Chambers at 3rd floor. So may I confirm your participation? If this time not comfortable with you then you can visit our office at time which is comfortable to you or we can come to meet you at your place. It was nice to speak with you. Have a nice day.

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