SECONDARY DATA

INTODUCTION
In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument.

Financial instruments can be thought of as easily tradable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today's marketplace allows for the efficient flow of capital amongst the world's investors. Source: www.answers.com

INDIAN FINANCIAL SYSTEM

The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations. 2

There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities. Financial System;

The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation. These are briefly discussed below;

Constituents of a Financial System

FINANCIAL MARKETS
A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. Financial Market

Money Market

Capital Market

Forex Market

Credit Market

1. Money Market:

The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions. 2. Capital Market: The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year. 3. Forex Market: The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe. 4. Credit Market: Credit market is a place where banks, FIs and NBFCs purvey short, medium and longterm loans to corporate and individuals.

FINANCIAL INTERMEDIATION Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor in order to garner the requisite amount. When the borrower of funds approaches the financial market to raise funds, mere issue of securities will not suffice. Adequate information of the issue, issuer and the security should be passed on to take place. There should be a proper channel within the financial system to ensure such transfer. To serve this purpose, Financial intermediaries came into existence. Financial 5

intermediation in the organized sector is conducted by a wide range of institutions functioning under the overall surveillance of the Reserve Bank of India. In the initial stages, the role of the intermediary was mostly related to ensure transfer of funds from the lender to the borrower. This service was offered by banks, FIs, brokers, and dealers. However, as the financial system widened along with the developments taking place in the financial markets, the scope of its operations also widened. Some of the important intermediaries operating ink the financial markets include; investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers financial consultants, primary dealers, satellite dealers, self regulatory organizations, etc. Though the markets are different, there may be a few intermediaries offering their services in move than one market e.g. underwriter. However, the services offered by them vary from one market to another.

Intermediary Stock Exchange Investment Bankers

Market Capital Market Capital Market, Credit Market Capital Market Depositories, Market,

Role Secondary Market to securities Corporate advisory services, Issue of securities to unsubscribed

Underwriters

MoneySubscribe

portion of securities Issue securities to the investors

Registrars, Custodians

Capital Market

on behalf of the company and handle share transfer activity

Primary Dealers

Dealers

Satellite

Money Market

Market making in government securities Ensure currencies exchange ink

Forex Dealers

Forex Market

FINANCIAL INSTRUMENTS
A contract regarding any combination of capital assets is called a financial instrument, and may serve as a medium of exchange, standard of deferred payment, unit of account, or store of value

Most indigenous forms of money (wampum, shells, tally sticks and such) and the modern fiat money are only a "symbolic" storage of value and not a real storage of value like commodity money.

Source: www.indianmba.com

MONEY MARKET INSTRUMENTS: The money market can be defined as a market for short-term money and financial assets that are near substitutes for money. The term short-term means generally a period up to one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost. Some of the important money market instruments are briefly discussed below; 1. Call/Notice Money 2. Treasury Bills 3. Term Money 4. Certificate of Deposit 5. Commercial Papers 1. Call /Notice-Money Market Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.

2. Inter-Bank Term Money Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days. 3. Treasury Bills. Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction. 4. Certificate of Deposits Certificates of Deposit (CDs) is a negotiable money market instrument nd issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and interoperate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

5. Commercial Paper 9

CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

CAPITAL MARKET INSTRUMENTS: The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; in the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc The capital market instruments are discussed afterwards in detail.

HYBRID INSTRUMENTS: Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc Source: www.indianmba.com

INDIAN capital market: HISTORY

EVOLUTION Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The

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East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

OTHER LEADING CITIES IN STOCK MARKET OPERATIONS Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmedabad was realised and in 1894 the brokers formed "The Ahmedabad Share and Stock Brokers' Association". What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom 11

between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association". In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached. Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War. In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.

INDIAN STOCK EXCHANGES - AN UMBRELLA GROWTH The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base. On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities. They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated.

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The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated. In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchange Association Limited.

POST-INDEPENDENCE SCENARIO Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was closed during partition of the country and later migrated to Delhi and merged with Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963. Most of the other exchanges languished till 1957 when they applied to the Central Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well established exchanges, were recognized under the Act. Some of the members of the other Associations were required to be admitted by the recognized stock exchanges on a concessional basis, but acting on the principle of unitary control, all these pseudo stock exchanges were refused recognition by the Government of India and they thereupon ceased to function. Thus, during early sixties there were eight recognized stock exchanges in India (mentioned above). The number virtually remained unchanged, for nearly two decades. During eighties, however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock

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exchanges in India excluding the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL). The Table given below portrays the overall growth pattern of Indian stock markets since independence. It is quite evident from the Table that Indian stock markets have not only grown just in number of exchanges, but also in number of listed companies and in capital of listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and this was due to the favouring government policies towards security market industry.

Growth Pattern of the Indian Stock Market

Sl.No . As on 31st December No. of Stock 1 Exchanges No. of 2 Listed Cos. No. of Stock Issues of Listed Cos. Capital of Listed Cos. (Cr. Rs.) Market value of Capital of Listed Cos. (Cr. Rs.) Capital per Listed Cos. (4/2) (Lakh Rs.) Market Value of Capital per Listed Cos. (Lakh Rs.) 194 6 7 112 5 150 6 270 971 196 1 7 120 3 211 1 753 129 2 197 1 8 159 9 283 8 181 2 267 5 197 5 8 155 2 323 0 261 4 327 3 198 0 9 226 5 369 7 397 3 675 0 1985 14 4344 6174 1991 20 6229 8967 1995 22 8593 11784

3 4

9723 2530 2

32041 11027 9

59583 47812 1

24

63

113

168

175

224

514

693

6 7

86

107

167

211

298

582

1770

5564

14

(5/2) Appreciated value of Capital per Listed Cos. 8 (Lak Rs.) Stock Exchange, Bombay.

358

170

148

126

170

260

344

803

Source: Various issues of the Stock Exchange Official Directory, Vol.2 (9) (iii), Bombay

TRADING PATTERN OF THE INDIAN STOCK MARKET Trading in Indian stock exchanges is limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of at least Rs.50 million and a market capitalization of at least Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract" : and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstanding pay carry over charges (cantango or backwardation) which are usually determined by the rates of interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times. 15

OVER THE COUNTER EXCHANGE OF INDIA (OTCEI) The traditional trading mechanism prevailed in the Indian stock markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long settlement periods and benami transactions, which affected the small investors to a great extent. To provide improved services to investors, the country's first ring less, scrip less, electronic stock exchange - OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services. Trading at OTCEI is done over the centers spread across the country. Securities traded on the OTCEI are classified into: Listed Securities - The shares and debentures of the companies listed on the OTC can be bought or sold at any OTC counter all over the country and they should not be listed anywhere else Permitted Securities - Certain shares and debentures listed on other exchanges and units of mutual funds are allowed to be traded Initiated debentures - Any equity holding at least one lakh debentures of a particular scrip can offer them for trading on the OTC. OTC has a unique feature of trading compared to other traditional exchanges. That is, certificates of listed securities and initiated debentures are not traded at OTC. The original certificate will be safely with the custodian. But, a counter receipt is generated out at the counter which substitutes the share certificate and is used for all transactions. In the case of permitted securities, the system is similar to a traditional stock exchange. The difference is that the delivery and payment procedure will be completed within 14 days.

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Compared to the traditional Exchanges, OTC Exchange network has the following advantages: OTCEI has widely dispersed trading mechanism across the country which provides greater liquidity and lesser risk of intermediary charges. Greater transparency and accuracy of prices is obtained due to the screen-based scrip less trading. Since the exact price of the transaction is shown on the computer screen, the investor gets to know the exact price at which s/he is trading. Faster settlement and transfer process compared to other exchanges. In the case of an OTC issue (new issue), the allotment procedure is completed in a month and trading commences after a month of the issue closure, whereas it takes a longer period for the same with respect to other exchanges. Thus, with the superior trading mechanism coupled with information transparency investors are gradually becoming aware of the manifold advantages of the OTCEI.

NATIONAL STOCK EXCHANGE (NSE) With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others. Trading at NSE can be classified under two broad categories: (a) Wholesale debt market and (b) Capital market. Wholesale debt market operations are similar to money market operations - institutions and corporate bodies enter into high value transactions in financial instruments such as government securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc. 17

There are two kinds of players in NSE: (a) Trading members and (b) Participants.

Recognized members of NSE are called trading members who trade on behalf of themselves and their clients. Participants include trading members and large players like banks who take direct settlement responsibility. Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked through a communication network. The prices at which the buyer and seller are willing to transact will appear on the screen. When the prices match the transaction will be completed and a confirmation slip will be printed at the office of the trading member. NSE has several advantages over the traditional trading exchanges. They are as follows: NSE brings an integrated stock market trading network across the nation. Investors can trade at the same price from anywhere in the country since intermarket operations are streamlined coupled with the countrywide access to the securities. Delays in communication, late payments and the malpractices prevailing in the traditional trading mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations, with the support of total computerized network. Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market system. Source: http://www.yeahindia.com/c-india1.htm

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CAPITAL MARKET: AN OVERVIEW

Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds. In other words, it is concerned with the raising of money capital for purposes of making long-term investments. The market consists of a number of individuals and institutions (including the Government) that canalize the supply and demand for long -term capital and claims on it. The demand for long term capital comes predominantly from private sector manufacturing industries, agriculture sector, trade and the Government agencies. While, the supply of funds for the capital market comes largely from individual and corporate savings, banks, insurance companies, specialized financing agencies and the surplus of Governments. 19

The Indian capital market is broadly divided into the gilt-edged market and the industrial securities market. The gilt-edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI). Government securities are tradable debt instruments issued by the Government for meeting its financial requirements. The term gilt-edged means 'of the best quality'. This is because the Government securities do not suffer from risk of default and are highly liquid (as they can be easily sold in the market at their current price). The open market operations of the RBI are also conducted in such securities.

The industrial securities market refers to the market which deals in equities and debentures of the corporate. It is further divided into primary market and secondary market.

a. Primary market (new issue market):- deals with 'new securities', that is, securities which were not previously available and are offered to the investing public for the first time. It is the market for raising fresh capital in the form of shares and debentures. It provides the issuing company with additional funds for starting a new enterprise or for either expansion or diversification of an existing one, and thus its contribution to company financing is direct. The new offerings by the companies are made either as an initial public offering (IPO) or rights issue.

b. Secondary market/ stock market (old issues market or stock exchange):- is the market for buying and selling securities of the existing companies. Under this, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. The stock exchanges are the exclusive centers for trading of securities. It is a sensitive barometer and reflects the trends in the economy through fluctuations in the prices of various securities. It been defined as, "a body of individuals, whether incorporated or not, constituted for the purpose of assisting, 20

regulating and controlling the business of buying, selling and dealing in securities". Listing on stock exchanges enables the shareholders to monitor the movement of the share prices in an effective manner. This assist them to take prudent decisions on whether to retain their holdings or sell off or even accumulate further. However, to list the securities on a stock exchange, the issuing company has to go through set norms and procedures.

REGULATORY FRAMEWORK In India, the capital market is regulated by the Capital Markets Division of the Department of Economic Affairs, Ministry of Finance. The division is responsible for formulating the policies related to the orderly growth and development of the securities markets (i.e. share, debt and derivatives) as well as protecting the interest of the investors. In particular, it is responsible for (i) institutional reforms in the securities markets, (ii) building regulatory and market institutions, (iii) strengthening investor protection mechanism, and (iv) providing efficient legislative framework for securities markets, such as Securities and Exchange Board of India Act, 1992 (SEBI Act 1992); Securities Contracts (Regulation) Act, 1956; and the Depositories Act, 1996. The division administers these legislations and the rules framed there under. The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992, in order to protect the interests of the investors in securities as well as promote the development of the capital market. It involves regulating the business in stock exchanges; supervising the working of stock brokers, share transfer agents, merchant bankers, underwriters, etc; as well as prohibiting unfair trade practices in the securities market. The following departments of SEBI take care of the activities in the secondary market: Market Intermediaries Registration and Supervision Department (MIRSD) concerned with the registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets, such as equity, equity derivatives, debt and debt related derivatives.

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 Market Regulation Department (MRD) - concerned with formulation of new policies as well as supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories.

Derivatives and New Products Departments (DNPD) - concerned with supervising trading at derivatives segments of stock exchanges, introducing new products to be traded and consequent policy changes.

Policy Measures and Initiatives A number of initiatives have been undertaken by the Government, from time to time, so as to provide financial and regulatory reforms in the primary and secondary market segments of the capital market. These measures broadly aim to sustain the confidence of investors (both domestic and foreign) in the countrys capital market. The policy initiatives that have been undertaken in the primary market during 2006-07 include: SEBI has notified the disclosures and other related requirements for companies desirous of issuing Indian depository receipts in India. It has been mandated that:- (i) the issuer must be listed in its home country; (ii) it must not have been barred by any regulatory body; and (iii) it should have a good track record of compliance of securities market regulations. As a condition of continuous listing, listed companies have to maintain a minimum level of public shareholding at 25 per cent of the total shares issued. The exemptions include:- (i) companies which are required to maintain more than 10 per cent, but less than 25 per cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii) companies that have two crore or more of listed shares and Rs. 1,000 crore or more of market capitalization. SEBI has specified that shareholding pattern will be indicated by listed companies under three categories, namely, 'shares held by promoter and promoter group'; 'shares 22

held by public' and 'shares held by custodians and against which depository receipts have been issued'. In accordance with the guidelines issued by SEBI, the issuers are required to state on the cover page of the offer document whether they have opted for an IPO (Initial Public Offering) grading from the rating agencies. In case the issuers opt for a grading, they are required to disclose the grades including the unaccepted grades in the prospectus. SEBI has facilitated a quick and cost effective method of raising funds, termed as 'Qualified Institutional Placement (QIP)' from the Indian securities market by way of private placement of securities or convertible bonds with the Qualified Institutional Buyers. SEBI has stipulated that the benefit of no lock-in on the pre-issue shares of an unlisted company making an IPO, currently available to the shares held by Venture Capital Funds (VCFs)/Foreign Venture Capital Investors (FVCIs), shall be limited to:- (i) the shares held by VCFs or FVCIs registered with SEBI for a period of at least one year as on the date of filing draft prospectus with SEBI; and (ii) the shares issued to SEBI registered VCFs/FVCIs upon conversion of convertible instruments during the period of one year prior to the date of filing draft prospectus with SEBI. In order to regulate pre-issue publicity by companies which are planning to make an issue of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an issuer company to ensure that its publicity is consistent with its past practices, does not contain projections/ estimates/ any information extraneous to the offer document filed with SEBI. Similarly, the policy initiatives that have been undertaken in the secondary market during 2006-07 include: In continuation of the comprehensive risk management system put in place since May 2005 in T+2 rolling settlement scenario for the cash market, the stock exchanges have been advised to update the applicable Value at Risk (VaR) margin at least 5 times in a 23

day by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. This has been done to align the risk management framework across the cash and derivative markets.

In order to strengthen the Know Your Client norms and to have sound audit trail of the transactions in the securities market, 'Permanent Account Number (PAN)' has been made mandatory with effect from January 1, 2007 for operating a beneficiary owner account and for trading in the cash segment. In order to implement the proposal on creation of a unified platform for trading of corporate bonds, SEBI has stipulated that the BSE Limited would set up and maintain the corporate bond reporting platform. The reporting shall be made for all trades in listed debt securities issued by all institutions such as banks, public sector undertakings, municipal corporations, corporate bodies and companies. In line with the Government of Indias policy on foreign investments in infrastructure companies in the Indian securities market, the limits for foreign investment in stock exchanges, depositories and clearing corporations, have been specified as follows:- (i) foreign investment up to 49 per cent will be allowed in these companies with a separate Foreign Direct Investment (FDI) cap of 26 per cent and cap of 23 per cent on Foreign institutional investment (FII); (ii) FDI will be allowed with specific prior approval of Foreign Investment Promotion Board (FIPB); (iii) FII will be allowed only through purchases in the secondary market; and (iv) FII shall not seek and will not get representation on the board of directors. The application process of FII investment has been simplified and new categories of investment (insurance and reinsurance companies, foreign central banks, investment managers, international organizations) have been included under FII. Initial issue expenses and dividend distribution procedure for mutual funds have been rationalized.

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 Mutual funds have been permitted to introduce Gold Exchange Traded Funds. In the Government securities market, the RBI has ceased to participate in primary issues of Central Government securities, in line with the provisions of Fiscal Responsibility and Budget Management Act (FRBM Act). Foreign institutional investors have been allowed to invest in security receipts. Thus, the capital market plays a vital role in fostering economic growth of the country, as it augments the quantities of real savings; increases the net capital inflow from abroad; raises the productivity of investments by improving allocation of investible funds; and reduces the cost of capital in the economy. Source: http://business.gov.in/business_financing/capital_market.php

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INDIAN CAPITAL MARKET

The capital market is the market for securities, where companies and governments can raise long term funds. Selling stock and selling bonds are two ways to generate capital and long term funds. Thus bond markets and stock markets are considered capital markets. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. The Indian Equity Markets and the Indian Debt markets together form the Indian Capital markets

INDIAN CAPITAL-EQUITY MARKET The Indian Equity Market depends mainly on monsoons, global funds flowing into equities and the performance of various companies. The Indian Equity Market is almost wholly dominated by two major stock exchanges -National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). The benchmark indices of the two exchanges - Nifty of NSE and Sensex of BSE are closely followed. The two exchanges also have an F&O (Futures and options) segment for trading in equity derivatives including the indices. The major players in the Indian Equity Market are Mutual Funds, Financial Institutions and FIIs representing mainly Venture Capital Funds and Private Equity Funds. Indian Equity Market at present is a lucrative field for investors. Indian stocks are profitable not only for long and medium-term investors but also the position traders, short-term swing traders and also very short term intra-day traders. In India as on December 30 2007, market capitalization (BSE 500) at US$ 1638 billion was 150 per cent of GDP, matching well with other emerging economies and selected matured markets. The Indian Equity Market is also the other name for Indian share market or Indian stock market. The forces of the market depend on monsoons, global funding flowing into equities in the market and the performance of various companies. The Indian market of 26

equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a dematerialized form. The physical stocks are in liquid form and cannot be sold by the investors in any market. Two types of funds are there in the Indian Equity Market; Venture Capital Funds and Private Equity Funds. The equity indexes are correlated beyond the boundaries of different countries with their exposure to common calamities like monsoon which would affect both India and Bangladesh or trade integration policies and close connection with the foreign investors. From 1995 onwards, both in terms of trade integration and FIIs India has made an advance. All these have established a close relationship between the stock market indexes of India stock market and those of other countries. The Stock derivatives add up all futures and options on all individual stocks. This stock index derivative was found to have gone up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. The Indian Equity Market also comprise of the Debt Market, dominated by primary dealers, banks and wholesale investors. Indian Equity Market at present is a lucrative field for the investors and investing in Indian stocks are profitable for not only the long and medium-term investors, but also the position traders, short-term swing traders and also very short term intra-day traders. In terms of market capitalization, there are over 2500 companies in the BSE chart list with the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels to 8000 levels providing a profitable business to all those who had been investing in the Indian Equity Market. There are about 22 stock exchanges in India which regulates the market trends of different stocks. Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized companies. There is the SEBI or the Securities and Exchange Board of India which supervises the functioning of the stock markets in India. In the Indian market scenario, the large FMCG companies reached the top line with a double-digit growth, with their shares being attractive for investing in the Indian stock market. Such companies like the Tata Tea, Britannia, to name a few, have been providing a bustling business for the Indian share market. Other leading houses offering equally 27

beneficial stocks for investing in Indian Equity Market, of the SENSEX chart are the two-wheeler and three-wheeler maker Bajaj Auto and second largest software exporter Infosys Technologies. Other than some restricted industries, foreign investment in general enjoys a majority share in the Indian Equity Market. Foreign Institutional Investors (FII) need to register themselves with the SEBI and the RBI for operating in Indian stock exchanges. In fact from the Indian stock market analysis it is known that in some specific industries foreigners can have even 100% shares. In the last few years with the facility of the Online Stock Market Trading in India, it has been very convenient for the FIIs to trade in the Indian stock market. From an analysis on the Indian Equity Market it can be said that the increase in the foreign investments over the years no doubt have accentuated the dynamism of the Indian market of equities. Foreign investors are allowed to buy Indian equity for the purpose of converting the equity into ADR or GDR. Thus, the growing financial capital markets of India being encouraged by domestic and foreign investments is becoming a profitable business more with each day. If all the economic parameters are unchanged Indian Equity Market will be conducive for the growth of private equities and this will lead to an overall improvement in the Indian economy. Source: http://business.mapsofindia.com/india-market/equity.html

EQUITY CAPITAL MARKET INSTRUMENTS: A stock market, or equity market, is a private or 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. 28

What are shares and why are they issued? Shares represent ownership of a company. When an individual buys shares in your company, they become one of the owners of the company. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold. While shares are most obviously associated with the stock market, the majority of small businesses don't go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This may either be from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance. Formal equity finance is available through: business angel investors venture capital firms stock markets

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

Issuing shares in your company on a stock market can provide: new finance an exit for founding investors who want to realise their investment a mechanism for investors to trade shares a market valuation for the company an incentive for staff using shares or share options an acquisition currency in the form of shares a way to raise your business' profile 29

Source: http://www.legalserviceindia.com/company%20law/com_2.htm

Types of shares
A company may have many different types of shares that come with different conditions and rights. There are four main types of shares: A. Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.

B. Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share. a. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend. b. It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital. Types of Preference Shares I. Cumulative or Non-cumulative: A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any year because of absence of profit, the holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution. In this case dividends which are not paid in any year are accumulated and are paid out when the profits are available. 30

II.Redeemable and Non- Redeemable: Redeemable Preference shares are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued. Irredeemable Preference shares means preference shares need not repaid by the company except on winding up of the company. However, under the Indian Companies Act, a company cannot issue irredeemable preference shares. In fact, a company limited by shares cannot issue preference shares which are redeemable after more than 10 years from the date of issue. In other words the maximum tenure of preference shares is 10 years. If a company is unable to redeem any preference shares within the specified period, it may, with consent of the Company Law Board, issue further redeemable preference shares equal to redeem the old preference shares including dividend thereon. A company can issue the preference shares which from the very beginning are redeemable on a fixed date or after certain period of time not exceeding 10 years provided it comprises of following conditions :1. It must be authorized by the articles of association to make such an issue. 2. The shares will be only redeemable if they are fully paid up. 3. The shares may be redeemed out of profits of the company which otherwise would be available for dividends or out of proceeds of new issue of shares made for the purpose of redeem shares. 4. If there is premium payable on redemption it must have provided out of profits or out of shares premium account before the shares are redeemed. 5. When shares are redeemed out of profits a sum equal to nominal amount of shares redeemed is to be transferred out of profits to the capital redemption reserve account. This amount should then be utilized for the purpose of redemption of redeemable preference shares. This reserve can be used to issue of fully paid bonus shares to the members of the company. I. Participating Preference Share or non-participating preference shares: Participating Preference shares are entitled to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after payment of certain rate of dividend on equity shares. A non-participating share is one which does

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not such right to participate in the profits of the company after the dividend and capital has been paid to the preference shareholders. Source: http://www.businesslink.gov.uk/bdotg/action/detail? type=RESOURCES&itemId=1074433335

DIFFERENCE BETWEEN EQUITY SHARES AND PREFERENCE SHARE Broadly speaking, preference share is a part of the share capital of a company which fulfils the following two conditions: 1. In case of payment of dividends, it carries preferential rights over equity shares for payment of a fixed rate/amount of dividends. 2. In case of winding up or repayment of share capital of the company, a preferential right over the Equity shares for repayment of paid-up amount of shares. And for Equity shares comprising in the share capital of a Company, the law provides the definition as "all share capital which is not preference share capital". In India, Section 85 and 86 of the Companies Act 1956 deal with the share capital and the kind of shares a company can issue. Source: www.answers.com

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INDIAN CAPITAL-DEBT MARKET For a developing economy like India, debt markets are a crucial source of funds. The debt market in India is amongst the largest in Asia. It includes government securities the largest component - and bonds issued by public sector undertakings, other government bodies, financial institutions, banks and companies. Debt markets are now considered an alternative route to banking channels for finance. Debt Instruments are obligations of issuer of such instruments as regards certain future cash flows representing Interest & Principal, which the issuer would pay to the legal owner of the Instruments. Generally debt instruments represent agreements to receive certain cash flows as per the terms contained within the agreement. They can also be said to be tradable form of loans. For a developing economy like India, debt markets are crucial sources of capital funds. The debt market in India is amongst the largest in Asia. It includes government securities, public sector undertakings, other government bodies, financial institutions, banks and companies. How do the debt markets impact the economy? 1. Increased funds for implementation of government development plans. The government can raise funds at lower costs by issuing government securities. 2. Conducive to implementation of a monetary policy. 3. Less risk compared to the equity markets, encouraging low-risk investments. This leads to inflow of funds into the economy. 4. Higher liquidity and control over credit. 5. Opportunity for investors to diversify their investment portfolio. 6. Better corporate governance. 33

7. Improved transparency because of stringent disclosure norms and auditing requirements. SBI DFHI Limited is trading in equities and equity derivatives after RBI allowed standalone PDs to diversify their activities in 2006. It remains an active participant in the Indian debt market. Through SBI DFHI Invest Plus, investors can purchase investment grade Corporate Bonds for their portfolio (details available on the website). Source: http://www.sbidfhi.com/capital-market.htm

Types of capital-debt market instruments A. Debentures:

A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Types of Debentures:
There are two types of debentures: I. Convertible Debentures, which can be converted into equity shares of the issuing company after a predetermined period of time. II.Non-Convertible Debentures, which cannot be converted into equity shares of the liable company. They usually carry higher interest rates than the convertible ones.

A. Bonds:
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon)

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and/or to repay the principal at a later date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower, the bond holder is the lender, and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond holders are lenders to the issuers. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity).

Issuing bonds Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. However government bonds are instead typically auctioned.

Features of bonds The most important features of a bond are: Nominal, principal or face amount the amount on which the issuer pays interest, and which has to be repaid at the end. Issue price the price at which investors buy the bonds when they are first issued, which will typically be approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the issue price, less issuance fees. 35

Maturity date the date on which the issuer has to repay the nominal amount. As long as all payments have been made, the issuer has no more obligations to the bond holders after the maturity date. The length of time until the maturity date is often referred to as the term or tenor or maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some even do not mature at all. In early 2005, a market developed in Euros for bonds with a maturity of fifty years. In the market for U.S. Treasury securities, there are three groups of bond maturities: short term (bills): maturities up to one year; medium term (notes): maturities between one and ten years; Long term (bonds): maturities greater than ten years.

Coupon the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.

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Bond issued by the Dutch East India Company in 1623 The quality of the issue, which influences the probability that the bondholders will receive the amounts promised, at the due dates. This will depend on a whole range of factors. Indentures and Covenants an indenture is a formal debt agreement that establishes the terms of a bond issue, while covenants are the clauses of such an agreement. Covenants specify the rights of bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is prohibited from performing. In the U.S., federal and state securities and commercial laws apply to the enforcement of these agreements, which are construed by courts as contracts between issuers and bondholders. The terms may be changed only with great difficulty while the bonds are outstanding, with amendments to the governing document generally requiring approval by a majority (or super-majority) vote of the bondholders. High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are more risky than investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk bonds. Coupon dates the dates on which the issuer pays the coupon to the bond holders. In the U.S. and also in the U.K. and Europe, most bonds are semi-annual, which means that they pay a coupon every six months. Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features to the holder or the issuer: Call ability Some bonds give the issuer the right to repay the bond before the maturity date on the call dates; see call option. These bonds are referred to as callable bonds. Most callable bonds allow the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so called call premium. This is mainly the case for high-yield bonds. These have very strict covenants, restricting the issuer in its operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost.

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 Put ability some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates; see put option. (Note: "Putable" denotes an embedded put option; "Puttable" denotes that it may be putted.) Call dates and put datesthe dates on which callable and putable bonds can be redeemed early. There are four main categories. A Bermudan callable has several call dates, usually coinciding with coupon dates. A European callable has only one call date. This is a special case of a Bermudan callable. An American callable can be called at any time until the maturity date. A death put is an optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation. Also known as a "survivor's option".

Sinking fund provision of the corporate bond indenture requires a certain portion of the issue to be retired periodically. The entire bond issue can be liquidated by the maturity date. If that is not the case, then the remainder is called balloon maturity. Issuers may either pay to trustees, which in turn call randomly selected bonds in the issue, or, alternatively, purchase bonds in open market, then return them to trustees.

Convertible bond lets a bondholder exchange a bond to a number of shares of the issuer's common stock. Exchangeable bond allows for exchange to shares of a corporation other than the issuer.

Types of bonds
a. Fixed rate bonds have a coupon that remains constant throughout the life of the bond.

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b. Floating rate notes (FRNs) have a coupon that is linked to an index. Common indices include: money market indices, such as LIBOR or Euribor, and CPI (the Consumer Price Index). Coupon examples: three month USD LIBOR + 0.20%, or twelve month CPI + 1.50%. FRN coupons reset periodically, typically every one or three months. In theory, any Index could be used as the basis for the coupon of an FRN, so long as the issuer and the buyer can agree to terms. c. Zero coupon bonds don't pay any interest. They are issued at a substantial discount to par value. The bond holder receives the full principal amount on the redemption date. An example of zero coupon bonds is Series E savings bonds issued by the U.S. government. Zero coupon bonds may be created from fixed rate bonds by a financial institutions separating "stripping off" the coupons from the principal. In other words, the separated coupons and the final principal payment of the bond are allowed to trade independently. See IO (Interest Only) and PO (Principal Only). d. Inflation linked bonds, in which the principal amount and the interest payments are indexed to inflation. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this position briefly reversed itself for short-term UK bonds in December 2008). However, as the principal amount grows, the payments increase with inflation. The government of the United Kingdom was the first to issue inflation linked Gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government. e. Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP. f. Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs). g. Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. Therefore, 39

subordinated bonds usually have a lower credit rating than senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and assetbacked securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later. h. Perpetual bonds are also often called perpetuities. They have no maturity date. The most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these were issued back in 1888 and still trade today, although the amounts are now insignificant. Some ultra long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century)) are virtually perpetuities from a financial point of view, with the current value of principal near zero. i. Bearer bond is an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen. Especially after federal income tax began in the United States, bearer bonds were seen as an opportunity to conceal income or assets. U.S. corporations stopped issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982, and state and local tax-exempt bearer bonds were prohibited in 1983. j. Registered bond is a bond whose ownership (and any subsequent purchaser) is recorded by the issuer, or by a transfer agent. It is the alternative to a Bearer bond. Interest payments, and the principal upon maturity, are sent to the registered owner. k. Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies. Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt. l. Book-entry bond is a bond that does not have a paper certificate. As physically processing paper bonds and interest coupons became more expensive, issuers (and banks that used to collect coupon interest for depositors) have tried to discourage

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their use. Some book-entry bond issues do not offer the option of a paper certificate, even to investors who prefer them. m. Lottery bond is a bond issued by a state, usually a European state. Interest is paid like a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond. n. War bond is a bond issued by a country to fund a war. o. Serial bond is a bond that matures in installments over a period of time. In effect, a $100,000, 5-year serial bond would mature in a $20,000 annuity over a 5-year interval. p. Revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds. Revenue bonds are typically "nonrecourse," meaning that in the event of default, the bond holder has no recourse to other governmental assets or revenues. Source: http://en.wikipedia.org/wiki/Bond_(finance)

DIFFERENCE BETWEEN DEBENTURE AND BOND

Debentures and bonds are similar, but bonds are more secure than debentures. In the case of both, the company pays you a guaranteed interest that does not change in value irrespective of the fortunes of the company. However, bonds are more secure than debentures, and carry a lower interest rate. In the case of bonds, the company provides collateral for the loan. In case of liquidation, bondholders will be paid off before debenture holders.

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 Another difference is bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors) but debenture holders usually does have greater claim than shareholder.

Debentures are pays periodical interest on the principal amount. After maturity date the principal paid back. In Bond the Interest cant pay in a regular manner. the bond mature, paid back principal + Interest amount bond is actually a broad word and debenture is a type of bond but it is not secured, While the interest and principle payment procedure of both are same ,both are refer to as long term debt. In short both are same debenture can be called as bond.

Source: www.allinterview.com, www.answers.com.

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DIFFERENCE BETWEEN DEBENTURE- BOND AND SHARES

Bonds and Debentures are debt instruments. The borrower (may be a Company ) issues the Bond or Debenture as the case may giving details of the interest to be paid and the period of the loan, and how the loan will be repaid. There are different types of bonds & debentures. When u buys a bond or debenture u becomes a creditor to the company. Share is equity participation in the Company. When u buy a share, u become a shareholder of the company. The company will pay u dividend on the shares held by you (share of your profit in the company is called dividend). Deposits are like any bank deposit. Interest is paid in various ways on the deposits. To issue a share / bond / debenture, the company must be registered and must have the necessary minimum capital. Prior approval from the existing share holders, Company Law Board, SEBI, RBI etc is necessary... Source: http://answers.yahoo.com

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PERCEPTION
The process through which we organize and interpret the range of visual, aural, tactile and chemical stimuli which impinge upon us. (Thompson & McHugh 2002) Perceived reality, not actual reality is the key to understanding behavior. How we perceive others and ourselves is at the root of our actions and intentions. Understanding the perceptual process and being aware of its complexities is essential for developing insights into managing others. The words we use and the body language we display communicates our view of the world. The power of the perceptual process in guiding our behavior needs to be unpacked and understood for effective relationships with others. (Mullins, 2002: 434)

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LITERATURE REVIEW
WHEN PERCEPTION CHANGES REALITY: AN EMPIRICAL STUDY OF INVESTORS VIEWS OF THE FAIRNESS OF SECURITIES ARBITRATION* Jill I. Gross& Barbara Black Arbitration in securities industry-sponsored forums is the primary mechanism to resolve disputes between investors and their brokerage firms. Because it is mandatory, participants debate its fairness, and Congress has introduced legislation to ban pre-dispute arbitration clauses in customer agreements. Missing from the debate has been empirical research of perceptions of fairness by the participants, especially investors. To fill that gap, we mailed 25,000 surveys to participants in recent securities arbitrations involving customers to learn their views of the process. The article first details the surveys background, explains the importance of surveying perceptions of fairness, and describes our methodologies, procedures, and survey error structure. We then present our findings, including our primary conclusions that (1) investors have a far more negative perception of securities arbitration than all other participants, (2) investors have a strong negative perception of the bias of arbitrators, and (3) investors lack knowledge of the securities arbitration process. We also offer several explanations for these negative perceptions. We conclude that customers negative perceptions transform the reality faced by policymakers and mandate reform of the process, including the elimination of the industry arbitrator requirement and further public deliberation on the value of the explained award.

SURVEYING PERCEPTIONS Background In 2002 the State of California and the SROs were engaged in litigation over the states attempt to impose its conflict disclosure standards on arbitrators in SRO securities arbitrations. The SEC filed an amicus curiae brief in support of the SROs position that federal regulation preempted state standards and also requested that Professor Michael A. 45

Perino assess the adequacy of the current SRO arbitrator disclosure requirements. In the resulting report (the Perino Report), Professor Perino concluded that the disclosure rules appeared to be adequate. He went on to observe that any lingering perceptions of pro-industry bias relate to panel composition, not the presence of undisclosed arbitrator conflicts. He further noted that, while empirical evidence was limited, past surveys seemed to suggest that parties involved in SRO arbitrations find that arbitrators are fair and impartial. However, because of lingering concerns about pro-industry bias and the insufficient amount of empirical evidence addressing investors perceptions of the securities arbitration process, Professor Perino recommended that the SROs sponsor additional independent studies to further evaluate the impartiality of the SRO arbitration process. In response to this recommendation, NASD asked SICA to conduct a study of participants perceptions of the fairness of securities arbitration. On October 5, 2003, SICA disseminated a Request for Proposal seeking vendors interested in conducting the recommended study. In 2004, we submitted a proposal to design a survey to investigate the fairness of SRO arbitrations to the individual investor, focusing on an assessment of (1) investors perceptions of fairness of the SRO arbitration process; (2) whether arbitrators appear competent to resolve investors disputes with their broker-dealers; (3) investors perceptions of fairness of SRO arbitration as compared to their perceptions of fairness in securities litigation in similar disputes; and (4) whether the outcome of arbitrations appears fair to the parties. SICA accepted this proposal and, on August 22, 2005, formally retained us to conduct the recommended study. The Importance of Perceptions of Fairness. Academic literature confirms the importance of surveying perceptions of fairness of a dispute resolution forum. These perceptions are important because the substantive (or distributive) fairness of a dispute resolution process can not readily be measured, especially when the process is confidential and outcomes are not transparent (which is the case in securities arbitration because awards do not typically contain an explanation or reasons). Dispute resolution scholars recently have focused on procedural justice as a 46

more accessible predictor than substantive justice of parties assessment of the overall fairness of a process. These scholars have found that perceptions of procedural fairness strongly impact perceptions of substantive fairness, which results in a greater willingness to comply with the outcome and greater trust in and respect for the decision-maker. Summarizing prior research by social psychologists, a leading scholar of procedural justice writes that people who believe that they have been treated in a procedurally fair manner are more likely to conclude that the resulting outcome is substantively fair, even if that outcome is unfavorable. She posits that four key elements reliably lead people to conclude that a dispute resolution process is procedurally fair: (1) the process provides an opportunity for disputants to voice their concerns to a third party; (2) the disputants perceive that the third party actually considered these concerns; (3) the disputants perceive that the third party treated them in an even-handed way; and (4) the disputants feel that they were treated in a dignified and respectful manner. Our survey asked participants about their most recent experience with the SRO arbitration process, including their perceptions about the attentiveness, competence and impartiality of the arbitrators, as well as their satisfaction with the outcome. We also asked, more generally, about their opinion of the securities arbitration process. From the survey, we gain valuable insights about procedural and substantive fairness in securities arbitration cases as experienced by the survey participants. Source: www.ssrn.com

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OBJECTIVES
AND

LIMITATIONS
OF THE STUDY

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OBJECTIVES OF THE STUDY

Main objective: To study the investors perception on capital financial instruments

Sub objectives: To know the impact of internal factors on investors perceptions such as experience, income socio- economic factor, education and occupation. To know the impact of different perception criteria such as risk, return, safety, liquidity and time on investors. To know the impact of external factors such as income, market trend, companys reputation, inflation and political factors on investors perception. To know the relationship between household average annual income and different perception criteria on capital financial instruments. To know the correlation between the external factors such as Income as an economic factor, market trend, company reputation, inflation and political factors.

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LIMITATIONS OF THE STUDY

We can only include the main capital financial instruments in our study i.e. Equity, Preference shares, Debentures and Bonds because it may difficult to take all the capital instruments. We take sample size 270 only in Ahmedabad which is not sufficient to know the accurate investors perception but due to time constraints we cant take more sample size. The respondent s may not give correct answers due to personal bias. Due to time constraints we cant go for all analytical approach.

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RESEARCH METHODOLOGY

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OVERVIEW OF RESEARCH METHODOLOGY

TASK INVOLVED

Discussion With Decision maker

Interviews With Experts

Secondary Data Analysis

Qualitative Research

ENVIRONMENTAL CONTEX OF PROBLEM STEP-1 PROBLEM DEFINITION

Management Decision Problem (Study related to capital financial instrument?) Marketing Research Problem (Market survey for the investors perception on capital financial instruments)

52

STEP-2 APPROACH TO THE PROBLEM

Objective/ Theoretical

Analytical Model: Verbal, Graphical,

Research Questions

Hypotheses of information

Specification

STEP-3 RESEARCH DESING Exploratory Research Design Conclusive Research Design

Descriptive Research Cross sectional Design Single Cross-sectional Design

Causal Research

Longitudinal Design Multiple

Cross-sectional Design

Step-4 COLLECTION OF DATA

53

Secondary data through (full time source) Primary through field work (survey)

Step -5 PREPRATION ANALYSES OF DATA

Through toolbars like pie chart, tables, graphs etc used to represent the information, what type of statistical tests you have used to analyze the data etc

Step-6 PRESENT THE FINDINGS

Includes report making, presentation etc

SAMPLING DESIGN PROCESS Target population: Investors who invest in capital financial instruments
54

Sampling frame:

Survey through questionnaire (door to door)

Sampling technique: probability technique random sampling

(Sampling without replacement)

Sampling size:

270 Investors

Calculation: (90% confidences level) Estimated to within 5% of true value Probability to respond to questionnaire 50% P=0.50, q=0.50 Z=1.64 (from z-table at 90% confidences level we find value of z) Zx=0.05 0.05 = 1.64pq/n 0.05 = 1.64 (0.5) (0.5)/n n= (1.64(0.5)/0.05)2 n=270 unit

55

DATA ANALYSIS INTERPRETATION

AND

56

AGE DISTRIBUTION
Table 1

Age Group 18-25 26-33 34-41 42-49 above 50 Total

Respondent Percentag s e 46 17.04 76 28.15 61 22.59 53 19.63 34 12.59 270 100.00

Chart 1

Interpretation: 28.15% of respondents lie in age group of 26-33 and 12.59% of respondents lie in age group of above 50.

GENDER DISTRIBUTION 57

Table 2

Gender Male Female Total

Respondent s Percentage 187 69.26 83 30.74 270 100.00

Chart 2

Interpretation: 69.23% of respondents lie in male category and 30.74% of respondents lie in female category.

HOUSE-HOLD AVERAGE ANNUAL INCOME SLAB (Average annual Income) 58

Table 3

House hold Income Slab < 100000 100000-300000 300000-500000 > 500000 Total

Respondent s Percentage 24 8.89 103 38.15 87 32.22 56 20.74 270 100.00

Chart 3

Interpretation: 38.15% of respondents lie in between 100000 to 300000 income and 8.89% of respondents have less than 100000 income.

EDUCATION DISTRIBUTION 59

Table 4

Education Schooling Graduate Post-Graduate Other Total

Respondent Percentag s e 28 10.37 84 31.11 142 52.59 16 5.93 270 100.00

Chart 4

Interpretation: Most of the investors (52.59%) are post graduated.

OCCUPATION DISTRIBUTION 60

Table 5

Occupation Businessman Professional Service Housewife Student Retired Other Total

Respondent Percentag s e 58 21.48 86 31.85 66 24.44 0 0.00 20 7.41 31 11.48 9 3.33 270 100.00
Chart 5

Interpretation: 31.85% respondents are professionals and there are no housewives who invested in capital financial instruments among all our respondents.

1. In which financial instruments do you invest?

Table 6

Capital Financial Instruments Equity Preferance share Debenture Bond Eq.+Pr.sh. Eq.+Deb. Eq.+Bond Pr.sh.+Deb. Pr.sh.+Bond Deb.+Bond Eq.+Pr.sh.+Deb. Eq.+Pr.sh.+Bond Eq.+Deb.+Bond

Respondent s Percentage 78 28.89 7 2.59 17 6.30 13 4.81 15 5.56 31 11.48 37 13.70 2 0.74 1 0.37 21 7.78 6 2.22 4 1.48 30 11.11 61

Pr.sh.+Deb.+Bond Eq.+Pr.sh.+Deb. +Bond Total

0 8 270

0.00 2.96 100.00

Chart 6

Interpretation: The highest respondents, i.e. 28.89% are only invested in equity.

Abbreviation: Eq. = Equity Deb. = Debenture Pr.sh. = Preference Share

62

2. How much percentage of your income you invest in capital financial instruments?
Table 7

Percentage of investor's income 1% - 10% 10% - 20% 20% - 30% 30% - 40% above 40% Total

Respondent s Percentage 71 26.30 94 34.81 53 19.63 37 13.70 15 5.56 270 100.00

63

Chart 7

Interpretation: 34.21% respondents are investing 10%-20% of their total average annual income and only 5.56% of respondents are there who invest above 40% from their total average annual income.

3. Since how long do you invest in capital financial instruments?

Table 8

Respondent Percentag How long invest s e < 1year 92 34.07 1year - 3year 87 32.22 3year - 5year 64 23.70 > 5year 27 10.00 Total 270 100.00

64

Chart 8

Interpretation: 34.07% respondents have less than 1 year experience of investing in capital financial instruments.

4. Rate of return of below capital financial instruments are high.

Table 9

Capital Financial Instruments Equity Preference share Debenture Bond

Highl Neither y Agree nor Disagre Highly Agree Agree Disagree e Disagree Total 173 97 0 0 0 270 54 47 43 142 161 166 26 11 11 48 36 36 0 15 14 270 270 270

65

Chart 9

Interpretation: Out of total respondents (270), 173 are highly agreed and 97 are agreeing that the rate of return of equity is high. Out of total respondents (270), most of the respondents (142) are agree that the rate of return on preference share is high. Out of total respondents (270), most of the respondents (161) are agree that the rate of return on Debenture is high. Out of total respondents (270), most of the respondents (166) are agree that the rate of return on bond is high. So, ultimately we can say that the respondents are agree with the high rate of return in preference share, debenture and bonds and highly agree with the high rate of return in equity.

66

1. Risk for below capital financial instrument is low.

Table 10

Capital Financial Instruments Equity Preference share Debenture Bond

Neither Highl Agree Highly y Agre nor Disagre Disagre Agree e Disagree e e Total 32 52 21 113 52 270 36 134 128 80 75 89
Chart 10

56 20 16

82 33 23

16 8 14

270 270 270

Interpretation: Out of total respondents (270), 113 are disagreed and 21are neither agree nor disagreed that the risk of equity is low. Out of total respondents (270), most of the respondents (82) are disagree and 80 respondents are agree that the risk of preference share is low. Out of total respondents (270), most of the respondents (134) are highly agree that the risk of Debenture is low.

67

 Out of total respondents (270), most of the respondents (120) are highly agree and 89 are agree that the risk of bond is low. So, ultimately we can say that the respondents are agree with the low risk debenture and bond while disagree with the risk in equity is low.

1. Below capital financial instrument is highly safe to invest.

Table 11

Capital Financial Instruments Equity Preference share Debenture Bond

Neither Highl Agree Highly y Agre nor Disagre Disagre Tota Agree e Disagree e e l 21 37 22 137 53 270 48 78 92 65 116 122
Chart 11

22 26 33

84 47 16

51 3 7

270 270 270

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Interpretation: Out of total respondents (270), 137 are disagreed about safety to invest in equity. Out of total respondents (270), most of the respondents (84) are disagree which shows no safety in preference share and 65 respondents are agreeing that safety to invest in preference share. Out of total respondents (270), most of the respondents (116) are highly agree 76 are agree to feel safety to invest in debenture. Out of total respondents (270), most of the respondents (122) are highly agree and 92 are agree that there is safety to invest in bond. So, ultimately we can say that according to the respondents debenture and bond are safe to invest and less safety to invest in equity and preference share.

1. Liquidity is high in below capital financial instrument.

Table 12

Capital Financial Instruments Equity Preference share Debenture Bond

Neither Highl Agree Highly y Agre nor Disagre Disagre Tota Agree e Disagree e e l 94 137 7 22 10 270 76 11 23 113 28 31 43 16 18 24 143 121 14 72 77 270 270 270

69

Chart 12

Interpretation: Out of total respondents (270), 137 are agreed and 94 are highly agreed with the liquidity is high in equity. Out of total respondents (270), most of the respondents (113) are agreeing and 76 respondents are highly agreed that the liquidity of preference share is high. Out of total respondents (270), most of the respondents (143) are disagree and 72 are highly disagreed that the risk liquidity of Debenture is high. Out of total respondents (270), most of the respondents (121) are disagreed and 77 are highly disagreed that the liquidity of bond is high. So, ultimately we can say that the respondents are agree with the high liquidity in preference share and disagree with the liquidity is high in the debenture and bonds..

1. Below capital financial instrument is good for long-term investment.

70

Table 13

Capital Financial Instruments Equity Preference share Debenture Bond

Highl Neither Highly y Agre Agree nor Disagre Disagre Tota Agree e Disagree e e l 22 62 24 118 44 270 54 79 85 85 145 138
Chart 13

40 12 16

52 26 22

39 8 9

270 270 270

Interpretation: Out of total respondents (270), 118 are disagreed and 62 are agreed that equity is good for long term. Out of total respondents (270), most of the respondents (85) are agreed and 54 respondents are highly agreed that the preference share is good for long term. Out of total respondents (270), most of the respondents (145) are agreed and 79 are highly agreed that the Debenture is good for long term. Out of total respondents (270), most of the respondents (138) are agreed and 85 are highly agreed that bond is good for long term. 71

So, ultimately we can say that the respondents are agree with the debenture and bond are good for long term while disagree with the equity is good for long term.

1. Below capital financial instrument is good for short-term investment.

Table 14

Capital Financial Instruments Equity Preference share Debenture Bond

Highl Neither Highly y Agre Agree nor Disagre Disagre Agree e Disagree e e Total 38 108 8 92 24 270 38 12 18 112 36 42
Chart 14

10 24 22

88 144 156

22 54 32

270 270 270

Interpretation:

72

 Out of total respondents (270), 108 are agreed and 92 are disagreed that equity is good for short term. Out of total respondents (270), most of the respondents (112) are agreed and 88 respondents are disagreed that the preference share is good for short term. Out of total respondents (270), most of the respondents (144) are disagreed that the Debenture is good for short term. Out of total respondents (270), most of the respondents (156) are disagreed that the bond is good for shot term to invest. So, ultimately we can say that the respondents are agree with the preference share and equity are good for short term while disagree with the debenture and bond are good for short term.

1. Below factors affect to your perception regarding investment in Share market.

Table 15

Factors Income Market trend Company reputation Inflation Political factor

Highl y Agre Agree e 101 169 62 150 17 22 7 119 125 69

Neither Agree nor Disagree

Highly Disagre Disagre e e Total 0 0 0 270 45 13 0 270 31 58 96 94 65 86 9 0 12 270 270 270

73

Chart 15

Interpretation: Out of total respondents (270), 169 are agreed that income is affected to invest in share market. Out of total respondents (270), most of the respondents (150) are agreed that market trend is affected to invest in share market. Out of total respondents (270), most of the respondents (119) are agreed and 94 are disagreed that company reputation is affected to invest in share market. Out of total respondents (270), most of the respondents (125) are agreed that inflation is affected to invest in share market. Out of total respondents (270), most of the respondents (96) are neither agree nor disagreed that political factor is affected to invest in share market. So, ultimately we can say that income, market trend, company reputation and inflation are highly affected to invest in share market while no more affect of political factor to investors of share market.

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1. Below factors affect to your perception regarding investment in Debt market.

Table 16

Factors Income Market trend Company reputation Inflation Political factor

Neither Highl Agree Highly y Agre nor Disagre Disagre Agree e Disagree e e Total 60 156 54 0 0 270 6 41 70 124 29 270 18 0 8 108 17 32
Chart 16

46 41 108

92 145 91

6 67 31

270 270 270

Interpretation: Out of total respondents (270), 156 are agreed and 60 are highly agreed that income is affected to invest in debt market.

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 Out of total respondents (270), most of the respondents (124) are disagreed that market trend is affected to invest in debt market. Out of total respondents (270), most of the respondents (108) are agreed and 92 are disagreed that company reputation is affected to invest in debt market. Out of total respondents (270), most of the respondents (145) are disagreed that inflation is affected to invest in debt market. Out of total respondents (270), most of the respondents (108) are neither agree nor disagreed that political factor is affected to invest in debt market. So, ultimately we can say that income is highly affected to invest in debt market.

CROSS TABULATION

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77

CROSS TABULATION WITH INCOME: 1. In which financial instruments do you invest?

Table 17

Capital Financial Instruments Equity Preferance share Debenture Bond Eq.+Pr.sh. Eq.+Deb. Eq.+Bond Pr.sh.+Deb. Pr.sh.+Bond Deb.+Bond Eq.+Pr.sh.+Deb. Eq.+Pr.sh.+Bond Eq.+Deb.+Bond Pr.sh.+Deb.+Bond Eq.+Pr.sh.+Deb. +Bond Total Abbreviation: Eq. = Equity Deb. = Debenture Pr. Sh. = Preference share

100000 300000 <10000 >50000 Respondent 0 300000 500000 0 s 20 31 19 8 78 0 3 2 2 7 0 3 9 5 17 0 1 7 5 13 4 8 2 1 15 0 12 11 8 31 0 24 10 3 37 0 2 0 0 2 0 0 1 0 1 0 11 3 7 21 0 1 2 3 6 0 3 1 0 4 0 4 17 9 30 0 0 0 0 0 0 24 0 103 3 87 5 56 8 270

Chart 17

Interpretation: The respondets are mostly invested in only equity, it dosent matter whatever the house hold average annual income of the respondents.

78

 The respondents are invest mostly in equityand equity with other capital financial instruments combination who have household average annual income in between 1 lakh to 3 lakh.

1. How much percentage of your income you invest in capital financial instruments?
Table 18

% of Income 1-10% 10-20% 20-30% 30-40% Above 40% Total

<100000 15 9 0 0 0 24

100000 300000 Respondent 300000 500000 >500000 s 39 13 4 71 47 29 9 94 8 34 11 53 5 8 24 37 4 3 8 15 103 87 56 270

79

Chart 18

Interpretation: Whatever the household average annual income, the investors invest 10-20% out of their income. The respondents, who have income in between the 100000-300000, are mostly investing 1-20% out of their income. The respondents, who have income above 300000, are mostly investing above 20% out of their income.

1. Since how long do you invest in capital financial instruments?

Table 19

How long Invest < 1year 1year - 3year 3year - 5year > 5year Total

<100000 4 18 2 0 24

100000 300000 Respondent 300000 500000 >500000 s 35 28 25 92 52 11 6 87 11 39 12 64 5 9 13 27 103 87 56 270

80

Chart 19

Interpretation: The respondents, who have income between 100000 and 300000, have mostly experienced to investing in capital financial instruments is less than three years. The respondents, who have income between 300000 and 500000, have mostly experienced to investing in capital financial instruments is three to five years.

1. Rate of return of below capital financial instruments are high.

Income v/s Rate of Return of Equity:

Table 20

Income

<1lac 1-3lac 3-5lac >5lac

Total

Equity Highly Agree Agree 16 8 88 15 46 41 23 33 173 97 81

Total 24 103 87 56 270

 The respondents who have income between 100000 and 300000 are mostly highly agreed that the rate of return of the equity is high. The respondents who have income between 300000 and 500000 are mostly agreeing that the rate of return of the equity is high. There are no respondents who have not agreed with the high rate of return of equity.

Income v/s Rate of Return of Preference Shares:

Table 21

Income <1lac 1-3lac 3-5lac >5lac Total

Highly Agree 9 22 12 11 54

Preference share neither agree Agree nor disagree Disagree 10 2 3 70 3 8 58 9 8 4 12 29 142 26 48

Total 24 103 87 56 270

The respondents who have income between 100000 and 300000 are mostly highly agreed that the rate of return of the preference share is high. And the most respondents are only agreeing that the rate of return of preference share is high. The most respondents who have income more than 500000 are either neither agree nor disagree or disagree. There is no respondents who highly disagree with the high rate of return of preference share. Income v/s Rate of Return of Debenture:
Table 22

Income <1lac 1-3lac 3-5lac >5lac Total

Highly Agree 5 16 23 3 47

Agree 18 81 50 12 161

Debenture neither agree Highly nor disagree Disagree Disagree 1 0 0 4 2 0 6 2 6 0 32 9 11 36 15

Total 24 103 87 56 270

82

 Most of the respondents( who have income of 3-5 lakh) that is 81 out of 161 are agree that the rate of return of debenture is high and on the other hand the respondents who have income more than 5 lakh are disagree with the high rate of return of debenture.

Income v/s Rate of Return of Bond:

Table 23

Income <1lac 1-3lac 3-5lac >5lac Total

Highly Agree Agree 5 18 14 83 21 53 3 12 43 166

Bond neither agree Highly nor disagree Disagree Disagree 1 0 0 4 2 0 6 2 5 0 32 9 11 36 14

Total 24 103 87 56 270

Here in bond the same perception of the respondents as debenture. That means most of the respondents who have income of 1-3 lakh are agree with the high rate of return of bond and the respondents who have income more than 5 lakh are mostly disagree with the high rate of return of bonds.

1. Risk for below capital financial instrument is low.

Income v/s Risk involve in Equity:

Table 24

Equity Total Highly Neither Agree Highly Agree Agree nor Disagree Disagree Disagree Income <1lac 16 2 3 2 1 24 1-3lac 13 48 17 25 0 103 3-5lac 3 2 1 69 12 87 >5lac 0 0 0 17 39 56 Total 32 52 21 113 52 270 83

 The respondents who have income of 1-3 lakh are mostly agree with the low risk invoive in equity while on the other hand who have income of 3-5 lakh are disagree and who have income more than 5 lakh are highly disagree with the risk involve in equity is low. Income v/s Risk involve in Preference Shares:

Table 25

Highly Agree Agree Income <1lac 17 4 1-3lac 14 23 3-5lac 3 28 >5lac 2 25 Total 36 80

Preference share Neither Agree Highly nor Disagree Disagree Disagree 1 2 0 46 16 4 5 50 1 4 14 11 56 82 16

Total 24 103 87 56 270

The 14 respondents are highly agree with that the preference share is low risky capital financial instrument who have income of 1-3 lakh while the 23, 28 and 25 respondents who have income of 1-3 lakh, 3-5 lakh and more than 5 lakh respectively agree with that the preference share is low risky capital financial instruments. On the other hand 50 respondents are disagree that the risk involve in preference share is low.

Income v/s Risk involve in Debentures:

Table 26

Highly Agree Agree Income <1lac 6 6 1-3lac 28 29 3-5lac 62 25 >5lac 38 15 Total 134 75

Debenture Neither Agree Highly nor Disagree Disagree Disagree 5 7 0 15 26 5 0 0 0 0 0 3 20 33 8

Total 24 103 87 56 270

The 62 respondents are highly agree that the debenture is low risky who lie in the income level of 3-5 lakh and 26 respondents are disagree with the same who lie in the income level of 1-3 lakh.

84

Income v/s Risk involve in Bond:

Table 27

Highly Agree Income <1lac 6 1-3lac 28 3-5lac 58 >5lac 36 Total 128

Agree 14 35 25 15 89

Bond Total Neither Agree Highly nor Disagree Disagree Disagree 2 2 0 24 12 21 7 103 0 0 4 87 2 0 3 56 16 23 14 270

The highest respondents i.e. 58 are highly agree that the bond is lower risky instrument who have income between 3-5 lakh and on the other hand the more disagree respondents are lie in the income between 1-3 lakh.

1. Below capital financial instrument is highly safe to invest.

Income v/s Safety involve in Equity:

Table 28

Equity Total Highly Neither agree Highly Agree Agree nor Disagree Disagree Disagree Income <1lac 0 3 0 8 13 24 1-3lac 0 3 8 58 34 103 3-5lac 11 12 14 45 5 87 >5lac 10 19 0 26 1 56 Total 21 37 22 137 53 270 Most of the respondents with income of less than 1 lac are dis agree that Equity is the safe instrument to invest, and respondents whose income is between 1-3 lac (58 respondents) are also disagree about safety to invest in Equity, while whose income is 85

3-5 lac and above 5 lac most respondents of them are also disagree to invest in equity is safe.

Income v/s Safety involve in Preference share:

Table 29

Highly Agree Agree Income <1lac 7 3 1-3lac 12 21 3-5lac 14 22 >5lac 15 19 Total 48 65

Preference share Total Neither agree Highly nor Disagree Disagree Disagree 3 5 6 24 8 56 6 103 7 12 32 87 4 11 7 56 22 84 51 270

According to the respondents some respondents are agree with safety to invest in Preference Share, while some are disagree to invest in Preference Share is safety in all income group.

Income v/s Safety involve in Debenture:

Table 30

Highly Agree Agree Income <1lac 4 6 1-3lac 44 33 3-5lac 14 59 >5lac 16 18 Total 78 116

Debenture Total Neither agree Highly nor Disagree Disagree Disagree 0 14 0 24 11 15 0 103 7 7 0 87 8 11 3 56 26 47 3 270

The respondents whose income is less than 1 lac are mostly (14 respondents) are disagree about safety to invest in Debenture, while most of the respondents in rest of the income group i.e.44 are highly agree of 1-3 lac, 59 are agree of 3-5 lac and 16 are highly agree and 18 are agree of more than 5 lac income group shows safety to invest in Debenture.

86

Income v/s Safety involve in Bond:

Table 31

Income <1lac 1-3lac 3-5lac >5lac Total

Highly Agree Agree 2 9 27 56 31 42 32 15 92 122

Bond Total Neither agree Highly nor Disagree Disagree Disagree 6 4 3 24 12 6 2 103 9 3 2 87 6 3 0 56 33 16 7 270

Most of the respondents in all income groups are agree about safety to invest in Bond. i.e. 9 are agree in less than 1 lac income group, 56 are agree in 1-3 lac income group, 42 are agree and 32 are highly agree in 3-5 lac income group and 32 are highly agree in income group of more than 5 lac.

1. Liquidity is high in below capital financial instrument.

Income v/s Liquidity involve in Equity:

Table 32

Income <1lac 1-3 lac 3-5 lac >5 lac Total

Highly Agree Agree 8 16 58 38 16 68 12 15 94 137

Equity Total Neither agree Highly nor Disagree Disagree Disagree 0 0 0 24 4 3 0 103 0 3 0 87 3 16 10 56 7 22 10 270

Most of the respondents in all income group are agree about high liquidity in Equity, and in the income group of 3-5 lac 58 respondents are highly agree about liquidity is high in Equity.

Income v/s Liquidity involve in Preference Share:

Table 33

87

Income <1lac 1-3 lac 3-5 lac >5 lac Total

Preference share Total Highly Neither agree Highly Agree Agree nor Disagree Disagree Disagree 2 6 8 6 2 24 26 51 14 7 5 103 21 48 9 5 4 87 27 8 12 6 3 56 76 113 43 24 14 270

In the income group of less than 1 lac 8 respondents are neither agree nor disagree about high liquidity in Preferance share, while 51 in income group of 1-3 lac, 48 in 35 lac are agree about liquidity is high in Preference share and 27 respondents of more than 5 lac income group are highly agree about liquidity is high in Preference share.

Income v/s Liquidity involve in Debenture:

Table 34

Income

<1lac 1-3 lac 3-5 lac >5 lac

Total

Highly Agree Agree 3 2 8 11 0 8 0 6 11 27

Debenture Total Neither agree Highly nor Disagree Disagree Disagree 0 13 6 24 12 52 20 103 3 72 4 87 2 9 39 56 17 146 69 270

13 respondents in less than 1 lac of income group, 52 in 1-3 lac of income group, 72 in 3-5 lac of income group are disagree about high liquidity in Debenture, while 39 respondents in more than 5 lac of income group are highly disagree about high liquidity in Debenture.

Income v/s Liquidity involve in Bond:

Table 35

Bond Highly Neither agree Highly Agree Agree nor Disagree Disagree Disagree 88

Total

Income

<1lac 1-3 lac 3-5 lac >5 lac

Total

5 6 7 5 23

7 8 10 6 31

4 6 5 3 18

6 63 39 13 121

2 20 26 29 77

24 103 87 56 270

7 respondents are agree and 6 respondents are disagree in less than 1 lac of income group about high liquidity of Bond, 63 are disagree in the income group of 1-3 lac of income group, 39 are disagree and 26 are highly disagree, and 29 of more than 5 lac of income group are highly disagree about high liquidity in Bond.

1. Below capital financial instrument is good for long-term investment.

Income v/s Long term investment in Equity:

Table 36

Income

<1 lac 1-3 lac 3-5 lac >5 lac

Total

Equity Total Highly Neither Agree Highly Agree Agree nor Disagree Disagree Disagree 14 2 4 4 0 24 7 59 12 7 18 103 1 57 4 6 19 87 0 44 4 1 7 56 22 162 24 18 44 270

14 respondents in less than 1 lac of income group are highly agree, 59 in 1-3 lac of income group are agree, 57 in 3-5 lac of income group are agree and 44 in more than 5 lac of income group are agree about Equity is good for long term to invest.

Income v/s Long term investment in Preference share:

Table 37

Preference share Neither Highly Agree nor Highly Agree Agree Disagree Disagree Disagree 89

Total

Income <1 lac 1-3 lac 3-5 lac >5 lac Total

6 7 14 27 54

8 36 38 3 85

5 13 16 6 40

3 26 12 11 52

2 21 7 9 39

24 103 87 56 270

8 respondents are agree in less than 1 lac of income group, 36 in 1-3 lac of income group, 38 in 3-5 lac of income group are agree which says Preference share is good for long term, while 27 of more than 5 lac of income group are highly agree which says Preference share is good for long term to invest while others are disagree that Preference share is good for long term for investment.

Income v/s Long term investment in Debenture:

Table 38

Income <1 lac 1-3 lac 3-5 lac >5 lac Total

Highly Agree Agree 2 15 36 52 16 59 25 19 79 145

Debenture Neither Agree nor Disagree Disagree 2 5 6 5 3 7 1 9 12 26

Total Highly Disagree 0 4 1 3 8 24 103 87 56 270

Most of the respondents in all groups are agree that Debenture is good for long term, while some respondents are disagree that Debenture is good for long tem to invest.

Income v/s Long term investment in Bond:

Table 39

Income

<1 lac 1-3 lac 3-5 lac >5 lac

Total

Bond Highly Neither Agree Highly Agree Agree nor Disagree Disagree Disagree 3 13 4 3 1 28 59 7 4 5 25 54 3 2 3 39 12 2 3 0 95 138 16 12 9

Total 24 103 87 56 270

90

 Most of the respondents in all of the groups ( 13 in less than 1 lac, 59 in 1-3 lac, 54 in 3-5 lac of income group) are agree that Bond is good for long term investment, while 39 are highly agree in more than 5 lac of income group about Bond is good for long term.

1. Below capital financial instrument is good for short-term investment.

Income v/s Short term investment in Equity:

Table 40

Income <1 lac 1-3 lac 3-5 lac >5 lac Total

Highly Agree Agree 3 16 16 57 11 21 8 14 38 108

Equity Total Neither agree Highly nor Disagree Disagree Disagree 1 0 4 24 6 15 9 103 1 49 5 87 0 28 6 56 8 92 24 270

16 respondents in less than 1 lac of income group and 57 are in 1-3 lac of income group are agree that Equity is good for short term, while 49 respondents in 3-5 lac of income group and 28 in more than 5 lac of income group are disagree that Equity is good for short term for investment.

Income v/s Short term investment in Preference share:

Table 41

Income

<1 lac 1-3 lac 3-5 lac

Highly Agree Agree 3 16 16 59 11 21

Preference share Neither agree Highly nor Disagree Disagree Disagree 1 0 4 6 15 7 1 49 5 91

Total 24 103 87

>5 lac Total

8 38

16 112

2 10

24 88

6 22

56 270

16 respondents in less than 1 lac of income group and 59are in 1-3 lac of income group are agree that Preference share is good for short term, while 49 respondents in 3-5 lac of income group and 24 in more than 5 lac of income group are disagree that Preference share is good for short term for investment.

Income v/s Short term investment in Debenture:

Table 42

Income <1 lac 1-3 lac 3-5 lac >5 lac Total

Debenture Total Highly Neither agree Highly Agree Agree nor Disagree Disagree Disagree 2 5 0 11 6 24 5 14 15 60 9 103 3 9 7 52 16 87 2 8 2 21 23 56 12 36 24 144 54 270

11 respondents in less than 1 lac of income group and 60 are in 1-3 lac of income group are disagree that Debenture is good for short term, while 52 respondents in 3-5 lac of income group and 21 in more than 5 lac of income group are disagree that Debenture is good for short term for investment.

Income v/s Short term investment in Bond:

Table 43

Income

<1 lac 1-3 lac 3-5 lac >5 lac

Total

Highly Agree Agree 2 5 8 14 7 11 1 12 18 42

Bond Total Neither agree Highly nor Disagree Disagree Disagree 0 12 5 24 11 61 9 103 7 53 9 87 4 30 9 56 22 156 32 270

92

 12 respondents in less than 1 lac of income group and 61 are in 1-3 lac of income group are disagree that Bond is good for short term, while 53 respondents in 3-5 lac of income group and 30 in more than 5 lac of income group are disagree that Bond is good for short term for investment.

1. Below factors affect to your perception regarding investment in Share market.

Income v/s Income (economic) factor which affect the investors perception while investing in share market:
Table 44

Income

< 1 lac 1-3 lac 3-5 lac > 5 lac

Total

Income factor Total Highly Agree Agree 18 6 24 68 35 103 7 80 87 8 49 56 101 169 270

Income is affect to the entire income group for invest in Share market. So less than 3 lac of income group are mostly highly agree and income group of 3-5 lac and more than 5 lac are agree that income is affect to invest in share market.

Income v/s Market Trend which affects the investors perception while investing in share market:
Table 45

Income

< 1 lac 1-3 lac 3-5 lac > 5 lac

Total

Highly Agree 5 16 18 23 62

Market trend Total Neither Agree Agree nor Disagree Disagree 10 8 1 24 58 24 5 103 57 8 4 87 25 5 3 56 150 45 13 270 93

 10 respondents of less than 1 lac of income group, 58 in 1-3 lac of income group, 57 in 3-5 lac of income group and 25 in more than 5 lac of income group are agree that Market trend is affect to invest in Share market.

Income v/s company Reputation which affect the investors perception while investing in share market:
Table 46

Income

< 1 lac 1-3 lac 3-5 lac > 5 lac

Total

Highly Agree 3 4 8 2 17

Company reputation Total Neither Agree Highly Agree nor Disagree Disagree Disagree 12 2 7 0 24 31 16 51 1 103 62 9 3 5 87 14 4 33 3 56 119 31 94 9 270

12 respondents of less than 1 lac of income group, 31 in 1-3 lac of income group, 62 in 3-5 lac of income group and 14 in more than 5 lac of income group are agree that Company reputation is affect to invest in Share market, while 51 in 1-3 lac of income group are disagree that company reputation is affect to invest in Share market.

Income v/s Inflation which affects the investors perception while investing in share market:
Table 47

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Highly Agree 2 12 6 2 22

Agree 16 38 46 25 125

Inflation Total Neither Agree nor Disagree Disagree 6 0 24 23 30 103 11 24 87 18 11 56 58 65 270

16 respondents of less than 1 lac of income group, 38 in 1-3 lac of income group, 46 in 3-5 lac of income group and 25 in more than 5 lac of income group are agree that 94

Inflation is affect to invest in Share market, while some are neither agree nor disagree and disagree that Inflation is affect to invest in Share market.

Income v/s Political factors which affect the investors perception while investing in share market:
Table 48

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Political factors Total Highly Neither Agree Highly Agree Agree nor Disagree Disagree Disagree 2 3 12 4 3 24 1 26 42 28 6 103 3 20 31 31 2 87 1 20 1 23 1 56 7 69 96 86 12 270

12 respondents of less than 1 lac of income group, 42 in 1-3 lac of income group, 31 in 3-5 lac of income group are neither agree nor disagree that Political factors are affect to invest in Share market, while 31 in 3-5 lac of income group and 23 in more than 5 lac of income group are disagree that Political factors are affect to the Perception of invest in Share market.

95

1. Below factors affect to your perception regarding investment in Debt market.

Income v/s Income (economic) factor which affect the investors perception while investing in debt market:
Table 49

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Income (economic) factor Total Highly Neither Agree Agree Agree nor Disagree 6 14 4 24 21 60 22 103 19 50 18 87 14 32 10 56 60 156 54 270

14 respondents in less then 1 lac of income group, 60 in 1-3 lac of income group, 50 in 3-5 lac of income group and 32 in more than 5 lac of income group are agree that income is affect to their perception to invest in Debt market, while 22 in 1-3 lac, 18 in 3-5 lac and 10 in more than 5 lac of income group are neither agree nor disagree that income is affect to perception of investment in Debt market.

Income v/s Market Trend which affects the investors perception while investing in debt market:
Table 50

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Highly Agree Agree 2 13 3 18 1 6 0 4 6 41

Market trend Total Neither Agree Highly nor Disagree Disagree Disagree 3 6 0 24 8 58 16 103 26 45 9 87 33 15 4 56 70 124 29 270

13 respondents of less than 1 lac of income group are agree that Market trend is affect to invest in Debt market, while 58 in 1-3 lac of income group, 45 in 3-5 lac of income group are disagree that Market trend is affect to invest in Debt market and 26 in 3-5 96

lac and 33 in more than 5 lac of income group are neither agree nor disagree that Market trend is affect to their perception of invest in Debt market. Income v/s Company Reputation which affects the investors perception while investing in debt market:
Table 51

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Highly Agree 2 3 10 3 18

Company reputation Total Neither Agree Highly Agree nor Disagree Disagree Disagree 6 9 5 2 24 61 19 19 1 103 41 10 23 3 87 0 8 45 0 56 108 46 92 6 270

9 respondents of less than 1 lac of income group are neither agree nor disagree that company reputation is affect to invest in Debt market, 61 in 1-3 lac of income group, 41 in 3-5 lac of income group are agree that Company reputation is affect to invest in Debt market, while 45 in more than 5 lac of income group are disagree that Company reputation is affect to invest in Debt market.

Income v/s Inflation which affects the investors perception while investing in debt market:
Table 52

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Agree 6 7 3 1 17

Inflation Total Neither Agree Highly nor Disagree Disagree Disagree 8 8 2 24 21 61 14 103 7 51 26 87 5 25 25 56 41 145 67 270

8 respondents of less than 1 lac of income group, 61 in 1-3 lac of income group, 51 in 3-5 lac of income group and 25 in more than 5 lac of income group are disagree that Inflation is affect to invest in Debt market, while 21 of 1-3 lac of income group are neither agree nor disagree that Inflation is affect to invest in Debt market.

97

Income v/s Political factors which affects the investors perception while investing in debt market:
Table 53

Income < 1 lac 1-3 lac 3-5 lac > 5 lac Total

Highly Agree Agree 2 6 4 16 2 6 0 4 8 32

Political factors Total Neither Agree Highly nor Disagree Disagree Disagree 13 0 3 24 61 7 15 103 34 36 9 87 0 48 4 56 108 91 31 270

13 respondents of less than 1 lac of income group, 61 in 1-3 lac of income group, 34 in 3-5 lac of income group are neither agree nor disagree that Political factors are affect to invest in Debt market, while 36 in 3-5 lac of income group and 48 in more than 5 lac of income group are disagree that Political factors are affect to the Perception of invest in Debt market.

RETURN RISK ANALYSIS

98

RETURN-RISK ANALYSIS OF EQUITY

Table 54

Highly Neither Agree Highly Equity Agree Agree nor Disagree Disagree Disagree Total High Return 173 97 0 0 0 270 Low Risk 32 52 21 113 52 270
Chart 20

Interpretation: 64% respondents highly believe that they get high return in equity and on the other hand 41.85% respondents said that the risk involve in equity is low. So we can say that the most of the investors believe that they get high return with low risk if they invest in equity.

RETURN-RISK ANALYSIS OF PREFERENCE SHARE:

Table 55

Highl Neither Highly Preference y Agre Agree nor Disagre Disagre share Agree e Disagree e e Total High Return 54 142 26 48 0 270 Low Risk 36 80 56 82 16 270

99

Chart 21

Interpretation: Most of the respondents (52.59%) are agree with the high return in preference share but the perception regarding risk of the preference share is not clear because the ratio of agree and disagree respondents about risk is nearer to each other.

RETURN-RISK ANALYSIS OF DEBENTURE:

Table 56

Debenture High Return Low Risk

Highly Highly Neither Agree Disagre Agree Agree nor Disagree Disagree e Total 47 161 11 36 15 270 134 75 20 33 8 270

100

Chart 22

Interpretation: Here in debenture, the only 17.4% respondents are highly agree with the high return while 49.62% respondents are there who highly agree with the low risk. On the other hand there is reverse situation. The small no of respondents (27.77%) are agree with low risk in debenture while 59.62% respondents believe that they should get high return from debenture. And there is somewhat same ratio of respondents who disagree with the return and risk of the debenture.

RETURN-RISK ANALYSIS OF BOND:

Table 57

Bond High Return Low Risk

Highl y Agree 43 128

Agre e 166 89

Neither Agree Disagre nor Disagree e 11 16 36 23

Highly Disagre e 14 14

Tota l 270 270

101

Chart 23

Interpretation: The only 15.92% respondents are highly agree with the high return while 47.4% respondents are there who highly agree with the low risk of bond. On the other hand there is reverse situation. The small no of respondents (32.96%) are agree with low risk in debenture while 61.48% respondents believe that they should get high return from bond. And there is somewhat same ratio of respondents who disagree with the return and risk of the bond. So, the perception of the respondents about return and risk of debenture and bond are same.

102

HYPOTHESIS

103

HYPOTHESIS TEST
A statistical hypothesis test is a method of making statistical decisions using experimental data. It is sometimes called confirmatory data analysis, in contrast to exploratory data analysis. In frequency probability, these decisions are almost always made using null-hypothesis tests; that is, ones that answer the question assuming that the null hypothesis is true, what is the probability of observing a value for the test statistic that is at least as extreme as the value that was actually observed? One use of hypothesis testing is deciding whether experimental results contain enough information to cast doubt on conventional wisdom. The critical region of a hypothesis test is the set of all outcomes which, if they occur, cause the null hypothesis to be rejected and the alternative hypothesis accepted. The test of hypothesis is a process of testing of significance regarding parameter of the population on the basis of sample. In it a statistic is computed from the sample drawn from a population and on the basis of this it is seen whether the sample so drawn belongs to the parent population with certain specified characteristics. The computed value of the statistic may differ from the hypothesis value of the parameter due to sampling fluctuations. If the difference is small, it is considered that the difference has arisen due to sampling fluctuation. Hence the difference is considered to be insignificant and the hypothesis which has been set-up, is accepted. If the difference is considerable, it is considered that the difference has not arisen due to sampling fluctuations but is due to some other reasons. Hence the difference is considered to be significant and the hypothesis is rejected. The test of hypothesis discloses the fact whether the difference between the computed statistic and the hypothetical parameter is significant or otherwise. Hence the test of hypothesis is also known as the TEST OF SIGNIFICANCE. FOR LARGE SAMPLE TEST: (n 30)

PROCESS OF TESTING OF HYPOTHESIS

104

STEP-1 To setup the hypothesis: a) NULL HYPOTHESIS (H0 ): There is no significance difference between sample mean or population mean.

i.e. H0: = 0 where, 0 - constant number. b) Alternative Hypothesis (H1): H1: 0 (Two-tailed test) H1: > 0 (Right-tailed test) H1: < 0 (Left-tailed test) STEP-2 Test statistic: H0 , Z cal= p-pH0/p STEP-3 Level of significance: -0.05 Type one error () Type one error if the probability of rejecting H0 when it is acceptable (correct). Type two error () Type two error if the probability of accepting H0 when it is reject able (Wrong). STEP-4 Critical Value (Rejection Region): For given level of significance and for two (one) tailed test from the normal distribution we get tabulated value of Z and it is denoted by Ztab.
STEP-5 Decision: If Z
cal

< Ztab then H0 is Accepted otherwise Rejected.

HYPOTHESIS
1. Z TEST (ONE TAIL) 1
=

Percentage of respondents having house hold average annual income less than 3 lacs

who invest 1-20% out of their total average annual income in capital financial instruments. 105

Hypothesis formulation: H0: 1>0.8 pHo= 0.8 qH0= 0.2 n= 127 p= 110 127 q= 17 127 p = = 0.133858 = 0.866142

H1: 1<0.8

pH0qH0/n

= =

0.035494 1.863449

Z cal= p-pH0/p

Ztable=2.05 at 98% significance level Z cal Value

So, Null hypothesis is accepted more the 80% Percentage of having household average annual income less than 3 lacs who invest 1-20% out of their total average annual income in capital financial instruments. 2. Z TEST (ONE TAIL): 1
=

percentage of respondents having household average annual income more 3 lacs who are

Businessman and Professionals in capital financial instruments.

106

Hypothesis formulation: H0: 1>0.8

pHo= 0.65 qH0= 0.35

n= 144 p= 98 144 q= 46 144 = 0.319444 = 0.680556

H1: 1<0.8

p =

pH0qH0/n

= =

0.039747 0.768742

Z cal= p-pH0/p

Ztable=2.05 at 98% significance level Z cal Value

So, Null hypothesis is accepted more the 65% Percentage of having household average annual income more than 3 lacs who are Businessman and Professionals in capital financial instruments.

3. Z TEST (ONE TAIL): 1

=

Percentage of respondents having house hold average annual income less than 3 lacs who

invest for less then3 years in capital financial instruments. Hypothesis formulation: 107

H0: 1>0.8

pHo= 0.8 qH0= 0.2

n= 127 p= 109 127 q= 18 127 = 0.141732 = 0.858268

H1: 1<0.8

p =

pH0qH0/n

= =

0.035494 1.64161

Z cal= p-pH0/p

Ztable=2.05 at 98% significance level Z cal Value

So, Null hypothesis is accepted more the 80% Percentage of having house hold average annual income less than 3 lacs who invest for less then3 years in capital financial instruments.

108

CHI-SQUARE ANALYSIS

109

CHI-SQUARE ANALYSIS
CHI SQUARE TEST: (INCOME V/s SAFETY OF EQUITY) Ho: Number of responders from the population of different income level have same response for equity as a highly safe investment H1: Number of responders from the population of different income level have not same response for equity as a highly safe investment

Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as

= 0.05

Income < 100000 100000-300000 300000-500000 > 500000 Total

Highly Disagre Disagre Neither Agree e e nor Disagree 13 8 0 34 58 8 5 45 14 1 26 0 53 137 22

Agree 3 3 12 19 37

Highl y Agree Total 0 24 0 103 11 87 10 56 21 270

110

fo 13 8 0 3 0 34 58 8 3 0 5 45 14 12 11 1 26 0 19 10

fe 4.711111111 12.17777778 1.955555556 3.288888889 1.866666667 20.21851852 52.26296296 8.392592593 14.11481481 8.011111111 17.07777778 44.14444444 7.088888889 11.92222222 6.766666667 10.99259259 28.41481481 4.562962963 7.674074074 4.355555556

(fo-fe) 8.288888889 -4.177777778 -1.955555556 -0.288888889 -1.866666667 13.78148148 5.737037037 -0.392592593 -11.11481481 -8.011111111 -12.07777778 0.855555556 6.911111111 0.077777778 4.233333333 -9.992592593 -2.414814815 -4.562962963 11.32592593 5.644444444

(fo-fe)2 68.70567901 17.45382716 3.824197531 0.08345679 3.484444444 189.9292318 32.91359396 0.154128944 123.5391084 64.17790123 145.872716 0.731975309 47.76345679 0.006049383 17.92111111 99.85190672 5.83133059 20.820631 128.2765981 31.85975309

(fo-fe)2/fe 14.58375262 1.43325223 1.955555556 0.025375375 1.866666667 9.393825351 0.629769001 0.018364879 8.752442734 8.011111111 8.541668474 0.016581369 6.73779171 0.000507404 2.648440066 9.083562943 0.205221488 4.562962963 16.71557987 7.314739229 102.497171

cal

=102.497

Degree of freedom =(R-1) (C-1) Degree of freedom = 12

table

= 21.068 at 0.05 significant level

F cal Value 111

So, Null hypothesis is rejected and alternative hypothesis is accepted hence number of responders from the population of different income level have not same response for equity as a highly safe investment.

CHI SQUARE TEST: (INCOME V/S SAFETY OF PREFERENCE SHARE):

112

Ho: Number of responders from the population of different income level have same response for preference share as a highly safe investment H1: Number of responders from the population of different income level has not same response for preference share as a highly safe investment Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as
= 0.05

Income < 100000 100000-300000 300000-500000 > 500000 Total

Highly Highl Disagre Disagre Neither Agree Agre y e e nor Disagree e Agree Total 6 5 3 3 7 24 6 56 8 21 12 103 5 45 14 12 11 87 7 11 4 19 15 56 24 117 29 55 45 270

fo 6

fe 2.133333333

(fo-fe) 3.866666667 113

(fo-fe)2 14.95111111

(fo-fe)2/fe 7.008333333

5 3 3 7 6 56 8 21 12 5 45 14 12 11 7 11 4 19 15

10.4 2.577777778 4.888888889 4 9.155555556 44.63333333 11.06296296 20.98148148 17.16666667 7.733333333 37.7 9.344444444 17.72222222 14.5 4.977777778 24.26666667 6.014814815 11.40740741 9.333333333

-5.4 0.422222222 -1.888888889 3 -3.155555556 11.36666667 -3.062962963 0.018518519 -5.166666667 -2.733333333 7.3 4.655555556 -5.722222222 -3.5 2.022222222 -13.26666667 -2.014814815 7.592592593 5.666666667

29.16 0.178271605 3.567901235 9 9.957530864 129.2011111 9.381742112 0.000342936 26.69444444 7.471111111 53.29 21.67419753 32.74382716 12.25 4.089382716 176.0044444 4.059478738 57.64746228 32.11111111

2.803846154 0.069157088 0.72979798 2.25 1.087594391 2.89472243 0.848031594 1.63447E-05 1.555016181 0.966091954 1.413527851 2.319474171 1.847614072 0.844827586 0.821527778 7.252930403 0.674913337 5.053511304 3.44047619 43.88141014

cal

=43.88

Degree of freedom =(R-1) (C-1) Degree of freedom = 12

table

= 21.068 at 0.05 significant level

F cal Value

114

So, Null hypothesis is rejected and alternative hypothesis is accepted hence number of responders from the population of different income level have not same response for preference share as a highly safe investment.

CHI SQUARE TEST: (INCOME V/S SAFETY OF DEBENTURE):

115

Ho: Number of responders from the population of different income level have same response for Debenture as a highly safe investment H1: Number of responders from the population of different income level has not same response for Debenture as a highly safe investment

Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as

= 0.05

Income < 100000 100000300000 300000500000 > 500000 Total

Highly Disagre Disagre Neither Agree e e nor Disagree 0 14 0 0 0 3 3 15 7 11 47 11 7 8 26

Agre Highly e Agree Total 6 4 24 33 59 18 116 44 14 16 78 103 87 56 270

116

fo 0 14 0 6 4 0 15 11 33 44 0 7 7 59 14 3 11 8 18 16

fe 0.266666667 4.177777778 2.311111111 10.31111111 6.933333333 1.144444444 17.92962963 9.918518519 44.25185185 29.75555556 0.966666667 15.14444444 8.377777778 37.37777778 25.13333333 0.622222222 9.748148148 5.392592593 24.05925926 16.17777778

(fo-fe) -0.266666667 9.822222222 -2.311111111 -4.311111111 -2.933333333 -1.144444444 -2.92962963 1.081481481 -11.25185185 14.24444444 -0.966666667 -8.144444444 -1.377777778 21.62222222 -11.13333333 2.377777778 1.251851852 2.607407407 -6.059259259 -0.177777778

(fo-fe)2 0.071111111 96.47604938 5.341234568 18.58567901 8.604444444 1.309753086 8.582729767 1.169602195 126.6041701 202.9041975 0.934444444 66.33197531 1.898271605 467.5204938 123.9511111 5.65382716 1.567133059 6.798573388 36.71462277 0.031604938

(fo-fe)2/fe 0.266666667 23.09267139 2.311111111 1.802490421 1.241025641 1.144444444 0.478689741 0.117921058 2.860991457 6.819035765 0.966666667 4.379954349 0.226584144 12.50797992 4.931741821 9.086507937 0.16076213 1.260724461 1.526008028 0.001953602 75.18393076

cal

=75.18

Degree of freedom =(R-1) (C-1) Degree of freedom = 12

table

= 21.068 at 0.05 significant level

F cal Value 117

So, Null hypothesis is rejected and alternative hypothesis is accepted hence number of responders from the population of different income level have not same response for Debenture as a highly safe investment.

CHI SQUARE TEST: (INCOME V/S SAFETY OF BOND): 118

Ho: Number of responders from the population of different income level have same response for Bond as a highly safe investment H1: Number of responders from the population of different income level has not same response for Bond as a highly safe investment Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as
= 0.05

Income < 100000 100000-300000 300000-500000 > 500000 Total

Highly Highl Disagre Disagre Neither Agree Agre y e e nor Disagree e Agree Total 3 4 6 9 2 24 2 6 12 56 27 103 2 3 9 42 31 87 0 3 6 15 32 56 7 16 33 122 92 270

fo

fe

(fo-fe) 119

(fo-fe)2

(fo-fe)2/fe

3 4 6 9 2 2 6 12 56 27 2 3 9 42 31 0 3 6 15 32

0.622222222 1.422222222 2.933333333 10.84444444 8.177777778 2.67037037 6.103703704 12.58888889 46.54074074 35.0962963 2.255555556 5.155555556 10.63333333 39.31111111 29.64444444 1.451851852 3.318518519 6.844444444 25.3037037 19.08148148

2.377777778 2.577777778 3.066666667 -1.844444444 -6.177777778 -0.67037037 -0.103703704 -0.588888889 9.459259259 -8.096296296 -0.255555556 -2.155555556 -1.633333333 2.688888889 1.355555556 -1.451851852 -0.318518519 -0.844444444 -10.3037037 12.91851852

5.65382716 6.644938272 9.404444444 3.401975309 38.16493827 0.449396433 0.010754458 0.346790123 89.47758573 65.55001372 0.065308642 4.646419753 2.667777778 7.230123457 1.837530864 2.1078738 0.101454047 0.71308642 106.16631 166.8881207

9.086507937 4.672222222 3.206060606 0.31370674 4.666908213 0.168289927 0.001761956 0.027547318 1.92256471 1.867718837 0.02895457 0.901245211 0.250888192 0.183920608 0.061985674 1.451851852 0.03057209 0.104184704 4.195682626 8.746077755 41.88865175

cal

=41.88

Degree of freedom =(R-1) (C-1) Degree of freedom = 12

table

= 21.068 at 0.05 significant level

F cal Value

120

So, Null hypothesis is rejected and alternative hypothesis is accepted hence number of responders from the population of different income level have not same response for Bond as a highly safe investment.

121

(ANALYSIS OF VARIANCE)

ANNOVA

122

1. ANNOVA Test

Ho: All the capital financial instruments are equally highly liquid for the number of responders from the population H1: All the capital financial instruments are not equally highly liquid for the number of responders from the population Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as X
= 0.05

Scale 1020 Highly Agree 1236 Agree Neither Agree nor Disagree Disagree Highly Disagree 4.577778 252 0.933333 620 173 2.296296 0.640741 2.445185 3.777778

X-X (X-X)2 n(X-X)2 1.33259 1.77580 2.445185 3 3 239.7334 2.13259 4.54795 2.445185 3 1 613.9734 2.28569 2.445185 -1.51185 6 308.569 0.02216 2.445185 -0.14889 8 2.992667 2.445185 -1.80444 3.25602 439.5627 2.445185 1604.831 401.207 8

2b =

n(X-X)2 k-1

1604.831 4

123

Capital Financial Instruments Equity Preference share Debenture Bond

Highly Agree 94 76 11 23 34 (X-X)2 n-1

(X-X) 71.5 53.5 -11.5 0.5 323.367 3 3

(X-X)2 47.02041 23.59184 251.449 1.306122 323.3673 107.7891

Capital Financial Instruments Equity Preference share Debenture Bond

Agree 137 113 28 31 51.5 (XX)2 n-1

(X-X) 114.84 90.84 5.84 8.84 21552.3 8 3

(X-X)2 13188.23 8251.906 34.1056 78.1456 21552.38 7184.127

124

Capital Financial Instruments Equity Preference share Debenture Bond

Neither Agree nor Disagree 7 43 16 18 14 (X-X)2 n-1

(X-X) -15.3 20.7 -6.3 -4.3 720.76 3

(X-X)2 234.09 428.49 39.69 18.49 720.76 240.2533

Capital Financial Instruments Equity Preference share Debenture Bond

Disagree 22 24 143 121 51.66667 (X-X)2 n-1

(X-X) 3.84 5.84 124.84 102.84

(X-X)2 14.7456 34.1056 15585.03 10576.07 26209.94

26209.94 3

8736.647

Capital Financial Instruments Equity Preference share Debenture Bond

Highly Disagree 10 14 72 77 28.83333 (X-X)2 125

(X-X) -0.33 3.67 61.67 66.67

(X-X)2 0.1089 13.4689 3803.189 4444.889 8261.656

8261.656

2753.885

n-1 2 = (nj - 1)/(nt -k)s2j = 286.055 7

F Cal = 1604.831/ 286.0557 = 1.402551 Numerator degree of freedom = (number of sample-1) = 4 Denominator degree of freedom= (nT-k) = 266 F Table= 2.373

F cal Value

So null hypothesis is accepted hence all the capital financial instruments are equally highly liquid for the number of responders from the population.

126

2. ANOVA Test
Ho: All the capital financial instruments are equally highly safe to invest for the number of responders from the population H1: All the capital financial instruments are not equally highly safe to invest for the number of responders from the population Ho: 1 = 2 = 3 = 4 = 5 H1: 1 2 3 4 5 Taking level of significance as
= 0.05

Scale 1195 Highly Agree 1360 Agree Neither Agree nor Disagree Disagree Highly Disagree 309 568 114

X 4.425926 5.037037 1.144444 2.103704 0.422222 2.626667 2b = n(X-X)2 k-1

X 2.626667 2.626667 2.626667 2.626667 2.626667 2.626667 2210.931 4

X-X 1.799259 2.41037 -1.48222 -0.52296 -2.20444

(X-X)2 n(X-X)2 3.23733 4 437.0401 5.80988 5 784.3345 2.19698 3 296.5927 0.27349 36.92119 4.85957 5 656.0427 2210.931

552.7328

Capital Financial Instruments Equity Preference share Debenture Bond

Highly Agree 21 48 78 92 39.83333 127

(X-X) -1.5 25.5 55.5 69.5

(X-X)2 47.02041 23.59184 251.449 1.306122 323.3673

(X-X)2 n-1 Capital Financial Instruments Equity Preference share Debenture Bond

323.3673 3

107.7891

Agree 37 65 116 122 56.66667 (X-X)2 n-1

(X-X) 14.84 42.84 93.84 99.84 20829.46 3

(X-X)2 220.2256 1835.266 8805.946 9968.026 20829.46 6943.154

Capital Financial Instruments Equity Preference share Debenture Bond

Neither Agree nor Disagree 22 22 26 33 17.16667 (X-X)2 n-1

(X-X) -0.3 -0.3 3.7 10.7 128.36 3

(X-X)2 0.09 0.09 13.69 114.49 128.36 42.78667

Capital Financial Instruments Disagree Equity Preference share Debenture Bond (X-X)2 n-1 137 84 47 16 47.33333

(X-X) 118.84 65.84 28.84 -2.16 19294.26 3

(X-X)2 14122.95 4334.906 831.7456 4.6656 19294.26 6431.421

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Capital Financial Instruments Equity Preference share Debenture Bond

Highly Disagree 53 51 3 7 19 (X-X)2 n-1

(X-X) 42.67 40.67 -7.33 -3.33 3539.596 3

(X-X)2 1820.729 1654.049 53.7289 11.0889 3539.596 1179.865

2 =

(nj - 1)/(nt -k)s2j =

221.128 1

F Cal = 552.7328/ 221.1281 = 2.499605 Numerator degree of freedom = (number of sample-1) = 4 Denominator degree of freedom= (nT-k) = 266 F Table= 2.373

F cal Value

So null hypothesis is rejected and alternative hypothesis is accepted hence all the capital financial instruments are not equally highly safe to invest for the number of responders from the population.

129

FACTOR ANALYSIS

CO-RELATION
130

FACTOR ANALYSIS: Correlation Matrix Income 1.000 -.126 .026 .050 .081 .019 .335 .208 .091 Market Comp Political trend Reputation Inflation Factor -.126 .026 .050 .081 1.000 .033 .013 -.032 .033 1.000 .052 .259 .013 .052 1.000 -.018 -.032 .259 -.018 1.000 .019 .335 .208 .091 .294 .418 .298 .294 .196 .000 .418 .196 .386 .298 .000 .386

Correlation

Income Market trend Comp Reputation Inflation Political Factor Sig. (1-tailed) Income Market trend Comp Reputation Inflation Political Factor

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square Degree of freedom Sig. level .496 27.027 10 .003

131

FINDINGS

132

FINDINGS
Out of 270 respondents, 78 respondents have household average annual income between 1-3 lacs. 28.89% of respondents have invested only in Equity according to our analysis and obviously everybody knows that the investment in share market is high rather than debt market in capital financial instruments because the rate of return on equity is high and high risk too. We analyze that the different types of combination of capital financial instruments in percentage of our report and for that the highest part covered by Equity. 34.81% of respondents who invest 10 20 % out of their total average annual income which is highest according to our analysis of capital financial instruments. 34.07% of respondents have not more than one year experience to invest in capital financial instruments. We analyze that the respondents are agree with the high rate of return in preference share, debenture and bonds which is 53%, 59% and 61% respectively and highly agree with the high rate of return in equity which is 64%. The respondents are agree with the low risk in debenture and bond because there is long term security for investing money in capital financial instruments while agree with the risk in equity is high and also rate of return is high. 43% and 45% of respondents are more safe to invest in debenture and bond respectively and on the other hand 51% and 31% of respondents are less safe to invest in equity and preference share respectively. The 50.7% and 40.81% respondents are agree with the high liquidity of equity and preference share respectively while on the other hand the 55.96% and 44.82% respondents are disagree with the high liquidity of debenture and bond respectively. Form our analysis, most of the respondents said that the equity and preference share is good for the short term investment while debenture and bond is good for the long term investment. More than 80% of respondents, who have house hold income of less than 3 lacs, have spent 1 20% of their average annual income in capital financial instruments. 133

 More than 65% of respondents have spent more than 3 lacs of their average annual house hold income who are Businessman and Professional. More than 80% of having house-hold average annual income less than 3 lacs who invest for less then3 years in capital financial instruments. 64% respondents highly believe that they get high return in equity and on the other hand 41.85% respondents said that the risk involve in equity is low. So we can say that the most of the investors believe that they get high return with low risk if they invest in equity. Numbers of responders from the population of different income level have not same response for equity, Preference Share, Debenture and Bond as a highly safe investment. All the capital financial instruments are equally highly liquid for the number of responders from the population. All the capital financial instruments are not equally highly safe to invest for the number of responders from the population.

134

CONCLUSION

135

CONCLUSION
In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; in the equity segment Equity shares, preference shares, convertible preference shares, nonconvertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc Form our analysis, most of the respondents said that the equity and preference share is good for the short term investment while debenture and bond is good for the long term investment. Numbers of responders from the population of different income level have not same response for equity, Preference Share, Debenture and Bond as a highly safe investment. All the capital financial instruments are equally highly liquid for the number of responders from the population. Most of the investors believe that they get high return with low risk if they invest in equity.

136

BIBLIOGRAPHY
REFERENCE BOOK: Kotler Philip, Marketing Management, Pearson Education, 11th e. Malhotra K. Naresh,Marketing Research , PearsonPrentice Hall Ltd.,5th e. S. Gurusamy,Financial markets and Institutions,Thomson publications, First Edition,2004. Pandey I M, Financial Management, Vikas Publication,9th edition. Pathak V. Bharati, The Indian Financial System (Markets, Institutions and Services), Pearson Education, 2nd e. Sancheti D. C and Kapoor V. K., Statistics (Theory, Methods and Application), Sulatan chand and sons.

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 http://business.mapsofindia.com/india-market/equity.html http://www.legalserviceindia.com/company%20law/com_2.htm http://www.businesslink.gov.uk/bdotg/action/detail http://www.sbidfhi.com/debt-market.htm http://business.mapsofindia.com/india-market/debt.html http://answers.yahoo.com/question/index http://en.wikipedia.org

138

ANNEXURE

139