A STUDY ON AWARENESS OF DERIVATIVE PRODUCTS

AMONG SHAREKHAN CUSTOMERS

Project synopsis submitted in partial fulfilment of the requirements for the

award of the degree
MASTER OF BUSINESS ADMINISTRATION
OF
BANGALORE UNIVERSITY

By
RAKSHITH MR
Registration No: 17YUCMD159

Under the guidance of

Prof. SIDDANAGOUDA POLICEPATIL

Assistant Professor

ACHARYA BANGALORE B SCHOOL

Bangalore University

2018-2019

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EXECUTIVE SUMMARY

Firstly, I am giving an overview of the Indian Derivative market and sharing some of the
strategies used. Then at the last I am giving my suggestions and recommendations.

With over 25 million shareholders, India has the third largest investor base in the world after
USA and Japan. Over 7500 companies are listed on the Indian stock exchanges (more than the
number of companies listed in developed markets of Japan, UK, Germany, France, Australia,
Switzerland, Canada and Hong Kong.). The Indian capital market is significant in terms of the
degree of development, volume of trading, transparency and its tremendous growth potential.
India’s market capitalization was the highest among the emerging markets. Total market
capitalization of The Bombay Stock Exchange (BSE), which, as on July 31, 1997, was US$
175 billion has grown by 37.5% percent every twelve months and was over US$ 834 billion as
of January, 2007. Bombay Stock Exchanges (BSE), one of the oldest in the world, accounts for
the largest number of listed companies transacting their shares on a nationwide online trading
system. The two major exchanges namely the National Stock Exchange (NSE) and the Bombay
Stock Exchange (BSE) ranked no. 3 & 5 in the world, calculated by the number of daily
transactions done on the exchanges. The Total Turnover of Indian Financial Markets crossed
US$ 2256 billion in 2006 – An increase of 82% from US $ 1237 billion in 2004 in a short span
of 2 years only. Turnover in the Spot and Derivatives segment both in NSE & BSE was higher
by 45% into 2006 as compared to 2005. With daily average volume of US $ 9.4 billion, the
Sensex has posted excellent returns in the recent years.

Derivatives trading in the stock market have been a subject of enthusiasm of research in the
field of finance the most desired instruments that allow market participants to manage risk in
the modern securities trading are known as derivatives. The derivatives are defined as the future
contracts whose value depends upon the underlying assets. If derivatives are introduced in the
stock market, the underlying asset may be anything as component of stock market like, stock
prices or market indices, interest rates, etc. The main logic behind derivatives trading is that
derivatives reduce the risk by providing an additional channel to invest with lower trading cost
and it facilitates the investors to extend their settlement through the future contracts. It provides
extra liquidity in the stock market.

Derivatives are assets, which derive their values from an underlying asset. These underlying
assets are of various categories like
• Commodities including grains, coffee beans, etc.
• Precious metals like gold and silver.
• Foreign exchange rate.
• Bonds of different types, including medium to long-term negotiable debt securities
issued by governments, companies, etc.
• Short-term debt securities such as T-bills.
• Over-The-Counter (OTC) money market products such as loans or deposits.
• Equities

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For example, a dollar forward is a derivative contract, which gives the buyer a right & an
obligation to buy dollars at some future date. The prices of the derivatives are driven by the
spot prices of these underlying assets.
However, the most important use of derivatives is in transferring market risk, called Hedging,
which is a protection against losses resulting from unforeseen price or volatility changes. Thus,
derivatives are a very important tool of risk management.

There are various derivative products traded. They are;

1. Forwards
2. Futures
3. Options
4. Swaps

A person who is ready to take risk and want to gain more should invest in the derivative market.

On the other hand, RBI has to play an important role in derivative market. Also SEBI must
encourage investment in derivative market so that the investors get the benefit out of it. Sorry
to say that today even educated persons are not willing to invest in derivative market because
they have the fear of high risk. So, SEBI should take necessary steps for improvement in
Derivative Market so that more investors can invest in Derivative market.

Derivative is the market considered for making and losing million but there are some kinds
of derivatives which are used when there is low initial investment and earn piles of money
through it. This study is conducted to know how many investors are aware about the risks
faced by them in derivative market and the trading strategies.

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TABLE OF CONTENT

CHAPTER.NO PARTICULAR PAGE

NUMBER

01
INTRODUCTION 05

02
INTRODUCTION TO THE INDUSTRY 09

03
RESEARCH METHEDOLOGY 31

04
DATA ANALYSIS 34
&INTERPRETATION

05
FINDINGS, SUGESSIONS& 47
CONCLUSIONS

BIBLIOGRAPHY 49

4
CHAPTER - 1

5
INTRODUCTION

A Derivative is a financial instrument whose value depends on other, more basic, underlying
variables. The variables underlying could be prices of traded securities and stock, prices of
gold or copper.
Derivatives have become increasingly important in the field of finance, Options and
Futures are traded actively on many exchanges, Forward contracts, Swap and different types
of options are regularly traded outside exchanges by financial intuitions, banks and their
corporate clients in what are termed as over-the-counter markets – in other words, there is no
single market place or organized exchanges. Risk is a wide concept when associated with
derivative market. In this market we come across various investors broadly classified as
hedger, speculators, arbitragers etc. Derivatives markets consist of options, swaps, futures
contract etc, which are very risky but can be used in booking good profits. As it remains true
that the more risk always leads you to higher profit with the higher probability of making a
mountain size of loss. But it could be great if we know to transfer or reduce it, because risk is
something which cannot be removed from the economy, it can only be transferred or reduced.
Even after good management, bad luck can direct us towards huge losses because
even a small event (unpredictable) can make a difference of millions and trillions. That’s the
reason trading is defined as, “it is not a play of kids, it’s just play of timing and knowledge
and part of luck too.” The various types of risk involved in derivate market are market risk,
correlation risk, settlement risk, strategic risk etc. There are also various predefined market
strategies which may be used for profitable trade like calendar spread, straddle, strangle, bull
spread, bear spread etc.

Significance of the Study

The study has been done to know the different types of derivative Products, also to
know the Awareness of Derivative Products Among Sharekhan Customers. This
study also covers the recent developments in the derivative market taking into
account the trading in past years. Through this study I came to know the trading
done in derivatives and their use in the stock markets.

Scope
The project covers the derivatives market and its Products. For better understanding
various strategies with different situations and actions have been given. It also
includes the analysis of the survey, which is being conducted to know the awareness
of the Derivative Products among sharekhan customers

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 Objectives of the Study

 To understand the concept of the derivatives and Derivative Trading.

 To know the awareness of sharekhan customers towards derivative products.
 To know different types of Financial Derivatives
 To know the role of derivatives trading in India.

Literature Review

According to JOHN C. HULL “A derivative can be defined as a financial instrument whose

value depends on (or derives from) the values of other, more basic underlying variables.”
Bose, Suchismita conducted research on (2006) found that Derivatives products
provide certain important economic benefits such as risk management or redistribution of risk
away from risk-averse investors towards those more willing and able to bear risk. Derivatives
also help price discovery, i.e. the process of determining the price level for any asset based on
supply and demand. These functions of derivatives help in efficient capital allocation in the
economy. At the same time their misuse also poses threat to the stability of the financial
sector and the overall economy.
Kumar, R. and Chandra, A. (2000), had studied that Individuals often invest in
securities based on approximate rule of thumb, not strictly in tune with market conditions.
Their emotions drive their trading behavior, which in turn drives asset (stock) prices.
Investors fall prey to their own mistakes and sometimes other’s mistakes, referred to as herd
behavior. Markets are efficient, increasingly proving a theoretical concept as in practice they
hardly move efficiently. The purely rational approach is being subsumed by a broader
approach based upon the trading sentiments of investors. The present paper documents the
role of emotional biases towards investment (or disinvestment) decisions of individuals,
which in turn force stock prices to move.
Srivastava, S., Yadav, S. S., Jain, P. K. (2008), had conducted a survey of brokers in
the recently introduced derivatives markets in India to examine the brokers’ assessment of
market activity and their perception of benefits and costs of derivative 50 trading. The need
for such a study was felt as previous studies relating to the impact of derivatives securities on
Indian Stock market do not cover the perception of market participants who form an integral
part of the functioning of derivatives markets. The issues covered in the survey included:
perception of brokers about the attractiveness of different derivative securities for clients;
profile of clients dealing in derivative securities; popularity of a particular derivative security
out of the total set; different purposes for which the clients are using these securities in order
of preference; issues concerning derivatives trading; reasons for non usage of derivatives by
some investors.
INTERNATIONAL MONETARY FUND (2000), Legal uncertainties are another
danger in derivatives markets. Sometimes counterparties enter into derivative contracts
without the legal or regulatory authority to do so. This may result in large losses for banks.
Legal risks also include compliance and regulatory risks, which concern activities that might

7
breach government regulations, such as market manipulation, insider trading, and suitability
restrictions.
Santomero, (1995), before derivatives markets were truly developed, the means for
dealing with financial risks were few and financial risks were largely outside managerial
control. Few exchange-traded derivatives did exist, but they allowed corporate users to hedge
only against certain financial risks, in limited ways and over short time horizons. Companies
were often forced to resort to operational alternatives like establishing plants abroad, in order
to minimize exchange-rate risks, or to the natural hedging by trying to match currency
structures of their assets and liabilities.

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

Derivative products initially emerged, as hedging devices against fluctuations in

commodity prices and commodity-linked derivatives remained the sole form of
such products for almost three hundred years. The financial derivatives came into
spotlight in post-1970 period due to growing instability in the financial markets.
However, since their emergence, these products have become very popular and by
1990s, they accounted for about two-thirds of total transactions in derivative
products. In recent years, the market for financial derivatives has grown
tremendously both in terms of variety of instruments available, their complexity
and also turnover. In the class of equity derivatives, futures and options on stock
indices have gained more popularity than on individual stocks, especially among
institutional investors, who are major users of index-linked derivatives.

Even small investors find these useful due to high correlation of the popular indices
with various portfolios and ease of use. The lower costs associated with index
derivatives vis-a-vis derivative products based on individual securities is another
reason for their growing use. As in the present scenario, Derivative Trading is fast
gaining momentum, hence I have chosen this topic.

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CHAPTER - 2

9
Introduction To The Industry

History of The Stock Broking Industry

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly
200 years ago. The earliest records of security dealings in India are meagre and
obscure. By 1830's business on corporate stocks and shares in Bank and Cotton
presses took place in Bombay. Though the trading list was broader in 1839, there
were only half a dozen brokers recognized by banks and merchants during 1840 and
1850. The1850's witnessed a rapid development of commercial enterprise and
brokerage business attracted many men into the field and by 1860 the number of
brokers increased into 60. In 1860-61 the American Civil War broke out and cotton
supply from United States of Europe was stopped; thus, the 'Share Mania' in India
begun. The number of brokers increased to about 200 to 250. However, at the end of
the American Civil War, in1865, a disastrous slump began (for example, Bank of
Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end
of the American Civil War, the brokers who thrived out of Civil War in 1874, found
a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively
known as "The Stock Exchange"). In 1895, the Stock Exchange acquired a premise
in the same street and it was inaugurated in1899. Thus, the Stock Exchange at
Bombay was consolidated. Thus in the same way, gradually with the passage of time
number of exchanges were increased and at currently it reached to the figure of 24
stock exchanges

Development
An important early event in the development of the stock market in India was the
formation of the Native Share and Stock Brokers’ Association at Bombay in 1875,
the precursor of the present-day Bombay Stock Exchange. This was followed by the
formation of associations /exchanges in Ahmedabad (1894), Calcutta (1908), and
Madras (1937). IN addition, a large number of ephemeral exchanges emerged mainly
in buoyant periods to recede into oblivion during depressing times subsequently. In
order to check such aberrations and promote a more orderly development of the stock
market, the central government introduced a legislation called the Securities
Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part
of stock exchanges to seek government recognition. As of January 2002 there were
23 stock exchanges recognized by the central Government. They are located at
Ahmedabad, Bangalore, Baroda, Bhubaneshwar, Calcutta, Chennai,(the Madras
stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore,
Jaipur, Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or
NSE),Mumbai (The Stock Exchange), popularly called the Bombay Stock
Exchange, Mumbai (OTC Exchange of India), Mumbai (The Inter-connected Stock
Exchange of India), Patna, Pune, and Rajkot. Of course, the principle bourses are the

10
 National Stock Exchange and The Bombay Stock Exchange, accounting for the bulk
of the business done on the Indian stock market. While the recognized stock
exchanges have been accorded a privileged position, they are subject to
governmental supervision and control. The rules of a recognized stock exchanges
relating to the managerial powers of the governing body, admission, suspension,
expulsion, and re-admission of its members, appointment of authorized
representatives and clerks, so on and so forth have to be approved by the government.
These rules can be amended, varied or rescinded only with the prior approval of the
government.

BSE (BOMBAY STOCK EXCHANGE)

The Stock Exchange, Mumbai, popularly known as "BSE" was established in

1875 as "The Native Share and Stock Brokers Association". It is the oldest one
in Asia, even older than the Tokyo Stock Exchange, which was established in
1878. It’s a voluntary non-profit making Association of Persons (AOP) and is
currently engaged in the process of converting itself into demutualised and
corporate entity. It has evolved over the years into its present status as the
premier Stock Exchange in the country. It is the first Stock Exchange in the
Country to have obtained permanent recognition in 1956 from the Govt. of India
under the Securities Contracts (Regulation) Act, 1956.
A Governing Board having 20 directors is the apex body, which decides the
policies and regulates the affairs of the Exchange. The Governing Board
consists of 9 elected directors, who are from the broking community (one third
of them retire ever year by rotation), three SEBI nominees, six public
representatives and an Executive Director & Chief Executive Officer and a
Chief Operating Officer.

NSE (NATIONAL STOCK EXCHANGE)

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NSE was incorporated in 1992 and was given recognition as a stock exchange in April 1993.
It started operations in June 1994, with trading on the Wholesale Debt Market Segment.
Subsequently it launched the Capital Market Segment in November 1994 as a trading platform
for equities and the Futures and Options Segment in June 2000 for various derivative
instruments.
NSE has been able to take the stock market to the doorsteps of the investors.
The technology has been harnessed to deliver the services to the investors across
the country at the cheapest possible cost. It provides a nation-wide, screen-
based, automated trading system, with a high degree of transparency and equal
access to investors irrespective of geographical location. The high level of
information dissemination through on-line system has helped in integrating
retail investors on a nation-wide basis. The standards set by the exchange in
terms of market practices, Products, technology and service standards have
become industry benchmarks and are being replicated by other market
participants. Within a very short span of time, NSE has been able to achieve all
the objectives for which it was set up. It has been playing a leading role as a
change agent in transforming the Indian Capital Markets to its present form. The
Indian Capital Markets are a far cry from what they used to be a decade ago in
terms of market practices, infrastructure, technology, risk management, clearing
and settlement and investor service.

MCX (MULTI COMMODITY EXCHANGE)

Headquartered in Mumbai, Multi Commodity Exchange of India Ltd (MCX) is

a state-of-the-art electronic commodity futures exchange. The demutualised
Exchange has permanent recognition from the Government of India to facilitate
online trading, and clearing and settlement operations for commodity futures
across the country.
Having started operations in November 2003, today, MCX holds a market share
of over 85%* (as on March 31, 2012 MCX had a market share of 86%) of the
Indian commodity futures market. The Exchange has more than 2,170 registered
members operating through over 3, 46,000 including CTCL trading terminals
spread over 1,577 cities and towns across India. MCX was the third largest^
commodity futures exchange in the world, in terms of the number of contracts
traded in CY2011

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 MCX offers more than 40 commodities across various segments such as
bullion, ferrous and non-ferrous metals, energy, and a number of agri-
commodities on its platform. The Exchange introduces standardised commodity
futures contracts on its platform. These contracts in futures exchanges provide
an anonymous trading environment for ideal price discovery. The Exchange is
the world's largest exchange# in Silver and Gold, second largest in Natural Gas
and the third largest in Crude Oil with respect to the number of futures contracts
traded.

NCDEX (NATIONAL COMMODITIES AND DERIVATIVES CHANGE)

National Commodity & Derivatives Exchange Limited (NCDEX) is a

professionally managed on-line multi commodity exchange. The shareholders
of NCDEX comprises of large national level institutions, large public sector
bank and companies.
NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956. It obtained its Certificate for Commencement of
Business on May 9, 2003. It commenced its operations on December 15, 2003.
NCDEX is a nation-level, technology driven de-mutualised on-line commodity
exchange with an independent Board of Directors and professional management
- both not having any vested interest in commodity markets. It is committed to
provide a world-class commodity exchange platform for market participants to
trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.
NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to
various laws of the land like the Forward Contracts (Regulation) Act,
Companies Act, Stamp Act, Contract Act and various other legislations.

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INTRODUCTION TO THE COMPANY

Sharekhan is one of the leading retail brokerage firms in the country. It is the retail broking
arms of the Mumbai based SSKI Group, which has over eight decades of experience in the
stock broking business Sharekhan offers its customer a wide range of equity related services
including trade execution on BSE, NSE, Derivatives. Depository services, Online trading,
investment advice etc.
With more than 150 share shops in 80 cities, and India’s premier portal
www.sharekhan.com,we reach out to customers like no one else. Sharekhan offers you trade
execution facilities on the BSE and on the NSE. for cash as well as derivatives, depository
services and most importantly investment advice tempered by 80 years’ research and booking
experience

Sharekhan is

• Among the top 3 branches retail service providers

• No.2 player in online business
• Largest network of branches broking outlets in the country servicing 100,000 clients.
Sharekhan is the retail booking arm of SSKI, an organization with more than eight decades of
trust & credibility in the stock market, SSKI is amongst pioneers of investment research in
the Indian Market. In 1984 it was ventured into

Sharekhan Limited: Sharekhan Ltd is engaged in providing trading facility in equity cash,
derivatives (NSE, BSE), currency futures (NSE and MCX), Commodity Trading (MCX &
NCDEX), portfolio management services and distribution of third Party Products like mutual
funds, IPOs & personal loans.

Group Companies of Sharekhan Limited:

1. Human Value Developers Private Limited

2. Sharekhan Commodities Private Limited
3. Sharekhan Financial Services Private Limited
4. Sharekhan.com India Private Limited

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 5. Sharekhan Consultants Private Limited (formerly known as Sharekhan Insurance
Broking Private Limited)
6. Wealthtiger Investment Advisors Private Limited.

Key services by Sharekhan Ltd are:

Sharekhan Equity Trading: Sharekhan is registered member of NSE and BSE, you can
trade in Equity Cash and Equity Derivatives with Sharekhan using online or offline (branch /
sub brokers) network. ShareKhan equity research team is there for you to give daily research
report, weekly research report, latest market updates and news and intra-day stock tips.

Sharekhan Commodity Trading: Sharekhan is registered member of MCX & NCDEX,

trade in commodity future with Sharekhan using online or offline (branch / sub brokers)
network. Sharekhan broking commodity research team is there for you to provide daily
commodity research report, weekly commodity research report, commodity news and more.

Sharekhan FirstStep Account: For beginner in stock market, this account will give you step
by step guide how to trade in stock market, guidance and easy to understand research reports.
With FirstStep account client will get features like Streaming quotes, multiple watch-lists,
integrated banking, demat and digital contracts, instant credit and transfer, real-time portfolio
tracking with price alerts and of course, the assurance of secure transactions. This account is
only for the new customers not for the existing customers.

Key Features of Firststep account are:

o Get a quick session on how to invest in share market.

o How to read the research reports.
o How to use tools and platform.
o How to do call n trade.
o How to get help from Sharekhan Customer support via phone, email.
o Sales Executive will assign to you to start your first trade in market.
o

Sharekhan Classic Account:With this 100% online trading account from Sharekhan, client
will get live analysis before, during & after-market hours. From daily intra-day calls to long-
term stock recommendations, you will get timely advice with well-defined profit targets. Top
picks research basket will give you quick investment option from research team.

Sharekhan WealthOptimizer - Portfolio Management Service(PMS) : Under the

Sharekhan portfolio management services, the funds of the Client will be managed by a team
of experienced professionals. The Portfolio Manager's investment philosophy underlines
maximizing the risk adjusted returns depending on the client's risk tolerance. In order to
achieve the same, a disciplined investment approach with adequate risk controls has been
adopted. Investment in PMS service is done on basis of fundamental research, technical
research, arbitrage strategy [Buying the underlying stock and Selling the futures, which bring
the investments in relatively low risk assets], model portfolio. The investments will be
generally made in Equities and its derivatives, money market instruments and in Mutual
Funds. No particular sector forms more than 20% of the client’s portfolio. Sharekhan PMS
provide Discretionary Services as well as Non Discretionary/Advisory Services -

15
 o Discretionary Services - Under these services, the choice and the timing of the
investment decision is with the Portfolio Manager.
o Non Discretionary/Advisory Services - Under these services, the client decides
his own investments. The Portfolio Manager is responsible for providing
advise and facilitating the execution of transactions. The Portfolio Manager's
role is limited to providing research, investment guidance and trade execution
at the Client's request.

How much minimum investment is requiring for Sharekhan PMS (portfolio

management services)?

Minimum initial investment amount in Sharekhan portfolio management services is Rs 25

Lacs, this amount shall be invested in different product of the portfolio manager.

What type of charges client need to pay for Sharekhan PMS?

Sharekhan PMS service is not a free service, client need to pay various fees like management
fees, custodian/depository fees, registrar and transfer agent fee, brokerage and transaction
costs, securities lending and borrowing charges, certification and professional charges, profit
sharing, incidental expenses.

What type of report client can see with Sharekhan PMS?

Clients are free to check their portfolio online. Fortnightly reporting and quarterly reporting
are shared with client over email.

I have some holding company "A" stocks in my Sharekhan PMS and company offered
dividend, will I get the benefit of dividend?

Yes, with Sharekhan PMS, all dividend on your holdings will be credited to your account.

Sharekhan PatternFinder : PatternFinder is Sharekhan’s equity advisory service. This

service is free to clients. Sharekhan PatternFinder is using Recognia Inc, Technical Insight
Product, which is well known in global retail brokerage industry.

Sharekhan FortuneFinder: FortuneFinder is an engine which use artificial intelligence to

define the alerts depend on the movement of stocks/scripts and guide you with buy, sell, hold
or stay away rating. These alerts are good for any type of trade i.e delivery or Square off.
Alerts can set for the favorite stocks as well as existing stocks in your portfolio.

Sharekhan T+5 Day Auto Square Off: This is special feature offered by Sharekhan to its
clients where they can buy shares by paying a margin and can either square off the position or
can take delivery of the stocks (by paying additional funds) in this five day period till the
square off time specified by Sharekhan. In this process after T+2 days, shares shall be
credited to a separate "Online Client Stock Account" instead of your "Online DP Account".
After T+2 days client need to pay delayed payment charges at applicable rateSharekhan
Mutual Fund Service: With Sharekhan you can invest in major mutual funds. Sharekhan
Mutual fund service helps you to diversify your portfolio. Sharekhan Mutual Fund research
service is available for you for free of cost.

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Sharekhan IPO Investment: With Sharekhan you can invest in IPOs. Sharekhan IPO
investment service is paperless and available online. Sharekhan IPO Flash research service is
available for you to take better decision before applying IPO.

Sharekhan Depository Services: Sharekhan is registered as a Depository Participant with

CDSL. You can avail Demat service with Sharekhan to get fast and paper less transaction.

Sharekhan Intraday Trading Calls: Get intraday trading tips by advisory service to get
most of your investment. With Sharekhan intraday trading tips (hit list), you can buy and sell
stocks on same day and no need to wait for delivery call and wait for T+2 days.

Sharekhan Ranks : Sharekhan is giving a rank to the script which is doing best in financial
year. Penny Stocks are not included in this process; stocks above Rs 20 are part of this
ranking process. This ranking system will help you to choose best script for your portfolio.

Sharekhan Financial Services Pvt Ltd: SFSL is a Non Banking Finance Company (NBFC)
registered with the Reserve Bank of India.

o Loan against Securities: With Sharekhan Financial Services you can get
Loan against Securities. Loan facility is available to individuals as well as
corporate clients. Loan against Shares or Mutual funds is a loan facility
offered against collateral of Equity shares.
o IPO Financing: To Apply in IPO, you can avail loan for applying in Primary
Market Issues (IPOs and FPOs). You just need to apply for IPOs by investing
only margin amount (specified for each IPO separately).The facility is
available for HNI as well as retail clients. This facility helps in increasing
chances of allotment and allotment size.
o ESOP Funding: An employee who has been awarded ESOP can avail loan
against exercised shares. The ESOP funding is a loan facility offered against
these shares allotted to employees.
o Margin Funding by Sharekhan: Margin Funding product allows you to take
leveraged positions in capital markets segment facilitating purchase of
securities with the help of amount borrowed from SFSL against securities or
cash placed as collateral.

Sharekhan NRI Service: Sharekhan offers a range of products and services catering to the
needs of NRIs. The services are:

o NRI service desk for personalized assistance.

o NRI Investment Advisory desk.
o Online equity trading platform.
o Assistance for opening hassle free NRE/NRO/PIS A/C with multiple tie ups
bank with SHAREKHAN LTD.
o Investment in IPOs and Mutual Fund.
o Auto reporting to Regulatory & auto funds/shares payout-paying.
o PMS Service for NRI Customers
o PAN Card Service for NRI Customers
o Sharekhan has tie up with AXIS, INDUSIND, IDBI, Yes bank for
NRE/NRO/PIS
o

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Sharekhan TV : Access Sharekhan TV with expert advice, market research, IPO corner and
Sharekhan stocks ideas.

Sharekhan Broker Fundamental Research Services : Features include

o The Industry Watch Report

o Stock Analysis Report
o Flash News

Sharekhan Broker Technical Research Services: Features include

o Nifty Tracker
o Online Charts
o Intraday Calls
o Position Calls
o Derivative Strategies
o Futures Calls

Stock Market Basic.

Companies are started by individuals or may be a small circle of people. They pool
their money or obtain loans, raising funds to launch the business. A choice is made
to organize the business as a sole proprietorship where one person or a married
couple owns everything, or as a partnership with others who may wish to invest
money. Later they may choose to "incorporate". As a Corporation, the owners are
not personally responsible or liable for any debts of the company if the company
doesn't succeed. Corporations issue official-looking sheets of paper that represent
ownership of the company. These are called stock certificates, and each certificate
represents a set number of shares. The total number of shares will vary from one
company to another, as each makes its own choice about how many pieces of
ownership to divide the corporation into. One corporation may have only 2,500
shares, while another, such as IBM or the Ford Motor Company, may issue over a
billion Shares. Companies sell stock (pieces of ownership) to raise money and
provide funding for the expansion and growth of the business. The business
founders give up part of their ownership in exchange for this needed cash. The
expectation is that even though the owners have surrendered a portion of the
company to the Public, their remaining share of stock will become increasingly
valuable as the business grows. Corporations are not allowed to sell shares of stock
on the open Stock market without the approval of the Securities and Exchange
Commission (SEC). This transition from a privately held corporation to a publicly
traded one is called going public, and this first sale of stock to the public is called
an initial public offering, or IPO.

18
WHY PEOPLE INVEST IN STOCK MARKET

When you buy stock in a corporation, you own part of that company. This gives you a vote at
annual shareholder meetings, and a right to a share of future profits. When a company pays out
profits to the shareholder, the money received is called a "Dividend". The corporation's board
of directors choose when to declare a dividend and how much to pay. Most older and larger
companies pay a regular dividend; most newer and smaller companies do not. The average
investor buys stock hoping that the stock's price will rise, so the shares can be sold at a profit.
This will happen if more investors want to buy stock in a company than wish to sell. The
potential of a small dividend check is of little concern. What is usually responsible for increased
interest in a company's stock is the prospect of the company's sales and profits going up. A
company who is a leader in a hot industry will usually see its share price rise dramatically.
Investors take the risk of the price falling because they hope to make more money in the market
than they can with safe investments such as bank CD's or government bonds.

Stock Market Index

In the stock market world, you need a way to compare the movement of the
market, up and down, from day to day, and from year to year. An index is just
a benchmark or yardstick expressed as a number that makes it possible to do
this comparison. For e.g. S&P CNX Nifty is the index of NSE and SENSEX is
the index of BSE.

Market Segment

Securities markets provide a channel for allocation of savings to those who have
a productive need for them. The securities market has two interdependent and
inseparable segments: (i) Primary market and (ii) Secondary market.

i. Primary Market
Primary market provides an opportunity to the issuers of securities, both
Government and corporations, to raise resources to meet their
requirements of investment. Securities, in the form of equity or debt, can
be issued in domestic /international markets at face value, discount or
premium. The primary market issuance is done either through public
issues or private placement. Under Companies Act, 1956, an issue is
referred as public if it results in allotment of securities to 50 investors or
more. However, when the issuer makes an issue of securities to a select
group of persons not exceeding 49 and which is neither a rights issue
nor a public issue it is called a private placement.

ii. Secondary Market

Secondary market refers to a market where securities are traded after
being offered to the public in the primary market or listed on the Stock
Exchange. Secondary market comprises of equity, derivatives and the
debt markets. The secondary market is operated through two mediums,

19
 namely, the Over-the-Counter (OTC) market and the Exchange-Traded
market. OTC markets are informal markets where trades are negotiated.

INTRODUCTION TO DERIVATIVES

According to dictionary, derivative means ‘something which is derived from another source’.
Therefore, derivative is not primary, and hence not independent. In financial terms, derivative
is a product whose value is derived from the value of one or more basic variables. These basic
variable are called bases, which may be value of underlying asset, a reference rate etc. the
underlying asset can be equity, foreign exchange, commodity or any asset.

For example: - the value of any asset, say share of any company, at a future date
depends upon the share’s current price. Here, the share is underlying asset, the current price of
the share is the bases and the future value of the share is the derivative. Similarly, the future
rate of the foreign exchange depends upon its spot rate of exchange. In this case, the future
exchange rate is the derivative and the spot exchange rate is the base.

The term ‘Derivative’ stands for a contract whose price is derived from or is dependent upon
an underlying asset. The underlying asset could be a financial asset such as currency, stock and
market index, an interest bearing security or a physical commodity. Today, around the world,
derivative contracts are traded on electricity, weather, temperature and even volatility.
According to the Securities Contract Regulation Act, (1956) the term “derivative” includes:

 A security derived from a debt instrument, share, loan, whether secured or unsecured,
risk instrument or contract for differences or any other form of security;

 A contract which derives its value from the prices, or index of prices, of underlying
securities.

History of Derivatives

The history of derivatives is quite colourful and surprisingly a lot longer than most
people think. Forward delivery contracts, stating what is to be delivered for a fixed
price at a specified place on a specified date, existed in ancient Greece and Rome.
Roman emperors entered forward contracts to provide the masses with their supply
of Egyptian grain. These contracts were also undertaken between farmers and
merchants to eliminate risk arising out of uncertain future prices of grains. Thus,
forward contracts have existed for centuries for hedging price risk.

The first organized commodity exchange came into existence in the early 1700’s
in Japan. The first formal commodities exchange, the Chicago Board of Trade
(CBOT), was formed in 1848 in the US to deal with the problem of ‘credit risk’
and to provide centralised location to negotiate forward contracts. From ‘forward’

20
trading in commodities emerged the commodity ‘futures’. The first type of futures
contract was called ‘to arrive at’. Trading in futures began on the CBOT in the
1860’s. In 1865, CBOT listed the first ‘exchange traded’ derivatives contract,
known as the futures contracts. Futures trading grew out of the need for hedging
the price risk involved in many commercial operations. The Chicago Mercantile
Exchange (CME), a spin-off of CBOT, was formed in 1919, though it did exist
before in 1874 under the names of ‘Chicago Produce Exchange’ (CPE) and
‘Chicago Egg and Butter Board’ (CEBB). The first financial futures to emerge were
the currency in 1972 in the US. The first foreign currency futures were traded on
May 16, 1972, on International Monetary Market (IMM), a division of CME. The
currency futures traded on the IMM are the British Pound, the Canadian Dollar, the
Japanese Yen, the Swiss Franc, the German Mark, the Australian Dollar, and the
Euro dollar. Currency futures were followed soon by interest rate futures. 30
Interest rate futures contracts were traded for the first time on the CBOT on October
20, 1975. Stock index futures and options emerged in 1982. The first stock index
futures contracts were traded on Kansas City Board of Trade on February 24,
1982.The first of the several networks, which offered a trading link between two
exchanges, was formed between the Singapore International Monetary Exchange
(SIMEX) and the CME on September 7, 1984.

Options are as old as futures. Their history also dates back to ancient Greece and
Rome. Options are very popular with speculators in the tulip craze of seventeenth
century Holland. Tulips, the brightly coloured flowers, were a symbol of affluence;
owing to a high demand, tulip bulb prices shot up. Dutch growers and dealers
traded in tulip bulb options. There was so much speculation that people even
mortgaged their homes and businesses. These speculators were wiped out when the
tulip craze collapsed in 1637 as there was no mechanism to guarantee the
performance of the option terms.

The first call and put options were invented by an American financier, Russell
Sage, in 1872. These options were traded over the counter. Agricultural
commodities options were traded in the nineteenth century in England and the US.
Options on shares were available in the US on the over the counter (OTC) market
only until 1973 without much knowledge of valuation. A group of firms known as
Put and Call brokers and Dealers Association was set up in early 1900’s to provide
a mechanism for bringing buyers and sellers together. On April 26, 1973, the
Chicago Board options Exchange (CBOE) was set up at CBOT for the purpose of
trading stock options. It was in 1973 again that black, Merton, and Scholes invented
the famous Black-Scholes Option Formula. This model helped in assessing the fair
price of an option which led to an increased interest in trading of options. With the
options markets becoming increasingly popular, the American Stock Exchange
(AMEX) and the Philadelphia Stock Exchange (PHLX) began trading in options in
1975.

The market for futures and options grew at a rapid pace in the eighties and nineties.
The collapse of the Bretton Woods regime of fixed parties and the introduction of

21
 floating rates for currencies in the international financial markets paved the way
for development of a number of financial derivatives which served as effective risk
management tools to cope with market uncertainties.

The CBOT and the CME are two largest financial exchanges in the world on which
futures contracts are traded. The CBOT now offers 48 futures and option contracts
(with the annual volume at more than 211 million in 2001).The CBOE is the largest
exchange for trading stock options. The CBOE trades options on the S&P 100 and
the S&P 500 stock indices. The Philadelphia Stock Exchange is the premier
exchange for trading foreign options. The most traded stock indices include S&P
500, the Dow Jones Industrial Average, the Nasdaq 100, and the Nikkei 225. The
US indices and the Nikkei 225 trade almost round the clock. The N225 is also
traded on the Chicago Mercantile Exchange.

EMERGENCE OF THE DERIVATIVE TRADING IN INDIA

The first step towards introduction of derivatives trading in India was the
promulgation of the Securities Laws (Amendment) Ordinance, 1995, which
withdrew the prohibition on options in securities. The market for derivatives,
however, did not take off, as there was no regulatory framework to govern trading
of derivatives. SEBI set up a 24 – member committee under the chairmanship of
Dr. L.C. Gupta on November 18, 1996 to develop appropriate regulatory
framework for derivatives trading in India. The committee submitted its report on
March 17, 1998 prescribing necessary pre-conditions for introduction of
derivatives trading in India.

The committee recommended that derivatives should be declared as ‘securities’

so that regulatory framework applicable to trading of ‘securities’ could also
govern trading of securities. SEBI also set up a group in June 1998 under the
chairmanship of Prof. J.R. Verma, to recommend measures for risk containment
in derivative market in India. The report, which was submitted in October 1998,
worked out the operational details of margining system, methodology for
charging initial margins, broker net worth, deposit requirement and real - time
monitoring requirements. The SCRA was amended in December 1999 to include
derivatives within the ambit of ‘securities’ and the regulatory framework were
developed for governing derivatives trading. The act also made it clear that
derivatives shall be legal and valid only if such contracts are traded on a
recognized stock exchange, thus precluding OTC derivatives. The government
also rescinded in March 2000, the three-decade old notification, which prohibited
forward trading in securities. Derivatives trading commenced in India in June
2000 after SEBI granted the final approval to this effect in May 2001. SEBI
permitted the derivative segments of two stock exchanges, NSE and BSE, and
their clearing house/corporation to commence trading and settlement in approved
derivatives contracts. To begin with, SEBI approved trading in index futures

22
 contracts based on S&P CNX Nifty and BSE–30 (Sensex) index. This was
followed by approval for trading in options based on these two indices and options
on individual securities. The trading in BSE Sensex options commenced on June
4, 2001 and the trading in options on individual securities commenced in July
2001. Futures contracts on individual stocks were launched in November 2001.
The derivatives trading on NSE commenced with S&P CNX Nifty Index futures
on June 12, 2000. The trading in index options commenced on June 4, 2001 and
trading in options on individual securities commenced on July 2, 2001. Single
stock futures were launched on November 9, 2001. The index futures and options
contract on NSE are based on S&P CNX Trading and settlement in derivative
contracts is done in accordance with the rules, byelaws, and regulations of the
respective exchanges and their clearing house/corporation duly approved by SEBI
and notified in the official gazette. Foreign Institutional Investors (FIIs) are
permitted to trade in all Exchange traded derivative products.

PARTICIPANTS IN A DERIVATIVE MARKET

The derivatives market is similar to any other financial market and has following
three broad categories of participants:

 Hedgers: These are investors with a present or anticipated exposure to the

underlying asset which is subject to price risks. Hedgers use the
derivatives markets primarily for price risk management of assets and
portfolios.

 Speculators: These are individuals who take a view on the future

direction of the markets. They take a view whether prices would rise or
fall in future and accordingly buy or sell futures and options to try and
make a profit from the future price movements of the underlying asset.

 Arbitrageurs: They take positions in financial markets to earn riskless

profits. The arbitrageurs take short and long positions in the same or
different contracts at the same time to create a position which can generate
a riskless profit.

23
Types Of Derivatives Market

Derivatives Market

Exchange Traded Over The Counter

Derivatives Derivatives

National Stock Bombay Stock National

Exchange Exchange Commodity &
Derivative
Exchange

Index Future Index Options Stock Options Stock Future

TYPES OF DERIVATIVES

Derivatives

Forward Future Option Swaps

24
Forward Contracts

A forward contract is an agreement to buy or sell an asset on a specified date for

a specified price. One of the parties to the contract assumes a long position and
agrees to buy the underlying asset on a certain specified future date for a certain
specified price. The other party assumes a short position and agrees to sell the
asset on the same date for the same price. Other contract details like delivery date,
price and quantity are negotiated bilaterally by the parties to the contract. The
forward contracts are normally traded outside the exchanges.

Basic Features Of Forward Contract

 They are bilateral contracts and hence exposed to counter-party risk.

 Each contract is custom designed, and hence is unique in terms of contract

size, expiration date and the asset type and quality.

 The contract price is generally not available in public domain.

 On the expiration date, the contract has to be settled by delivery of the asset.

 If the party wishes to reverse the contract, it has to compulsorily go to the

same counter-party, which often results in high prices being charged.

However forward contracts in certain markets have become very standardized, as

in the case of foreign exchange, thereby reducing transaction costs and increasing
transactions volume. This process of standardization reaches its limit in the
organized futures market. Forward contracts are often confused with futures
contracts. The confusion is primarily because both serve essentially the same
economic functions of allocating risk in the presence of future price uncertainty.
However, futures are a significant improvement over the forward contracts as
they eliminate counterparty risk and offer more liquidity.

Future Contract

In finance, a futures contract is a standardized contract, traded on a futures

exchange, to buy or sell a certain underlying instrument at a certain date in the
future, at a pre-set price. The future date is called the delivery date or final
settlement date. The pre-set price is called the futures price. The price of the
underlying asset on the delivery date is called the settlement price. The settlement
price, normally, converges towards the futures price on the delivery date. A
futures contract gives the holder the right and the obligation to buy or sell, which
differs from an options contract, which gives the buyer the right, but not the
obligation, and the option writer (seller) the obligation, but not the right. To exit

25
 the commitment, the holder of a futures position has to sell his long position or
buy back his short position, effectively closing out the futures position and its
contract obligations. Futures contracts are exchange traded derivatives. The
exchange acts as counterparty on all contracts, sets margin requirements, etc.

Basic Features Of Future Contract

1. Standardization:

Futures contracts ensure their liquidity by being highly standardized,

usually by specifying:

 The underlying. This can be anything from a barrel of sweet crude

oil to a short term interest rate.

 The type of settlement, either cash settlement or physical

settlement.

 The amount and units of the underlying asset per contract. This
can be the notional amount of bonds, a fixed number of barrels of
oil, units of foreign currency, the notional amount of the deposit
over which the short term interest rate is traded, etc..

 The currency in which the futures contract is quoted.

 The grade of the deliverable. In case of bonds, this specifies which

bonds can be delivered. In case of physical commodities, this
specifies not only the quality of the underlying goods but also the
manner and location of delivery. The delivery month.

 The last trading date.

 Other details such as the tick, the minimum permissible price

fluctuation.

Options

A derivative transaction that gives the option holder the right but not the
obligation to buy or sell the underlying asset at a price, called the strike price,
during a period or on a specific date in exchange for payment of a premium is
known as ‘option’. Underlying asset refers to any asset that is traded. The price
at which the underlying is traded is called the ‘strike price’.

There are two types of options i.e., Call Option & Put Option.

26
 Call Option:

A contract that gives its owner the right but not the obligation to buy an
underlying asset stock or any financial asset, at a specified price on or before a
specified date is known as a ‘Call option’. The owner makes a profit provided
he sells at a higher current price and buys at a lower future price.

Put Option:

A contract that gives its owner the right but not the obligation to sell an
underlying asset stock or any financial asset, at a specified price on or before a
specified date is known as a ‘Put option’. The owner makes a profit provided he
buys at a lower current price and sells at a higher future price. Hence, no option
will be exercised if the future price does not increase. Put and calls are almost
always written on equities, although occasionally preference shares, bonds and
warrants become the subject of options.

Swaps

Swaps are transactions which obligates the two parties to the contract to exchange
a series of cash flows at specified intervals known as payment or settlement dates.
They can be regarded as portfolios of forward's contracts. A contract whereby
two parties agree to exchange (swap) payments, based on some notional principle
amount is called as a ‘SWAP’. In case of swap, only the payment flows are
exchanged and not the principle amount. The two commonly used swaps are:

Interest Rate Swaps:

Interest rate swaps is an arrangement by which one party agrees to exchange his
series of fixed rate interest payments to a party in exchange for his variable rate
interest payments. The fixed rate payer takes a short position in the forward
contract whereas the floating rate payer takes a long position in the forward
contract.

Currency Swaps:

Currency swaps is an arrangement in which both the principle amount and the
interest on loan in one currency are swapped for the principle and the interest
payments on loan in another currency. The parties to the swap contract of
currency generally hail from two different countries. This arrangement allows the
counter parties to borrow easily and cheaply in their home currencies. Under a
currency swap, cash flows to be exchanged are determined at the spot rate at a

27
 time when swap is done. Such cash flows are supposed to remain unaffected by
subsequent changes in the exchange rates.

Financial Swap:

Financial swaps constitute a funding technique which permit a borrower to access

one market and then exchange the liability for another type of liability. It also
allows the investors to exchange one type of asset for another type of asset with
a preferred income stream.

OTHER KINDS OF DERIVATIVES

The other kind of derivatives, which are not, much popular are as follows:

Baskets
Baskets options are option on portfolio of underlying asset. Equity Index
Options are most popular form of baskets.

Leaps
Normally option contracts are for a period of 1 to 12 months. However,
exchange may introduce option contracts with a maturity period of 2-3 years.
These long-term option contracts are popularly known as Leaps or Long term
Equity Anticipation Securities.

Warrants

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

Swaptions

Swaptions are options to buy or sell a swap that will become operative at the
expiry of the options. Thus a swaption is an option on a forward swap. Rather
than have calls and puts, the swaptions market has receiver swaptions and payer
swaptions. A receiver swaption is an option to receive fixed and pay floating. A
payer swaption is an option to pay fixed and receive floating.

28
Indian Derivatives Market

Starting from a controlled economy, India has moved towards a world where prices fluctuate
every day. The introduction of risk management instruments in India gained momentum in the
last few years due to liberalisation process and Reserve Bank of India’s (RBI) efforts in creating
currency forward market. Derivatives are an integral part of liberalisation process to manage
risk. NSE gauging the market requirements initiated the process of setting up derivative
markets in India. In July 1999, derivatives trading commenced in India

Table 2. Chronology of instruments

1991 Liberalisation process initiated

14 December 1995 NSE asked SEBI for permission to trade index futures.

SEBI setup L.C.Gupta Committee to draft a policy framework

18 November 1996
for index futures.

11 May 1998 L.C.Gupta Committee submitted report.

RBI gave permission for OTC forward rate agreements (FRAs)

7 July 1999
and interest rate swaps.

SIMEX chose Nifty for trading futures and options on an Indian

24 May 2000
index.

SEBI gave permission to NSE and BSE to do index futures

25 May 2000
trading.

9 June 2000 Trading of BSE Sensex futures commenced at BSE.

12 June 2000 Trading of Nifty futures commenced at NSE.

25 September 2000 Nifty futures trading commenced at SGX.

2 June 2001 Individual Stock Options & Derivatives

The NSE introduced trading on index options based on the S&P

4 June 2001
CNX Nifty on

29
November 9, 2001 Trading on Stock futures commences on the NSE

August 29, 2008 Currency derivatives trading commences on the NSE

August 31, 2009 Interest rate derivatives trading commences on the NSE

February 2010 Launch of Currency Futures on additional currency pairs

October 28, 2010 Introduction of European style Stock Options

October 29, 2010 Introduction of Currency Options

30
CHAPTER - 3

31
RESEARCH METHODOLOGY

Problem Statement:

The topic, which is selected for the study, is “AWARENESS OF DERIVATIVE

PRODUCTS” so the problem statement for this study will be, “AWARENESS
ABOUT THE DERIVATIVE AND ITS SCOPE OF IMPROVEMENT.”

Research Objective:

1. To know the awareness of the people about Derivative Products registered at

Sharekhan company, koramangala branch.

2. To know which one is beneficial for the investor.

3. To find what proportion of the population are investing in such derivatives along
with their investment pattern and product preferences.

Research Design:

The research design specifies the methods and procedures for conducting a
particular study. The type of research design applied here are “Random” in
nature as the objective is to check the position of the Derivative Market at
Sharekhan, Koramangala branch. The objectives of the study have restricted the
choice of research design up to descriptive research design. This survey will
help the firm to know - how the investors invest in the derivative segment, the
Strategies they use & which factors affect their investing behaviour.

Research source of data:

There are two types of sources of data which is being used for the studies

Primary Source of Data:

 Preparing a Questionnaire is collecting the primary source of data & it

was collected by interviewing the investors.

Secondary Source of Data:

For having the detailed study about this topic, it is necessary to have some of
the secondary information, which is collected from the following:
 Books
 Magazines & Journals.
 Websites.
 Newspapers, etc.

32
Sampling Process

It is very true that to do the research with the whole universe. As we know that
it is feasible to go to population survey because of the (n) number of customers
and their scattered location. So for this purpose sample size has to be determined
well in advance and selection of sample also must be scientific so that it
represents the whole universe.

So far as our research is concerned, I have taken sample size of 100 respondents.

Sharekhan Company customers

Sample Universe
Koramangala Branch
Sampling Technique Random Sampling
Sample Size 100 people
Under Graduate
Graduate
Sampling Unit Post Graduate
Professional Degree holder
Others

Limitation Of The Study

The limitations of the study are as follow:

Personal Bias:

Individuals may have personal bias towards particular investment option so they
may not give correct information and due to which the conclusion may be
derived.

Area:

The area was limited to Sharekhan company, Koramangala branch only, so I

cannot know the degree of the literacy outside the city and other branches

33
CHAPTER -4

34
DATA ANALYSIS AND INTERPRETATION

1. Are you trading in derivative market?

Options No. of Correspondents Percentage

Yes 40 40
No 60 60
Total 100 100

Objective: To know that whether the investors are trading in derivative market or not

Graph:

Inference: From the above graph out of 100 investors, only 40% investor’s means 40
respondents are trading in derivative market and 60% means 60 respondents are not
trading in derivative market

35
2. Based on Gender

Options No. of Correspondents Percentage

Male 24 60
Female 16 40
Total 40 100

Objective: To know the gender of the investors who are trading in derivative market
Graph:

Inference: From the above graph we can see that 60% are males’ investors and 40%
are female investors.

36
 3.Based on Age

Options No. of Correspondents Percentage

Below 20 years 0 0
20-25 years 2 5
26-30 years 8 20
31-35 years 28 70
Above 35 years 2 5
Total 40 100

Graph:

Inference: Out of total respondents 5% are of the group of ’20-25’ and for ’35’ years above
and 70% are of ’31-35’years

37
 4. Based on Education Qualification

Options No. of Correspondents Percentage

Under Graduate 0 0
Graduate 0 0
Post Graduate 8 20
Professional Degree holder 16 40
Others 16 40
Total 40 100

Objective: To know the qualification of the investors who are trading in derivative
market
Graph:

Inference: Out of the total only 20% of Postgraduates, 40% of both Professional
Degrees Holder and Others.

38
 5. Based on Annual Income

Options No. of Correspondents Percentage

Below 1,50,000 32 80
1,50,000 - 3,00,000 8 20
3,00,000 – 5,00,000 0 0
Above 5,00,000 0 0
Total 40 100

Objective: To know the annual-income of the investors who are trading in derivative
market
Graph:

Inference: Around 80% of the total investors are below the income group of Rs.
1,50,000 and rest 20% belong to the range between 1,50,000 – 3,00,000.

39
 6. If No is the reply in the Q1 question, reasons for not investing in derivative
market?

Options No. of Percentage

Correspondents
Lack of knowledge 15 25
Lack of awareness 16 27
Very risky / Counter party risk 18 30
Huge amount of investment 5 8
Other 6 10
Total 60 100

Objective: To know the reply of the investors who are not trading in derivative
market
Graph:

Inference: From the above representation we can denote that 30% think that it’s Very risky
where as 8% think there is a “Huge Investment Requirement” to trade in derivative market.

40
 7. Which of the following Derivative instruments do you deal in?

Options No. of Correspondents Percentage

Stock Futures 0 0
Stock Index Futures 8 20
Stock Options 20 50
Stock Index Options 12 30
Swaps 0 0
Currency 0 0
Total 40 100

Objective: To know the interest of the investors for the derivative instruments
Graph:

Inference: From the above representation 50% investors have invested in “Stock Options”,
30% in “Stock Index Options” and 20% in “Stock Index Futures”.

41
 8. How much percentage of your income you trade in derivative market?

Options No. of Correspondents Percentage

Less than 5% 4 10
5%-10% 8 20
11%-15% 12 30
16%-20% 12 30
More than 20% 4 10
Total 40 100

Objective: To know the range of income invested of the investors who are trading in derivative
market
Graph:

Inference: From the above representation investors invest maximum between the range of 11%
to 20%

42
 9. You participate in Derivative market as?

Options No. of Correspondents Percentage

Hedger 4 10
Speculator 8 20
Arbitrageur 0 0
Others 28 70
Not Applicable 0 0
Total 40 100

Objective: To know the investors who are trading in derivative market

Graph:

Inference: From the above representation we can classify that 10% are Hedgers, 20% are
Speculators and 70% are general investors.

43
 10. Do you use any strategies while trading in Derivatives?

Options No. of Correspondents Percentage

Yes 24 60
No 16 40
Total 40 100

Objective: To know the investors who are trading in derivative market, use any
strategies while investing.

Graph:

Inference: From the above representation 24 people use strategies while investing in
derivatives where as 16 don’t.

44
 11. What is the rate of return expected by you from derivative market?

Options No. of Correspondents Percentage

Less than 5% 1 10
5%-10% 2 20
14%-17% 3 30
18%-23% 3 30
More than 23% 1 10
Total 10 100
Objective: To know the expected returns of investors who are trading in derivative market.

Graph:

Inference: From the above representation expected range lies mostly between 14% and 23%.

45
 12. Are you satisfied with the current performance of the derivative market?

Options No. of Correspondents Percentage

Strongly disagree 0 0
Disagree 0 0
Neutral 40 100
Agree 0 0
Strongly agree 0 0
Total 40 100
Objective: To know the satisfaction of the investors who are trading in derivative market.

Graph:

Inference: From the above representation Most of the investors did not wanted to
comment about the current performance of the derivative market.

46
CHAPTER -5

47
CONCLUSION AND RECOMMENDATIONS

Conclusions:

 Most of the investors of Sharekhan are not trading in derivative markets.

 Most of the investors over there are majorly use equity as their investment tool.

 People mainly don’t invest in Derivatives due to “Lack of Knowledge”.

 People generally want to take trading decisions independently or under the

guidance of Friends or Well Known Stock Broking Houses.

 Literature and Self Experience can be taken as the best method to impart
education about derivatives.

RECOMMENDATIONS:

 Only few people are investing in Derivatives market as shown above. So

Sharekhan has to add much more efforts to attract and convince its customer to
invest in Derivative Market.

 Sharekhan needs to make its marketing team strong and also it should increase
marketing activities such as promotional campaigns.

 Sharekhan should educate the investors about Derivatives & Commodities by

organizing classes, corporate presentations, taking part in consumer fairs,
organizing events.

 Sharekhan should turn existing customers (who are trading in Equity only)
towards Derivatives.

 Sharekhan can also use Newspapers and Local New Channels as a medium of
advertising.

 Sharekhan may also use its helpline number for giving education on
Derivatives. Company may appoint special team for giving education &
attracting people towards trading on Derivatives.

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BIBLIOGRAPHY

Books referred:

 Derivatives FAQ by Ajay Shah

 NSE’s Certification in Financial Markets: - Derivatives Core module

 Financial Markets & Services by Gordon & Natarajan

Reports:

 Regulatory Framework for Financial Derivatives in India by Dr.L.C.GUPTA

Websites visited:

 www.nse-india.com

 www.bseindia.com

 www.sebi.gov.in

 www.ncdex.com

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QUESTIONNAIRE

Q1. Please mention your name below?

_____________________________________

Q2. Are you trading in derivative market?

Yes No

Q3. Gender

Male Female

Q4. Age

Below 20 years
20 – 25 years
26 – 30 years
31-35 years
Above 35 years

Q5. Education Qualification

Under Graduate
Graduate
Post Graduate
Professional Degree holder
Others

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Q6. Annual Income

Below 1, 50,000
1, 50,000 - 3, 00,000
3, 00,000 – 5, 00,000
Above 5, 00,000

Q7. If ‘No’ is the reply in the Q2 question, reasons for not investing in derivative market?
Lack of knowledge
Lack of awareness
Very risky / counter party risk
Huge amount of investment
Other

Q8. Which of the following Derivative instruments do you deal in?

Stock Futures
Stock Index Futures
Stock Options
Stock Index Options
Swaps
Currency

Q9. How much percentage of your income you trade in Derivative market?

Less than 5%
5%-10%
11%-15%
16%-20%
More than 20%

51
Q10. You participate in Derivative market as?

Hedger
Speculator
Arbitrageur
Others

Q11. Do you use any strategies while trading in Derivatives?

Yes No

Q12. What is the rate of return expected by you from derivative market?
Less than 5%
5%-10%
14%-17%
18%-23%
More than 23%

Q13. Are you satisfied with the current performance of the derivative market?
Strongly disagree
Disagree
Neutral
Agree
Strongly agree

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