INTRODUCTION

According to Shakespeare out of this nettle, danger, we pluck this flower, safety'. The economic development model adopted by India in the post-independence era has been characterized by mixed economy with the public sector playing a dominating role and the activities in private industrial sector control measures emaciated from time to time. The industrial policy resolution was introduced by the government in the 1948, immediately after the independence. This outlined the approach to industrial growth and development. The industrial policy statement of 1980 focussed attention on the need for promoting competition in the domestic market, technological upgradation and modernisation. A number of policy and procedural changes were introduced in 1985 and 1986, aimed at increasing productivity, reducing costs, improving quality, opening domestic market to increase competition and making free the public sector from constraints. Overall, in the seventh plan period (1985-86 to 1989-90), Indian industries grew by an impressive average annual rate of 8.5 percent. The last two decades have seen a phenomenal expansion in the geographical coverage and financial spread of our financial system. The spread of the banking system has been a major factor in promoting financial intermediation in the economy and in the growth of financial services.

FINANCIAL SERVICES
Financial services is a term used to refer to the services provided by the finance industry. Financial services is also the term used to describe organizations that deal with the management of money. Banks, investment banks, insurance companies, credit card companies and stock brokerages, are examples of the types of firms comprising the industry, which provides a variety of money and investment related services. Financial services organisations are striving to achieve increasingly ambitious profit and growth targets against a background of heightened risk, regulation and market pressures. Customer needs and expectations are evolving in the face of increasing personal wealth, more private funding of pensions and healthcare and the desire for ever more accessible and personalised financial products and services. In turn, intense competition has squeezed industry margins and forced organisations to cut costs while still seeking to enhance the quality of client choice and service. The battle for talent is also heating up as companies seek to enhance innovation, customer loyalty and investment returns. In this environment, the winners will be companies that can turn the challenges into opportunities to build stronger and more enduring customer relationships; sharpen process efficiency; unlock talent and creativity; use improved risk management processes to deliver more sustainable returns; and use new regulatory demands as a catalyst for strengthening the business and enhancing market confidence. In the WORLD almost every company now which previously described themselves as a bank, insurance company, or brokerage house, now describes themselves in some

way as a financial services institution. Financial services is the largest industry (or industry category) in the world, in terms of earnings; as of 2004, the industry represents 20% of the market capitalization of the S&P 500. The industry is also becoming more vibrant, with new types of products and services being offered to meet the needs of the booming economy. For example, in the derivatives market, the notional principal amount outstanding has more than trebled between March 2005 and June 2007 to US$ 24.09 billion from US$ 6.836 billion. With sustained deregulatory measures, exposure to international financial markets and the introduction of new products and services, the Indian financial sector is charting an impressive growth path. According to global research data from Macquarie, India is the most preferred stock market in terms of portfolio allocation owing to current lucrative valuations and the government fiscal measures taken to boost liquidity in the economy. The market is also expected to undergo a structural transformation with organised players increasing their market share. As a measure to ease the present liquidity situation and boost market volumes, the Securities and Exchange Board of India (SEBI) will be allowing cross-margining norms to all the participants in the market. In a previous move in May 2008, SEBI had permitted institutional investors to avail this facility. According to SEBI, "In order to improve the efficiency of the use of the margin capital by market participants, it has now been decided to revise the existing facility of cross-margining and to extend it across cash and derivatives segments to all categories of market participants."

In a recent move, the government has permitted liquidity support for non-banking finance companies (NBFCs) through a subsidiary of state-run lender Industrial Development Bank of India (IDBI). The liquidity support would be worth approx. US$ 3.94 billionUS$ 4.93 billion and can be utilised by the NBFCs only to repay active liabilities. The measure is expected to look after the liquidity needs of the NBFCs for around the first six months of 2009. According to a MasterCard survey, Mumbai leads the pack of strategically important commercial centres in emerging nations, ahead of Shanghai and Kuala Lumpur. "In terms of financial services environment, Mumbai ranks one among all 65 cities covered by the index. It received the top score in the dimension of banking services and currency exchange regulations, and ranked highly on the volume of financial services traded," said the report. In all, eight cities from India found a place in the list. Furthermore, foreign pension funds are bullish on India, with over 40 such funds (endowments and university and family foundations) getting registered with the SEBI, during the last few months. One of the reasons for this was the simplification of regulations by SEBI.

INSURANCE
The insurance sector is one of the most promising sectors in India today. In an ASSOCHAM report 'Insurance Sector Futuristic Growth' stated that India's insurance sector is likely to reach US$ 46.25 billion by 2010. The report said, "The total insurance business will reach a level of US$ 46.25 billion in the next two years

from the current level of US$ 1.15 billion." Private insurance business is likely to see a 140 per cent growth rate due to the aggressive marketing techniques used by them. Conversely, state-owned insurance companies would see a 3540 per cent growth rate. India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 3234 per cent annually. According to a report by research firm RNCOS'Booming Insurance Market in India (2008 2011)'the total life insurance premium in India is projected to grow to US$ 259.72 billion by 201011. The general insurance sector is likely to grow at a rate of 18 per cent in 2008, compared to 13 per cent in 2007. The 17 major non-life insurers collected a total of US$ 840.27 million as premium in April 2008. Life Insurance Corporation (LIC) is bullish on growth and is targetting business in excess of US$ 59.14 billion by 201112. The government is planning to ease restrictions on foreign investments in insurance, banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from the present 26 per cent.

BANCASSURANCE SEGMENT
With the growing keenness of banks to augment their other income (fee-based income), the bancassurance segment has seen consistent growth over the years, offering tough competition to the conventional sale of insurance by agents.

Bankers and insurers are both upbeat about the future of the bancassurance segment which is expected to contribute about 50 per cent or more to the life insurance segment by the year 2010. It has also contributed significantly to the business of major insurance companies like Life Insurance Corporation (LIC) and SBI Life. In August 2008, bancassurance accounted for 35 per cent of the premium collected by private players. In 200607, that figure was about 17 per cent. The growth in bancassurance for insurance companies wholly depends on the number of bank branches that actively dispense these products.

STOCK MARKETS
Fund raising by India Inc through initial public offers (IPOs) rose by a whopping 62 per cent since the beginning of 2008 to 29 May, 2008 to US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006, according to global deal data provider, Dealogic. Significantly, fund mobilisation during the first quarter of 2008 was the second highest for a quarter in the Indian capital's history. In recent months, the Indian stock market has slowed down due to the global economic turmoil. However, expectations of it rebounding soon are also high. Further, according to global consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital markets are expected to witness a turnaround within six to nine months. According to the initial public offering (IPO) estimates for 2009, by Thomson Reuters study, India Inc is likely to raise four times the proceeds it garnered from the primary

market in 2008. As per the study, India Inc is targetting to raise a massive US$ 15.28 billion through public issues. Furthermore, SEBI will be making it easier for companies to raise money from the stock market, by relaxing eligibility rules to facilitate faster raising of funds from existing shareholders. Presently, only companies having had a market capitalisation of above US$ 1.97 billion in the last one year are entitled to this route. SEBI plans to bring down this figure.

ONLINE TRADING
Online trading India is the internet based investment activity that involves no direct involvement of the broker. There are many leading online trading portals in India along with the online trading platforms of the biggest stock houses like the National stock exchange and the Bombay stock exchange. The total portion of online share trading India has been found to have grown from just 3 per cent of the total turnover in 2003-04 to 16 per cent in 2006-07.

FACILITIES OF THE ONLINE TRADING INDIA:

The investor has to register with an online trading portal and get into an agreement with the firm to trade in different securities following the terms and conditions listed down on the agreement. The order processing is done in correct timings as the servers of the online trading portal are connected to the stock exchanges and designated banks all round the clock. They can also get updates on the trading and check the current status of their orders either through e-mail or through the interface. Brokerages also

provides research content on their websites, such that the clients can take their own decisions on stocks before investing.

PRODUCTS AND SERVICES OF THE ONLINE TRADING INDIA:

the major financial products and services of the online trading India are like equities, mutual funds, life insurance, general insurance, loans, share trading, commodities trading, portfolio management and financial planning.
NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE:

In spite of many private stock houses at present involved in online trading in India, the NSE and BSE are among the largest exchanges. They handle huge daily trading volumes, supporting large amounts of data traffic, and possessing a countrywide network. The automated online systems used for trading by the national stock exchange and the Bombay stock exchange are the NIBIS or NSE's Internet Based Information System and NEAT for the national stock exchange and the BSE OnLine Trading system or BOLT for the Bombay stock exchange. PRIVATE EQUITY According to a report by global research firm Preqin, private equity investments are likely to perk up in the second-half of 2009 and fuel the global economic recovery. "With approximately US$ 1 trillion of dry powder (term used to denote capital available for deals) available, private equity is poised to play a major role in the coming economic recovery," the report revealed.

Private equity (PE) players see are bullish on investing in India as a profitable destination, expecting the inflows to be around US$ 5 billion-US$ 8 billion in the coming year. Industry experts feel that long-term investing in India is a profitable option. According to a survey by Deloitte during the last six months, sectors driven by domestic consumption and infrastructure are expected to witness a lot of activity. Sandeep Gill, managing director of Deloitte corporate finance, said, "We have observed two key points, the competitive environment for investment opportunities for PE houses is expected to ease during 2009, as smaller PE firms and hedge funds exit the market. Second, the volume of PE deals in the market will be dependent on how quickly promoters are willing to accept lower valuations." The total number of PE deals during the first five months of 2008 stood at 170, with an announced value of US$ 6.39 billion as against 159 deals amounting to US$ 4.97 billion during the corresponding period in 2007. India is among the top 10 countries in terms of value of private equity deals across the world, according to the global deal tracking firm, Zephyr. The sector is going to see a flurry of activity and investments in the coming months. Many companies have ambitious plans to enter the private equity (PE) business and raise funds.

Indivision India Partners is planning to raise another fund-Indivision II, with a corpus in excess of US$ 425 million raised through Indivision I.

Other bigwigs planning fund raisings are the Tata and Aditya Birla groups with plans to raise US$ 350 million and US$ 250 million, respectively. In August 2008, Reliance Capital had announced setting up a US$ 1 billion PE fund.

Private equity firm, Actis has raised a US$ 2.9 billion private equity fund Actis Emerging Markets 3 (AEM3) for the emerging markets of China, India, Africa, Latin America and South-east Asia. The fund will be pumping in US$ 1 billion as investments in India over the next 3-4 years.

US-based Apollo Management, with an asset base of more than US$ 20 billion, will be soon setting up shop in India. The PE firm has plans to spend around US$ 800 million in investments in Indian and the US markets.

Tata Capital Ltd is planning to float a US$ 350 million private equity (PE) fund.

Online trading definition is a basic understanding of online trading processes. Since the invention of Internet people have beena able to do practically everything virtually. Due to the Internet online trading has become one of the most popular ways to trade as far as stock trading turned out to be as available to independent investors as possible. Online trading gives both beginners who've just had a single day trading course and advanced traders an opportunity to trade stocks, options, forex and futures all over the world without physical presence of a broker and with much lower commissions, because everything is done online. Stock online trading is based on buying and selling stocks. Today stock online trading is the most popular method to trade owing to computers, because information on stocks was available only to brokers and you had to call a broker 10

and pay brokerages for buying or selling stocks and now this information is widely available. Since this modifications occurred traders can control their investments with the help of Internet. Stock option online trading is based on buying and selling options and very perspective financial products. This system gives traders a perfect chance to control and protect their stocks and generate their investment benefits as far as an option is an agreement to buy or to sell certain financial product. The main idea of stock option online trading is that an option you buy has its fixed price and time limitation. Forex online trading is another speculative online business based on buying and selling foreign exchange, gaining profits due to rise and fall of currency rate, namely on the difference between the currency pairs price. Futures online trading is another kind of online trading which is based on buying and selling financial products (commodities, labour, currency) by means of futures contracts. Such contract specifies a particular date (delivery date or final settlement date) in the future when a certain financial product should be bought or sold and this product's price. Speaking about online trading it's necessary to say about safe online trading. It's obvious that in order to trade online you'll have to open your online account and choose online trading software. When you choose a certain website for your future account, you should search for information about a company you are going to fix upon and make sure that it has a trustworthy reputation. The same refers to choosing online trading software, platform and online trading portal. 11

In conclusion it's necessary to say that online trading is a perfect opportunity to trade and earn money but still it's obvious that online trading is not for everyone. That's why before you start trading, you should find out more about online trading pros and cons, online trading concepts and of course about online trading tips. Knowledge is a main key for yoursuccessful online trading, don't ever identify online trading with gambling because the results of such approach can be disastrous.

MUTUAL FUNDS
According to a report by research firm RNCOS, the Indian mutual funds retail market is presently growing at a CAGR of around 30 per cent, and is likely to touch US$ 300 billion by 2015. The growth momentum of the mutual fund industry continues in the new fiscal year (200809). Fund mobilisation has increased by a whopping 77.4 per cent to US$ 327.93 billion during AprilJune 2008, compared to US$ 184.81 billion in AprilJune 2007. Consequently, average Assets Under Management (AUM) of the mutual fund industry has increased to US$ 132.33 billion for June 2008, against US$ 99.86 billion in the corresponding period in 2007. Further, at approx. US$ 96 billionUS$ 98 billion in assets for February 2009, the mutual funds (MF) industry has seen a sharp increase of about 8.7 per cent in AUM since the previous month. This is also the third consecutive monthly rise in assets for the industry as a whole.

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As per SEBI, the mutual fund industry made an overall investment of US$ 2.14 billion in equities between January-September 2008. According to market sources, the mutual funds industry has mustered an estimated US$ 1.24 billion during the same period. In September 2008, the AUM totalled to US$ 1.10 trillion. To improve the capital market, the government is likely to remove the restriction on profit-making Navratna and mini-Ratna public sector undertakings (PSUs) from investing in mutual funds. Life Insurance Corporation of India (LIC) has put in over US$ 2.75 billion into liquid funds of different fund houses. The amount was more than three times its similar investments made in 2007. Looking ahead, the Indian mutual funds market is estimated to grow at a CAGR of 18 per cent in the next five years, with the country's mutual funds assets expected to more than double to US$ 298.73 billion by 2012, according to a report by US-based financial services research and consulting firm, Cerulli Associates.

Importance of Mutual Fund

Small investors face a lot of problems in the share market, limited resources, lack of professional advice, lack of information etc. Mutual funds have come as a much needed help to these investors. It is a special type of institutional device or an investment vehicle through which the investors pool their savings which are to be invested under the guidance of a team of experts in wide variety of portfolios of Corporate securities in such a way ,so as to minimise risk, while ensuring safety and steady return on investment. It forms an important part of the capital market,

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providing the benefits of a diversified portfolio and expert fund management to a large number, particularly small investors. Now a days, mutual fund is gaining its popularity due to the following reasons :

l. With the emphasis on increase in domestic savings and improvement indeployment of investment through markets, the need and scope for mutual fund operation has increased tremendously. The basic purpose of reforms in the financial sector was to enhance the generation of domestic resources by reducing the dependence on outside funds. This calls for a market based institution which can tap the vast potential of domestic savings and chanalise them for profitable investments. Mutual funds are not only best suited for the purpose but also capable of meeting this challenge.

2. An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. But mutual funds who subscribe to the capital issue made by companies get firm allotment of shares. Mutual fund latter sell these shares in the same market and to he Promoters of the company at a much higher price. Hence, mutual fund creates the investors confidence.

3. The phyche of the typical Indian investor has been summed up by Mr.S.A. Dave, Chairman of UTI, in three words; Yield, Liquidity and Security. The mutual funds, being set up in the public sector, have given the impression of being as safe a conduit for investment as bank deposits. Besides, the assured returns promised by them have investors had great appeal for the typical Indian investor.

4. As mutual funds are managed by professionals, they are considered to have a better 14

knowledge of market behaviours. Besides, they bring a certain competence to their job. They also maximise gains by proper selection and timing of investment.

5. Another important thing is that the dividends and capital gains are reinvested automatically in mutual funds and hence are not fritted away. The automatic reinvestment feature of a mutual fund is a form of forced saving and can make a big difference in the long run. 6. The mutual fund operation provides a reasonable protection to investors. Besides, presently all Schemes of mutual funds provide tax relief under Section 80 L of the Income Tax Act and in addition, some schemes provide tax relief under Section 88 of the Income Tax Act lead to the growth of importance of mutual fund in the minds of the investors.

7. As mutual funds creates awareness among urban and rural middle class people about the benefits of investment in capital market, through profitable and safe avenues, mutual fund could be able to make up a large amount of the surplus funds available with these people.

8. The mutual fund attracts

foreign

capital

flow

in the country and secure

profitable investment avenues abroad for domestic savings through the opening of off shore funds in various foreign investors. Lastly another notable thing is that mutual funds are controlled and regulated byS E B I and hence are considered safe. Due to all these benefits the importance of mutual fund has been increasing.

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DEBT MARKET
Due to the high volatility in the equity markets, Indian investors are choosing debt market and mutual funds over equities. According to an ASSOCHAM report, around US$ 333.27 million was invested in the debt market against US$ 249.89 million in equities, as on the third week of June 2008. The report revealed that investors favoured corporate bonds, particularly debentures issued by leading companies. The debt market in India included segments like government securities, corporate bond market, PSU (public sector undertaking) bonds, and fixed deposits among others. According to a report by Goldman Sachs, with insurance, mutual funds and pension sector experiencing rapid growth, India's debt market is estimated to grow four-fold, from about US$ 400 billion (45 per cent of GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by 2016. Significantly, the non-government sector is expected to grow from US$ 100 billion in 2006 to US$ 575 billion in 2016, increasing its share in GDP from 10 per cent to 22 per cent. LOOKING AHEAD There is huge potential in the Indian financial services segment. The buoyancy in the economy is estimated to lead to a four-fold increase in India's investable wealth from US$ 250 billion in 2007 to US$ 1 trillion by 2012. Wealth management revenues are expected to account for 3237 per cent of the total full-service financial institutions by 2012.

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According to a report by Celent, India is slated to become a US$ 1 trillion market (in assets under management) for wealth management providers by 2012, with a target market size of 42 million households. Exchange rate used: 1 US$ = 50.6721 INR

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OBJECTIVE OF THE STUDY

To discuss the challenges that the insurance sector is facing in India. To focus the opportunities that the insurance sector in India is having to know the performance mutual fund in India To know the hike in the stock market for overall development in the economy.

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SCOPE AND IMPORTANCE

The project report open with the discussion of growth of financial services in India .after analysis the prons and cons of the project, it is reflecting that the growth of financial sector in India is having the wider scope. The study focuses on various financial services in India has some following significance: i) Making goods and service markets more competitive; ii) Enhancing employment in the formal sector through broad ranging labour market reforms; iii) further liberalising the banking sector; iv) Improving public finances to achieve more rapid growth through a more ambitious fiscal consolidation, reducing subsidies and further reducing tax distortions; v) Improving infrastructure and facilitating urbanisation by involving private players more intensely; and vi) Upgrading the quality of educational outcomes through institutional reforms. Financial services organisations are striving to achieve increasingly ambitious profit and growth targets against a background of heightened risk, regulation and market pressures. Customer needs and expectations are evolving in the face of increasing personal wealth, more private funding of pensions and healthcare and the desire for ever more accessible and personalised financial products and services. In turn, intense competition has squeezed industry margins and forced organisations to cut costs while still seeking to enhance the quality of client choice and service. The battle for talent is

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also heating up as companies seek to enhance innovation, customer loyalty and investment returns. The importance for emerging economies of developing strong, broad, and deep financial markets. At first sight, this may seem like a strange time to be emphasizing the importance of financial market development. Across the world there is heightened concern about the recent turbulence in credit markets. Indeed, the Fund warned of these risks in recent months, including those associated with carry trades, mergers, and complacency about credit risk The project of mine, "The Growth of Financial Services in India" is important as it helps to know about various fiancial services and its growing trend in india.

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LITERATURE REVIEW

The review of literature is very essential for a researcher in any field of human knowledge. This acquaint one with knowledge and techniques relevant to the work for, thus the researcher needs an adequate familiarity with the number of books, journals, bulletins, year books, thesis and encyclopedias. Going through these resources, effective search for specialized knowledge will be possible in the support of this view. We can be put forth the statement of JOHN W. BEST, Practically all human knowledge can be found in books & libraries. Unlike other animals that must at art a new with each generation man builds upon the accumulated and recorded knowledge of the post. His constant adding to the vast store of knowledge makes possible progress in all area of endeavourer. After the selected of the problem the researcher started to study. The work already done in the related field of this present study. The previous workers finding statement, comments, criticism, suggestion according to the study design bases was collected. In the following pages an attempt has been made to present briefly a few these researchers studies which may have bearing on the present problems. The related literature is of importance having relevance or deviating with the presents study in a specified direction with relation to time, place and other confounding factors.

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REVIEW OF FINANCIAL MARKET

The financial markets, especially the stock markets, for developing and developed markets have now become more closely interlinked despite the uniqueness of the specific markets or the country profile. Literature has shown strong interest on the linkages among international stock markets and the interest has increased considerably after the loose of financial regulations in both mature and emerging markets, the technological developments in communications and trading systems, and the introduction of innovative financial products, creating more opportunities for international portfolio investments. The interest can also be attributed to the globalization which gives another impetus to the higher intertwinement of international economies and financial markets. In recent years, the new remunerative emerging equity markets have attracted the attention of international fund managers as an opportunity for portfolio diversification. This intensifies the curiosity of academics in exploring international market linkages. Earlier studies by Ripley (1973), Lessard (1976), and Hilliard (1979) generally find low correlations between national stock markets, supporting the benefits of international diversification. The links between national stock markets have been of heightened interest in the wake of the October 1987 international market crash globally. The crash has made people realize that various national equity markets are so closely connected as the developed markets like the US stock market exert a strong influence on other markets. Applying the vector autoregression models, Eun and Shim (1989) find evidence of comovements between the US stock market and other world equity markets. Cheung and Ng (1992) investigate the dynamic properties of stock returns in Tokyo and New York and find that the US market is an important global factor from January 1985 to

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December 1989. Lee and Kim (1994) examine the effect of the October 1987 crash and conclude that national stock markets became more interrelated after the crash and find that the co-movements among national stock markets were stronger when the US stock market is more volatile. Applying the VAR approach and the impulse response function analysis, Jeon and Von-Furstenberg (1990) show that the degree of international co-movement in stock price indices has increased significantly since the 1987 crash. On the other hand, Koop (1994) uses Bayesian methods to conclude that there are no common trends in stock prices across countries. Also, Corhay, et al (1995) study the stock markets of Australia, Japan, Hong Kong, New Zealand and Singapore and find no evidence of a single stochastic trend for these countries. Only a few studies have examined the co-movement of Indian stock market with international markets. For example, Sharma and Kennedy (1977) examine the price behavior of Indian market with the US and UK markets and conclude that the behavior of the Indian market is statistically indistinguishable from that of the US and UK markets and find no evidence of systematic cyclical component or periodicity for these markets. Rao and Naik (1990) apply the Cross-Spectral analysis and find that for the Indian stock index, the gains estimates from either the US or the Japan indices are independent and hence they conclude that the relationship of Indian market with international markets is poor reflecting the institutional fact that the Indian economy has been characterized by heavy controls throughout the entire seventies with liberalization measures initiated only in the late eighties. Above studies were carried out over decade ago. As the Indian stock market becomes more open to the rest of the world since early 1990s, the relationship between the Indian market and the developed stock markets may change and hence our paper 23

reexamine the nature of co-movement between Indian market and the others main stock indices.

FINANCIAL SERVICES WILL BE INDIA'S NEXT GROWTH ENGINE: India Post News Service
NEW YORK: India will make financial services its next growth engine, and to that extent, the government intends to make Mumbai an International Financial Center, said India's Finance Minister P. Chidambaram while addressing the ICICI Securities Annual Investor Conference in New York City on Oct 18. The minister informed the elite gathering that a recent report has estimated the value of the financial services currently being purchased by India at $13 billion a year and has concluded that this will rise to $48 billion by the year 2015. "While India will continue to be a purchaser of financial services, we believe that there is an opportunity for India to become a provider of financial services as well," he said, adding in that context, his government intends to make financial services the next growth engine for India. The stock market movement in India, Chidambaram said, is comparable to the movement in most emerging markets and has been doing significantly better than Dow Jones or the NASDAQ."Market capitalization (December 2006) was at $820 billion, making the Indian securities market the 6th largest in the Asia Pacific region after Japan, China, Hong Kong, Australia and Korea," Chidambaram said. "In fact, the market capitalization of listed securities exceeds the aggregate deposits with the banking system in India. The current market capitalization is $1450 billion 24

on the Bombay Stock Exchange. The Indian financial markets have played a vital role in consolidating and accelerating the growth momentum, the minister said. "There is still a belief in some sections of society - especially in developing countries like India - that capital markets are tools of the rich often used to enhance their wealth at the cost of the poor," he explained. "If capital markets are not organized on sound principles and are not well regulated, there is indeed the danger that gullible investors could fall prey to manipulation and scams. Every country in the world has had its share of scandals - we had ours in 1992 and 2001 -- and our experience only underscores the need for a well regulated capital market. "The securities markets in India have made enormous progress in developing sophisticated instruments and modern market mechanisms. However, the real strength of the Indian securities market lies in the quality of regulation, Chidambaram observed. "We believe that the Indian securities market is among the best regulated in the world today," he said.While the India growth story is broad based, not every business in India has been a gainer in the country's growth story, Chidambaram said. "Nevertheless, I can say with confidence that the gainers in India's growth story have outnumbered the losers. Who has lost and who has gained? Family owned businesses that opposed the policies of liberalization have lost; businesses that embraced liberalization and globalization have gained. Industries that were sheltered behind licenses and tariff walls have lost; industries that were prepared for competition and raised their efficiencies have gained." "Entrepreneurs who relied on their own capital and skills and were content to remain small have lost; entrepreneurs, who brought in professional managers, boldly accessed the capital market and introduced new products and services have gained. Above all, 25

sectors of the economy that were thrown open to the private sector and to real competition - such as banking, insurance, information technology, telecommunication and aviation - have gained tremendously; sectors that are still closed or only partially open - such as mining and distribution of power - have lagged behind and huge wealth is locked in a few companies." The Finance Minister said that India recognizes that it is one among a hundred destinations where a foreign company can make an investment. "The investor will naturally weigh the opportunities and the risks. It is now widely accepted that India is a vibrant democracy, that its economy is increasingly open, and that it is a country governed by the rule of law. I can assure you that none of this will change - not now, not in the near term, and in fact, never. If there are any changes, they will be changes for the better and towards a more open and competitive economy," he said to much applause. Chidambaram further said growth was imperative for India. "Without growth, we cannot address the age old problems of poverty, ignorance and disease. It is growth that has thrown up the resources to spend more on education and health; to build a huge network of roads; to provide telephone connectivity; to take electricity and clean drinking water to the villages of India; and to make the capital investments that will sustain the high rate of growth," he said.. "Every day we add a new line to our growth story. Undoubtedly, it will take us some more years to write the full story but, when that story is fully written, India will be the fourth largest economy in the world. I welcome you to share the challenge and opportunity that is India today," he concluded.

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FINANCIAL SERVICES IN INDIA

Financial services organisations are striving to achieve increasingly ambitious profit and growth targets against a background of heightened risk, regulation and market pressures. The corollary of this market evolution is increasing risk as products become more complex, organisations more diffuse and the business environment ever more uncertain. Regulation is also tightening in the wake of public and government pressure for improved governance, transparency and accountability. Organisations will also need to identify and concentrate on core competencies where they can exert maximum competitive advantage, be this a particular product, service, process or geographical territory. For some this will require a strategic re-orientation towards becoming a specialist niche provider. Even larger groups will need to differentiate their offering and by implication the associated brand. Global financial institutions face an increasingly complex market one where profitability of existing products is eroding. Market events including globalization, a final wave of consolidation, regulatory changes and technology breakthroughs are forcing financial institutions to shed the transactional orientation of the past and focus on improving the efficiency and customer orientation of their operations. In this environment, the strategy for achieving organic growth will differ for each institution; however, the following best practices are prerequisites for optimizing growth:s Create global economies of scale As companies grow larger and become more global, leveraging technology can lower costs. Creating centralized 27

processing centers creates economies of scale. Another way companies can take advantage of their size is by outsourcing noncore, commoditized transactions. Financial institutions have discovered outsourcing not only cuts costs by up to 50 percent, but can also be a catalyst for business transformation. Streamline product and system complexity Many financial services companies have grown through acquisition, but this kind of growth creates duplicate products, organizations, processes and systems to support them. New organizational models and flexible platforms are necessary to reduce complexity. Companies need to break down organizational barriers, eliminate redundant systems and standardize system interoperability. Modernizing outdated legacy platforms streamlines product time-to-market and improves customer acquisition, giving companies significant competitive advantage. Link customer loyalty to operations As companies streamline operations, they must focus on differentiating the customer experience. Most companies focus on cutting costs, but few have operational processes and tools to standardize the customer experience. Implementing global sourcing transforms business processes, while enabling companies to better support customers without increasing costs. Improve the customer experience Acquisitive growth has affected customers to the extent that customers with multiple products often feel like they are doing business with several companies. Companies need to integrate their channels to provide a unified customer experience that better serves consumers. Maintaining solid service quality is critical for attracting and

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retaining customers. Embed compliance into modernized processes New regulations, such as Sarbanes-Oxley and Basel II, are consuming technology budgets. Compliance requires process automation with embedded controls, globally integrated views of business activity by customer and product, and transparency in reporting to support supervisory reviews. Establishing controls during process redesign is essential to meeting regulatory mandates.

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MUTUAL FUND IN INDIA: A FINANCIAL SERVICE IN CAPITAL MARKET

With progressive liberalization of economic policies, there has been a rapid growth of capital market, money market and financial services industry including merchant banking, leasing and capital market. Consistent with this evolution of the financial sector, the mutual fund industry has also come to occupy an important place.

Origin
Mutual funds go back to the times of the Egyptians and Phonenicians when they sold shares in caravans and vessels to spread the risk of these ventures. The foreign and colonial government Trust of London of 1868 is considered to be the fore-runner of the modern concept of mutual funds. The USA is, however, considered to be the mecca of modern mutual funds. By the early - 1930s quite a large number of close ended mutual funds were in operation in the U.S.A. Much latter in 1954, the committee on finance for the private sector recommended mobilisation of savings of the middle class investors through unit trusts. Finally in July 1964, the concept took root in India when Unit Trust of India was set up with the twin objective of mobilizing household savings and investing the funds in the capital market for industrial growth. Household sector accounted for about 80 percent of nations savings and only about one third of such savings was available to the corporate sector, It was felt that UTI could be an effective vehicle for channelising progressively larger shares of household savings to productive investments in the corporate sector. The process of economic liberalization in the eighties not only brought in dramatic changes in the environment for Indian industries, Corporate sector and the capital market but also led to the emergence of

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demand for newer financial services such as issue management, corporate counselling, capital restructuring and loan syndication. After two decades of UTI monopoly, recently some other public sector organisations like LIC (1989), GIC (1991 ), SBI (1987), Can Bank (1987), Indian Bank (1990), Bank of India (1990), Punjab National Bank (1990) have been permitted to set up mutual funds. Mr. M.R. Mayya the Executive Director of Bombay Stock Exchange opined recently that the decade of nineties will belong to mutual funds because the ordinary investor does not have the time, experience and patience to take independent investment decisions on his own.

PHASES OF MUTUAL FUNDS

The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

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Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

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Fourth Phase - Since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

IMPORTANCE OF MUTUAL FUND

Small investors face a lot of problems in the sharemarket, limited resources, lack of professional advice, lack of information etc. Mutual funds have come as a much needed help to these investors. It is a special type of institutional device or an investment vehicle through which the investors pool their savings which are to be invested under the guidance of a team of experts in wide variety of portfolios of Corporate securities in such a way, so as to minimise risk, while ensuring safety and steady return on investment. It forms an important part of the capital market, providing the benefits of a diversified portfolio and expert fund management to a

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large number, particularly small investors. Now a days, mutual fund is gaining its popularity due to the following reasons : 1. With the emphasis on increase in domestic savings and improvement in deployment of investment through markets, the need and scope for mutual fund operation has increased tremendously. The basic purpose of reforms in the financial sector was to enhance the generation of domestic resources by reducing the dependence on outside funds. This calls for a market based institution which can tap the vast potential of domestic savings and canalize them for profitable investments. Mutual funds are not only best suited for the purpose but also capable of meeting this challenge. 2. An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. But mutual funds who subscribe to the capital issue made by companies get firm allotment of shares. Mutual fund latter sell these shares in the same market and to the Promoters of the company at a much higher price. Hence, mutual fund creates the investors confidence. 3. As mutual funds are managed by professionals, they are considered to have a better knowledge of market behaviors. Besides, they bring a certain competence to their job. They also maximize gains by proper selection and timing of investment. 4. Another important thing is that the dividends and capital gains are reinvested automatically in mutual funds and hence are not fritted away. The automatic reinvestment feature of a mutual fund is a form of forced saving and can make a big difference in the long run. 5. The mutual fund operation provides a reasonable protection to investors .Besides, presently all Schemes of mutual funds provide tax relief under 34

Section 80 L of the Income Tax Act and in addition, some schemes provide tax relief under Section 88 of the Income Tax Act lead to the growth of importance of mutual fund in the minds of the investors. 6. As mutual funds creates awareness among urban and rural middle class people about the benefits of investment in capital market, through profitable and safe avenues, mutual fund could be able to make up a large amount of the surplus funds available with these people. 7. The mutual fund attracts foreign capital flow in the country and secure profitable investment avenues abroad for domestic savings through the opening of off shore funds in various foreign investors. Lastly another notable thing is that mutual funds are controlled and regulated by S E B I and hence are considered safe. Due to all these benefits the importance of mutual fund has been increasing.

SCHEMES OF MUTUAL FUND

Within a short span of four to five years mutual fund operation has become an integral part of the Indian financial scene and is poised for rapid growth in the near future. Today, there are eight mutual funds operating various schemes tailored to meet the diversified needs of savers. UTI has been able to register phenomenal growth in the mid eighties. Now there are 121 mutual fund schemes are launched in India including UTIs scheme attracting over Rs. 45,000 Crores from more than 3 Crore investors accounts Out of this closed-end scheme are offered by mutual fund of India to issue shares for a limited period which are traded like any other security as the period and target

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amounts are definite under such security as the period and target amounts are definite under such schemes. Besides open-end schemes are lunched by mutual fund under which unlimited shares are issued by investors but these shares are not traded by any stock exchange. However,liquidity is provided by this scheme to the investors. In addition to this off shore mutual funds have been launched by foreign banks, some Indian banks, like SBI, Canara Bank etc, and UTI to facilitate movement of capital from cash-rich countries to potentially high growth economics. Mutual funds established by leading public sector banks since 1987-SBIMF, Can Bank, India Bank, PNBMF and BOIMF, emerged since 1987-SBIMFo, as major players by offering bond like products with assurance of higher yields. The latest schemes of BOI mutual fund goes to the extent of allowing each individual investor to choose the date for receiving the income. Besides the bank mutual funds have also floated a few open-ended schemes, pure growth schemes and tax saving schemes. The LIC, GIC mutual funds offer insurance linked product providing various types of life and general insurance benefits to the investors. Also the income growth oriented schemes are operated by mutual fund to cater to an investors needs for regular incomes and hence, it distributes dividend at intervals.

GROWTH TREND OF MUTUAL FUND

Opening of the mutual fund industry to the public sector banks and insurance companies, led to the launching of more and more of new schemeThe mutual fund industry in India has grown fast in the recent period. The performance is encouraging especially because the emphasis in India has been on individual investors rather in

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contrast to advanced countries where mutual funds depend largely on institutional investors, In general, it appears that the mutual fund in India have given a good account of themselves so far .UTI's annual sale of units crossed Rs.1000 crores mark in 1986 to 87, 2000 crores mark in 1987-88 and reached Rs.5500 crores mark in 1989 to 90. During 1990 to 91 on account of decline of corporate interest,, sales declined to Rs.4100 crores though individual sales increased over its preceeding year. LICMF has concentrated on funds which includes life and accident cover. GICMF provide home insurance policy. The bank sponsored mutual fundfloated regular income, growth and tax incentives schemes. Together the eight mutual fund service more than 15 million investors with UTI alone holds for 13 million unit holding accounts. Magnum Regular Income Scheme 1987 assured a return of 12 percent but gave 20 percent dividend in 1993, UTI record 26 percent dividend for 1992 to 93 under the unit 1964 scheme. Magnum Tax saving scheme 1988 to 89 did not promise any return but declared 14 percent dividend in 1993 and recorded a capital appreciation of 15 percent in the first year. Equity oriented scheme have earned attractive returns. Especially since early 1991 there has been a steady increase in the number of equity oriented growth funds. With the boom of June 1990 and then again 1991 due to the implementation of new economic policies towards structure of change the price of securities in stock market appreciated considerably. The high rate of growth in equity price led to a high rate of appreciation in the net asset value of the equity oriented funds for which investors started changing their preferences from fixed income funds to growth oriented or unfixed income funds. That is why more equity oriented mutual funds were launched in 1991. Master share provide a respective dividend of 18 per cent in 1993, Can share earned a dividend of 15 percent in 1993. In general the Unit Trust of India which

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manages over 28,000 crore under various schemes has for its service an excellent reputation.

PERFORMANCE OF MUTUAL FUNDS IN INDIA

The performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders was accustomed with guaranteed high returns by the begining of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the praparedness of risks factor after the liberalization. The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There were rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a

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loss in the secondary market.

SHORT COMMINGS IN OPERATION OF MUTUAL FUND

The mutual fund has been operating for the last five to six years. Thus, it is too early to evaluate its operations. However one should not lose sight to the fact that the formation years of any institution is very important to evaluate as they could be able to know the good or bad systems get evolved around this time. Following are some of the shortcomings in operation of mutual fund. 1. The mutual funds are externally managed. They do not have employees of their own. Also there is no specific law to supervise the mutual funds in India. There are multiple regulations. While UTI is governed by its own regulations, the banks are supervised by Reserved Bank of India, the Central Government and insurance company mutual regulations funds are regulated by Central Government 2. At present, the investors in India prefer to invest in mutual fund as a substitute of fixed deposits in Banks, About 75 percent of the investors are not willing to invest in mutual funds unless there was a promise of a minimum return, Sponsorship of mutual funds has a bearing on the integrity and efficiency of fund management which are key to establishing investor's confidence. So far, only public sector sponsorship or ownership of mutual fund organisations had taken care of this need. 3. Unrestrained fund rising by schemes without adequate supply of scrips can create severe imbalance in the market and exacerbate the distortions 4. Many small companies did very well last year, by schemes without adequate imbalance in the market but mutual funds can not reap their benefits because

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they are not allowed to invest in smaller companies. Not only this, a mutual fund is allowed to hold only a fixed maximum percentage of shares in a particular industry. 5. The mutual fund in India are formed as trusts. As there is no distinction made between sponsors, trustees and fund managers, the trustees play the roll of fund managers. 6. The increase in the number of mutual funds and various schemes have increased competition. Hence it has been remarked by Senior Broker mutual funds are too busy trying to race against each other. As a result they lose their stabilising factor in the market. 7. While UTI publishes details of accounts their investments but mutual funds have not published any profit and loss Account and balance sheet even after its operation. 8. The mutual fund have eroded the financial clout of institution in the stock market for which cross transaction between mutual funds and financial institutions are not only allowing speculators to manipulate price but also providing cash leading to the distortion of balanced growth of market. 9. As the mutual fund is very poor in standard of efficiency in investors service; such as despatch of certificates, repurchase and attending to inquiries lead to the detoriation of interest of the investors towards mutual fund. 10. Transparency is another area in mutual fund which was neglected till recently. Investors have right to know and asset management companies have an obligation to inform where and how his money has been deployed. But investors are deprived of getting the information.

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FUTURE OUTLOOK OF MUTUAL FUNDS

As mutual fund has entered into the Indian Capital market, growing profitable enough to attract competitors into this cherished territory encouraging competition among all the mutual fund operators, there is need to take some strategy to bring more confidence among investors for which mutual fund would be able to project the image successfully. The followings are some of the suggestions. As there is no comprehensive law to regulate the mutual fund in India, uniform coordinated regulations by a single agency would be formed which would provide the shelter to the investors. Secondly, as the investors are not willing to invest in mutual fund unless a minimum return is assured, it is very essential to create in the mind of the investors that mutual funds are market instruments and associated with market risk hence mutual fund could not offer guaranteed income. Thirdly, all the mutual funds are operated in the public sector. Hence private sector may be allowed to float mutual funds, intensifying competition in this industry. Fourthly, due to operations of many mutual fund, there will be need for appropriate guidelines for self-regulation in respect of publicity/advertisement and interscheme transactions within each mutual fund. Fifthly, the growth of mutual fund tends to increase the shareholdings in good companies, give rise thefear of destabilising among industrial group, hence introduction of nonvoting shares and lowering the debt-equity ratio help to remove these apprehension. Sixthly, as there is no distinction between trustees, sponsors and fund managers, it is necessary to regulate frame work for a clear demarcation between the role of constituents, such as shelter, trustee and fund manager to protect the interest of the small investors. Seventhly, steps should be taken for funds to make fair and truthful

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disclosures of information to the investors, so that subscribers know what risk they are taking by investing in fund. Eighthly, infrastructure bottlenecks will have to be removed and banking and postal systems will have to be taken place for growth of mutual funds. Ninethly, mutual funds need to take advantage of modern technology like computer and tele-communications to render service to the investors. Lastly, mutual funds are made by investors and investors interest ought to be paramount by setting standard of behaviours and efficiency through selfregularisations and professionalism. With the structural liberalisation policies no doubt Indian economy is likely to return to a high grow path in few years. Hence mutual fund organisations are needed to upgrade their skills and technology. Success of mutual fund however would bright depending upon the implementation of suggestions.

INSURANCE SECTOR IN INDIA

The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. A brief history of the Insurance sector The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to

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regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are: 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business. 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

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1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

HISTORY OF INSURANCE SECTOR IN INDIA

The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business. Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and formed Life Insurance

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Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. The (non-life) insurance business/general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities. The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from January 1, 1973. The 107 private insurance companies were amalgamated and grouped into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC). In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the objective of complementing the reforms initiated in the financial sector. INSURANCE SECTOR REFORMS: In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that

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insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms" In 1994, the committee submitted the report and some of the key recommendations included: 1) STRUCTURE Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate. 2) COMPETITION Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only One State Level Life Insurance Company should be allowed to operate in each state. 3) REGULATORY BODY The Insurance Act should be changed. An Insurance Regulatory body should be set up.

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 Controller of Insurance (Currently a part from the Finance Ministry) should be made independent. 4) INVESTMENTS Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time). 5) CUSTOMER SERVICE LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

MAJOR POLICY CHANGES

Insurance sector has been opened up for competition from Indian private insurance 47

companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company; The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is Rs.100 crores. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores. Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country's GDP. Insurance is a federal subject in India and Insurance industry in India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related 48

Acts.

INDIAN STOCK MARKET

One of the most profound and far-reaching financial phenomenon in the late twentieth century and the forepart of this century is the explosive growth in international financial transactions and capital flows among various financial markets in developed and developing countries. This phenomenon in international finance is not only a result of the liberalization of capital markets in developed and developing countries and the increasing variety and complexity of financial instruments, but also a result of the increasing relativity of the developing and developed economies as developing countries become more integrated in international flows of trade and payments. More freedom in the moving of capital flows improves the allocation of capital globally, allowing resources to move to areas with higher rates of return. The Indian stock market is one of the earliest in Asia being in operation since 1875, but remained largely outside the global integration process until the late 1980s. A number of developing countries in concert with the International Finance Corporation and the World Bank took steps in the 1980s to establish and revitalize their stock markets as an effective way of mobilizing and allocation of finance. In line with the global trend, reform of the Indian stock market began with the establishment of Securities and Exchange Board of India in 1988. This paper empirically investigates the long-run equilibrium relationship and short-run dynamic linkage between the Indian stock market and the stock markets in major developed countries (United States, United Kingdom and Japan) after 1990 by examining the Granger causality relationship and the pairwise, multiple and fractional co integrations between the Indian stock market and the stock markets from these three developed markets. We conclude that Indian

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stock market is integrated with mature markets and sensitive to the dynamics in these markets in a long run. In a short run, both US and Japan Granger causes the Indian stock market but not vice versa. In addition, we find that the Indian stock index and the mature stock indices form fractionally co integrated relationship in the long run with a common fractional, nonstationary component and find that the Johansen method is the best reveal their cointegration relationship.

ONLINE STOCK TRADING

Online stock trading is very old concept for big institutions who trade thru private networks owned by Reuter's "Instinet" and a system called "Posit" since 1969. But It become internet based for lay men only in late 90s. Funny, that actually idea was first time used by a company making Beer called "WIT beer" to help its shareholders trade its shares. Thats how "WIT Capital" was born which is considered pioneer of this concept. It was made mainstream and household name by a offshot of Charles Schwab & Co called eSchwab which is used by millions of people in USA. Lot of NRI's i know play in US stock market even when they come to India for holidays via website of eSchwabe. There are other serious players like E*trade, DATEK online etc. All this companies ask you to start account with US $5000 and you can buy and sell stock using this funds. They also issue you a check book which you can use to make payments from this account. Or use their ATM card to withdraw cash from your stock trading account.

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Today practically every big name brokerage firm offers online strock trading as it reduces their costs. Earlier they had army of brokers on phone with clients executing trade, now that is done by computers accepting orders from clients directly. This firm now offer human access to high networth accounts , and to rest at charge per trade. (e.g if web based trade will cost you $10 per 1000 shares, human assisted trade will set you back by $40 or more). In last 2 year in India we have seen lot of developments in this, good and bad, successful and not so successful. ICICI webtrade, Sharekhan are

considered biggest brands in this arena. ICICI webtrade is particularly very attractive to users as it combines 3 segments of transactions , i.e., bank account , demat account and stock trading account. ICICI being the owner of all the three services they are all very well integrated.. Other player's have tieups with Banks and Depository's but its not same as seeing all three in one webpage. Frauds in this area were non existant in 2000 as it was still new for most of indians. But in year 2001 and now 2002 we have been seeing perils of web based stock trading and banking. One thing which potential client should pay attention to is, agreement with broker, how it defines risks of hacking and who bears it. In USA for web banking and online stock trading risks are usually borne by company/bank and not client. Companies have insurance coverage and that helps consumers move on to online trade (companies save lot of money by not having human talking to you, compared to this, fraud insurance cost is almost negligible).

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But in India, because of tendency of consumers of not looking at agreements carefully and companies also believe in passing all costs/risks to

consumbers and retain profits for themselves. Hence most online bank accounts and stock trading accounts agreements clearly mention that

bank/broker is not liable for any loss leading from hacking of the account. In this situation smart person would avoid using this services. Brokers and Banks benefit tremendously when you use them via web and not call them on phone, but most people are not aware of this, they try to create impression as if they re doing "favour" to us when offering us web based bank/brokerage account access. In 1997 when ICICI BANK launched web banking they were charging Rs.1000 for access thru web from their account holders and new accounts, and "waiving" this charge for select few customers. Common sense would tell you that every time 30 people access web for ICICI banks, ICICI BANK has to employ one less person in its call centre. Now this kind of charges don't exist but still they make it sound as if its "free" as favour. HACKING ON STOCK TRADING ACCOUNT HAPPENS IN TWO WAYS. 1) When server of stock broker is hacked into by outsider or employee and they insert trades of shares/security on account of clients, there by exposing client to loss of his balanace in his/her account. To prevent this, broker has to implement state of art security policy and security measures like best available firewall, keeping main database computer behind firewall not accesible from outside internet and having only

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one or two key senior employees access to this database. And their verification should not be just by password but use of biometric authentication is must. Also having outside experts doing ragular audit of system and network is good idea to find out weaknesses before hacker finds them. Lot of young CAs in India now specialize in IT audit and have CISA certification apart from being CA. 2) Keylogger. If hacker installs a software called "keylogger" on client pc, it copies to a file , every keystroke typed on that pc. And at regular interval without clients knowledge that file is sent via email on internet to hacker. Hacker learns all username/account id and passwords of client when client uses this pc for accessing his bank, demat and stock trading accounts. Once this is done, hacker can go to any cybercafe and use this accounts to empty balances (cybercafe so that authorities can't track him down via IP address which will reveal his identity if he does from his home or office pc). There are ways to prevent this from happening. One should not use computers to access accounts which are not trusted (like don't use cybercafe, or other people's computers for accessing net based bank/brokerages). When you buy a pc, buy it without Operating System and install OS (windows 2000 or XP) on your own. If computer comes pre loaded with OS it may have Keylogger installed by engineers of supplier. Use OS like WinXP or Windows 2000 which will not allow anyone to access pc without proper authorization. Don't use Windows98 or 95 which doesn't have any security measures built into it.

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Use firewall like "Zone Alarm Pro" to detect any suspiceous software sending out data to outside world (like keylogger sending out email to hacker). Keep antivirus software (like Norton Antivirus 2002) updated everyday to detect new trojon viruses which do job of keylogger. Viruses now routinly come as attachment to email and don't need use to click on attachment anymore. They just execute themselves from outlook express email software. All above are best one can do today, but in few months in year 2002 you will see banks and brokers using Biometric security features which cannot be hacked by hackers. It will use your thumb print or retina scan of your eyes as method of establishing your identity and not require you to use any passwords on keyboard. One may have to look in lense of scanner provided or put thumb on small device which will transmit thumb impression to brokers systems over net and verify if its really you using that account.

HISTORY OF ONLINE TRADING

The history of e-trading began in 1983, when a doctor in Michigan placed the first online trade using E*TRADE technology. What began with a single click over 16 years ago has now taken the world by storm. The concept was visualized by one Bill Porter, a physicist and inventor with more than a dozen patents to his credit, who provided online quotes and trading services to Fidelity, Charles Schwab, and Quick & Reilly. This led Bill to wonder why, as an individual investor, he had to pay a broker hundreds of dollars for stock transactions. With incredible foresight, he saw the

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solution at hand: Someday, everyone would own computers and invest through them with unprecedented efficiency and control. And today his dream has become a reality. e trading has become a way of investing in the developed world and is soon catching on in developing countries too. Imagine a scenario where you log on to your account, get the live quotes of scrips you are interested in, get advise from experts and research reports on your investment choice and then just click the mouse to place your order, pay the amount due (which automatically gets debited into your account with the on line brokerage firm), get your account statement, and the delivery of your shares into your DeMat account. All this through just the click of a mouse. Seems like a dream? But with online trading this has become a reality. Sitting in ones own home or office or even from your car , as long as you can access the net, you can trade on the market. There are three basic things needed for e-trading, a bank account, a D-Mat account and a brokerage account. The steps in e-trading replicate the real life situation and are fairly simple to follow. Once these three accounts are opened, the money and shares are transferred to your bank and demat account automatically, electronically and without any paper work. The first step is of course to open an account. One can open multiple accounts with himself or herself as the first name in the account. Then it is necessary to determine the type of account that you want and how you want to pay for the trades you make. Joint accounts are allowed but for that you will need to have certain information about those people. Accounts can be Individual, Joint, Sole Proprietorship, Corporate, or Partnership etc. The form filling requires simple personal details like Full legal name,

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Citizenship status, Residency status, employer's name and address, your passport\PAN number, Date of birth etc. One can download the forms or request for them by post or even request for a representative of the firm to come over to help you with the form. Post-submitting, you are allotted a USER ID and PASSWORD while giving details for registration. Then an Account Reference Number is generated and displayed to you. These three things are unique to an individual and ensure security of transactions. The acceptance of the application is communicated by email. Once you have got your USER ID and PASSWORD and your account has been set up, you can access the website and login using the same. The second step is then to Fund Your Account. In order to start trading online it is important that you deposit money in your bank account before placing a buy order. In order to place a sell order you must have shares in your DEMAT Account. You can sell your shares anytime as long as shares are there in your DEMAT Account. In order to place a buy order you need to fund your account. You can do this by depositing money in your bank account or else you can sell some shares existing in your demat account and use the proceeds of sale to fund your purchase transaction. The amount of money required before placing a buy order would depend on the value of order and the type of e-invest account you have enrolled for - whether cash or margin. In a Margin account one can use a line of credit to buy marginable securities or for overdraft protection. Such an account is opened after taking into consideration Annual income, Net worth, description of your investment objectives, as it involves lending a line of credit. In a cash account, the amount of securities bought has to be backed by the cash in the account. 56

Then comes placing the order. For this you enter your Trading password and go to trade. From the Trading tab, select Enter Order under the Stocks heading. Select a transaction type: Buy, Sell. At 'Number of Shares', type the number of shares that you want to buy. At 'Stock Symbol or Name(s)', type the stock symbol. If you don't know the symbol click 'Find Symbol', type the company name, click 'Search' and click the symbol that you want from the list. For a market order, select 'Market'. Otherwise, select 'Limit', 'Stop' or 'Stop Limit' and enter the price. 'Market Order': you just ask the broker to buy or sell your stocks at the best price available. 'Limit Order': you tell the broker to trade only when the stock hits a certain price or better. 'Stop Order': you tell the broker to sell your shares if the stock drops below a certain price. Select either 'Good for Day' or 'Good Until Canceled'. If you want to place an 'All-or-None' order, click 'All or None'. Type your trading password and click 'Preview Order'. If you want to change your order, click 'Cancel' and make your changes. To see if your order has been executed and filled as you expect, check your account balance. The 'Account Balances' page shows your account equity (the value of your account) and your buying power. To check your account balance, click the 'Accounts Services' tab, make sure the correct account number displays at 'Select Account' and click 'Go'. At 'Total Account Value', see your account balance. If an order to buy or sell stock hasn't been executed yet, you might be able to change or cancel the order. Orders that you have placed but for which you haven't yet received execution reports appear when you click 'View Open Orders' under the 'Stocks' heading of the 'Trading' tab. To change a stock order from the 'Trading' tab, select 'View Open Orders', make sure you're currently in the correct account, the click 'Change' beside the order you want to change. Enter your change or changes - you can 57

change the quantity, price, and term. For a new price, select the appropriate option button and then enter the price (unless you're changing it to a market order). You cannot change the stock symbol or the transaction type (Buy, Sell, Sell Short, or Buy to Cover). Enter your trading password and click 'Preview Change Order'. Or, if you want to cancel your changes, click 'Do Not Change'. In order to cancel a stock order, from the 'Trading' tab, select 'View Open Orders' under the 'Stocks' heading. Make sure you're currently in the correct account. Click 'Cancel' beside the order you want to cancel. Review the information presented to make sure this is the order you want to cancel. Click 'Cancel Order'. Enter the symbol or the name of the scrip, press "GO" or the relevant button. The account opening charge, commission rates and the minimum limit of transaction vary from site to site. Other charges can include Annual Services Charges, Custody charges, D-Mat account charges etc. Also most online traders offer a host of other tools to aid the investment decision. A full research back up in terms of reports, articles, opinions, etc., live time quotes, latest news on the scrip, technical charts to see how the stock's price has changed over time. So sitting at home one can take an investment decision at ease after having researched and read up fully about the stock. With the advent of online trading, it would seem that the markets are just a click away. Please however, do remember that currently in India the handful of online trading offers are mere order routing systems. But it will not be long enough before the entire system goes online. That then will be change for the better.

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BASICS OF ONLINE TRADING

Online trading offers lot of investment opportunities. You can trade or invest in equities, commodities, futures, derivatives, IPOs, mutual funds, tax saving

certificates and forex markets through paperless online transactions . However, you need to thoroughly understand your service providers onscreen trading window, before carrying out any such transactions. A slight negligence may cost you a huge monetary loss. There are two types of basic transactions namely buy and sell orders. Again, sell orders are classified into selling long and selling short orders. While there is no confusion as far as a buy order is concerned, one needs to understand sell order(s) properly before carrying out such transactions. When you are selling shares that you own in your demat account, you are selling long. In this case, shares owned by you will be sold out and the profit earned will be credited to your account. A trader can make money by selling the shares without even owning themshortsellingand buying them later when share prices fall. In such cases, the first transaction is sell and square-off or subsequent transaction is buy. Traders often resort to short-selling to earn profit when they sense a bearish stock market. But, such transactions must be squared-off on the same day before the stipulated timeframe set by the exchange, as technically it is not possible to convert such sell orders into delivery.

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SELLING SHARES OWNED BY YOU

If you want to sell the shares from your demat account using the online trading website provided to you by your broker, you must allocate them first, or else, you may end up in short-selling. In such a case, you need to square-off that transaction by buying them. If you fail to do so, the system will square-off the transaction at the stipulated time. You may lose money if the share is trading above the price that you sold at. The best way to sell shares from your demat is to visit the demat allocation page of your online trading website and click on the sell button placed next to the equity you want to sell. This will automatically take you to square-off dialogue box. Another way to prevent undesired short-selling is to set auto-allocation of funds to inactive. In the event of a mistake made by you during trading, such an order will be rejected by the system due to lack of allocation of funds to carry out the transaction. Allocate funds only when you wish to buy shares. To avoid these types of confusions, some brokerage houses now included separate buttons for sell and short-sell orders on the trading page of their website. MARKET OR LIMIT ORDERS

You should also be aware about buying or selling at Market or Limit price. You are executing your order at Market price, if you are transacting at prevailing price to meet required quantity of shares.

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Market orders are executed almost immediately when they find desired quantity, irrespective of price factor. Disadvantage of this type of order is that trader does not know the price until trade gets executed and is very dangerous in volatile market. If you are placing an order at a pre-determined price, then you are carrying out a transaction at a price Limit. It is safe to resort to Limit type of order than getting unfavourable results by transacting at Market price. And it is always better to refer the list of available bidders and offers at different prices and quantities before placing orders.

ONLINE TRADING -- IMPACT ON GLOBAL SECURITIES MARKET

This revolution has advanced significantly in the US and is being felt in Europe, Japan, Australia, China and South Korea. Catalysing this process is the power of the Internet. Though online trading was introduced in the US almost 12 years back, trading was significantly transformed only after it was moved to the Internet in early 1996. The great democratisation of the investment business/trading environment did not happen overnight, even in the US. Fighting the vested interest and the cartel-like milieu in the strong investment banking community in the US, led by the likes of Merrill L ynch, Morgan Stanley, Goldman Sachs or Lehman Brothers, some brokerage houses which had operated in the traditional market environment, such as Schwab, E* Trade, TD Waterhouse and Fidelity, broke ranks with the investment community.

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As the cosy conclave among major investment bankers started with IPOs and extended to the secondary market environment, the nexus was too strong. Traditionally, the best price for a trade (using sophisticated electronic trading systems set up by brokerag e houses such as Schwab, E*Trade and others) was available only to institutions and professional investors who generated volumes. The rest of the retail fraternity had to pay high commissions as individual portfolios were managed mainly by brokerage hous es on a discretionary basis.

DEMOCRATISATION
Though the attraction of online trading was obvious, it was the Internet that spurred the process by creating a parallel universe of electronic content ranging from online banks, business news, investment services, and chat-rooms for investment advice. That and the gumption of a few pioneers such as Schwab, E*Trade and a few other brokerage houses in the US to use the `electronic trading systems,' also called electronic communication networks (ECNs) to extend this trading service to individuals using t he Internet virtually kick-started the retail trading revolution. Using ECNs such as Instinet, Island, Archipelago and Brut, these retail brokerage houses were able to mesh their experience in broking with new developments in technology to shake up the entire traditional stock exchange establishment led by the NYSE and Nasdaq in the US in less than two years.

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REVOLUTIONARY PHASE
Through online trading, the securities industry has, for the first time, paved the way for the implementation of direct order placement _ directly onto the broking firm's trading system via the Internet (see box). By circumventing the broker in the order -entry stage, the price-setting power for trading `execution' has shifted from the brokers and traditional stock exchanges to the ECNs. The advent of online trading is probably the final stage in the `disintermediation of the trading environment,' ending the process which started with the abolition of the fixed brokerage commissions in the mid-1970s. In three years, by the end of 1999, t he ECNs accounted for nearly 30-35 per cent of the trading volumes of Nasdaq and around 5 per cent of the volumes at the NYSE. The recent speculation over a possible NYSE-Nasdaq merger have stemmed largely from the threat posed by ECNs. In this process, online trading has conferred certain key advantages for the investors as a class: Best price: Offer the best price by ensuring that the matching of buy and sell orders are done within an ECN (if necessary) without market-makers or traditional stock exchanges, such as Nasdaq or the NYSE, elbowing into the equation. This has resulted in a phenomenal reduction in the transaction cost for the investor. Liquidity: Online trading offers 24-hour trading facilities. Some ECNs, such as Instinet, are offering 24-hour trading facilities while Island, another ECN, offers trading facility between 8 a.m. and 8 p.m., at least four-and-a-half hours longer than the current Nasdaq trading day. According to the President of Island, it is

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technologically ready to offer 24-hour and seven-day week ECN, subject to customer and subscriber demand for its services. By providing the facility, the liquidity options available to an investor have been considerably stretched. Recently, both the Nasdaq and NYSE have been making attempts to extend the trading hours too. Audit trail: Online trading has imparted greater transparency by providing an audit trail for an investor right at his desk which used to stop with his broker's trading terminal earlier. The integrated electronic chain, starting with order-placement-clea ring and settlement function-order execution-adjustment in the bank account and ending with the credit in the depository account of the investor is a largely transparent process, subject to scrutiny. Testifying to the strength and appeal of online trading are the following: AWhen Merrill Lynch, the investment banking giant, hopped onto the online trading bandwagon in June 1999, Net-trading could be said to have arrived. Merrill Lynch stunned the brokerage community by announcing that it was willing to offer its retail custo mers the option of using its full brokerage services (at a commission of, say, $250 on a $10,000 trade) or put through the same trade on its website at $29.95. AAn SEC report estimates that compared to the 3.7 million accounts in 1997, online accounts almost tripled to 9.7 millions by the second quarter of 1999. According to research analysts, commensurate with the growth in online accounts, trading volumes hav e also multiplied _ from 1,00,000 trades per day in 1996 second quarter to over 5,00,000 in 1999 second quarter. The percentage of equity trades conducted online is estimated to have grown to 15.9 per cent of all equity trades in the first quarter of 199 9. Europe, too, is expected to hop onto the ECN bandwagon. According to J. P. 64

Morgan's growth forecast, Europe alone will have nearly 8.3 million online accounts by end-2002 compared with just 9,00,000 today.

CHALLENGES AHEAD
The Securities and Exchange Commission, the apex regulator of the securities market in the US is keeping a close watch on the developments in the ECN front. The SEC chairman, Mr. Arthur Levitt, has conceded that ``ECNs have been one of the most important developments in the markets in years, perhaps, in decades. Competition has never been greater, execution costs have never been lower and spreads have been narrower.'' Saddled with the onerous task of ensuring that ECNs are able to compete with traditional exchanges and dealer markets in an environment free from unfair advantages or unreasonable barriers, he has highlighted the following key issues and challenges facin g the industry: ADemutualisation (conversion of an exchange from a mutual organisation of stockbrokers to a for-profit corporate with limited liability) of the national exchanges such as Nasdaq and the NYSE; AThe impact of greater competition on order-flow, liquidity and execution costs; AThe imperative to interlink market centres; and, more broadly AThe challenge is to provide investors with the efficiency of the central market without sacrificing competition and innovation.

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ORS: SMALL STEP IN THE LONG CHAIN

THE Securities and Exchange Board of India flagged off Internet (or online) trading in the first week of January. Based on the recommendations of the B. P. Pathak Committee on Internet Trading, SEBI has allowed the Internet to be used as an orderrouting system (ORS) through registered stock brokers on behalf of clients for execution of trades on recognised stock exchanges. The ORS is only a small step in the long chain of online trading in the true form as it is yet to be linked to online clearing and settlement functions, online banking and depositories to seamlessly put through an entire transaction through the Internet. As further steps depend on the passage of the Electronic Commerce Bill in Parliament, they cannot be contemplated at the moment. But a small beginning has certainly been made and the broking community has been enthusiastic. Recognising the potential of generating huge business volumes in the Net environment, the broking community across the country has been sprucing up their websi tes to prepare themselves for this new trading environment. Among the early entrants are institutional players such as ICICI (www.icicidirect.com), Stock Holding Corporation of India, Infrastructure Leasing and Financial Services and broking outfits such as Kochi-based Geojit Securities (www.geojitsecurities.com), Delhi-based Gogia Capital (www.gogiacap.com) and Dutt Stock Broking

(www.duttstock.com), Mumbai-based SSKI (www.sski.com), Sykes and Ray Equity (www.sykesandray.com), and Motilal Oswal (www.mo tilaloswal.com) are among the numerous players in this online trading space.

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As market imperfections abound in the Indian setting, the traded stocks are barely 35 per cent of the total universe of over 6,000 stocks and liquidity is skewed in favour of a few, both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NS E) are gearing up to operate in this new trading environment. The NSE plans to offer online trading to its brokers through its wholly-owned subsidiary, NSE.IT and the BSE is planning the same through its online trading system, BOLT. Both propose to use the stock exchange's web-server to offer access to brokers by t he creation of mailboxes of individual brokers on the exchange's website. Subject to the removal of regulatory constraints, in a globalised trading environment, it is only a matter of time before international ECNs (through brokerage outfits) make their appearance in India also. The sooner the Indian players wake up to this reality, the better placed they will be to compete in the long run.

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RESEARCH METHODOLOGY

Research in common parlance refers to search of knowledge ,the manipulation of things ,concepts or symbols for the purpose of generalizing to extend ,correct or verify knowledge whether that knowledge aids in construction of theory or in the practice of arts Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying his research that s done scientifically in it we study the various steps that are generally adopted by researcher in studying his research problem along with logic behind them Introduction of problem The topic is based on analysis of growth of financial services in India , it reflect that how the. The problem of this study is to describe different available financial services in India and their emerging growth towards the peak for improving the economical condition of the country and also help to reduce the financial crises of the country.

TYPES OF RESEARCH
Descriptive research descriptive reach includes surveys and facts finding enquires of different kinds. The major purpose of descriptive research is the description of the state of affairs ,a exists at present .in social science and business research we quiet offen the term ex post facto research for descriptive research studies the method of research utilized in descriptive research is the survey method of all kind, including comparison and correlation method.

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Research design

Data Type : secondary data Secondary data will be collected from published sources like journal, magazines and various newspaper and internet. My report is based on secondary data

Data Sources: books, magazines journal and websites

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USE & IMPORTANCE

TECHNOLOGICAL ENVIROMENT Technology plays a very important role in banks internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post. Today banks are also using SMS and Internet as major tool of promotions and

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giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. All these technological changes have forced the bankers to adopt customerbased approach instead of product-based approach. ECONOMICAL ENVIROMENT Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others followed Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels. POLITICAL/ LEGAL ENVIROMENT Government and RBI policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some 71

measures to their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By doing so the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks. SOCIAL ENVIROMENT Before nationalization of the banks, their control was in the hands of the private parties and only big business houses and the effluent sections of the society were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social development in the banking sector it was necessary for speedy economic progress, consistent with social justice, in democratic political system, which is free from domination of law, and in which opportunities are open to all. Accordingly, keeping in mind both the national and social objectives, bankers were given direction to help economically weaker section of the society and also provide need-based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loans to farmers, working women, professionals, and traders. They also provide education loan to the students and housing loans, consumer loans, etc. Banks having big clients or big companies have to provide services like personalized banking to their clients because these customers do not believe in running about and waiting in queues for getting their work done. The bankers also have to provide these customers with special provisions and at times with benefits like 72

food and parties. But the banks do not mind incurring these costs because of the kind of business these clients bring for the bank. Banks have changed the culture of human life in India and have made life much easier for the people. 7 PS of BANKING SECTOR It is very important for any bank to identify the 7 Ps of services so was understands their customers better and provide them with best of service. The 7 Ps are:

1. PRODUCT MIX 2. PRICE MIX 3. PLACE 4. PROMOTION 5. PEOPLE 6. PROCESS 7. PHYSICAL EVIDENCE

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FINDING AND ANALYSIS

FINANCIAL SERVICES EXPECT AVERAGE ANNUAL GROWTH OF 35% OVER FY09-FY10: Companies from the financial services segment expect to grow by 35% in FY09FY10, revealed a study conducted by Dun & Bradstreet, the worlds leading provider of global business information, knowledge and insight. D&B today released the inaugural edition of its publication, "India's Leading BFSI Companies 2008", which profiles 223 companies with an aggregate total income of Rs. 5634 bn in FY07. These include 71 banks, 105 financial services companies, 17 mutual fund houses and 30 insurance companies. Indias Leading BFSI Companies 2008 is an attempt to highlight the key achievements and challenges faced by the banking and financial services sector. The penetration of the financial sector in India still remains low, with the bank credit to GDP ratio at less than 50%, overall insurance premium to GDP ratio at less than 5% and general insurance premium to GDP ratio at under 1%. Our study revealed that mutual fund companies expect an average annual growth of 28% while insurance companies expect around 18% growth over the next 2-3 years. We are confident that D&Bs Indias Leading BFSI Companies 2008 will serve as a valuable reference tool on this key sector.

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Some of the key highlights of the study: Financial Services

The study (based on direct responses received from the companies), revealed that the financial services industry is poised to grow at an average 35% per annum over the next two years i.e. FY09-FY10.

Network expansion and entering new geographies were the most imperative future growth plans for companies operating in the financial services sector. Additionally, organic growth was quoted as the preferred route for expansion.

Shortage of skilled resources is the major challenge faced by the financial services industry, while shrinking margins and regulatory changes such as fiscal, monetary policies were rated second and third.

Mutual Funds

The AUM for the Indian mutual fund industry has grown at a CAGR of almost 31% in the past six years. Based on responses received from AMCs, the industry is upbeat about its future growth. The AUM is expected to grow at a CAGR of 28.2% between FY08 and FY11.

Rising employee cost is a big challenge for the mutual fund industry. Our study revealed that average employee costs as a percentage of the total income reached 25.17% in FY07 from 23.4% in FY06, representing a y-o-y growth of 45.5% in FY07.

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GROWTH IN ASSETS UNDER MANAGEMENT

To be concluded that growth in assets under management is increasing at constant rate from last 8 year.

Mutual fund sector to grow at 30%-35% in 3-5 years The mutual fund sector will see a compounded annual growth rate of 30-35 per cent in the next three to five years.

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"The mutual fund sector will see a huge growth in the coming three to five years to the tune of 30 to 35 per cent. This will happen due to easing of regulations on mutual funds," Birla Sun Life Asset Management Company (BSLAMC) Chief Executive Officer Anil Kumar told reporters here. Kumar, who was present at the launch of his company's first commodity fund, said BSLAMC grew at 14 per cent in the first quarter of the current fiscal against an industry growth rate of six per cent. The company plans to almost double its offices to 200 by the end of this fiscal. Currently, BSLAMC has 110 offices in the country, he added. Christened Birla Sun Life Commodity Equity Fund, the new product is an open-ended commodity equities fund meant to offer investors long-term capital growth by investing in securities of domestic and overseas commodity companies.

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Allocation under assets management

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INSURANCE SECTOR

The Indian insurance industry has grown at a steady pace, reporting a CAGR of 26% in terms of total premium between FY02 and FY07.

As per our study, the total premium of the insurance industry is expected to grow at an average 18.3% per annum over the next two years.

The study revealed that availability of skilled manpower is one of the biggest challenges faced by the sector, followed by regulatory changes, competition and shrinking margins. Insurance Companies market share

GROWTH OF INSURANCE NEW BUSINESS

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ANALYSIS OF INCOME

This chart shows various income of LIC. LIC gets 14.11 % income through first year premium. LIC gets 40.74 % income from Renewal Premium. LIC gets 12.43 % income from Single Premium. LIC gets 31.19 % income from investments. LIC gets income 1.53 % from Miscellaneous.

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FINDING IN STOCK MARKET

Index BSE Index FTSE

Jan.2002 Feb.2008 %Gain in $ 3243 19063 377.29%

5165 100 Dow 9920 Jones

6203

61.82%

12653

27.55%

To be concluded that BSE index is increasing at a constant rate and FTSE is also increasing at lower rate in comparision with BSE index rate.

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THE BULL MARKET

To be concluded that bull market at the initial stage is not increasing at a constant but in june 06 it is at the zeinth

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To be concluded that sensex possibilities in year 2010 will be fetching good return

GROWTH OF INDIAN ONLINE TRADING

The world of online investing is about to explode, and that promises to create a huge new opportunity for marketers wanting to reach upscale consumers.

According to a new study done jointly by internet research company Gomez Advisors and Harris Interactive, the number of people investing online is likely to surge by 69 percent in the next six months. Right now there are 5.1 million people who invest online. Of the people poised to join them, 2.85 million are investors with off-line brokerage accounts who say they are "likely" or "extremely likely" to open an online brokerage account in the next six

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months. Another 660,000 are people without an off-line brokerage account who nonetheless say they are "likely" or "extremely likely" to begin investing online in the next six months. And this, says the report, is just the beginning. Additionally there are roughly 12.8 million off-line investors who are either already using the internet to do investment research or are showing other behavioral similarities to online investors, such as purchasing similar products. Existing online investors have a 31 percent higher median income than off-line investors and are 41 percent more likely to have a college or post-graduate education. These investors are also two and a half times more likely to be Asian and one and a half times more likely to be Hispanic than off-line investors. The report also notes a trend away from the "Hyper-Active Trader" model of online investing. The "Serious Investor" now represents 48.5 percent of the online investor market. While HyperActive Traders at one point comprised more than 50 percent of the market, their share has fallen to 8.9 percent. This is seen as a sign of the mainstreaming of online investing, as those investors become more long-term oriented and less price-sensitive. The report states that Hyper-Active Traders ultimately experience fatigue and eventually adopt more traditional investment behavior. If the reports projections hold true, the finance category on the web, already growing notably, will become one of the top categories for users as well as advertisers. Financial sites are already among the stickiestin May the finance category

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moved ahead of shopping to become the second leading category in terms of time spent per person, according to Media Metrixand this should create an extremely attractive market for advertisers. The situation should also lead to even more financial services advertising on the weban advertiser group already large and competitive. Last year financial services accounted for 12 percent of total online ad spending, according to eMarketer. THE OVERALL GROWTH IN ECONOMIC SECTOR

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CONCLUSION

Concluding this study, it can be said that financial services are putting its step in almost every sector of Indian economy. The problem of this study is to describe different available financial services in India and their emerging growth towards the peak for improving the economical condition of the country and also help to reduce the financial crises of the country. Growth in financial services is being bolstered by the opportunities of demography, emerging markets and ever more innovative products and services. The banking and capital markets sector is being transformed by increased competition, regulation and globalisation. On the basis of analysis and interpretation done the following conclusion has been drawn. India's financial services sector will enjoy generally strong growth during coming years, driven by rising personal incomes, corporate restructuring, financial sector liberalization and the growth of a more consumer-oriented, credit-oriented culture. This should lead to increasing demand for financial products, including consumer loans (especially for cars and homes), as well as for insurance and pension products. India's financial services sector is expected enjoy generally strong growth during coming years, driven by rising personal incomes, corporate restructuring, financial sector liberalization and the growth of a more consumer-oriented, creditoriented culture. This is expected to lead to increasing demand for financial products, including consumer loans as well as for insurance and pension products. With the structural liberalization policies no doubt Indian economy is likely

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to return to a high grow path in few years. Hence mutual fund organizations are needed to upgrade their skills and technology. Success of mutual fund however would bright depending upon the implementation of suggestions.

Regulation and development of financial markets, institutions, technology etc. To enhance efficiency and stability of the financial system and thus contribute to growth and employment, several steps have been undertaken for widening, deepening and integrating financial markets although it is work in progress. Simultaneously, new processes and institutional arrangements have been put in place in regard to the banking sector, deposit-taking non-banking financial companies and systemically important non-deposit-taking non-banking financial companies. By and large, these initiatives, in particular supervisory systems, are in alignment with the global best practices, but there are dynamic trade offs between public ownership of financial institutions, regulation, financial innovation, etc. Similarly, several steps have been taken to enhance use of technology and market micro-structures in the financial sector. The financial sector policies are continuously evolving, essentially in a proactive manner. Medium term frameworks or vision documents have been formulated in each of these areas since 2004 and are being implemented through a continuous process of consultations with market participants and industry associations (some of which were established with encouragement from RBI). The thinking as well as the progress in actions in this regard are articulated through RBIs Annual Policies and Mid Term Reviews.

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GROWTH OF FINANCIAL SECTOR IN INDIA

The growth of financial sector in India at present is nearly 8.5% per year. The rise in the growth rate suggests the growth of the economy. The financial policies and the monetary policies are able to sustain a stable growth rate. The reforms pertaining to the monetary policies and the macro economic policies over the last few years has influenced the Indian economy to the core. The major step towards opening up of the financial market further was the nullification of the regulations restricting the growth of the financial sector in India. To maintain such a growth for a long term the inflation has to come down further. The financial sector in India had an overall growth of 15%, which has exhibited stability over the last few years although several other markets across the Asian region were going through a turmoil. The development of the system pertaining to the financial sector was the key to the growth of the same. With the opening of the financial market variety of products and services were introduced to suit the need of the customer. The Reserve Bank of India (RBI) played a dynamic role in the growth of the financial sector of India.

THE GROWTH OF FINANCIAL SECTOR IN INDIA WAS DUE TO THE DEVELOPMENT IN SECTORS

GROWTH OF THE CAPITAL MARKET IN INDIA

The ratio of the transaction was increased with the share ratio and deposit system

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The removal of the pliable but ill-used forward trading mechanism The introduction of infotech systems in the National Stock Exchange (NSE) in order to cater to the various investors in different locations

Privatization of stock exchanges

GROWTH IN THE INSURANCE SECTOR IN INDIA

With the opening of the market, foreign and private Indian players are keen to convert untapped market potential into opportunities by providing tailor-made products:

The insurance market is filled up with new players which has led to the introduction of several innovative insurance based products, value add-ons, and services. Many foreign companies have also entered the arena such as Tokio Marine, Aviva, Allianz, Lombard General, AMP, New York Life, Standard Life, AIG, and Sun Life

The competition among the companies has led to aggressive marketing, and distribution techniques

The active part of the Insurance Regulatory and Development Authority (IRDA) as a regulatory body has provided to the development of the sector

GROWTH OF THE VENTURE CAPITAL MARKET IN INDIA

The venture capital sector in India is one of the most active in the financial sector inspite of the hindrances by the external set up

Presently in India there are around 34 national and 2 international SEBI registered venture capital funds

SUGGESTIONS AND RECOMMENDATIONS

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The research is based on the growth is based of financial services in India .after the surveillance of topic certain suggestions are as follows: -

1. The government should take initiative to control the volatility of economic growth 2. As there is no comprehensive law to regulate the mutual fund in India , uniform coordinated regulation by a single agency would be formed which provide the shelter to the investor 3. The company should discuss on the cost (premium amount) and on the Rate of Return (RoR) on insurance policies 4. Inflation should be control so that stock market will not hamper. 5. cash reserve ratio should be maintained according to the demand of currency.

KEY RECOMMENDATIONS
Structure

Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.

All the insurance companies should be given greater freedom to operate.

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Competition

Private Companies with a minimum paid up capital of Rs.1billion should be allowed to enter the industry.

No Company should deal in both Life and General Insurance through a single Entity.

Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.

Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance should be made independent.

Investments

Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.

GIC and its subsidiaries are not to hold more than 5% in any company.

Customer Service

LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans.

Computerisation of operations and updating of technology to be carried out in the insurance industry.

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LIMITATIONS

1. The reliability of project depends upon to some extend on the reliability of secondary data is used. 2. Study is not very exhaustive and many concepts cannot be studies due to less devotion of time and other constraints 3. The project is carried by individual not by group. 4. This might make the scope of project myopia i.e. the idea will be limited to a great extend on what I perceived and understand 5. Since in India the financial market is still in developing stage and people dont know much about it so a primary research for my project will not be feasible, hence study has a high dependency on secondary research.

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BIBLIOGRAPHY
BOOKS: Kotari C.R; Research Methodology; Second Edition : 2002, Wishwa Prakashan New Delhi

NEWSPAPER .The times of India ; Hindustan Times ;

WEBLIOGRAPHY
www.rbi.org.in www.amfiindia.com www.nseindia.com www.bseindia.com www.altavista.com www.valueresearchonline.com www.gooogle.com

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