INTRODUCTION

The time one talks about stock market, another word also clicks and that is risk. People have lost their millions in the stock market. This is a place of gambling for those who dont know where to invest. The market behaves differently to differently people. The speculators are one who loose most of the money. There are hedgers who keep risk in their mind but try to minimize it by using different strategies. Though hedging doesnt always give good returns but it helps one to take out his money with remarkable profits. Lot of analysis is required to decide in which instrument one should invest. Many people think that particular time is the best time to invest but the fact is that it depends on the investor and his capacity to take risk and invest not the time. Before stepping into investment process one should get the entire knowledge about the financial instrument options available in the market and the risk factor involved with the instrument and the estimated returns the investor would probably get. This project will help the people in getting lot of their answers related to investment options and the ways to analysis the market. The data in the project can also help the company in making the strategy for potential investors.

SHAREKHAN PROFILE
Share khan is one of the leading retail broking House of SSKI Group which was running successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business. Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, Derivatives, depository services, online trading, investment advisory, Mutual Fund Advisory etc.

The firms online trading and investment site - www.sharekhan.com - was launched on Feb 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over two lakh customers. The number of trading members currently stands More than 6 Lacs. While online trading currently accounts for just over 8 per cent of the daily trading in stocks in India, Sharekhan alone accounts for 32 per cent of the volumes traded online. The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisions and to simplify the process of investing in stocks. On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. This was for the first time that a net-based trading station of this caliber was offered to the traders. In the last six months Speed Trade has become a de facto standard for the Day Trading community over the net. On October 01, 2007 Sharekhan again launched his another integrated Software based product Trade Tiger, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. It has another quality which differs it from other that it has the combined terminal for equity and commodities both. Share khans ground network includes over 1005 centers in 410 cities in India, of which 210 are fully-owned branches. Sharekhan has always believed in investing in technology to build its business. The company has used some of the best-known names in the IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading engine and content. Previously the Morakiya family holds a majority stake in the company but now a world famous brand CITI GROUP has taken a majority stake in the company. HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance 18 years ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. SSKI holds a sizeable portion of the market in each of these segments. SSKIs institutional broking arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5% of all Domestic Institutional portfolio investment in the country. It has 60 institutional clients spread over India, Far East, UK and US. Foreign Institutional Investors generate about 65% of the organizations revenue, with a daily turnover of over US$ 4 million. The Corporate Finance section has a list of very prestigious clients and has many firsts to its credit, in terms of the size of deal, sector tapped etc. The group has placed over US$ 1 billion in private equity deals. Some of the clients include BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shoppers Stop.

REASONS TO CHOOSE SHAREKHAN LIMITED Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money broker's poll held recently, SSKI won the 'India's best broking house for 2004' award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutional-level research and broking services to individual investors.

Technology
With our online trading account you can buy and sell shares in an instant from any PC with an internet connection. You will get access to our powerful online trading tools that will help you take complete control over your investment in shares.

Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for investors. These services are accessible through our centers across the

country (Over 721 locations in 210 cities) over the internet (through the website www.sharekhan.com) as well as over the Voice Tool.

Knowledge
In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content-rich portal, Sharekhan. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions.

Convenience
You can call our Dial-N-Trade number to get investment advice and execute your transactions. We have a dedicated call-centre to provide this service via a Toll Free Number 1800-22-7500, 1800-22-7050 from anywhere in India.

Customer Service
Our customer service team will assist you for any help that you need relating to transactions, billing, demat and other queries. Our customer service can be contracted via a toll-free number, email or live chat on www.sharekhan.com.

Investment Advice
Share khan has dedicated research teams of more than 30 people for fundamental and technical researches. Our analysts constantly track the pulse of the market and provide timely investment advice to you in the form of daily research emails, online chat, printed reports and SMS on your mobile phone.

BENEFITS
Free Depository A/c Secure Order by Voice Tool Dial-n-Trade. Automated Portfolio to keep track of the value of your actual purchases. 24x7 Voice Tool access to your trading account.

Personalized Price and Account Alerts delivered instantly to your Cell Phone & Email address. Special Personal Inbox for order and trade confirmations. On-line Customer Service via Web Chat. Anytime Ordering. NSDL Account Instant Cash Tranferation. Multiple Bank Option. Enjoy Automated Portfolio. Buy or sell even single share.

Branch - Head Office

A-206, Phoenix House, 2nd Floor, Senapati Bapat Marg, Lower Parel, Mumbai- 400 013. Telephone No: 67482000 Email: myaccount@sharekhan.com KEY OFFICIALS 1. Mr. Shripal Morakhia 2. Mr. Tarun Shah 3. Mr. Kaliyan Raman 4. Mr. Jason Pandey and Mr. Pradeep 5. Mr. Hemendra Aggarwal 6. Mr Amit pal Singh and Mr. Maneet Rastogi Cluster Head Regional Sales Manager DESIGNATION Chairman CEO Online Sales Head DP Head

PRODUCTS OF SHAREKHAN CLASSIC ACCOUNT

This account allows the client to trade through the website and is suitable for the retail investor who is risk-averse and hence prefers to invest in stocks or who do not trade too frequently. It allows investor to buy and sell stocks online along with the following features like multiple watch lists, Integrated Banking, De-mat and Digital contracts, Real-time portfolio tracking with price alerts and Instant money transfer.

FEATURES
Online trading account for investing in Equity and Derivatives via www.sharekhan.com Live Terminal and Single terminal for NSE Cash, NSE F&O, BSE & Mutual Funds. Integration of On-line trading, Saving Bank and De-mat Accounts. Instant cash transfer facility against purchase & sale of shares. Competative transaction charges. Instant order and trade confirmation by E-mail. Streaming Quotes (Cash & Derivatives). Personlized market watch. Single screen interface for Cash and derivatives and more. Provision to enter price trigger and view the same online in market watch.

TRADE TIGER
TRADE TIGER is an internet-based software application which is the combination of EQUITY & COMMODITIES, that enables you to buy and sell share and well as commodities item instantly. It is ideal for every client of SHAREKHAN LTD.

FEATURES

Integration of EQUITY & COMMODITIES MARKET. Instant order Execution and Confirmation. Single screen trading terminal for NSE Cash, NSE F&O & BSE & Commodities. Technical Studies. Multiple Charting. Real-time streaming quotes, tic-by-tic charts. Market summary (Cost traded scrip, highest value etc.) Hot keys similar to brokers terminal. Alerts and reminders. Back-up facility to place trades on Direct Phone lines. Live market debts.

DIAL-N-TRADE
Along with enabling access for your trade online, the CLASSIC and TRADE TIGER ACCOUNT also gives you our Dial-n-trade services. With this service, all you have to do is dial our dedicated phone lines which are 1800-22-7500, 3970-7500.

PORTFOLIO MANAGEMENT SERVICES

Share khan is also having Portfolio Management Services for Exclusive clients. 1. PROPRIME - Research

&

Fundamental

Analysis.

Ideal for investors looking at steady and superior returns with low to medium risk appetite. This portfolio consists of a blend of quality blue-chip and growth stocks ensuring a balanced portfolio with relatively medium risk profile. The portfolio will mostly have large capitalization stocks based on sectors & themes that have medium to long term growth potential.

2. PROTECH

- Technical Analysis.

Protech uses the knowledge of technical analysis and the power of derivatives market to identify trading opportunities in the market. The Protech lines of products are designed around various risk/reward/ volatility profiles for different kinds of investment needs. THRIFTY NIFTY: Nifty futures are bought and sold on the basis of an automated trading system that generates calls to go long/short. The exposure never exceeds value of portfolio i.e. there is no leveraging; but being short in Nifty allows you to earn even in falling markets and there by generates linear BETA PORTFOLIO: Positional trading opportunities are identified in the futures segment based on technical analysis. Inflection points in the momentum cycles are identified to go long/short on stock/index futures with 1-2 month time horizon. The idea is to generate the best possible returns in the medium term irrespective of the direction of the market without really leveraging beyond the portfolio value. Risk protection is done based on stop losses on daily closing prices. STAR NIFTY: Trailing Stops Momentum trading techniques are used to spot short term momentum of 5-10 days in stocks and stocks/index futures. Trailing stop loss method of risk management or profit protection is used to lower the portfolio volatility and maximize returns. Trading opportunities are explored both on the long and the short side as the market demands to get the best of both upwards & downward trends.

3. PROARBITRAGE - Exploit price analysis

- ONLINE IPO'S AND MUTUAL FUNDS ADVISORY IS AVAILABLE.

CHARGE STRUCTURE 1) Pre Paid Account: -Advance Amount which will be fully adjusted against your brokerage you paid in One year. Following Schemes Are Available: Brokerage will be charged -

2,000/- Scheme: 6,000/- Scheme: 18,000/- Scheme: 30,000/- Scheme: 60,000/- Scheme: -

0.070 / 0.40 % 0.025 / 0.25 % 0.040 / 0.20 % 0.030 / 0.18 % 0.020 / 0.15 % 0.015 / 0.10 %

1,00,000/- Scheme: -

2) Normal Account: Cash Trading : - 0.50% or 10 Paisa per share. Min. Rs.16/- per script. Margin Trading Future & Options : - 0.10% or 5 Paisa per share. : - 0.10% (First Leg)

0.02% (2nd Leg if square off same day) 0.10% (2nd Leg)

DEPOSITORY CHARGES
Account Opening Charges Annual Maintenance Charges Rs. 750 Rs. NIL first year Rs. 300 Per annum from second year onward

Minimum Brokerage Intra Day per Share:

5 Paisa each leg (buy or sell) for Intra-day Trades (For e.g. on Rs 20 Scrip, brokerage @ 0.10% = 2 paisa, but there is a min. chargeable amount of 5 paisa).

Minimum Delivery Handling Charges:

10 Paisa for Delivery Trades (buy and sell) (For e.g. on a Rs 10 Scrip, brokerage @ 0.50% = 5 paisa, but there is a min. chargeable amount of 10 paisa). Rs 16/- per Scrip (brok. per Scrip will be charged for the selling of shares). (For e.g. if a customer sells 100 shares of SAIL, Delivery value = 2200, brokerage @ 0.5% = Rs 11, but the min

chargeable amt per scrip per day = Rs 16), so additional Rs 5/- will be charged as Min delivery handling charges). Minimum Margin of Rs.5000/- is Required for Account Opening. Annual Maintenance Charges will NIL for 1st year and Rs. 300/- from 2nd year.

EXPOSURE:
It is the limit or turnover that a depository participant allows to its client to take positions at a time on margin money in his account. Sharekhan offers an Exposure of 4 to 6.6 times of margin money in cash. In Futures and Options it offers 10 times of margin money. Sharekhan also offers exposure of Trading+two days on delivery, it means that a client is not asked to deposit margin due on his account for next two days and thereafter if it again allows a client to hold order for additional 3 days and charges nominal interest @14% p.a. on the same. On sixth day order will be squared off if margin money is not deposited.

TIE UPS:
Tie up with eleven banks i.e. HDFC Bank Ltd, ICICI Bank, Oriental Bank Of Commerce, IDBI Bank Ltd, Citi Bank, United Bank of India, Axis bank, Bank of India, Indusland Bank, Centurian Bank of Punjab for online money transfer. If you are having bank a/c in one of them, you can transfer the funds and withdraw the funds online from your trading a/c at anytime.

DOCUMENTS REQUIRED FOR ACCOUNT OPENING: Photo ID Proof Pan Card (Mandatory) Passport Driving License Voter's ID MAPIN UIN Card Residence Proof (Permanent or Correspondence) Passport (valid) Voter's ID Driving License (valid) Letter verified by Bank Bank Statement & Bank Passbook (latest) Telephone Bill (latest) Electricity Bill (latest) Ration Card Rent Agreement (Noterised) Latest Insurance Policy with Bond Copy Letter from Employer (Only in case of Army People) --2 Photographs (Passport size & front face) --1 Cheque of Rs. 750/- in the favor of SHAREKHAN LTD.

SWOT ANALYSIS OF SHAREKHAN STRENGTHS

1. Big client base 2. In-house research house 3. online as well as offline trading 4. Online IPO/ MF services 5. Share shops 6. Transparent 7. User friendly tie ups with 10 banks 8. Excellent order execution speed and reliability

WEAKNESS
1. Lack of awareness among customer

2. Less focus on customer retention 3. Less Exposure

OPPORTUNITIES
1. Diversification 2. Product modification 3. Improve Web based trading 4. Provide competitive brokerage 5. Concentrate on PMS 6. Focus on Institutional investors 7. Concentrate on HNIs (high net worth investor)

THREATS
1. Aggressive promotional strategies by close competitor like Religare, Angel Broking and India bulls. 2 More and more players are venturing into this domain, which can further reduce the earning of Share Khan. 3 Stock market is very volatile, risk involves is very high.

INTRODUCTION TO STOCK MARKET STOCK MARKET

A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy.

STOCK EXCHANGE
A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.Companies that are not listed are sold as short for Over-The-Counter.

SHARE
A share is a unit of account for various financvial instrument including stocks, bonds and mutual funds. The total capital of a company may be divided into small units called shares. For example, if the required capital of a company is Rs. 5, 00,000 and is divided into 50,000 units of Rs. 10 each, each unit is called a share of face value Rs. 10. A share may be of any face value depending upon the capital required and the number of shares into which it is divided. The holders of the shares are called share holders. The shares can be purchased or sold only in integral multiples. Share consists of Equity share and preference share. Preference shareholder entitled to dividend prior to equity holder.

STOCKS
The shares may be fully paid or partly paid. A company may consolidate and convert a number of its fully paid up shares to form a single stock. Stock being one lump amount can be purchased or sold even in fractional parts.

DEBENTURES
The term Debenture is derived from the Latin word debere which means to owe a debt. A debenture is a loan borrowed by a company from the public with a guarantee to

pay a certain percentage of interest at stated intervals and to repay the loan at the end of a fixed period.

DIVIDEND
The profit of the company distributed among the share holders is called Dividend. Each share holder gets dividend proportionate to the face value of the shares held. Dividend is usually expressed as a percentage.

YIELD OR RETURN
Suppose a person invests Rs. 100 in the stock market for the purchase of a stock. The consequent annual income he gets from the company is called yield or return. It is usually expressed as a percentage.

BROKERAGE
The purchase or sale of stocks, shares and debentures is done through agents called Stock Brokers. The charge for their service is called brokerage. It is based on the face value and is usually expressed as a percentage. Both the buyer and seller pay the brokerage. When stock is purchased, brokerage is added to cost price. When stock is sold, brokerage is subtracted from the selling price.

DEPOSITORY
A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form. There are two type of depository: National Security Depository Ltd and Central Depository Services Ltd.

DEMATERIALIZATION
Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investors account with his Depository Participant (DP).

PRIMARY AND SECONDARY MARKET PRIMARY MARKET

The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.

SECONDARY MARKET
Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

PRODUCTS IN THE SECONDARY MARKETS

Following are the main financial products/instruments dealt in the Secondary market which may be divided broadly into Shares and Bonds:

SHARES
Equity Shares: An equity share, commonly referred to as ordinary share, represents the form of fractional ownership in a business venture. Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle a shareholder to receive 2 shares for every 3 shares held at a price of Rs. 125 per share.

Bonus Shares: Shares issued by the companies to their shareholders free of cost based on the number of shares the shareholder owns. Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders/debenture holders. Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remained unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

BOND
Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows: Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price. Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements.

SHORT-TERM INVESTMENT

FINANCIAL

OPTIONS

AVAILABLE

FOR

SAVINGS BANK ACCOUNT is often the first banking product people use, which offers low interest (4%-5% p.a.), making them only marginally better than fixed deposits. MONEY MARKET OR LIQUID FUNDS are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximize returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. FIXED DEPOSITS WITH BANKS are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.

LONG-TERM FINANCIAL OPTIONS AVAILABLE FOR INVESTMENT

POST OFFICE SAVINGS: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in multiples of 1,000/-. Maximum amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/- (if held Jointly) during a year. It has a maturity period of 6 years. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely. PUBLIC PROVIDENT FUND: A long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and

interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any. COMPANY FIXED DEPOSITS: These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semiannually or annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes. BONDS: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date. MUTUAL FUNDS: These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification. Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments. Types of mutual funds are discussed below:

CLOSE END MUTUAL FUND

A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. These funds have a stipulated maturity period generally ranging from 3 to 15 years. The fund is open for subscription only 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. Once underwritten, closed-end funds are trade on stock exchanges like stocks or bonds. The market price of closed-end funds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds are trade at discounts to their underlying asset value.

OPEN END MUTUAL FUND

Open-end funds raise money by selling shares of the fund to the public, in a manner similar to any other company, which sell its stock to raise the capital. An open-end mutual fund does not have a set number of shares. It continues to sell shares to investors and will buy back shares when investors wish to sell. Units are bought and sold at their current net asset value.

Open-end funds are required to calculate their net asset value (NAV) daily. Since the NAV of an open-end fund is calculated daily, it serves as a useful measure of its fair market value on a per-share basis. The NAV of the fund is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. Open-end funds usually charge an entry or exit load from the investors.

LARGE-CAP MUTUAL FUNDS

Large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies with above-average prospects for earnings growth.

MID-CAP MUTUAL FUNDS

Mid cap funds are those mutual funds, which invest in small / medium sized companies.

EQUITY MUTUAL FUND

Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies.

BALANCED FUND
Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds

GROWTH FUNDS
Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks.

EXCHANGE TRADED FUNDS (ETFs)

ETFs are listed on a recognized stock exchange and their units are directly traded on stock exchange during the trading hours.

VALUE FUNDS
Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation.

MONEY MARKET FUND

A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid

SECTOR FUND

Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy.

INDEX FUNDS
An index fund is a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market.

FUND OF FUNDS
A fund of funds (FoF) is an investment fund that holds a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.

DERIVATIVES
Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products.

TYPES OF DERIVATIVES
FORWARDS: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. FUTURES: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts, such as futures of the Nifty index.

OPTIONS: An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives the option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. Options are of two types - Calls and Puts options: Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given price on or before a given future date. Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 single stocks. WARRANTS: Options generally have lives of up to one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called Warrants and are generally traded over-the counter.

SEBI AND ITS ROLE

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) Protecting the interests of investors in securities (b) Promoting the development of the securities market and (c) Regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for: Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stock brokers, subbrokers etc. Promoting and regulating self-regulatory organizations

 Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self regulatory organizations, mutual funds and other persons associated with the securities market.

BSE
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956.It migrated from the open outcry system to an online screen-based order driven trading system in 1995. BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.

NSE
NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks,

market of debt and derivative instruments and intensive use of information technology.

PRECAUTIONS ONE MUST TAKE BEFORE INVESTING IN THE STOCK MARKETS

Here are some useful pointers to bear in mind before you invest in the markets: Make sure your broker is registered with SEBI and the exchanges and do not deal with unregistered intermediaries. Ensure that you receive contract notes for all your transactions from your broker within one working day of execution of the trades. All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance. Do not be misled by market rumors, luring advertisement or hot tips of the day. Take informed decisions by studying the fundamentals of the company. Find out the business the company is into, its future prospects, quality of management, past track record etc Sources of knowing about a company are through annual reports, economic magazines, database available with vendors or your financial advisor. If your financial advisor or broker advises you to invest in a company you have never heard of, be cautious. Spend some time checking out about the company before investing. Do not be attracted by announcements of fantastic results/news reports, about a company. Do your own research before investing in any stock. Do not be attracted to stocks based on what an internet website promotes, unless you have done adequate study of the company. Be cautious about stocks which show a sudden spurt in price or trading activity. Any advice or tip that claims that there are huge returns expected, especially for acting quickly, ma y be risky and may to lead to losing some, most, or all of your money.

VALUATION OF SHARES
BASES OF SHARE VALUATION Share valuation can either be in income or on asset values. There are two incomes receivable on share, namely:Dividend income Total income (earning attributable to each shareholder) Dividend income is payable out of the attributable earnings and the two will only be equal when the company has a 100% dividend payout ratio. The following gives bases used for share valuation Earnings Dividends Assets

ABBREVIATIONS
Po Di Pn = = = market expected the price dividend anticipated (present i periods selling value) hence price of (i of = the the 1, stock 2, stock 3 . at per . . time share n) n

ke = the minimum required rate of return on the stock given its risk g = expected growth rate of dividends

VALUATION OF SHARES
The commonly used model is the DISCOUNTED CASH FLOW MODEL gives as: Po = D1 / (1 + ke )1 + D2 / (1 + ke ) 2 + D3 / (1 + ke ) 3 +.. Dn / (1 + ke ) n In practice, the model is difficult to use in valuing common stock. Two problems associate with the model. 1) Determination of Dn i.e the eventual price when the share will be sold.

2) The formula does not give consideration to forecast all future dividends. To overcome the ambiguities the (GORDON) CONSTANT GROWTH DIVIDEND MODEL was employed: Po = D1 / ( ke g ) Example:
D1 = Rs. 2 (next expected dividend per share)

ke = 14% g = 10% Po = Rs.2 / (0.14 0.10) = Rs. 50 per share Note: The above equation can be re-written to give the divided yield on the common stock. ke = D1 / (Po + g) Example:
D1 = Rs. 2

Po = Rs. 50 = 0.14 or 14%

g = 10%

ke = Rs. 2 / (50 + 0.10) Note: The term D1 / Po = dividend yield = Rs.2 / Rs.50 = 4 % Note: In this case, g is the Capital Gain yield

THE PRICE/EARNINGS MODEL

Useful when a company's stock is not traded publicly and no market price exists Method: 1) Determine the P/E (Price by Earning ratio) ratio for the industry; 2) calculate the Earnings Per Share (EPS) of the company; 3) multiply the (P/E) industry times the EPS company

COMMON STOCK VALUATION (TOTAL COMMON EQUITY)

BOOK VALUE APPROACH BV per Share = (Total Assets - Total Liabilities)/# com stock shares Example: Total Assets = $10 million; Total Liabilities = $4 million; number of common stock shares outstanding = 3 million BV per share = ($10million - $4million)/3 million = $2.00 per share LIQUIDATION VALUE MODEL Note: The liquidation model assumes assets are sold at below book value to reflect their poor or zero earning power. From the previous example, using the asset value of $10million, assume the assets can be sold at a discount of $2million. BV per share liquidation = ($8 - $4)/3 million = $1.33 per share Note: Liquidation value is a "worse case" scenario valuation assessment

PREFERRED STOCK VALUATION

Preferred stock is valued as a perpetuity. The preference shares differs from the ordinary shares in that they carry certain preferential rights. The common areas where the rights exist ii) Distribution in liquidation Capital right Diminishing importance of preference Shares. The combined effect of inflation on fixed interest investments and the unfavorable tax treatment of preference shares compared t debentures has caused the virtual disappearance of the new issues of this type of shares. VALUATION MODEL Vp = Dp / kp Where Vp = present (market) value of the preferred stock per share are:i) Dividend payment: Dividends are a fixed percent of par value Dividend right

Dp = amount of dividend per year Kp = investors required return on the preference stock Example: Jambo Telecoms Ltd. Preference stocks pays an annual dividend of Rs 4 and has required rate of return of 10%. What is the price of the stock? Solution: Vp = Rs 4/ 0.10 = Rs. 40 per share Effect of inflation can be incorporated by considering inflation as a negative growth. The formulae would become Vp = Dp / (kp + r) Where r is the inflation rate Preference Share Yield formulae kp = Dp / Vp From previous example kp = 4 / 40 = 10 % = the current yield on the preference stock Investors compare the market yield to their required yield to make buy/sell decisions.

ABOUT SYSTEMATICALLY ANALYZING A COMPANY

One must look for the following to make the right analysis: INDUSTRY ANALYSIS: Companies producing similar products are subset (form a part) of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India. It is very important to see how the industry to which the company belongs is faring. Specifics like effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export oriented companies. Investment analysts call this as Industry Analysis. TECHNICAL ANALYSIS: Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily

price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument. Technical analysts may employ models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns. Technical analysis "ignores" the actual nature of the company, market, currency or commodity and is based solely on "the charts," that is to say price and volume information, whereas fundamental analysis does look at the actual facts of the company, market, currency or commodity. FUNDAMENTAL ANALYSIS: Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives: to conduct a company stock valuation and predict its probable price evolution, to make a projection on its business performance, to evaluate its management and make internal business decisions, to calculate its credit risk. CORPORATE ANALYSIS: How has the company been faring over the past few years? Seek information on its current operations, managerial capabilities, growth plans, its past performance vis--vis its competitors etc. This is known as Corporate Analysis. FINANCIAL ANALYSIS: If performance of an industry as well as of the company seems good, then check if at the current price, the share is a good buy. For this look at the financial performance of the company and certain key financial parameters like Earnings Per Share (EPS), P/E ratio, current size of equity etc. for arriving at the estimated future price. This is termed as Financial Analysis. For that you need to understand financial statements of a company i.e. Balance Sheet and Profit and Loss Account contained in the Annual Report of a company.

RATIO ANALYSIS
Mere statistics/data presented in the different financial statements do not reveal the true picture of a financial position of a firm. Properly analyzed and interpreted financial statements can provide valuable insights into a firms performance. To extract the information from the financial statements, a number of tools are used to analyse such statements. The most popular tool is the Ratio Analysis. Financial ratios can be broadly classified into three groups: (I) Liquidity ratios, (II) Leverage/Capital structure ratio, and (III) Profitability ratios. (I) LIQUIDITY RATIOS: Liquidity refers to the ability of a firm to meet its financial obligations in the short-term which is less than a year. Certain ratios, which indicate the liquidity of a firm, are (i) Current Ratio, (ii) Acid Test Ratio, (iii) Turnover Ratios. It is based upon the relationship between current assets and current liabilities. (i) Current ratio = Current Liabilities / Current Assets The current ratio measures the ability of the firm to meet its current liabilities from the current assets. Higher the current ratio, greater the short-term solvency (i.e. larger is the amount of rupees available per rupee of liability). (ii) Acid-test Ratio = Current Liabilities / Quick Assets Quick assets are defined as current assets excluding inventories and prepaid expenses. The acid-test ratio is a measurement of firms ability to convert its current assets quickly into cash in order to meet its current liabilities. Generally speaking 1:1 ratio is considered to be satisfactory. (iii) Turnover Ratios: Turnover ratios measure how quickly certain current assets are converted into cash or how efficiently the assets are employed by a firm. The important turnover ratios are: Inventory Turnover Ratio, Debtors Turnover Ratio, Average Collection Period, Fixed Assets Turnover and Total Assets Turnover Inventory Turnover Ratio =Cost of Good Sold/ Average Inventory

Where, the cost of goods sold means sales minus gross profit. Average Inventory refers to simple average of opening and closing inventory. The inventory turnover ratio tells the efficiency of inventory management. Higher the ratio, more efficient inventory management. Debtors Turnover Ratio =Net Credit Sale / Average Accounts Receivable (Debtors) The ratio shows how many times accounts receivable (debtors) turns over during the year. If the figure for net credit sales is not available, then net sales figure is to be used. Higher the debtors turnover, the greater the efficiency of credit management. Average Collection Period = Average Debtors / Average Daily Credit Sales Average Collection Period represents the number of days worth credit sales that is locked in debtors (accounts receivable). Please note that the Average Collection Period and the Accounts Receivable (Debtors) Turnover is related as follows: Average Collection Period =365 Days / Debtors Turnover Fixed Assets turnover ratio measures sales per rupee of investment in fixed assets. In other words, how efficiently fixed assets are employed. Higher ratio is preferred. It is calculated as follows: Fixed Assets turnover ratio = Net Sales / Net Fixed Assets Total Assets turnover ratio measures how efficiently all types of assets are employed. Total Assets turnover ratio = Net Sales / Average Total Assets (II) LEVERAGE/CAPITAL STRUCTURE RATIOS: Long term financial strength or soundness of a firm is measured in terms of its ability to pay interest regularly or repay principal on due dates or at the time of maturity. Such long term solvency of a firm can be judged by using leverage or capital structure ratios. Broadly there are two sets of ratios: First, the ratios based on the relationship between borrowed funds and owners capital which are computed from the balance sheet. Some such ratios are: Debt to Equity and Debt to Asset ratios. The second set of ratios which are calculated from Profit and Loss Account is: The interest coverage ratio and debt service coverage ratio are coverage ratio to leverage risk.

(i) Debt-Equity ratio reflects relative contributions of creditors and owners to finance the business. Debt-Equity ratio = Total Debt / Total Equity The desirable/ideal proportion of the two components (high or low ratio) varies from industry to industry. (ii) Debt-Asset Ratio: Total debt comprises of long term debt plus current liabilities. The total assets comprise of permanent capital plus current liabilities. Debt-Asset Ratio = Total Debt / Total Assets The second set or the coverage ratios measure the relationship between proceeds from the operations of the firm and the claims of outsiders. (iii) Interest Coverage ratio = Earnings before Interest and Taxes / Interest Higher the interest coverage ratio better is the firms ability to meet its interest burden. The lenders use this ratio to assess debt servicing capacity of a firm. (iv) Debt Service Coverage Ratio (DSCR) is a more comprehensive and apt to compute debt service capacity of a firm. Financial institutions calculate the average DSCR for the period during which the term loan for the project is repayable. The Debt Service Coverage Ratio is defined as follows: Profit after tax + depreciation + other non cash expenditure + interest on term loan / Interest on term loan + repayment on term loan (III) PROFITABILITY RATIOS: Profitability and operating/management efficiency of a firm is judged mainly by the following profitability ratios: (i) Gross Profit Ratio (%) = Gross Profit / Net Sales * 100 (ii) Net Profit Ratio (%) = Net Profit / Net Sales * 100 Some of the profitability ratios related to investments are: (iii) Return on Total Assets = profit before Interest and Tax / fixed asset + current asset (iv) Return on Capital Employed = Net Profit after Tax / Total Capital Employed (Here, Total Capital Employed = Total Fixed Assets + Current Assets Current Liabilities) (v) Return on Shareholders Equity = Net profit After Tax / Average Total

Shareholders Equity or Net Worth (Net worth includes Shareholders equity capital plus reserves and surplus) A common (equity) shareholder has only a residual claim on profits and assets of a firm, i.e., only after claims of creditors and preference shareholders are fully met, the equity shareholders receive a distribution of profits or assets on liquidation. A measure of his well being is reflected by return on equity. There are several other measures to calculate return on shareholders equity of which the following are the stock market related ratios: (i) Earnings Per Share (EPS): EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get on every share held. It is calculated by dividing the profits available to the shareholders by number of outstanding shares. The profits available to the ordinary shareholders are arrived at as net profits after taxes minus preference dividend. It indicates the value of equity in the market. EPS = Net Profit Available To The Shareholder / Number of Ordinary Shares Outstanding (ii) Price-earnings ratios = P/E Ratio = Market Pr ice per Share / EPS