PROJECT REPORT

ON

SUMMER INTERNSHIP PROGRAMME

PROJECT TITLE STUDY OF STOCK MARKET

&

MUTUAL FUND ANALYSIS

Submitted to:Amit Mallik Sr. Manager SMC Global Securities Limited

Submitted by:RAJA MOHAN JHA 08-III-837

INSTITUTE OF MARKETING & MANAGEMENT

Qutub Institutional Area, New Delhi

ABSTRACT

It gives me great satisfaction on completion of Summer Internship Project entitled study of Stock Market & Mutual fund analysis On the submission of my project report I would like to express my sincere gratitude to my guide Mr. AMIT Mallik (Senior Manager) SMC Global Sec. Ltd for mentoring me and taking active interest throughout the project. I am deeply indebted to Mr. FAIYAZ ANSARI and Mr PARAS SIR (SMC Global Securities Limited) for sharing his insights on the topics and for being a constant source of inspiration & courage during the entire project work. He was always available, correcting mistakes, intelligently directing me to proper sources of information advising to aim for simplicity, brevity, clarity and accuracy. I am indeed thankful to him for his valuable guidance. I would also like to express my special thanks to the Chairman Mr. Mahesh C. Gupta (SMC Global Securities Limited) for appointing me as project trainee and for his help & co-operation during the Project work. I would like to thank the entire team of SMC Global Securities Limited, for sharing their immense experience and extending their support in carrying out this project work. I am greatly acknowledged for their kind help.

TABLE OF CONTENTS TABLE OF CONTENTS.........................................................................3 ABOUT SMC GLOABL SECURITIES......................................................6

SMC GLOBAL SECURITIES LIMITED....................................................................................................6 VISION: ...............................................................................................................................9 PRODUCTS AND SERVICES:............................................................................................................10 ACHIEVEMENT BY SMC:..............................................................................................................13

INTRODUCTION TO STOCK MARKET.................................................17

STOCK MARKET........................................................................................................................17 STOCK EXCHANGE.....................................................................................................................18 WHAT IS A SHARE?..................................................................................................................18 PRIMARY AND SECONDARY MARKETS................................................................................19 RISKS INVOLVED IN STOCK MARKET.................................................................................................21 Technical Analysis.....................................................................................22 Fundamental Analysis................................................................................23 TERMS COMMONLY USED IN STOCK MARKET.....................................................................23 SEBI (SECURITIES AND EXCHANGE BOARD OF INDIA)............................................................................33 NSE (National Stock Exchange)...................................................................36 NSE INDICES..........................................................................................................................38

BSE (BOMBAY STOCK EXCHANGE)...................................................38

BSE - OTHER INDICES...............................................................................................................40 DEMAT FORM OF SHARES.............................................................................................................43 DERIVATIVES............................................................................................................................44 Types of Derivatives..................................................................................45 ..........................46

UNDERSTANDING STOCK MARKET RISK..........................................47

BETA....................................................................................................................................49 HEDGING................................................................................................................................49 Playing with futures:-................................................................................50
Long security, sell futures......................................................................................................... 50 Short security, buy futures....................................................................................................... 50

Playing with options:-................................................................................51

Buy puts when market is expected to fall................................................................................. 51 Sell puts when market is rising................................................................................................. 51 Buy calls when Market is rising................................................................................................. 51 Sell Calls when market is expected to fall................................................................................. 52

THE MAIN CHARACTERISTICS OF MUTUAL FUND ARE AS FOLLOWS:........................................................................................................55 HISTORICAL PERSPECTIVE OF MUTUAL FUNDS IN INDIA: .............56
Second Phase 1987-1993 (Entry of Public Sector Funds)............................57 PLANS THAT MUTUAL FUNDS OFFERS:........................................................73 Avoid ambiguity, confusion, and vagueness. ..............................................88 Avoid emotional language, prestige bias and leading questions...................89 Don't assume the respondent is an expert on themselves (unless you have no choice)......................................................................................................89 Avoid false premises..................................................................................89 Avoid asking about future intentions (if you can)........................................89

EXUTIVE SUMMARY
This project had been initiated for the purpose of acquainting me with, right from the basics of the financial terminology used in the stock markets, further up to gaining in depth knowledge of all the issues concerning the management of various risks faced by Investors and brokerage companies. This work is a detailed study of stock market and stocks. Its about the ways in which investors can invest in stock market. I have carried out two projects in my summer training. The initial phase of the document explains what I have understood about the functioning of stock market. I have tried to explain the entire cash and derivative market in detail. All these calculations give a better insight to my work. After this I have tried to analyze the risk arising due to fluctuations in prices of the shares in stock market. This risk arises due to number of reasons, which I have tried to put across. The focus in this project is on STUDY OF STOCK MARKET & MUTUAL FUND ANALYSIS. I have tried to find out various ways to analyze stocks, to minimize risk while maximizing returns. The entire work has not been done till date. Application of these ways to analyze stocks is yet to be done, its in progress. The project is divided into two parts. The first half of the project which contains Project I-Stock market examines the working of a stock market and the role of the Regulatory Authority in maintaining the proper working of stock markets and how one can hedge risk using derivative instruments. It also explains about the different stock markets working in India and about their different Indices. The second part of the project deals with Mutual fund analysis work which is Project II, includes both fundamental analysis and technical analysis. Second part of project is as important as Project I, because whole project 5

contains the work which is carried out by me in these two months of summer training and I am glad to present it in my summer training project. The project had been carried out at SMC Global Securities Limited, Daryaganj (New Delhi).

ABOUT SMC GLOABL SECURITIES

It's one of the leading firms in financial services in India. It basically deals in Mutual Fund, Fixed Deposit Schemes, Capital Gain Bonds, GOI Taxable Bonds, NABARD Bonds and Life and General Insurance. I am working for SMC Global Securities Limited which is one of the leading companies of financial services. So I would like you to have a look at the profile of the company About SMC Global Securities Limited

SMC Global Securities Limited

SMC: A ONE STOP INVESTMENT SHOP SMC Group, a leading financial services provider in India is a vertically integrated investment solutions company, with a pan-India presence. Over the years, SMC has expanded its domestic & international operations. Existing network includes regional offices at Mumbai, Kolkata, Chennai, 6

Bangalore, Cochin, Ahmadabad Jaipur, Hyderabad and 1500+ offices across 375+ cities in India. SMC has plans to grow its network to 2,000 offices across 500+ cities in the next 3 years. The company has expanded internationally and has established office in Dubai Gold and Commodities Exchange (DGCX). Its products and Services include Institutional and retail brokerage of equity, commodity, currency, derivatives, online trading, investment banking, depository services, clearing services, IPOs and mutual funds distribution, Portfolio management, wealth advisory, insurance broking, equity and commodity research. SMC is one of the most active trading organizations in India, averaging over 3,50,000 trades per day. Currently, SMC has a highly efficient workforce of over 4,000 employees & one of the largest retail network in India currently serving the financial needs of more than 5,50,000 satisfied investors.

SMC PROFILE:
7

FOUNDERS & PROMOTERS:

Mr. Subhash Chand Aggarwal

Mr. Mahesh Chand Gupta

Mr. Subhash Chand Aggarwal, Chairman and Managing Director of SMC Global Securities Ltd. and Mr. Mahesh Chand Gupta, Chairman and Managing Director of SMC Comex (P) Ltd. are the founders and promoters of SMC. Both are chartered accountants. They are an embodiment of professional excellence. They are the visionaries who planted the sapling of the giant tree called SMC. With rock solid reserve and firm commitment, they have shaped their vision to reality. They have a rich experience of more than 20 years in the capital market. Their exceptional leadership skills and outstanding commitment has made SMC as one of the leading investment solutions and services provider. They both assign top priority to the principles of transparency, honesty and integrity in all our dealings

VISION:
VISION IS NOT SEEING THINGS AS THEY ARE BUT AS THEY WILL BE OUR VISION is to be a global major in providing complete investment solutions, with relentless focus on investor care, through superior efficiency and complete transparency.

OUR APPROACH:
VALUE FOR INVESTORS TRUST: SMC values the trust reposed in by the clients and is committed to uphold it at all cost. INTEGRITY AND HONESTY: Integrity, honesty and transparency are the underlying principles in all our dealings.

PERSONALISZED ATTENTION: The most valued asset is our

relationship with the clients, which has been built over years by giving personalized attention. NETWORK WHICH WORKS: SMC has a vast network extending to 375+ cities/towns ensuring easy accessibility, convenience and hassle free trading experience. RESEARCH BASED ADVISORY SERVICES: SMC offers proactive and timely world class research based advice and guidance to its clients to enable them to take informed decisions.

Main Focus: Investor Care

Investment at your finger tips

Products and Services:

10

Equity & Derivative Trading: SMC Trading Platform offers online equity & derivative trading facilities for investors who are looking for the ease and convenience and hassle free trading experience. We provide ODIN Application, which is a high -end, integrated trading application for fast, efficient and reliable execution of trades. You can now trade in the NSE and BSE simultaneously from any destination at your convenience. You can access a multitude of resources like live quotes, charts, research, advice, and online assistance helps you to take informed decisions. You can also trade through our branch network by registering with us as our client. You can also trade through us on phone by calling our designated representatives in the branches where you are registered as a client. Clearing Services: Being a clearing member in NSE(F&O & Currency), BSE (F&O & Currency), MCX, MCX-SX, NCDEX and DGCX. SMC is clearing massive volumes of trades of our trading members in this segment. Commodity Trading: SMC is a member of 3 major national level commodity exchanges, i.e. National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange (MCX) and National Multi Commodity Exchange of India (NMCE) offers you trading platform of NCDEX, MCX and NMCE. You can get Real-Time streaming quotes, place orders and watch the confirmation, all on a single screen. We use technology using ODIN application to provide you with live Trading Terminals. In this 11

segment,

SMC

have

spread

our

wings

globally

by

acquiring

Membership of Dubai Gold and Commodities Exchange. We provide trading platform to trade in DGCX and also clear trades of trading members being a clearing member. Distribution of Mutual Funds & IPOs: SMC offers distribution and collection services of various schemes of all Major Fund houses and IPOs through its mammoth network of branches across India. SMC is registered with AMFI as an approved distributor of Mutual Funds. We assure you a hassle free and pleasant transaction experience when you invest in mutual funds and IPOs through us. We are registered with all major Fund Houses including Fidelity, Franklyn Templeton etc. We have a distinction of being leading distributors of IPOs. Shortly we will be providing the facility of online investment in Mutual Funds and IPOs

Online back office support: To provide robust back office support backed by excellent accounting standards to our branches we have ensured connectivity through FTP and .net based Application. To ensure easy accessibility to back office accounting reports to our clients, we have offered facilities to view various user friendly, easily comprehendible back office reports.

SMC Depository:

12

We are ISO 9001:2000 certified DP for shares and commodities. We are one of the leading DP and enjoy the trust of more than 5.5 Lac investors. We offer a quick, secure and hassle free alternative to holding the securities and commodities in physical form. We are one of the few Depository Participants offering depository facilities for commodities. We are empanelled with both NCDEX & MCX. SMC Research Based Advisory Services: Our massive R&D facility caters to the need of Investors, who are continuously in need of opportunities for striking rich rewards on their investment. We have one of the most advanced, hi-tech in house R&D wing with some of the best people, process and technology resources providing complete research solutions on Equity, Commodities, IPOs and Mutual Funds. We offer proactive and timely world class research based advice and guidance to our clients so that they can take informed decisions. SMC Investor Awareness Forum: Our dedicated team of professionals is conducting investor meet/seminars across India . We believe that a well-informed investor is an empowered investor. We also seek your feedback on our services in these Investor meets. Achievement by SMC: "AN ACHIEVEMENT IS BONDAGE. IT OBLIGES ONE TO A HIGHER ACHIEVEMENT"

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ISO 9001:2000 certified DP for both shares and commodities 4th largest broking house of India in terms of trading terminals (Source: Dun and Bradstreet, 2008)

5th largest sub-broker network in the country (Source: Dun and Bradstreet, 2007)

2nd largest distributors of IPO in Retail. (Source: Prime Data Rankings)

Awarded the Fastest Growing Retail Distribution Network (Source: Business Sphere, 2008)

Awarded the Major Volume Driver by BSE for the Third year in a row i.e. 2006-07, 2005-06 and 2004-05 (Awarded to top 10 Brokers)

Nominated among the top 3, in the CNBC Optimix Financial Services Award 2008 under the "National Level Retail Category".

One of the first financial firms in India to expand operations in the lucrative gulf market, by acquiring valuable license for trading and clearing with Dubai gold and commodities exchange (DGCX)

Amongst a Elite group of brokers having proprietary desk for doing risk-free arbitrage in commodities

14

First trade on DGCX for silver and First currency trade for rupeedollar

15

STUDY OF STOCK MARKET

16

INTRODUCTION TO STOCK MARKET

Before Moving to stock markets derivative segment we need to understand the basics of stock market. After that we can easily understand the concept of derivatives segment. Intro to stock market includes working of stock market, Stock exchanges, financial sector of India, etc.

Stock Market
A stock market (also known as a stock exchange) has two main functions. The first function is to provide companies with a way of issuing shares to people who want to invest in the company. This can be illustrated by an example: Suppose a company has a mining lease over an area with some rich ore deposits. It wants to exploit these deposits, but it doesnt have any equipment. To buy the equipment it needs money. One way to raise money is through the stock market. The company issues a prospectus, which is a sort of advertisement informing people about the prospects of the company and inviting them to invest some money in it. When the company is floated (established) on the stock market, interested investors can become part-owners of the company by buying shares. If the company operates at a profit, shareholders benefit in two ways through the issuing of dividends in the form of cash or more shares, and through growth in the value of the shares. On the other hand, if the company does not operate at a profit (e.g., if the price of the product dips), the shareholders will probably lose money. The second function of the

17

stock market, related to the first, is to provide a venue for the buying and selling of shares. Stock Exchange An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded. Buyers and sellers come together to trade during specific hours on business days. Exchanges impose rules and regulations on the firms and brokers that are involved with them. If a particular company is traded on an exchange, it is referred to as "listed". Companies that are not listed on a stock exchange are sold OTC (short for Over-The-Counter). Companies that have shares traded OTC are usually smaller and riskier because they do not meet the requirements to be listed on a stock exchange. What Is A Share? In finance a share is a unit of account for various financial instruments including stocks, bonds, mutual funds, limited partnerships. In simple Words, a share or stock is a document solely to stocks is so common that it almost replaces the word stock itself. It is issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion in the firm and by selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

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PRIMARY AND SECONDARY MARKETS There are two ways for investors to get shares from the primary and secondary markets. In primary markets, securities are bought by way of public issue directly from the company. In Secondary market share are traded between two investors. Primary Market Market for new issues of securities, as distinguished from the Secondary Market, where previously issued securities are bought and sold. A market is primary if the proceeds of sales go to the issuer of the securities sold. Secondary Market The market where securities are traded after they are initially offered in the primary market is known as secondary market. Most trading is done in the secondary market. Generally, most shares have a face value (i.e. the value as in a balance sheet) of Rs.10 though not always offered to the public at this price. Companies can offer a share with a face value of Rs.10 to the public at a higher price. The difference between the offer price and the face value is called the premium. As per the SEBI guidelines, new companies can offer shares to the public at a premium provided: 1. The promoter company has a 3 years consistent record of profitable working. 2. The promoter takes up at least 50 per cent of the shares in the issue.

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3. All parties applying to the issue should be offered the same instrument at the same terms, especially regarding the premium. 4. The prospectus should provide justification for the propose premium. On the other hand, existing companies can make a premium issue without the above restrictions. A companys aim is to raise money and simultaneously serve the equity capital. As far as accounting is concerned, premium is credited to reserves and surplus and it does not increase the equity. Thus the companies seek to make premium issues. In a buoyant stock market when good shares trade at very high prices, companies realize that its easy to command a high premium. The biggest difference between them is the length of time you hold onto the assets. An investor is more interested in the long-term appreciation of his assets, counting on that historical rise in market equity. Hes not generally concerned about short-term fluctuations in prices, because hell ride them out over the long haul. An investor relies mostly on Fundamental Analysis, which is the analytical method of predicting long-term prospects of a particular asset. Most investors adopt a buy and hold approach to assets, which simply means they buy shares of some company and hold onto them for a long time. This approach can be dangerous, even devastating, in an extremely volatile market such as todays BSE or NSE Indexes Show. What most investors need to remember is this: investing is not about weathering storms with your beloved company its about making money. 20

Traders, on the other hand, are attempting to profit on just those short-term price fluctuations. The amount of time an active trader holds onto an asset is very short: in many cases minutes, or sometimes seconds. If you can catch just two index points on an average day, you can make a comfortable living as a Trader.

Risks Involved In Stock Market

To make Money in the Stock Market, you must assume High Risks. Tips to Lower your Risk: 1. Do not put more than 10% of your money into any one stock Do not own more than 2-3 stocks in any industry Buy your stocks over time, not all at once Buy stocks with consistent and predictable earnings growth Buy stocks with growth rates greater than the total of inflation and interest rates Use stop-loss orders to limit your risk 2. Buy Stocks on the Way Down and Sell on the Way Up. False: People believe that a falling stock is cheap and a rising stock is too expensive. But on the way down, you have no idea how much further it may fall. If a stock is rising, especially if it has broken previous highs, there are no unhappy owners who want to dump it. If the stock is fairly valued, it should continue to rise. 21

3. You can Hedge Inflation with Stocks. When interest rates rise, people start to pull money out of the market and into bonds, so that pushes prices down. Plus the cost of business goes up, so corporate earnings go down, along with the stock prices. 4. Young People can afford to take High Risk. False: The only thing true about this is that young people have time on their side if they lose all their money. But young people have little disposable income to risk losing. If they follow the tips above, they can make money over many years. Young people have the time to be patient.

Technical Analysis
It is a method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, trends etc., to identify patterns. It is a stock market term meaning- the attempt to look for numerical trends in a random function. The stock market used to be filled with technical analysts deciding what to buy and sell, until it was decided that their success rate is no better than chance. Now technical stock analysis is virtually non-existent. There are many instances of investors successfully trading a security using only their knowledge of the security's chart, without even understanding what the company does. Technical analysis helps to understand the pattern or trend of the market or of the particular stock/script.

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Fundamental Analysis
Fundamental analysis looks at a shares market price in light of the companys underlying business proposition and financial situation. It involves making both quantitative and qualitative judgments about a company. Fundamental analysis is carried out by taking expected EPS and expected earning into consideration with Discounted Future Cash Flows. Fundamental analysis can be contrasted with 'technical analysis, which seeks to make judgments about the performance of a share based solely on its historic price behavior and without referring to the underlying business, the sector it's in, or the economy as a whole.

TERMS COMMONLY USED IN STOCK MARKET

Some day-to-day terms we hear in context to the stock market are discussed henceforth: ACTIVE SHARES Shares in which there are frequent and day-to-day dealings, as distinguished from partly active shares in which dealings are not so frequent. Most shares of leading companies would be active, particularly those which are sensitive to economic and political events and are, therefore, subject to sudden price movements. Some market analysts would define active shares as those which are bought and sold at least three times a week. These shares are easy to buy or sell. BEAR (MANDIWALA) An investor who believes that a stock or the market in general will 23

decline. A bear market is an extended period of falling prices in the overall market. BULL (TEJIWALA) An investor who thinks the market or a specific security or industry will rise. A bull market is an extended period in which the market consistently rises. STAG A cautious speculator, who applies for new securities in the anticipation that price will rise by the time of allotment of shares, is known as stag speculator. This is why; he applies for new shares with the intention that he will be selling these shares at higher price in future and earn good profit. LAME DUCK When a bear finds it difficult to fulfill his commitment, he is called struggling like a lame duck. BONDS A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money. BOOK VALUE Usually called as Book Value per Share and is calculated by dividing the Net Worth of a Company (common stock plus retained earnings) 24

by the number of shares outstanding. This is the accounting value of a share of stock, the value of the company's assets a shareholder would theoretically receive if a company were liquidated. BROKER Every transaction in the stock exchange is carried out through licensed members called brokers. To trade in shares, you have to approach a broker However, since most stock exchange brokers deal in very high volumes, they generally do not entertain small investors. These brokers have a network of subbrokers who provide them with orders. The general investors should identify a sub-broker for regular trading in shares and place his order for purchase and sale through the subbroker. The sub/broker will transmit the order to his broker who will then execute it. A stock broker is a person or a firm that trades on its clients behalf, you tell them what you want to invest in and they will issue the buy or sell order. Some stock brokers also give out financial advice that you are charged for. It wasnt too long ago and investing was very expensive because you had to go through a full service broker which would give you advice on what to do and would charge you a hefty fee for it.

Types of stock broker

1. Full Service Broker - A full-service broker can provide a bunch of services such as investment research advice, tax planning and retirement planning. 25

2. Discount Broker A discount broker lets you buy and sell stocks at a low rate but doesnt provide any investment advice. 3. Direct-Access Broker- A direct access broker lets you trade directly with the electronic communication networks (ECNs) so you can trade faster. Active traders such as day traders tend to use Direct Access Brokers So as you can tell there a few options for a stock broker and you really need to pick which ones suit you need. BROKER-DEALER A Broker-Dealer is a person or company in the business of both buying and selling securities. Also called an Agent when buying securities and a Principal when selling them, and may act as wither but not in the same transaction. Broker-Dealers must register with the Securities and Exchange Commission as well as with states in which they do business. BUSINESS CYCLE The cycle of economic growth and decline is known as business cycle. There are four stages in the business cycle: expansion, growth, contraction and recession.

BACKWARDATION Charges paid by the bear speculator for extending settlement date in case of rise in price of security are known as backwardation. CAPITAL GAIN / LOSS 26

The difference between the current market value of an asset and the original cost of the asset, with cost adjusted for any improvement or depreciation in the asset. CORPORATION A form of business organization in which the company is divided into shares of stock. A corporation is ongoing and the owners face only limited liability. CURRENT ASSETS Appears on a company's balance sheet, representing cash, accounts receivable, inventory, marketable securities, prepaid expenses and other assets that can be converted to cash within one year. CONTANGO Charges paid by bull speculator for extending settlement date in case of fall in price are known as contango. DIVIDEND It is a profit earned by the company or the mutual fund, which is shared with the shareholders or unit-holders either partially or completely. DEBT/EQUITY RATIO A measure of a company's financial leverage, calculated by dividing long term debt by shareholders' equity is called debt to equity ratio. A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings as a result of the additional interest expense.

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DECLARATION DATE The date on which a company's Board of Directors meet to announce the date and amount of the next dividend payment. Once the payment has been authorized, it is known as a Declared Dividend, and becomes a legal liability that must be paid. DEFERRED INCOME TAXES On the balance sheet, deferred taxes are a liability that result from income already earned and recognized for accounting purposes but not for tax purposes. DEPRECIATION An expense recorded regularly on a company's books to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company's reported earnings. DERIVATIVE A security, like an option or future, whose value is derived from another underlying security. DEVALUATION A significant fall in the value of a currency, as compared to gold or another country's currency. DILUTION Dilution is the effect on a company's earnings per share caused by the conversion of convertible securities or the issuance of additional shares of stock. Dilution reduces earnings per share by increasing the number of shares potentially outstanding. 28

EQUITY On the balance sheet, the value of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses) is stated as equity. The balance sheet may list Owners' Equity or Shareholders' Equity. FLOAT The total number of outstanding shares available on the market. FIXED MATURITY PLAN The Fixed Maturity Plan or FMP has a portfolio investing in debt securities for fixed periods of time ranging from 3 months to 1 year, normally. Benefits range from having a quality portfolio, to greater predictability of returns, to protection from interest rate movements and to tax-free dividends. GOING PUBLIC The process of selling shares those were formerly privately-held to new investors for the first time. INFLATION Inflation refers to the increase in cost of living over a period of time. It is measured by changes in the Wholesale Price Index for manufacturers and the Consumer Price Index for consumers. For example, a masala dosa, which would cost you Rs.4.50 in 1990, costs you Rs.30.00, today. INITIAL PUBLIC OFFERING

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In short known as an IPO, the first sale of stock by a company to the public. IPOs are often smaller, newer companies seeking equity capital to expand their businesses. LIABILITY The legal obligation to pay a debt is called so. Current liabilities are debts payable within twelve months; long-term liabilities are debts payable over a period of more than twelve months.

MUTUAL FUND A mutual fund is a trust that pools together the investments of many investors and invests on their behalf into stocks, bonds, money markets etc. according to the mandate given to the mutual fund by the investors primarily invest in equities or equity-related instruments and are willing to bear short-term decline in value for possible future appreciation. The schemes generally have entry load and in exceptional cases, exit load. Investors having short-term objectives and seeking regular income are advised not to invest in these schemes. MARKET CAPITALIZATION The total dollar value of all outstanding shares, calculated by multiplying the number of shares times the current market price. NASDAQ Stands for the National Association of Securities Dealers Automated Quotation System. A nationwide computerized quotation system for 30

current bid and asked quotations on over 5,500 over-the-counter stocks. STOCKS Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money. SHARE In finance a share is a unit of account for various financial instruments including stocks, bonds, mutual funds, limited partnerships. In simple Words, a share or stock is a document solely to stocks is so common that it almost replaces the word stock itself. It is issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion in the firm and by selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price. SHORT-TERM / LONG TERM CAPITAL GAIN / LOSS The gain/loss occurring on or before one year of capital investment is termed as Short-term capital gain/loss. If it exceeds one year then it is termed as Long-term capital gain/loss. SECURITY According to the Securities Exchange Act of 1934, this is the definition 31

of a security: "The term 'security' means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, pre organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. TARANIWALAS In BSE jobbers are called Taraniwalas. They may work as broker also. In BSE authorized assistant or agent of the Taraniwalas can purchase and sell securities on behalf of Taraniwalas. These agents are called half commission agents. They usually specialize in one or two securities.

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SEBI (Securities and Exchange Board of India)

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the 33

Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, statutory and autonomous regulatory boards with defined responsibilities, to cover both development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. The basic objectives of the Board were identified as: To protect the interests of investors in securities; To promote the development of Securities Market; To regulate the securities market and For matters connected therewith or incidental thereto. Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing and transparent to the end investor. 34 houses of stock exchanges, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the

surveillance system etc. which has made dealing in securities both safe

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons: It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds. Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, and primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the "Suggestive Byelaws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts. 35

SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in November 1998. However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved. Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001.

NSE (National Stock Exchange)

The National Stock Exchange of India Limited (NSE), is a Mumbaibased stock exchange. It is the large stock exchange in India in terms daily turnover and number of trades, for both equities and derivative trading. Though a number of other exchanges exist, NSE and the 36

Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In October 2007, the equity market capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities.[4]It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%. The National Stock Exchange of India was promoted by leading Financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000. Markets Currently, NSE has the following major segments of the capital market: 37

Equity Futures and Options Retail Debt Market Wholesale Debt Market

NSE Indices

S&P CNX Nifty CNX Nifty Junior CNX IT Bank Nifty Mininifty CNX 100 CNX Midcap

BSE (BOMBAY STOCK EXCHANGE)

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized 38

entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). Of the 22 stock exchanges in the country, Mumbai's (earlier known as Bombay), Bombay Stock Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Approximately 70,000 deals are executed on a daily basis, giving it one of the highest per hour rates of trading in the world. There are around 3,500 companies in the country which are listed and have a serious trading volume. The market capitalization of the BSE is Rs.5 trillion. The BSE `Sensex' is a widely used market index for the BSE. With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals.

39

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

BSE - Other Indices

Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other stock indices as well: BSE 100 BSE 200 BSE 500 BSE PSU BSE MIDCAP BSE SMLCAP BSE BANKEX BSE CAPITAL GOODS BSE AUTO BSE DOLLEX 30 BSE DOLLEX 100 BSE DOLLEX 200 BSE REALTY 40

BSE TECH BSE OIL & GAS BSE FMCG

Initial Public Offerings

Corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both. In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner: 100% of the net offer to the public through the book building route. 75% of the net offer to the public through the book building process and 25% through the fixed price portion. Under the 90% scheme, this percentage would be 90 and 10 respectively. Difference between shares offered through book building and offer of shares through normal public issue: Feature Fixed Price process s Pricing Price at which the Price at which securities is not will be in Book Building process

securities

are offered/allotted

known

offered/allotted is known advance to the investor. Only an 41

in advance to the investor. indicative price range is known. Deman Demand for the securities Demand for the securities offered can d offered is known only after be known everyday as the book is the closure of the issue built.

Paymen Payment if made at the Payment only after allocation. t time of subscription wherein refund is given after allocation. Book Building - Glossary Bid A bid is the demand for a security that can be entered by the syndicate/sub-syndicate members in the system. The two main components of a bid are the price and the quantity. Bidder The person who has placed a bid in the Book Building process is called so. Book Running Lead Manager A Lead Merchant Banker who has been appointed by the Issuer Company to work as the Book Running Lead Manager for the company is called so. The name of the Book Runner Lead Manager is mentioned in the offer document of the Issuer Company. Floor Price The minimum offer price below which bids cannot be entered. The Issuer Company in consultation with the Book Running Lead Manager fixes the floor price. 42

Merchant Banker An entity registered under the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1999. Syndicate Members Syndicate Members are the intermediaries registered with the Board and permitted to carry on activity as underwriters. The Book Running Lead Managers to the issue appoints the Syndicate Members. Order Book It is an 'electronic book' that shows the demand for the shares of the company at various prices.

Demat Form of Shares

There are two forms of shares physical or dematerialized (demat) shares. Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode. If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application. It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 150 of DLF, 43

50 of Axis Bank, 200 of GMR Infra and 100 of RIL. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialized form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of up to 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers.

Derivatives
A derivative is a generic term for specific types of investments from which payoffs over time are derived from the performance of assets (such as commodities, shares or bonds), interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) or an index of weather conditions). This performance can determine both the amount and the timing of the payoffs. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. The main types of derivatives are futures, forwards, options and swaps.

44

Types of Derivatives - OTC and Exchange Traded Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way that they are traded in market: Over-the-counter (OTC) derivatives are contracts that are traded directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivatives market is huge. Exchange-traded derivatives are those derivatives products that are traded via Derivatives exchanges. A derivatives exchange acts as an intermediary to all transactions, and takes Initial margin from both sides of the trade to act as a guarantee. The world's largest derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide range of European products such as interest rate & index products), Chicago Mercantile Exchange and the Chicago Board of Trade.

- Common Contract Types There are three major classes of derivatives: Futures/Forwards, which are contracts to buy or sell an asset at a specified future date.

45

Options which are contracts that give the buyer the right (but not the obligation) to buy or sell an asset at a specified future date. Swaps, where the two parties agree to exchange cash flows

Valuation Market Price and Fair Value

Two common measures of value are: Market price, i.e. the price at which traders are willing to buy or sell the contract

Fair value or the theoretical price, i.e. a rational and unbiased estimate of the contract's fundamental value Determining The Market Price For exchange traded derivatives, market price is usually transparent (often published in real-time by the exchange, based on all the current bids and offers placed on that particular contract at any one time). Complications can arise with OTC or floor-traded contracts though, as trading are handled manually, making it difficult to automatically broadcast prices. In particular with OTC contracts, there is no central exchange to collate and disseminate prices. Determining Fair Value

46

The fair value of a derivatives contract is often complex, partly because of the immense variation in the contracts, and partly because there are often many different variables to consider. Fair valuation of derivatives is a central topic of financial mathematics, where "fair" refers to the absence of arbitrage, meaning that no risk less profits can be made by trading in assets. Crucial to the valuation of derivatives is also the stochastic of the underlying assets, typically expressed as a stochastic process.

UNDERSTANDING STOCK MARKET RISK

As a long term investor, one needs to understand several different kinds of risk: Market Risk Market risk is the risk associated with fluctuations in stock prices. This is the first risk many people think of when they think of the stock market. Many factors can cause stock prices to fluctuate. Examples include actual or anticipated developments within a particular company or industry; changes in the outlook for the economy as a whole; or shifts in investor attitude toward the stock market in general. Downward and upward trends in stock prices can occur over short or extended periods, and can have a very significant affect on the value of an investment. There are two ways to reduce market risk. One is to diversify your investments among different kinds of assets: divide your money 47

among fixed-income and growth investments, for example. The second way is to steadily invest on a regular basis and ignore market ups and downs and focus on long-term results. Inflation Risk Inflation, defined as a persistent increase in prices, is a serious risk for any long-term investor. Historically, inflation in the United States has averaged 3.1%, offsetting most of the returns from investment in cash reserves and bonds, but less than half of that of stocks. Because stocks' real returns are often generally higher than inflation, stocks offer a way to help protect your money against inflation risk. If your principal doesn't grow, you can't possibly stay ahead of inflation. A good way to reduce inflation risk is to invest in growth assets like stocks. Business Risk Business risk is the risk of losing your money in an investment that seemed like a winner but wasn't. It is the specific risk associated with the underlying business of the issuer of a particular stock, bond, or other investment. If the company's product suddenly loses value, the value of your investment declines. You can reduce business risk by diversifying your investments. Currency Risk Currency risk is the risk associated with the price fluctuations in the dollar value of international stocks due to changing currency exchange rates. To an American, the value of any stock held internationally is not what the stock is worth in its domestic market, but what the stock is worth in terms of dollars. 48

Beta This refers to how a stock moves vs. the market. If a stock moves more than the market, it has a high beta. If it moves less than the market it has a low beta. Technology generally has a high beta while Utilities have low betas. A portfolio of high beta stocks in a down market can create extreme downward movements, while up-markets can cause tremendous performance. If a market is demonstrating extreme risk, it is wise to raise cash, lower the beta of your portfolio, and even consider some hedging of exposure. All above are different types of risks that influence the stock market. After looking at all the risks one thing is very clear that controlling price fluctuations is not in our hand. Our major job is to maximize our returns keeping all the above risks in mind. This is done by hedging funds in market in way that maximizes the returns. Creating portfolios wisely is another method of risk hedging, apart from that there are other methods with the help of which risk is minimized. Hedging The word hedge literally means to surround in a way as to provide complete protection. A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Defining it in simple words Hedging is a strategy designed to minimize exposure to an unwanted risk, while still allowing the business to profit from an investment activity. But one thing has to be kept in mind hedging does not always make money. The best that can be achieved using hedging is the removal of unwanted exposure. The hedged position will make less 49

profit than the no hedged position, half the time. One should not enter into the hedging strategy hoping to make excess profits for sure. Derivatives are an excellent tool to hedge risk. Hedging using futures and options

Playing with futures:Long security, sell futures I would explain it with the help of an example.iam discussing here the case of investor who holds the share of a company and gets uncomfortable with the market movements in the short run. In the absence of stock futures he would either suffer the discomfort of a price fall or sell the security in anticipation of market. With security future he can minimize his price risk. All he needs to do is to enter an offsetting stock future position, in this case take on a short future position. As the price of stock will fall the value of his holdings would go down and value of his future contract will rise. Both will move in opposite direction. This way he would not only be able to minimize his loss but also make profits Short security, buy futures This is exactly opposite case. This will be explained later with the help of real examples. Index portfolios can be very effective to get rid of market risk of a portfolio every portfolio contains a hidden risk or market exposure. This is true for all portfolios. Most of the portfolio risk is accounted by 50

index fluctuations hence a position LONG PORTFOLIO +SHORT NIFTY is one tenth risky as LONG portfolio position.

Playing with options:Buy puts when market is expected to fall As an owner of stocks or equity portfolio, sometimes one may have a view that market will fall in near future. To protect the value of stock from falling below a particular level, one has to buy right number of puts at right strike price. If one is concerned only about the value of particular stock one has to buy puts of only that particular stock, if it's about the entire portfolio it's better to buy index puts. When the value of the stock falls it will lose value and the put options will gain value. This is how hedging can be done through puts Sell puts when market is rising This is also done the way hedging has been done above. Buy calls when Market is rising Buy calls or sell puts are same but the only difference is when the market falls down instead of uptrend the puts value goes down quickly but calls value goes down slowly. So if one is sure about market movement than only one should sell puts or anyway one should buy calls for hedging purpose. While investing in calls and puts investor should keep risk in mind.

51

Sell Calls when market is expected to fall Selling a call option in bullish market is as risky as selling a put option in a bearish market. Inventor should sell calls when only is sure about market correction anyway he should buy puts if he is expecting a fall down in market but not fully sure about his idea. Selling or Buying the Puts & Calls provides security to investor to hedge his portfolio risk. But Playing with option is not an easy task to do for a novice investor as one need to understand, how it works and how one can hedge his portfolio using these tools. Option trading may be helpful for an investor at some point of time but it is not an accurate tool to hedge a portfolio. Risk associated with option trading may differ from investor to investor as one might be a regular investor who has good knowledge about option trading but at the same time other might be novice. Apart from derivatives there are some other ways using which hedging is done generally. Some people feel that derivatives are risky. I wont say this is true for options, but when it comes to futures I believe to an extent their statement is true. Apart from derivatives there are two other ways to hedge risk and these are listed as under: Short sell when you have holdings of a particular stock-say you have holdings of a particular share, the market value of the share is expected to fall, and its time to short sell your stock. Its better to explain it with the help of an example. Say I have a stock worth rs.345 and its value fall to340, at this price I short sell some amount of 52

shares, if the value of a stock falls further buys it. And then the entire stock can be sold, making profits, this would give an average buying price. And in other case also it will release average value.

MUTUAL FUND ANALYSIS

53

Meaning:

Mutual fund is a form of collective investment that pools money from many investors and invests the money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund divided by the number of shares purchased by investors.

A mutual fund is an investment company that pools money from shareholders and invests in a diversified portfolio of securities. Mutual 54

fund investors buy fund shares that represent ownership in all of the fund's securities. There are four basic types of mutual funds: stock (also called equity), money market, bond, and hybrid. International mutual funds are key contributors to the globalization of financial markets and one of the main sources of capital flows to emerging economies.

THE MAIN CHARACTERISTICS OF MUTUAL FUND ARE AS FOLLOWS:-

a)

A mutual fund actually belongs to the investors who

have pooled their fund. The ownership of the mutual fund is in the hands of the investors. b) A mutual fund is managed by investment

professionals and other services providers, who earn a fee for their services, from the fund. c) The pool of funds is invested in a portfolio of

marketable investments. The value of the portfolio is updated everyday. d) The investors share in the fund is denominated by

units. The value of the units changes with change in the 55

portfolios value, every day. The value of one unit of investment is called as the Net Asset Value or NAV. e) The investment portfolio of the mutual fund is

created according to the stated investment objectives of the fund.

HISTORICAL PERSPECTIVE OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-87

56

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

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank 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 established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

57

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.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes.

The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and 58

does not com 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 assets under management 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. The figure-1 gives the development of Mutual fund industry in India in terms of money.

ADVANTAGES OF MUTUAL FUNDS:

Mutual funds are attractive to investors for many reasons:

1.

Professional Management: Funds provide the services of experienced and skilled

Mutual

professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

2.

Diversification:
59

Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

3.

Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

4.

Return Potential:

Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

5.

Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

6.

Liquidity:
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In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

7.

Transparency:

You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

8.

Flexibility:

Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. 9.

Affordability:

Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

10.
a lifetime.

Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over

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11.

Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

12.
Mutual

Professional Management :
Funds provide the services of experienced and skilled

professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

13.

Diversification:

Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

14.

Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow 62

up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

15.

Return Potential:

Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

16.

Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

17.

Liquidity:

In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

18.

Transparency:

63

You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

19.

Flexibility:

Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

20.

Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. Whereas, if you own a shopping mall and one store goes bankrupt, you still have income flowing from all the other stores within the mall. Thats the way mutual funds are. By owning a mutual fund rather than the stock of one company, you are less likely to realize any major loss, should a company go out of business. So, if you own $10,000 of the common stock of XYZ Corporation and it goes bankrupt, you lose your investment. But, if you own $10,000 in the ABC Growth Fund, which has invested in shares of XYZ Corporation, and XYZ goes belly up, the value of your mutual fund decreases. But you wont lose your entire investment because the risk is spread out. 64

DISADVANTAGES OF MUTUAL FUNDS:

1. Professional Management:

The advantage of professional management is qualified with the word "theoretically". There is a debate over whether or not the so-called professionals are any better than an Investor at picking stocks. Mutual fund managers may also have a conflict of interest due to the way they are paid. In particular fund managers may be encouraged to take more risks with investors money than they ought to: Fund flows (and therefore compensation) towards successful, market beating funds are much larger than outflows from funds that lose to the market. Fund managers may therefore have an incentive to purchase high risk investments in the hopes of increasing their odds of beating the market and receiving the high inflows, with relatively less fear of the consequences of losing to the market.

2.

Costs:

Mutual funds don't exist solely to the Investors life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated so that its not understandable to the layman investors.

3.

Dilution of Funds

Many analysts, however, believe that the larger the pool of money one works with, the harder it is to manage actively, and the harder it is to squeeze good performance out of it. Thus a fund company can be 65

focused on attracting new customers, thereby hurting its existing investors' performance. A great deal of a fund's costs are flat and fixed costs, such as the salary for the manager. Thus it can be more profitable for the fund to try to allow it to grow as large as possible, instead of limiting its assets. Some fund companies, notably the Vanguard Group and Fidelity Investments, have closed some funds to new investors to maintain the integrity of the funds for existing investors. 4.

Taxes

When making decisions about the investors money, fund managers don't consider the personal tax situation of the investor. For example, when a fund manager sells a security, a capital-gain tax is triggered, which is borne by the investor, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

5.

No Guarantees

The value of the mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the government. Bond funds,

66

unlike purchasing a bond directly, will not re-pay the principle at a set point in time.

6.

Misleading

Advertisements

and

problems

in

evaluating funds
The misleading advertisements of some funds tend to show investors down the wrong path. It is common practice to label funds as growth, small-cap or income funds, when these labels might be inaccurate. The requirements of the SEC calls for funds to have not less than 80% of assets in the specific type of investment implied in their names. The remaining assets can be according to the fund managers discretion. The loophole comes in because the different categories that can be taken for the required 80% of the assets may be vague and very general. Hence, some funds often manipulate prospective investors by using misleading names such as growth fund in place of a small cap.

7.

Professional Management:

The advantage of professional management is qualified with the word "theoretically". There is a debate over whether or not the so-called professionals are any better than an Investor at picking stocks. Mutual fund managers may also have a conflict of interest due to the way they are paid. In particular fund managers may be encouraged to take more risks with investors money than they ought to: Fund flows (and therefore compensation) towards successful, market beating funds are much larger than outflows from funds that lose to the market. Fund managers may therefore have an incentive to purchase 67

high risk investments in the hopes of increasing their odds of beating the market and receiving the high inflows, with relatively less fear of the consequences of losing to the market.

8.

Costs:

Mutual funds don't exist solely to the Investors life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated so that its not understandable to the layman investors.

9.

Dilution of Funds:

Many analysts, however, believe that the larger the pool of money one works with, the harder it is to manage actively, and the harder it is to squeeze good performance out of it. Thus a fund company can be focused on attracting new customers, thereby hurting its existing investors' performance. A great deal of a fund's costs are flat and fixed costs, such as the salary for the manager. Thus it can be more profitable for the fund to try to allow it to grow as large as possible, instead of limiting its assets. Some fund companies, notably the Vanguard Group and Fidelity Investments, have closed some funds to new investors to maintain the integrity of the funds for existing investors.

10.

Taxes:

When making decisions about the investors money, fund managers don't consider the personal tax situation of the investor. For example, 68

when a fund manager sells a security, a capital-gain tax is triggered, which is borne by the investor, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

11.

No Guarantees:

The value of the mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time.

12. Misleading

Advertisements

and

problems

in

evaluating funds:
The misleading advertisements of some funds tend to show investors down the wrong path. It is common practice to label funds as growth, small-cap or income funds, when these labels might be inaccurate. The requirements of the SEC calls for funds to have not less than 80% of assets in the specific type of investment implied in their names. The remaining assets can be according to the fund managers discretion. The loophole comes in because the different categories that can be 69

taken for the required 80% of the assets may be vague and very general. Hence, some funds often manipulate prospective investors by using misleading names such as growth fund in place of a small cap. However, the growth of mutual funds might be slowing down to the disadvantages given above. For a lot of investors however, the advantages offered more than make up for the cons. At the same time, the entry of a high proportion of potential investors, the advent of Exchange Traded Funds and other mutual fund alternatives have and will affect the growth of mutual funds.

TYPES OF MUTUAL FUNDS:

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure: Open-end Funds:

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed-end Funds:
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only 70

during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provide to the investor.

Interval Funds:
Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices

By Investment Objective:

Growth Funds:
The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.

Income Funds:

71

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds: The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

Other Schemes:
Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax 72

incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. Special Schemes:

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50.

sectoral Schemes
Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

PLANS THAT MUTUAL FUNDS OFFERS:

To cater to different investment needs, Mutual Funds offer various investment options. Some of the important investment options include: 73

Growth Option: Dividend is not paid-out under a Growth Option and the investor realises only the capital appreciation on the investment (by an increase in NAV).

Dividend Payout Option:

Dividends are paid-out to investors under the Dividend Payout Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend payout.

Dividend Re-investment Option:

Here the dividend accrued on mutual funds is automatically reinvested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.

Retirement Pension Option:

Some schemes are linked with retirement pension. Individuals participate in these options for themselves, and corporates participate for their employees.

Insurance Option:
Certain Mutual Funds offer schemes that provide insurance cover to investors as an added benefit.

Systematic Investment Plan (SIP):

Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. The investor is 74

allotted units on a predetermined date specified in the offer document at the applicable NAV.

Systematic Encashment Plan (SEP)

As opposed to the Systematic Investment Plan, the Systematic Encashment Plan allows the investor the facility to withdraw a predetermined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day.

OGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:

Organisation of a Mutual Fund:

Sponsors:
Sponsors are the promoters of the mutual fund house. Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the 75

eligibility

criteria

prescribed

under

the

SEBI

(Mutual

Funds)

Regulations, 1996.The Sponsor is not responsible for any shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Sponsor should have at least past 3yrs profitability in their books of accounts and turnover should be more then 10 crore.

Trustees:
Trustees are responsible for safeguarding the funds

provided by the investors to the Mutual Fund. Person involved in the Mutual Fund as trustees are generally eminent people experienced in the various walks of the life. Trustees monitor the performance of the AMC, the custodian and the Transfer agent thus ensure that all these agencies act in the unit holders interest.

Asset Management Company (AMC):

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the SEBI. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times .For e.g. Kotak AMC, ABN Amro AMC, SBI AMC etc. 76

Transfer Agent:

Transfer agent issues certificate and account statements to the investors for their investment. It also arranges payment to investors when they redeem (in open-end funds) and transfer when they buy/sell units in a stock exchange (in close-end funds). It also takes care of change of address, replacement of lost certificates or account, statement etc.

Custodians:
Custodians are responsible for safety of the assets held by the mutual fund. It follows up on the corporate benefits like dividend bonus etc. It provides an independent means of control as custodian (usually bank) themselves are solid institutions and well regulated. It also receives and delivers securities in exchange for pay.

Security and Exchange Board of India (SEBI):

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The SEBI is a statutory body set up by the 77

Government of India. The objectives of SEBI are to protect the interest of investors in securities and to promote the development of and to regulate the securities market. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors through a system of reviewing reports and regular inspections.

Regulatory Requirements for Trustees

The mutual fund, which is a trust, is managed either by a trust company or a board of trustees. Board of trustees & trust companies are governed by the provision of the Indian Trust Act. If the trustee is a company, it is also subject to the provisions of the Indian Companies Act. It is the responsibility of the trustee to protect the interest of investors, whose fund is managed by the AMC. The AMC & others functionaries are functionally to the trustees.

1)

Only SEBI registered AMCs can be appointed as investment

managers of mutual funs. 2) AMC must have a minimum net worth of Rs.10 crore, at all times.

3) An AMC cannot be an AMC or trustee of another mutual fund. 4) AMCs cannot indulge in any other business other then that of asset management.

78

5) At least half of the members of the board of an AMC have to be independent. 6) The investment management agreement entered into between the trustees & the AMCs, spells out the rights and obligations of both parties. (Fourth schedule of the SEBI regulations).

Obligations of the trustees

a)

Trustees must ensure that the transactions of the mutual fund

are in accordance with the trust deed. b) It ensures that the AMC has systems & procedures in place, &

that all the fund constituents are appointed. c) It ensure due diligence on the part of AMC in the appointment of

constituents & business associates. d) It finishes to SEBI, on half-yearly basis, a report on the activities

of the AMC. e) It ensures that the activities of the mutual fund are in compliance

with the SEBI regulation.

SEBI rules regarding compliance & the role of trustees

The obligations of the trustees in this regard are classified as general due diligence & special due diligence. 79

General due diligence includes:

Appointment of AMC & its directors. Observance continuance. Protection of trust property. Ensuring that all constituents & associates are registered entities. Review of service contracts & terms. Reporting to SEBI any special developments in the mutual fund. of AMC functioning & desirability of its

Special due diligence includes:

Appointments of independent auditors & review of periodic audit report. Periodic compliance report from the AMC (usually quarterly). Communicate deficiencies & recommendation in writing to the AMC.

80

Prescribe a code of ethics for the trustees & the personnel of the AMC.

Terms related to the Mutual funds:

Net Asset VALUE (NAV):

Net Asset value is the actual value of units of the scheme on a given business day. NAV reflects the market value of the fund's investments on that day after accounting for all the expenses. The current value of investment of a scheme can be known from the NAV (Net Assets Value). The NAV in real sense measures the value of net assets invested in the scheme (Gross assets Gross Liabilities)

NAV = Market / fair value of the investments + Accrued income + Receivables + Cash and other assets - Accrued expenses - Payments and other liabilities Let's work it out with an example:

Assume a very small mutual fund has an initial investment of 1,000 units

Each unit is worth Rs 10 81

Hence, the total amount with the fund is Rs. 10,000 This amount is invested in one share of Infosys (Rs 7,200), one share of SSI (Rs 2,400) and the balance Rs 400 is held in cash

Let's assume that after some time, the value of the shares goes up to Rs 10,400 (Infosys), Rs 3,900 (SSI) and expenses incurred amount to Rs 240. The NAV will be: (10400+3900+400-240) / 1000 units = Rs 14.46 Thus, the investors in this hypothetical fund have achieved an absolute return of 44.6 per cent during the period.

Loads (Charges) in a mutual Fund:

Generally the Investment company i.e. Assets Management Company charges loads while purchasing and selling a scheme. There are two types of Loads, which are generally paid by investors i.e. Entry Load and Exit Load.

82

Entry Load - Charged at the time of purchasing of units. At the time of buying you are required to pay NAV and a fixed percentage of it. This fixed percentage is the entry load. Exit Load - Charged at the time of selling of units. At the time of selling what you will get is the NAV minus a fixed percentage of it. This fixed percentage is the exit load. Corpus: Any further investment into the fund will be at the current NAV. The total amount invested; say Rs 11,000 (Rs 10,000 as the original investment plus an additional Rs 1,000 invested now) is called the corpus or the total amount of invested money.

AUM:

The total money managed by the fund is the present Rs 15,460 (present value of Rs 14,460 plus Rs 1,000 invested now). This figure is referred to as assets under management (AUM) and is used as a measure to compare the size of various funds. A very small fund may not have the assets to meaningfully deploy to achieve the objective of risk control through diversification. After all, it would be able to buy only small quantities of fewer stocks. Typically, any fund having over Rs 50 crore of AUM would be in a reasonable position to achieve its objectives.

Repurchase Price:
83

Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

FUTURE OF MUTUAL FUNDS IN INDIA:

By December 2004, Indian mutual fund industry reached Rs 1, 50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double

84

RESEARCH WORK

CUSTOMER / INVESTORS BEHAVIOR ANALYSIS IN MARKET:

85

In any business whatever sector it is either it is financial and service sector CUSTOMER IS KING. Every industry tries to know more about its customers behaviour. But first they should know who are its customers because without knowing it a company cannot do its marketing and cannot maintain its relationships effectively and efficiently. Todays Business is all about to build and maintain relationships with your customers. Every customer is different and are his needs. The key to successful selling is to identify these and position our product accordingly. Help your client to achieve their financial goals help you to maintain long lasting relationship with them.

86

TYPES OF CUSTOMERS:

Half success is to choose a right targeted customers and remaining half to handle them properly to provide gentle information to appreciate their belief and to protect them from unfair trade practices.

Companies use different-different tools to get information about the behaviour of the customer in the market. It is also helpful to target the right segment of the market and success. These tools can be:

Questionnaire 87

Direct interview Telephonic interview Observation

A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. QUESTIONNAIRE is on of the major tool use by companies to collect data in written form. It is important to remember that a questionnaire should be viewed as a multi-stage process beginning with definition of the aspects to be examined and ending with interpretation of the results. Every step needs to be designed carefully because the final results are only as good as the weakest link in the questionnaire process. Although questionnaires may be cheap to administer compared to other data collection methods, they are every bit as expensive in terms of design time and interpretation. The steps required to design a questionnaire are: 2. 3. 4. 5. 6. Defining the Objectives of the survey Determining the Sampling Group Writing the Questionnaire Administering the Questionnaire Interpretation of the Results

Principles that should keep in mind while designing questionnaire:

Avoid ambiguity, confusion, and vagueness. 88

Avoid emotional language, prestige bias and leading

questions

Avoid double-barrelled questions

Don't assume the respondent is an expert on

themselves (unless you have no choice)

Avoid asking questions beyond a respondent's capabilities

Avoid false premises Avoid asking about future intentions (if you can)

Avoid negatives and especially double negatives

Questionnaire is a better tool over interview and observation. Because observation limits the information and interviews are not easy to operate.

ANLYSIS AND CONCLUSION OF DATA:

Q-1 WHERE DO YOU LIKE TO INVEST YOUR MONEY? RANK THEM ACCORDING TO YOUR PREFERENCE:

89

(A) MUTUAL FUND (C) SHARES (E) GOVT. BONDS

) ( ( ) )

(B) BANK F. D. (D) POST OFFICE

) ( )

INVESTMENT PREFERANCE
120 100 80 60 40 20 0 A B 9 20 14 26 31 4 10 22 25 39 38 10 14 20 18 C PREFERANCES 24 27 22 19 8 D 25 33 28 10 4 E 5 4 3 2 1

ANALYSIS: Above collected data or table shows that:

CUMULATIVE %

31% people mark A as their 1st preference, 39% mark B, 18% mark C, 8% mark D and 4% mark E as their 1st preference. 26% people mark A as their 2nd preference, 25% mark B, 20% mark C, 19% mark D and 10% mark E as their 2nd preference.

90

14% people mark A as their 3rd preference, 22% mark B, 14% mark C, 22% mark D and 28% mark E as their 3rd preference. 20% people mark A as their 4th preference, 10% mark B, 10% mark C, 27% mark D and 33% mark E as their 4th preference. 9% people mark A as their 5th preference, 4% mark B, 38% mark C, 24% mark D and 25% mark E as their 5th preference.

CONCLUSION: People like to invest more in B as their 1st preference. People like to invest more in A as their 2nd preference. People like to invest more in E as their 3rd preference. People like to invest more in E as their 4th preference. People like to invest more in C as their 5th preference.

RECOMMENDATION: Above collected data shows that People in India are risk averter they want safe investment thats why people marked bank f.d as their first preference. Second they prefer mutual fund because mutual fund have low risk and adequate return. So I recommend that issuers should make portfolio which have low risk and that should be communicated to public through different modes.

Q-2 WHERE DOES MUTUAL FUND EXIST IN YOUR INVESTMENT PORTFOLIO? (A) 0 - 25% ) 91 ( ) (B) 25 - 50% (

(C) 50 - 75% ( )

(D)

75

100%

50 40 30 20 1 0 0 Series1

47

29 1 8 6

A 4 7

B 29

C 1 8

D 6

ANALYSIS: Above collected data or table shows that: People mark A as their 1st preference.

CONCLUSION: 47% People mark that mutual fund exist 0-25% in their investment portfolio. 92

29% People mark that mutual fund exist 25-50% in their investment portfolio. 18% People mark that mutual fund exist 50-75% in their investment portfolio. 6% People mark that mutual fund exist 75-100% in their investment portfolio.

RECOMMENDATION: Above collected data shows that approx. 50% people want to invest below 25% of their investment in mutual fund because of their perception about risks in securities. For this AMCs need to aware people about different schemes and characteristics of mutual fund.

Q-3 ARE YOU SATISFIED FROM YOUR INVESTMENT?

(A) YES ( )

(B)

NO

93

100 80 60 40 20 0 Series 1

83

B, 1 7

17

A 83

B 17
A B

A, 83

ANALYSIS: 83% People mark A. CONCLUSION: 83% People are satisfied from their past and current investment. 17% People are not satisfied because of few reasons: o They took a wrong decision about their investment. o Human wants cannot satisfy.

Q-4 ARE YOU AWARE ABOUT THE SCHEMES OF MUTUAL FUNDS? (A) YES ( ) ( ) (B) NO

94

80 70 60 50 40 30 20 10 0 S eries1

72
B 28%

28
A 72%

A 72

B 28
A B

ANALYSIS: 72% People mark A.

CONCLUSION: 72% People are aware about the schemes of mutual funds. 28% people are not aware about schemes.

RECOMMENDATION: Above collected data shows that 28% people are not aware about mutual fund and mostly are not fully aware of mutual fund schemes so mutual fund industry ned to take initiate for this. Issuers and brokers agencies participation is required.

Q-5 HOW WILL YOU RANK SECURITIES IN RESPECT OF THEIR RISK FACTOR? (A) EQUITY ( ) (B) MUTUAL FUNDS ( ) 95

(C) COMMODITY

(D) F & O

SECURITIES RANKED (RISK FACTOR) CUMULATIVE RISK IN 120 100 80 60 40 20 0

4 27 37 32 A

39 37 15 9 B

37 29 26 8 C

20 7 22 51 D

4 3 2 1

PREFERANCES

ANALYSIS: Above collected data or table shows that:

32% people rank A, 9% rank B, 8% rank C and 51% rank D as highly risky according to their risk factor. k A, 15% rank B, 26% rank C and 22% rank D as above average risky according to their risk factor. 27% people rank A, 37% rank B, 29% rank C and 7% rank D as average risky according to their risk factor. 4% people rank A, 39% rank B, 37% rank C and 20% rank D as low risky according to their risk factor.

96

CONCLUSION:

51% people ranked D (F&O) AS Highly risky. 37% people ranked A (EQUITY) as above average risky. 37% people ranked B (MUTUAL FUNDS) as average risky. 39% people ranked C (COMMODITY) as low risky.

Q-6 HOW MUCH MINIMUM RETURNS DO YOU PREFER WHILE MAKING INVESTMENT? (A) 5-10% (C) 15-20% ( ( ) ) (B) 10-15% (D) 25% ( ( ) )

97

4 0 3 5 3 0 2 5 2 0 1 5 1 0 5 0 A B C A, 1 0 B2 , 8

C3 , 7

D2 , 5

ANALYSIS: 37% people marked C, 28% marked B, 25% marked D and only 10% marked A.

CONCLUSION: 1) 37% people want atleast 15-20% return while making investment. 2) 28% people want atleast 10-15% return while making investment. 3) 25% people want atleast 20-25% return while making investment.

Q-7 FROM WHOM DO YOU GET INFORMATION ABOUT FINANCIAL MARKET? 98

(A) NEWS PAPER ( )

(B)

FRIENDS

(C) BROKERS ( )

(D)

TELEVISION

50 40 30 20 10 0 Series1

47 37 25 28

A 47

B 25

C 28

D 37

ANALYSIS*: marked D.

47% marked A, 25% marked B, 28% marked C and 37%

CONCLUSION: 47% people get information about financial market from newspaper. 37% people get information about financial market from television. 99

28% people get information about financial market from brokers. 25% people get information about financial market from friends. *(few people get information from more than one medium)

Q-8 WHICH MEDIUM DO YOU MAKE FOR TRANSACTIONS? (A) ONLINE ( ) ( ) (D) SELF ( ) (B) BROKERS

(C) BY POST ( )

50 40 30 20 10 0 Series1

40 22

42

0 A 40 B 22 C 0 D 42

ANALYSIS*: 40% marked A, 22% marked B and 42% marked D.

CONCLUSION: 100

47% people make transactions online. 22% people make transactions through brokers. 42% people make transactions by self. *(few people do transactions through more than one medium)

Q-9 WHEN WOULD YOU LIKE TO INVEST YOUR MONEY? WHEN!

(A) MARKET IS VERY HIGH ( )

(B) MARKET IS RISING

(C) MARKET IS DECLINING

5 0 4 0 3 0 2 0 1 0 0 S rie e s1 8

(D) MARKET IS VERY LOW

4 2

3 7

1 4

A 8

B 4 2

C 1 4

D 3 7

ANALYSIS: 8% marked A, 42% marked B, 14% marked C and 37% marked D.

CONCLUSION: 101

8% People would like to invest when market is very high. 42% People would like to invest when market is rising. 14% People would like to invest when market is declining. 37% People would like to invest when market is very low.

Q-10 NOW; WOULD YOU LIKE TO INVEST IN MUTUAL FUNDS? (A) YES ( ) ( ) (B) NO

100 80 60 40 20 0 Series 1

81

Series1, 19%

19
Series1, 81%

A 81

B 19
A B

ANALYSIS: 81% People marked A, 19% marked B.

CONCLUSION: 102

81% People would like to invest in mutual fund in future if get a good 28% People would not like to invest in mutual fund in future if get a good

opportunity. opportunity.

FINDINGS

After analysis different Mutual funds and customer behavior, it is revealed that mutual funds issues can be compared by different factors like its NAV, RETURNS, RISK, EXPENSE RATIO, RETURN SINCE LAUNCH and its DIVERSIFIED STOCK. A Customer can compare different issues and make decisions accordingly, if they found any contradictory like return on one is better but it is high risky now its depend on investor attitude that whether he is risk taker or averter. And, In a survey of 100 people at Delhi, I come on following findings: People in India want safe investment thats why people People preferred mutual funds after bank f.d because in

marked maximum 39% bank f.d as their first preference. their opinion mutual funds are less risky as compared to other securities. 28% of the sample population is not aware about mutual Approximately 50% of population want to invest below fund and its schemes. 25% of their investment portfolio in mutual funds. 103

Approx. 70% people want return more than 10% on 17% people are not satisfied from their investment. 51% people said F&O is highly risky. People marked 47% people get information about financial market 42% people do transaction by theirself and 40% online. Maximum (42%) customer want to invest when market Mutual funds have evolved a lot since its inception and From a single fund house in 1964 there are at present 34 Many private players and foreign players have increased SIP (Systematic Investment plans) has got lot of

their investment for them mutual fund is a very good option.

mutual fund low risky than F&O AND equity. through newspaper.

is rising. growing rapidly. fund houses. and more foreign players are on the prowl. popularity in the last 3-4 years as it gives the advantage of Rupee cost averaging. The Mutual Fund industry is mainly penetrated in urban It is very important that while comparing the scheme the or semi-Urban areas. And Rural India is still to be tapped. scheme with same investment style and sector allocation should be selected. used. Various qualitative and quantitative measures should be

104

Compare the scheme and only return should not be The less than three-year-old PMS has already built up a In PMS, there had been a very sharp growth in its client

taken into consideration. client base of 540 and an asset portfolio of Rs 100 crore. base last year. Based exclusively on the good report card and strong recommendations of existing clients, new customers have come seeking the company's services. On a year-on-year basis, the company's client base has grown over 300 per cent, from around 145 clients last year to 540 today. One may know what stocks, equity funds or bonds one would like to own, but he/she doesnt knows how much of your savings one should allocate to each of these. The decision on asset allocation will be crucial in determining investment returns over the long term. With PMS, an asset allocation plan is tailor-made, after a detailed check on investment goals, savings pattern and appetite for risk one has. In PMS investor can switch over to different investments as per market

CONCLUSION

105

In the case of Mutual Funds as it can be seen from the performance figures, the SIP has delivered better returns than a lump-sum investment. But if we compare the average returns of Mutual funds and portfolio management services over the last few years, PMS has given the better returns to the investors. Like Reliance PMS has given the returns of 73.1% per annum, Angel has given 63% returns, and Morgan has given 37% return. And in Mutual funds, Franklin India prima fund has given the maximum average return of 35.78% over the last 10 years. Although anybody with a nest egg, which meets the minimum investment requirement, can consider using a PMS. However, a PMS may only add significant value in the following cases: Equity bias: Portfolio management services may be ideal for a person who seeks a substantial investment in the stock markets. An equity portfolio also offers greater scope for a manager to add value than does a debt portfolio. Several of the established players in the PMS business focus on equity investments, though some also offer hybrid products.

Large surplus to invest: The minimum portfolio size that portfolio managers accept for a customised portfolio ranges from Rs 25 lakh to Rs 5 crore. So one must consider PMS only if he/she has a substantial

106

surplus to invest in stocks. If one cant, evaluate yourself and use the services of a financial planner or an advisor, instead of a PMS. Otherwise for small scale investors in order to diversify his portfolio in small investments only & to get it professionally managed mutual funds is a better option as compared to personal investments

RECOMMENDATIONS

Companies should promote awareness programmes because many of the people are not aware about different schemes and they dont want to invest on confused terms.

Companies should take more initiative while market is rising because maximum people want to invest when market is rising so that investors can earn more revenue.

4) Customer should build a highly diversified portfolio

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Companies should issues different mutual funds over other securities like shares bonds because1. 2. security. People in India are risk averter and they need And people marked mutual fund as a low risky a safe investment.

SUGGESTIONS

Invest for long term because we can get good returns in long term only.

1)

Take the advice of financial planners and fund managers if you lack that expertise, as they are expert in the field & can maximize our returns at minimized risk.

1) Do not put all your eggs in one basket as diversification reduces risk.

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LIMITATIONS

TIME : Understand the financial market in depth is very vast topic so two months is a very small period for understanding the financial market.

Its a secondary research, views given by people may be wrong. Its difficult to obtain appointment with the businessman because time is constraint for them.

Investment through mutual fund requires minimum of Rs5000 and PMS services required minimum of Rs10, 00,000, so comparison of the pattern is quite difficult sometime.

LIMITATION OF AREA:The research is limited to internet & business magazines.

Cost allocated to this project is not as per requirement of it.

ANNEXURE
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----------------Questionnaire-------------CUSTOMER BEHAVIOUR ANALYSIS IN MARKET

Q-1 WHERE DO YOU LIKE TO INVEST YOUR MONEY? RANK THEM ACCORDING TO YOUR PREFERENCE: (A) MUTUAL FUND (C) SHARES (E) GOVT. BONDS ( ( ) ( ) ) (B) BANK F. D. (D) POST OFFICE ( ) ( )

Q-2 WHERE DOES MUTUAL FUND EXIST IN YOUR INVESTMENT PORTFOLIO? (A) 0 - 25% ( ) ( ) (D) 75 100% ( ) (B) 25 50%

(C) 50 - 75% ( )

Q-3 ARE YOU SATISFIED FROM YOUR INVESTMENT? (A) YES ( ) 110 ( ) (B) NO

Q-4 ARE YOU AWARE ABOUT THE SCHEMES OF MUTUAL FUNDS? (A) YES ( ) ( IF NO, SO PLZ GO TO Q10 ) ( ) (B) NO

Q-5 HOW WILL YOU RANK SECURITIES IN RESPECT OF THEIR RISK FACTOR? (A) EQUITY (C) COMMODITY ( ) ( ) (B) MUTUAL FUNDS (D) F & O ( ) ( )

Q-6 HOW MUCH MINIMUM RETURNS DO YOU PREFER WHILE MAKING INVESTMENT? (A) 5-10% ( ) ( ) (D) 20-25% ( ) (B) 10-15%

(C) 15-20% ( )

Q-7 FROM WHOM DO YOU GET INFORMATION ABOUT FINANCIAL MARKET? (A) NEWS PAPER ) 111 ( ) (B) FRIENDS (

(C) BROKERS )

(D) TELEVISION

Q-8 WHICH MEDIUM DO YOU MAKE FOR TRANSACTIONS? (A) ONLINE ( ) ( ) (D) SELF ( ( ) (B) BROKERS

(C) BY POST )

Q-9 WHEN WOULD YOU LIKE TO INVEST YOUR MONEY? WHEN! (A) MARKET IS VERY HIGH (C) MARKET IS DECLINING ( ( ) ) B) MARKET IS RISING D) MARKET IS VERY LOW ( ( ) )

BEFORE ASKING Q-10, YOU SHOULD KNOW THAT: A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by 112

them. A Mutual Fund offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Q-10 NOW; WOULD YOU LIKE TO INVEST IN MUTUAL FUNDS? (A) YES (B) NO

(C) Friends, Magazines, Newspapers etc.

NAME: OCCUPATION: .....

ADDRESS: TEL NO: .

BIBLIOGRAPHY

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BOOKS:

1) Kothari C.R., Quantitative Techniques, Vikas publishing house Pvt. Ltd. New Delhi, 2005, p-168- 174. 2) Prof. R.M. Srivastava, Dr.Diva Nigam, Management of Indian

Financial Institutes, Himalaya publishing House, 9th Edition, P- 558-560. 3) M.Y.Khan, Indian Financial System, 4th Edition, Tata Mcgraw Hill Publishing Company Ltd., 4) Pandey,I.M. Financial Management, 3rd edition, New Delhi, Vikas Publication House Pvt. Ltd. P-143to145 5) R.P. Rustagi, Investment Management. 2nd edition, New Delhi, Sultan Chand & sons 5) Prasannana Management, 6) Financial Management I.M Pandey 7) Security Analysis and Portfolio Management Punithavathy Pandian WEBSTIES Chandra, Investment Analysis And Portfolio

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www.lotusindiaamc.com www.amfiindia.com www.mutualfundsindia.com www.moneycontrol.com www.indiamart.com www.google.com www.investopedia.com www.indiapages.in www.thehindubusinessline.com

Chapter-12 Fundamental Analysis Page237-243 Official Websites of NSE and BSE www.nseindia.com www.bseindia.com Other Websites for Analysis work

www.icharts.in www.equitymaster.com www.money.rediff.com www.google.com/finance Articles in newspapers (April 01 June 1 115

The Economic Times Business Standard

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