SUMMER INTERNSHIP PROJECT REPORT

COMPARATIVE ANALYSIS OF INVESTMENT OPTIONS AVAILABLE

IN THE MARKET

SUBMITED BY
SHAILESH KUMAR CHOUHAN
(PGDM – II SEM.)
ACEDAMIC YEAR
2009-11

SUBMITTED TO
MANAGEMENT EDUCATION & RESEARCH INSTITUTE
 ACKNOWLEDGEMENT

The most pleasant part of any project is to express gratitude and bestow honor towards all those
who directly or indirectly contributed to the smooth flow of the project work and this being the
good opportunity; I don’t want to miss it.

Sincere acknowledgement is due foremost to the MR. ASHUTOSH CHATURVEDY, ASM-

KARVY SECURITIES LTD. Who endowed me with the valuable opportunity to explore so
interesting and a critical topic as is the subject of the present report.

I thank my trainer Mr. Kamlesh Yadav & Mr. Ranjit Rawat (cluster head)  for his valuable
inputs in the research and spending so much of valuable time and effort in helping with my topic.

I also wish to express sincere gratitude to all the respondents of the project without the kind of
co-operation of whom this work would not have been possible.
 ABSTRACT
Savings form an important part of the economy of any nation. With the savings invested in various
options available to the people, the money acts as the driver for growth of the country. Indian financial
scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of
markets in the world, it has reasonable options for an ordinary man to invest his savings.

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the
savings idle you may like to use savings in order to get return on it in the future. This is called
Investment.

One needs to invest to and earn return on your idle resources and generate a specified sum of money for a
specific goal in life and make a provision for an uncertain future One of the important reasons why one
needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living
increases.

The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes
money to lose value because it will not buy the same amount of a good or service in the future as it does
now or did in the past. The sooner one starts investing the better. By investing early you allow your
investments more time to grow, whereby the concept of compounding increases your income, by
accumulating the principal and the interest or dividend earned on it, year after year. The three golden
rules for all investors are:

 Invest early
 Invest regularly
 Invest for long term and not short term

This project will also help to understand the investors facet before investing in any of the investment tools
and thus to scrutinize the important aspects for the investors before investing that further helped in
analyzing the relation between the features of the products and the investors’ requirements.
 INTRODUCTION

OBJECTIVES OF THE PROJECT:

The purpose of the study was to determine the saving behavior and investment preferences of
customers. Customer perception will provide a way to accurately measure how the customers think about
the products and services provided by the company. Today’s trying economic conditions have forced
difficult decisions for companies. Most are making conservative decisions that reflect a survival mode in
the business operations. During these difficult times, understanding what customers on an ongoing basis
is critical for survival. Executives need a 3rd party understanding on where customer loyalties stand. More
than ever management needs ongoing feedback from the customers, partners and employees in order to
continue to innovate and grow. The main objective of the project is to find out the needs of current and
future customers. For this report , customer perception and awareness level will be measured in many
important areas like:

To understand all about different investment avenues available in India.

To find out how the investors get information about the various financial instrument

To find out how the investor wants to invest i.e. on his own or through a broker.

To find out the saving habits of the different customers and the amount they invest in various financial
instruments.

In which type of financial instrument they like to invest.

How long they prefer to keep their money invested.

What is the return that they expect from the investment.

What are the various factors that they consider before investing.

To find out the risk profile of the investor.

To give a recommendation to the investors that where they should invest.

To give a suggestion to my company where our fund lacks in the market & how it should be rectified.

After all as a management trainee I will try to get some valuable knowledge from my seniors in the
organization as well as from my faculty guide which will help me in the future.

To evaluate the consumer attitude towards saving and decision making regarding investments.
 VALUE ADDITION TO THE COMPANY
This report will help the company to strengthen customer intimacy. The report on various investment
avenues available in India will help the company in many areas like.

It will help the company to understand the expectations the customer have about their company from the
perspective of financial performance and corporate social responsibility.

It will provide fresh insights which can help their business continue to flourish.

The company can identify the particular service requirements of different types of customers.

The company can understand the problem areas.

The company can evaluate new services initiatives.

The study will help in gaining a better understanding of what an investor looks for in an investment
option.

It can be used by the financial sector in designing better financial instrument customized to suit the needs
of the investor.

It will help agents and brokers in marketing the existing instruments.

It will provide knowledge to the customer about the various financial services provided by the company
to their customers.

It can help the company to understand what is the requirement of the different categories of customers

This report will be developed in order to empower companies with detailed primary market
research needed to make well informed decisions and it will provide independent measurement and
validation of the health of company’s relationship with their customers. These are the various advantages
which will give some value addition to the company in understanding the awareness level of the customer
about the various investment options and what is the perception of the investors with regard to the
investments they want to make.
 LIMITATIONS OF THE STUDY
The project is based upon various financial instrument that are available in India and the perception level
of the customer about these financial instruments. For which there will be the need of information from
the customers about their knowledge of these financial products. The various limitations of the study are:

Total number of financial instrument in the market is so large that it needs a lot of resources to analyze
them all. There are various companies providing these financial instruments to the public. Handling and
analyzing such a varied and diversified data needs a lot of time and resources .

As the project is based on secondary data, possibility of unauthorized information cannot be avoided.

Reluctance of the people to provide complete information about themselves can affect the validity of
responses.

Due to time and cost constraint study will be conducted in only selected area of Delhi.

The lack of knowledge in customers about the financial instruments can be a major limitation.

The information can be biased due to use of questionnaires.

MY WORK IN KARVY STOCK BROKING
During the summer internship period i.e. from 24th Feb to 15th April I have gone through
various stages of Job role. I was basically given the work to Target various Consumer Groups,
Markets and Different Organizations to whom and where the company can pitch its differential
financial products/services as well as to create Awareness about the company and its offerings in
the regard to Promote which can create a Position in minds of the consumer. Moreover I was
given some training classes about various investments available for investment which have
helped me a lot in the understanding of different investment product.

This project has been a great learning experience for me, at the same time it gave me enough
scope to implement my analytical ability. This project as a whole can be divided into two parts:

The first part gives an insight about the different investment avenues available in India and its
various aspects. It is purely based on whatever I learned at KARVY STOCK BROKING.

All the topics have been covered in a very systematic way. The language has been kept simple so
that a layman could understand .

The second part will consist of data and their analysis, will be collected through a survey done on
200 people. Hope the research findings and conclusions will be of use. It has also covered why
people don’t want to go in invest? The advisors can take further steps to approach more and
more people and indulge them for taking their advices.

METHODOLOGY:

Source of Data:-

Primary Data : Questionnaire, visiting organization.

Secondary Data : Information from the Company, Websites, journals and magazines.

Sample Size : 100.

Sampling technique : Random sampling.

SAMPLING METHODOLOGY

SamplingTechnique: Initially, a rough draft was prepared keeping in mind the objective of the
research. A pilot study was done in order to know the accuracy of the Questionnaire. The final
Questionnaire was arrived only after certain important changes were done. Convenience
sampling technique will be used for collecting the data from the Karvy Stock Broking customers.
The consumers are selected by the convenience sampling method. The selection of units from
the population based on their easy availability and accessibility to the researcher is known as
convenience sampling. Convenience sampling is at its best in surveys dealing with an
exploratory purpose for generating ideas and hypothesis.

Sampling Unit:

The respondants who were asked to fill out questionnaires are the sampling units. These
comprise of employees of MNCs, Govt. Employees, Self Employeds and existing customers of
Karvy Stock broking Ltd

Sample size:

The sample size was restricted to only 100, which comprised of mainly peoples from different
regions of Chandigarh due to time constraints.

Sampling Area:

The area of the research was Chandigarh, Mohali

The project work can only be complete after:

Analyzing the data.

Referring books and gathering more relevant information from the internet.

Drawing detailed and careful inferences from the analysis.

Data Collection

Questioning & observing are the two basic methods of collecting primary data. Questionnaire
studies are more relevant than observation studies
Importance of Questionnaire

When information is to be collected by asking questions to people who may have the desired
data, a standardized form called questionnaire is prepared which helps to bring the data as such
required for the research work. The questionnaire is a list of questions to be asked to the
respondents. Each question is worded exactly as it is to be asked & the questions are listed in an
established sequence. Spaces in which to record answers are provided in questionnaire.

Presentation of the data

The collected data will be analyzed and will be represented through various charts, graphs, pie
charts, tabulation and a master sheet of the surveyed data. The data will be presented to
determine market shares and percentage of readers out of the total population. The same pattern
will be repeated in the case of advertisers.
 KARVY AS AN ORGANIZATION
KARVY, is a premier integrated financial services provider, and ranked among the top
five in the country in all its business segments, services over 16 million individual investors in
various capacities, and provides investor services to over 300 corporate, comprising the who is
who of Corporate India.

KARVY covers the entire spectrum of financial services such as Stock broking,
Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit,
equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services,
Merchant Banking & Corporate Finance, placement of equity, IPOs, among others. Karvy has a
professional management team and ranks among the best in technology, operations and research
of various industrial segments.

Karvy – Early Days:-

The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a
small group of practicing Chartered Accountants who founded the flagship company.

Karvy Consultants Limited. Started with consulting and financial accounting

automation, and carved inroads into the field of registry and share accounting by 1985. Since
then, Karvy used its experience and superlative expertise to go from strength to strength, to
better services, to provide new ones, to innovate, diversify and in the process, evolved Karvy as
one of India’s premier integrated financial service enterprise.

Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as
an integrated financial services provider, offering a wide spectrum of services. And have made
this journey by taking the route of quality service, path breaking innovations in service,
versatility in service and finally totality in service.

KARVY highly qualified manpower, cutting-edge technology, comprehensive

infrastructure and total customer-focus has secured for the position of an emerging financial
services giant enjoying the confidence and support of an enviable clientele across diverse fields
in the financial world. Values and vision of attaining total competence in servicing has served as
the building block for creating a great financial enterprise, which stands solid on our fortresses of
financial strength - various companies.

With the experience of years of holistic financial servicing and years of complete
expertise in the industry to look forward to, Karvy now emerged as a premier integrated financial
services provider.
As the flagship company of the Karvy Group, Karvy Consultants Limited has always remained
at the helm of organizational affairs, pioneering business policies, work ethic and channels of
progress.

Milestone of Karvy

 INCEPTION 1979
 Corporate Registry services 1985
 Stock Broking & ISCs 1990
 Financial Product Distribution 1993
 Corporate Finance 1995
 Depository Services 1997
 ITES & BPO Services 2000
 Personal Finance Advisory Services 2001
 Secondary Debt & WDM Services 2003
 Joint Venture with Computer Share 2004
 Comtrade 2004

MAJOR AREAS OF OPERATION

 Karvy Consultants Limited
 Karvy Stock Broking Limited
 Karvy Investors Services Limited
 Karvy Computershare Pvt. Limited
 Karvy Global Services Limited
 Karvy Comtrade Limited
 Karvy Insurance Broking Private Limited
 Having emerged as a leader in the registry business, the first of the
businesses that ventured into, Karvy transferred this business into a joint venture with
Computershare Limited of Australia, the world’s largest registrar. With the advent of
depositories in the Indian capital market and the relationships that have created in the registry
business, believing they were best positioned to venture into this activity as a Depository
Participant. Karvy is the early entrants registered as Depository Participant with NSDL (National
Securities Depository Limited), the first Depository in the country and then with CDSL (Central
Depository Services limited). Today, service over 6 lakh customer accounts in this business
spread across over 250 cities/towns in India and are ranked amongst the largest Depository
Participants in the country. With a growing secondary market presence, we have transferred this
business to Karvy Stock Broking Limited (KSBL), associate and a member of NSE, BSE and
HSE.

IT enabled services:-

Technology Services division forms the ideal platform to unleash technology

initiatives and make our presence felt on the Internet. Past achievements include many quality
websites designed, developed and deployed by it. Karvy also possess own web hosting facilities
with dedicated bandwidth and a state-of-the-art server farm (data center) with services
functioning on a variety of operating platforms such as Windows, Solaris, Linux and Unix. The
corporate website of the company, “www.karvy.com”, gives access to in-depth information on
financial matters including Mutual Funds, IPOs, Fixed Income Schemes, Insurance, Stock
Market and much more. A link called ‘Resource Center’, devoted solely to research conducted
by our team of experts on various financial aspects like ‘Sector Research’, deals exclusively with
in-depth analysis of the key sectors of the Indian economy. Besides, a host of other links like
‘My Portfolio’ which acts as a personalized and customized financial measure, makes this site
extremely informative about investment options, market trends, news as also about our company
and each of the services offered here.
 Member - National Stock Exchange (NSE), The Bombay Stock Exchange
(BSE), and The Hyderabad Stock Exchange (HSE).Karvy Stock Broking Limited, one of the
cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the customer
through varied services. Creating a plethora of opportunities for the customer by opening up
investment vistas backed by research-based advisory services. Here, growth knows no limits and
success recognizes no boundaries. Helping the customer create waves in his portfolio and
empowering the investor completely is the ultimate goal.

Stock Broking Services:-

Karvy offer services that are beyond just a medium for buying and selling stocks
and shares. Instead we provide services which are multi dimensional and multi-focused in their
scope. There are several advantages in utilizing our Stock Broking services, which are the
reasons why it is one of the best in the country. It offers trading on a vast platform National
Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. More importantly,
they make trading safe to the maximum possible extent, by accounting for several risk factors
and planning accordingly. Assisted in this task by in-depth research, constant feedback and
sound advisory facilities. Highly skilled research team, comprising of technical analysts as well
as fundamental specialists, secure result-oriented information on market trends, market analysis
and market predictions. This crucial information is given as a constant feedback to customers,
through daily reports delivered thrice daily; The Pre-session Report, where market scenario for
the day is predicted, The Mid-session Report, timed to arrive during lunch break, where the
market forecast for the rest of the day is given and The Post-session Report, the final report for
the day, where the market and the report itself is reviewed. Karvy also offer special portfolio
analysis packages that provide daily technical advice on scrip’s for successful portfolio
management and provide customized advisory services to help you make the right financial
moves that are specifically suited to customer portfolio. Karvy Stock Broking services are widely
networked across India, with the number of trading terminals providing retail stock broking
facilities, services have increasingly offered customer oriented convenience, which provide to a
spectrum of investors, high-net worth or otherwise, with equal dedication and competence. To
empower the investor further we have made serious efforts to ensure that research calls are
disseminated systematically to all our stock broking clients through various delivery channels
like email, chat, SMS, phone calls etc.
Depository Participants:-

The onset of the technology revolution in financial services Industry saw the
emergence of Karvy as an electronic custodian registered with National Securities Depository
Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards
enabling further comfort to the investor by promoting paperless trading across the country and
emerged as the top 3 Depository Participants in the country in terms of customer serviced.

Offering a wide trading platform with a dual membership at both NSDL and CDSL, a
powerful medium for trading and settlement of dematerialized shares. A 1600 team of highly
qualified and dedicated professionals drawn from the best of academic and professional
backgrounds are committed to maintaining high levels of client service delivery. This has
propelled us to a position among the top distributors for equity and debt issues with an estimated
market share of 15% in terms of applications mobilized, besides being established as the leading
procurer in all public issues.

To further tap the immense growth potential in the capital markets we

enhanced the scope of our retail brand, Karvy – the Finapolis, thereby providing planning and
advisory services to the mass affluent. Here understanding the customer needs and lifestyle in the
context of present earnings and provide adequate advisory services that will necessarily help in
creating wealth. Judicious planning that is customized to meet the future needs of the customer
deliver a service that is exemplary. The market-savvy and the ignorant investors, both find this
service very satisfactory. The edge that has over competition is portfolio of offerings and
professional expertise. The investment planning for each customer is done with an unbiased
attitude so that the service is truly customized. Monthly magazine, Finapolis, provides up-dated
market information on market trends, investment options, opinions etc. Thus empowering the
investor to base every financial move on rational thought and prudent analysis and embark on the
path to wealth creation.

Advisory Services:-

Under retail brand ‘Karvy – the Finapolis', delivers advisory services to a cross-section
of customers. The service is backed by a team of dedicated and expert professionals with varied
experience and background in handling investment portfolios. They are continually engaged in
designing the right investment portfolio for each customer according to individual needs and
budget considerations with a comprehensive support system that focuses on trading customers'
portfolios and providing valuable inputs, monitoring and managing the portfolio through varied
technological initiatives. This is made possible by the expertise that has gained in the business
over the years.

Merchant Banking:-

Recognized as a leading merchant banker in the country, registered with

SEBI as category one merchant banker. This reputation was built by capitalizing on opportunities
in corporate consolidations, mergers and acquisitions and corporate restructuring, which have
earned the reputation of a merchant banker. Raising resources for corporate or Government
Undertaking successfully over the past two decades have given us the confidence to renew focus
in this sector. Quality professional team and work-oriented dedication have propelled to offer
value-added corporate financial services and act as a professional navigator for long term growth
of our clients, who include leading corporate, State Governments, foreign institutional investors,
public and private sector companies and banks, in Indian and global markets. Karvy also
emerged as a trailblazer in the arena of relationships, both at the customer and trade levels
because of unshakable integrity, seamless service and innovative solutions that are tuned to meet
varied needs. Team of committed industry specialists, having extensive experience in capital
markets, further nurtures this relationship. Financial advice and assistance in restructuring,
divestitures, acquisitions, de-mergers, spin-offs, joint ventures, privatization and takeover
defense mechanisms have elevated relationship with the client to one based on unshakable trust
and confidence.

Karvy has traversed wide spaces to tie up with the world’s largest transfer agent, the
leading Australian company, Computershare Limited. The company that services more than 75
million shareholders across 7000 corporate clients and makes its presence felt in over 12
countries across 5 continents has entered into a 50-50 joint venture with us. With management
team completely transferred to this new entity, we will aim to enrich the financial services
industry than before. The future holds new arenas of client servicing and contemporary and
relevant technologies as we are geared to deliver better value and foster bigger investments in the
business. The worldwide network of Computershare will hold in good stead as expect to adopt
international standards in addition to leveraging the best of technologies from around the world.
Excellence has to be the order of the day when two companies with such similar ideologies of
growth, vision and competence, get together.

Mutual Fund Services:-

Karvy attained a position of immense strength as a provider of across-the-board

transfer agency services to AMCs, Distributors and Investors. Nearly 40% of the top-notch
AMCs including prestigious clients like Deutsche AMC and UTI swear by the quality and range
of services that we offer. Besides providing the entire back office processing, providing the link
between various Mutual Funds and the investor, including services to the distributor, the prime
channel in this operation. Carrying the ‘limitless' ideology forward, Karvy have explored new
dimensions in every aspect of Mutual Fund servicing right from volume management, cost
effective pricing, delivery in the least turnaround time, efficient back-office and front-office
operations to customized service. They have been with the AMCs every step of the way, helping
them serve their investors better by offering them a diverse and customized range of services.
Service enhancements such as ‘Karvy Converz' a full-fledged call center, a top-line website
(www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of customer
advantages.

Issue Registry:-

In voyage towards becoming the largest transaction-processing house in the

Indian Corporate segment, Karvy have mobilized funds for numerous corporate, Karvy has
emerged as the largest transaction-processing house for the Indian Corporate sector. With an
experience of handling over 700 issues, Karvy today, has the ability to execute voluminous
transactions and hard-core expertise in technology applications have gained us the No.1 slot in
the business. Karvy is the first Registry Company to receive ISO 9002 certification in India that
stands testimony to its stature Karvy has the backing of skilled human resources complemented
by requisite technological packages to ensure a faster processing capability. Karvy has the
benefit of a good synergy between depositories and registry that enables faster resolution to
related customer queries. Apart from its unique investor servicing presence in all the phases of a
public Issue, it is actively coordinating with both the main depositories to develop special models
to enable the customer to access depository (NSDL, CDSL) services during an IPO. Karvy trust-
worthy reputation, competent manpower and high-end technology and infrastructure are the solid
foundations on which success is built.
Corporate Shareholder Services:-

Karvy has been a customer centric company since its inception. Karvy offers a
single platform servicing multiple financial instruments in its bid to offer complete financial
solutions to the varying needs of both corporate and retail investors where an extensive range of
services are provided with great volume-management capability. Today, Karvy is recognized as
a company that can exceed customer expectations which is the reason for the loyalty of
customers towards Karvy for all his financial needs. An opinion poll commissioned by “The
Merchant Banker Update” and conducted by the reputed market research agency, MARG
revealed that Karvy was considered the “Most Admired” in the registrar category among
financial services companies. Karvy have grown from being a pure transaction processing
business, to one of complete shareholder solutions.

http://karisma.karvy.com

The specialist Business Process Outsourcing unit of the Karvy Group.

The legacy of expertise and experience in financial services of the Karvy Group serves well as
enter the global arena with the confidence of being able to deliver and deliver well. Here it offers
several delivery models on the understanding that business needs are unique and therefore only a
customized service could possibly fit the bill. Service matrix has permutations and combinations
that create several options to choose from. Be it in re-engineering and managing processes or
delivering new efficiencies, service meets up to the most stringent of international standards ,
outsourcing models are designed for the global customer and are backed by sound corporate and
operations philosophies, and domain expertise. Providing productivity improvements,
operational cost control, cost savings, improved accountability and a whole gamut of other
advantages. Karvy operate in the core market segments that have emerging requirements for
specialized services, wide vertical market coverage includes Banking, Financial and Insurance
Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and
Healthcare. Karvy horizontal offerings do justice to our stance as a comprehensive BPO unit and
include a variety of services in Finance and Accounting Outsourcing Operations, Human
Resource Outsourcing Operations, Research and Analytics outsourcing Operations and Insurance
Back Office Outsourcing Operations.

www.karvyglobal.com
 At Karvy Commodities, focused on taking commodities trading to new dimensions
of reliability and profitability. Karvy have made commodities trading, an essentially age-old
practice, into a sophisticated and scientific investment option .Here it enable trade in all goods
and products of agricultural and mineral origin that include lucrative commodities like gold and
silver and popular items like oil, pulses and cotton through a well systematized trading platform,
technological and infrastructural strengths and especially street-smart skills make an ideal
broker. Service matrix is holistic with a gamut of advantages, the first and foremost being legacy
of human resources, technology and infrastructure that comes from being part of the Karvy
Group. Karvy wide national network, spanning the length and breadth of India, further supports
these advantages. Regular trading workshops and seminars are conducted to hone trading
strategies to perfection. Every move made is a calculated one, based on reliable research that is
converted into valuable information through daily, weekly and monthly newsletters, calls and
intraday alerts. Further, personalized service is provided here by a dedicated team committed to
giving hassle-free service while the brokerage rates offered are extremely competitive.
Commitment to excel in this sector stems from the immense importance that commodity broking
has to a cross-section of investors & farmers, exporters, importers, manufacturers and the
Government of India itself.

www.karvycomtrade.com

At Karvy Insurance Broking Pvt. Ltd. provide both life and non-life insurance
products to retail individuals, high net-worth clients and corporate. With the opening up of the
insurance sector and with a large number of private players in the business, they are in a position
to provide tailor made policies for different segments of customers. In journey to emerge as a
personal finance advisor, it will be better positioned to leverage relationships with the product
providers and place the requirements of customers appropriately with the product providers.
With Indian markets seeing a sea change, both in terms of investment pattern and attitude of
investors, insurance is no more seen as only a tax saving product but also as an investment
product. Karvys wide national network, spanning the length and breadth of India, further
supports these advantages. Further, personalized service is provided here by a dedicated team
committed in giving hassle-free service to the clients.
 Achievements
 Among the top 5 stock brokers in India (4% of NSE volumes)
 India's No. 1 Registrar & Securities Transfer Agents
 Among the top 3 Depository Participants
 Largest Network of Branches & Business Associates
 ISO 9002 certified operations by DNV
 Among top 10 Investment bankers
 Largest Distributor of Financial Products
 Adjudged as one of the top 50 IT uses in India by MIS Asia
 Fully Fledged IT driven operations

Various milestones towards success:

PROJECT DESCRIPTION
Mutual Fund:-

Mutual fund is a pool of money collected from investors and is invested

according to stated investment objectives Mutual fund investors are like shareholders and they
own the fund. Mutual fund investors are not lenders or deposit holders in a mutual fund.
Everybody else associated with a mutual fund is a service provider, who earns a fee. The money
in the mutual fund belongs to the investors and nobody else. Mutual funds invest in marketable
securities according to the investment objective. The value of the investments can go up or
down, changing the value of the investor’s holdings.NAV of a mutual fund fluctuates with
market price movements. The market value of the investors’ funds is also called as net assets.
Investors hold a proportionate share of the fund in the mutual fund. New investors come in and
old investors can exit, at prices related to net asset value per unit.

Emergence of Mutual Funds:-

Mutual Funds now represent perhaps the most appropriate investment opportunity
for most small investors. As financial markets become more sophisticated and complex, investor
need a financial intermediary who provides the required knowledge and professional expertise on
successful investing. It is no wonder then that in the birthplace of mutual funds-the U.S.A.-the
fund industry has already overtaken the banking industry, with more money under Mutual Fund
management than deposited with banks.

The Indian Mutual Fund industry has already opened up many exciting investment
opportunities to Indian investors. Despite the expected continuing growth in the industry, Mutual
Fund is a still new financial intermediary in India.

History of Mutual Funds:-

In the second half of 19th century, investor in UK considered the

stock market is good for the investment. But for small investor it is not possible to operate in the
market effectively. This led to establishment of an investment company which led to the small
investor to invest in equity market. The first investment company was the Scottish-American
Investment Company, set up in London in 1860.

Mutual Fund Industry in India:-

Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen
down and are generally below the inflation rate. Therefore, keeping large amounts of money in
bank is not a wise option, as in real terms the value of money decreases over a period of time.
One of the options is to invest the money in stock market. But a common investor is not
informed and competent enough to understand the intricacies of stock market. This is where
mutual funds come to the rescue. A mutual fund is a group of investors operating through a fund
manager own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest
advantage of mutual funds is diversification.
Diversification means spreading out money across many different types of
investments. When one investment is down another might be up. Diversification of investment
holdings reduces the risk tremendously.

In 1963, the government of India took the initiative by passing the UTI act, under
which the Unit Trust of India (UTI) was set-up as a statutory body. The designated role of UTI
was to set up a Mutual Fund. UTI’s first scheme, called. In 1987 the other public sector
institutions set up their Mutual Funds. In 1992, government allowed the private sector players to
set-up their funds. In 1994 the foreign Mutual Funds arrives in Indian market. In 2001 there is a
crisis in UTI and in 2003 UTI splits up into UTI 1and UTI 2. The history of Indian Mutual Fund
industry can be explained easily by various phases:-

to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and very easy to
invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much
lower trading costs than if they tried to do it on their

Benefits of Investing in Mutual Funds

Professional Management: -

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

Diversification: -

Mutual Funds invest in a number of companies across a broad cross-section of

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

Convenient Administration: -

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

Return Potential: -

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

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

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

Transparency: -

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager's investment strategy and outlook.

Flexibility: -

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

Affordability: -

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the benefit of its
investment strategy.

Choice of Schemes: -

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

Well Regulated

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

Professional Management: -

Some funds doesn’t perform in neither the market, as their management is not dynamic
enough to explore the available opportunity in the market, thus many investors debate over
whether or not the so-called professionals are any better than mutual fund or investor himself, for
picking up stocks.

Costs: –

The biggest source of AMC income is generally from the entry & exit load
which they charge from investors, at the time of purchase. The mutual fund industries are thus
charging extra cost under layers of jargon.

Dilution: –

Because funds have small holdings across different companies, high returns
from a few investments often don't make much difference on the overall return. Dilution is also
the result of a successful fund getting too big. When money pours into funds that have had strong
success, the manager often has trouble finding a good investment for all the new money.

Taxes: -

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

Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its objective:-

By Structure:-

Open-ended Funds:-

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

Closed-ended Funds:-

A closed-end fund has a stipulated maturity period which generally

ranging from 3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and thereafter they can
buy or sell the units of the scheme on the stock exchanges where they are listed. In order to
provide an exit route to the investors, some close-ended funds give an option of selling back the
units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations
stipulate that at least one of the two exit routes is provided to the investor.

Interval Funds:-

Interval funds combine the features of open-ended and close-ended schemes.

They are open for sale or redemption during pre-determined intervals at NAV related prices.

Money Market Funds:-

The aim of money market funds is to provide easy liquidity, preservation of

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

Load Funds:-

A Load Fund is one that charges a commission for entry or exit. That is, each
time you buy or sell units in the fund, a commission will be payable. Typically entry and exit
loads range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.
No-Load Funds:-

A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load
fund is that the entire corpus is put to work. 

Tax Saving Schemes:-

These schemes offer tax rebates to the investors under specific provisions of
the Indian Income Tax laws as the Government offers tax incentives for investment in specified
avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are
allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to
investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the
capital asset has been sold prior to April 1, 2000 and the amount is invested before September
30, 2000.

Various types of Mutual Funds:

 Equity Funds: -
Equity funds are considered to be the more risky funds as compared to other
fund types, but they also provide higher returns than other funds. It is advisable that an investor
looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are
different types of equity funds each falling into different risk bracket. In the order of decreasing
risk level, there are following types of equity funds:-

AGGRESSIVE GROWTH FUNDS:-

In Aggressive Growth Funds, fund managers aspire for maximum capital

appreciation and invest in less researched shares of speculative nature. Because of these speculative
investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other
equity funds.

GROWTH FUNDS: -

Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are
different from Aggressive Growth Funds in the sense that they invest in companies that are expected to
outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds
invest in those companies that are expected to post above average earnings in the future.

SPECIALTY FUNDS: -

Specialty Funds have stated criteria for investments and their portfolio comprises of only those
companies that meet their criteria. Criteria for some specialty funds could be to invest/not to invest in
particular regions/companies. Specialty funds are concentrated and thus, are comparatively riskier than
diversified funds. There are following types of specialty funds:

Sector Funds:-

Equity funds that invest in a particular sector/industry of the market are known as Sector
Funds. The exposure of these funds is limited to a particular sector (say Information Technology,
Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more
risky than equity funds that invest in multiple sectors.

Foreign Securities Funds:-

Foreign Securities Equity Funds have the option to invest in one or more foreign
companies. Foreign securities funds achieve international diversification and hence they are less
risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate
risk and country risk.

Mid-Cap or Small-Cap Funds:-

 Funds that invest in companies having lower market capitalization than large
capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-
Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crore but more
than Rs. 500 crore) and Small-Cap companies have market capitalization of less than Rs. 500
crore. Market Capitalization of a company can be calculated by multiplying the market price of
the company's share by the total number of its outstanding shares in the market. The shares of
Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise
to volatility in share prices of these companies and consequently, investment gets risky.

Option Income Funds:-

While not yet available in India, Option Income Funds write options on a large
fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise
considered as a risky instrument. These funds invest in big, high dividend yielding companies,
and then sell options against their stock positions, which generate stable income for investors.

DIVERSIFIED EQUITY FUNDS: -

Except for a small portion of investment in liquid money market, diversified equity
funds invest mainly in equities without any concentration on a particular sector(s). These funds
are well diversified and reduce sector-specific or company-specific risk. However, like all other
funds diversified equity funds too are exposed to equity market risk. One prominent type of
diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate,
a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are
eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income
tax return. ELSS usually has a lock-in period and in case of any redemption by the investor
before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for
which he may have received any tax exemption(s) in the past.

Equity Index Funds: -

Equity Index Funds have the objective to match the performance of a specific stock
market index. The portfolio of these funds comprises of the same companies that form the index
and is constituted in the same proportion as the index. Equity index funds that follow broad
indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow
sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified
and therefore, are more risky.

VALUE FUNDS:-

Value Funds invest in those companies that have sound fundamentals and whose
share prices are currently under-valued. The portfolio of these funds comprises of shares that are
trading at a low Price to Earnings Ratio (Market Price per Share / Earning per Share) and a low
Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from
diversified sectors and are exposed to lower risk level as compared to growth funds or specialty
funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.)
which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds
with a long-term time horizon as risk in the long term, to a large extent, is reduced.

EQUITY INCOME OR DIVIDEND YIELD FUNDS: -

The objective of Equity Income or Dividend Yield Equity Funds is to generate

high recurring income and steady capital appreciation for investors by investing in those
companies which issue high dividends (such as Power or Utility companies whose share prices
fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend
Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity
funds.

DEBT / INCOME FUNDS:-

Funds that invest in medium to long-term debt instruments issued by private

companies, banks, financial institutions, governments and other entities belonging to various
sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are
low risk profile funds that seek to generate fixed current income (and not capital appreciation) to
investors. In order to ensure regular income to investors, debt (or income) funds distribute large
fraction of their surplus to investors. Although debt securities are generally less risky than
equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or
principal payment. To minimize the risk of default, debt funds usually invest in securities from
issuers who are rated by credit rating agencies and are considered to be of "Investment Grade".
Debt funds that target high returns are more risky. Based on different investment objectives,
there can be following types of debt funds:-

Diversified Debt Funds: -

Debt funds that invest in all securities issued by entities belonging to all sectors of the
market are known as diversified debt funds. The best feature of diversified debt funds is that
investments are properly diversified into all sectors which results in risk reduction. Any loss
incurred, on account of default by a debt issuer, is shared by all investors which further reduces
risk for an individual investor.
Focused Debt Funds: -

Unlike diversified debt funds, focused debt funds are narrow focus funds that are
confined to investments in selective debt securities, issued by companies of a specific sector or
industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt
funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their
narrow orientation, focused debt funds are more risky as compared to diversified debt funds.
Although not yet available in India, these funds are conceivable and may be offered to investors
very soon.

High Yield Debt funds: -

As we now understand that risk of default is present in all debt funds, and therefore,
debt funds generally try to minimize the risk of default by investing in securities issued by only
those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds
adopt a different strategy and prefer securities issued by those issuers who are considered to be
of "below investment grade". The motive behind adopting this sort of risky strategy is to earn
higher interest returns from these issuers. These funds are more volatile and bear higher default
risk, although they may earn at times higher returns for investors.

Assured Return Funds: -

Although it is not necessary that a fund will meet its objectives or provide assured
returns to investors, but there can be funds that come with a lock-in period and offer assurance of
annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the
sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds
and provide investors with a low-risk investment opportunity. However, the security of
investments depends upon the net worth of the guarantor (whose name is specified in advance on
the offer document). To safeguard the interests of investors, SEBI permits only those funds to
offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the
future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI)
that assured specified returns to investors in the future. UTI was not able to fulfill its promises
and faced large shortfalls in returns. Eventually, government had to intervene and took over
UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to
investors, though possible.

Fixed Term Plan Series: -

 Fixed Term Plan Series usually are closed-end schemes having short term maturity
period (of less than one year) that offer a series of plans and issue units to investors at regular
intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term
plan series usually invest in debt / income schemes and target short-term investors. The objective
of fixed term plan schemes is to gratify investors by generating some expected returns in a short
period.

GILT FUNDS:-

Also known as Government Securities in India, Gilt Funds invest in government

papers (named dated securities) having medium to long term maturity period. Issued by the
Government of India, these investments have little credit risk (risk of default) and provide safety
of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest
rate risk. Interest rates and prices of debt securities are inversely related and any change in the
interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.

MONEY MARKET / LIQUID FUNDS:-

Money market / liquid funds invest in short-term (maturing within one year)
interest bearing debt instruments. These securities are highly liquid and provide safety of
investment, thus making money market / liquid funds the safest investment option when
compared with other mutual fund types. However, even money market / liquid funds are exposed
to the interest rate risk. The typical investment options for liquid funds include Treasury Bills
(issued by governments), Commercial papers (issued by companies) and Certificates of Deposit
(issued by banks).

HYBRID FUNDS:-

As the name suggests, hybrid funds are those funds whose portfolio includes a
blend of equities, debts and money market securities. Hybrid funds have an equal proportion of
debt and equity in their portfolio. There are following types of hybrid funds in India:

Balanced Funds: -
 The portfolio of balanced funds includes assets like debt securities, convertible
securities, and equity and preference shares held in a relatively equal proportion. The objectives
of balanced funds are to reward investors with a regular income, moderate capital appreciation
and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for
conservative investors having a long term investment horizon.

Growth-and-Income Funds: -

Funds that combine features of growth funds and income funds are known as Growth-
and-Income Funds. These funds invest in companies having potential for capital appreciation and
those known for issuing high dividends. The level of risks involved in these funds is lower than
growth funds and higher than income funds.

ASSET ALLOCATION FUNDS: -

Mutual funds may invest in financial assets like equity, debt, money market or non-
financial (physical) assets like real estate, commodities etc.. Asset allocation funds adopt a
variable asset allocation strategy that allows fund managers to switch over from one asset class
to another at any time depending upon their outlook for specific markets. In other words, fund
managers may switch over to equity if they expect equity market to provide good returns and
switch over to debt if they expect debt market to provide better returns. It should be noted that
switching over from one asset class to another is a decision taken by the fund manager on the
basis of his own judgment and understanding of specific markets, and therefore, the success of
these funds depends upon the skill of a fund manager in anticipating market trends.

COMMODITY FUNDS:-

Those funds that focus on investing in different commodities (like metals, food
grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as
Commodity Funds. A commodity fund that invests in a single commodity or a group of
commodities is a specialized commodity fund and a commodity fund that invests in all available
commodities is a diversified commodity fund and bears less risk than a specialized commodity
fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold
mines) are common examples of commodity funds.

REAL ESTATE FUNDS:-

Funds that invest directly in real estate or lend to real estate developers or invest in
shares/securitized assets of housing finance companies, are known as Specialized Real Estate
Funds. The objective of these funds may be to generate regular income for investors or capital
appreciation.

EXCHANGE TRADED FUNDS (ETF):-

Exchange Traded Funds provide investors with combined benefits of a closed-end

and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are
traded on stock exchanges like a single stock at index linked prices. The biggest advantage
offered by these funds is that they offer diversification, flexibility of holding a single share
(tradable at index linked prices) at the same time. Recently introduced in India, these funds are
quite popular abroad.

FUND OF FUNDS:-

Mutual funds that do not invest in financial or physical assets, but do invest in other
Mutual Fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds
maintain a portfolio comprising of units of other mutual fund schemes, just like conventional
mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non
financial assets. Fund of Funds provide investors with an added advantage of diversifying into
different mutual fund schemes with even a small amount of investment, which further helps in
diversification of risks. However, the expenses of Fund of Funds are quite high on account of
compounding expenses of investments into different mutual fund schemes.

FUND STRUCTURE AND CONSTITUENTS:-

Mutual funds in India have a 3-tier structure of Sponsor-Trustee-AMC

.Sponsor is the promoter of the fund. Sponsor creates the AMC and the trustee company and
appoints the Boards of both these companies, with SEBI approval. A mutual fund is constituted
as a Trust. A trust deed is signed by trustees and registered under the Indian Trust Act. The
mutual fund is formed as trust in India, and supervised by the Board of Trustees. The trustees
appoint the asset management company (AMC) to actually manage the investor’s money. The
AMC’s capital is contributed by the sponsor. The AMC is the business face of the mutual fund.
Investors’ money is held in the Trust (the mutual fund). The AMC gets a fee for managing the
funds, according to the mandate of the investors. The trustees make sure that the funds are
managed according to the investors’ mandate. Sponsor should have atleast 5-year track record in
the financial services business and should have made profit in atleast 3 out of the 5 years.
Sponsor should contribute atleast 40% of the capital of the AMC. Trustees are appointed by the
sponsor with SEBI approval. Atleast 50% of trustees should be independent. Atleast 50% of the
AMC’s Board should be of independent members. An AMC cannot engage in any business other
than portfolio advisory and management. An AMC of one fund cannot be Trustee of another
fund.AMC should have a net worth of at least Rs. 10 crore at all times. AMC should be
registered with SEBI AMC signs an investment management agreement with the trustees.
Trustee Company and AMC are usually private limited companies. Trustees oversee the AMC
and seek regular reports and information from them. Trustees are required to meet atleast 4 times
a year to review the AMC the investors’ funds and the investments are held by the custodian.
Sponsor and the custodian cannot be the same entity. R&T agents manage the sale and
repurchase of units and keep the unit holder accounts. If the schemes of one fund are taken over
by another fund, it is called as scheme take over. This requires SEBI and trustee approval. If two
AMCs merge, the stakes of sponsor’s changes and the schemes of both funds come together.
High court, SEBI and Trustee approval needed. If one AMC or sponsor buys out the entire stake
of another sponsor in an AMC, there is a takeover of AMC. The sponsor, who has sold out, exits
the AMC. This needs high court approval as well as SEBI and Trustee approval. Investors can
choose to exit at NAV if they do not approve of the transfer. They have a right to be informed.
No approval is required, in the case of open-ended funds. For close-ended funds the investor
approval is required for all cases of merger and takes over.

EQUITY SHARES
ABOUT SHARES:-

At the most basic level, stock (often referred to as shares) is ownership, or equity, in a company.
Investors buy stock in the form of shares, which represent a portion of a company's assets
(capital) and earnings (dividends).

As a shareholder, the extent of your ownership (your stake) in a company depends on the number
of shares you own in relation to the total number of shares available For example, if you buy
1000 shares of stock in a company that has issued a total of 100,000 shares, you own one per
cent of the company.

While one per cent seems like a small holding, very few private investors are able to accumulate
a shareholding of that size in publicly quoted companies, many of which have a market value
running into billions of pounds. Your stake may authorize you to vote at the company's annual
general meeting, where shareholders usually receive one vote per share.

In theory, every stockholder, no matter how small their stake, can exercise some influence over
company management at the annual general meeting. In reality, however, most private investors'
stakes are insignificant. Management policy is far more likely to be influenced by the votes of
large institutional investors such as pension funds.

a) STOCKS SYMBOLS:-
A stock symbol, or 'Epic' symbol, is the standard abbreviation of a stock's name. You can find
stock symbols wherever stock performance information is published - for example, newspaper
stock listings and investment websites. Company names also have abbreviations called ticker
symbols. However, it's worth remembering that these may vary at the different exchanges where
the company is quoted.

b) PERFORMANCE INDICATORS:-

Here is a list of the standard performance indicators

Performance Indicator Definition

Closing price The last price at which the stock was bought or sold

High and low The highest and lowest price of the stock from the previous trading
day

52 week range The highest and lowest price over the previous 52 weeks

Volume The amount of shares traded during the previous trading day High
and low

Net change The difference between the closing price on the last trading day and
the closing price on the trading day prior to the last

THE STOCK EXCHANGES:-

A marketplace in which to buy or sell something makes life a lot easier.

The same applies to stocks. A stock exchange is an organization that provides a marketplace in
which investors and borrowers trade stocks. Firstly, the stock exchange is a market for issuers
who want to raise equity capital by selling shares to investors in an Initial Public Offering (IPO).
The stock exchange is also a market for investors who can buy and sell shares at any time.

a) Trading shares on the stock exchange:

As an investor in the INDIA, you can't buy or sell shares on a stock exchange yourself. You need
to place your order with a stock exchange member firm (a stockbroker) who will then execute
the order on your behalf. The NSE AND BSE are the leading stock exchange in the INDIA.
Trading is done through computerized systems.

b) The trading process:-

If you decide to buy or sell your shares, you need to contact a stockbroker who will buy or sell
the shares on your behalf. After receiving your order, the stockbroker will input the order on the
SETS or SEAQ system to match your order with that of another buyer or seller. Details of the
trade are transmitted electronically to the stockbroker who is responsible for settling the trade.
You will then receive confirmation of the deal.

c) Types of shares available on the stock exchange:-

You cannot trade all stocks on the stock exchange. To be listed on a stock exchange, a stock
must meet the listing requirements laid down by that exchange in its approval process. Each
exchange has its own listing requirements, and some exchanges are more particular than others.
It is possible for a stock to be listed on more than one exchange. This is known as a dual listing.

INSURANCE
People need insurance in the first place.An insurance policy is primarily meant to protect the
income of the family’s breadearners. The idea is if any one or both die their dependents continue
to live comfortably.The circle of life begins at birth follower by education , marraige and
eventually after a lifetime of work we look forward to life of retirement . Our finances too tend
to change as we go through the various phases of life. In the first twenty of our life, we are
financially and emotionally dependents on our parents and their are no financial committments to
be met.In the next twenty years we gain financial independence and provide financial
independence to our families. This is also the stage when our income may be unable to meet the
growing expenses of a young household. In the next twenty as we see our investments grow after
our children grow and become financially independent. Insurance is a provision for the
distribution of risks that is to say it is a financial provision against loss from unavoidable
disasters. The protection which it affords takes form of a gurantee to indemnify the insured if
certain specified losses occur. The principle of insurance so far as the undertaking of the
obligation is concerned is that for the payment of a certain sum the gurantee will be given to
reimburse the insured. The insurer in accepting the risks so distributes them that the total of all
the amounts is paid for this insurance protection will be sufficient to meet the losses that occur.
Insurance then provide divided responsibilty. This principle is introduced in most stores where a
division is made between the sales clerk and the cashiers department the arrangement dividing
the risks of loss. The insurance principle is similarly applied in any other cases of divided
responsibilty. As a business however insurance is usually recognized as some form of securing a
promise of indemnity by the payment of premium and the fulfillment of certain other stipulations

Types of insurance
Term insurance plans

Term insurance is the cheapest form of life insurance available. Since a term insurance contract
only pays in the event of eventuality the life cover comes at low premium rates . Term insurance
is a usefu tool to purchase against risk of early death and protection of an asset.

Endowment plans

Endowment plans are savins and protection plans that provide a dual benifit of protection as well
as savings. Endowment plans pay a death benifit in the event of an eventuality should the
customer survive the benifit period a maturity benifit is paid to the life insured.

Whole of life plans

A whole of life plan provides life insurance cover to an individua upto a specified age . A whole
of life plan is suitable for an individual who is looking for an extended life insurance cover
and /or wants to pay premium over as long as tenure as possible to reduce the amount of upfront
premium payment.

Pension plans

Pension plans allow an individual to save in a tax deffered manner. An individual can either
contribute through regular premiums or make a single premium investments. Savings accumulate
over the deferment period. Once the contract reaches the vesting age , the individual has the
option of choosing an annuity plan from a life insurance company. An annuity is paid till the life
the lifetime of the insured or a pre-determined period depending upon the annuity option chosen
by the life insured.
Unit Linked Insurance Plans

Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of risk
protection and flexibility in investment. The investment is denoted as units and is represented by
the value that it has attained called as Net Asset Value (NAV). The policy value at any time
varies according to the value of the underlying assets at the time.

In a ULIP, the invested amount of the premiums after deducting for all the charges and premium
for risk cover under all policies in a particular fund as chosen by the policy holders are pooled
together to form a Unit fund. A Unit is the component of the Fund in a Unit Linked Insurance
Policy.

The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP
investors have the option of investing across various schemes, i.e, diversified equity funds,
balanced funds, debt funds etc. It is important to remember that in a ULIP, the investment risk is
generally borne by the investor.

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making
premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have the
flexibility to alter the premium amounts during the policy's tenure. For example, if an individual
has surplus funds, he can enhance the contribution in ULIP. Conversely an individual faced with
a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the
accumulated value of his ULIP). ULIP investors can shift their investments across various
plans/asset classes (diversified equity funds, balanced funds, debt funds) either at a nominal or
no cost.

Expenses Charged in a ULIP

Premium Allocation Charge:

A percentage of the premium is appropriated towards charges initial and renewal expenses apart
from commission expenses before allocating the units under the policy.

Mortality Charges:
These are charges for the cost of insurance coverage and depend on number of factors such as
age, amount of coverage, state of health etc.

Fund Management Fees:

Fees levied for management of the fund and is deducted before arriving at the NAV.
Administration Charges:
This is the charge for administration of the plan and is levied by cancellation of units.

Surrender Charges:
Deducted for premature partial or full encashment of units.

Fund Switching Charge:

Usually a limited number of fund switches are allowed each year without charge, with
subsequent switches, subject to a charge.

Service Tax Deductions:

Service tax is deducted from the risk portion of the premium.

GOVERNMENT SECURITIES
Government securities(G-secs) are sovereign securities which are issued by the Reserve Bank of
India on behalf of Government of India,in lieu of the Central Government's market borrowing
programme.

The term Government Securities includes:

 Central Government Securities.

 State Government Securities

 Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of the
Central Government is raised through the issue of dated securities and 364 days treasury bills
either by auction or by floatation of loans.

In addition to the above, treasury bills of 91 days are issued for managing the temporary cash
mismatches of the Government. These do not form part of the borrowing programme of the
Central Government

Types of Government Securities

Government Securities are of the following types:-

    Dated Securities : are generally fixed maturity and fixed coupon securities usually carrying
semi-annual coupon. These are called dated securities because these are identified by their date
of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government security maturing in
2012, which carries a coupon of 11.03% payable half yearly. The key features of these securities
are:

 They are issued at face value.

 Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.

 The tenor of the security is also fixed.

 Interest /Coupon payment is made on a half yearly basis on its face value.

 The security is redeemed at par (face value) on its maturity date.

    Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. These
were issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95
and 1995-96 respectively. The key features of these securities are:

 They are issued at a discount to the face value.

 The tenor of the security is fixed.

 The securities do not carry any coupon or interest rate. The difference between the issue
price (discounted price) and face value is the return on this security.

 The security is redeemed at par (face value) on its maturity date.

    Partly Paid Stock is stock where payment of principal amount is made in installments over a
given time frame. It meets the needs of investors with regular flow of funds and the need of
Government when it does not need funds immediately. The first issue of such stock of eight year
maturity was made on November 15, 1994 for Rs. 2000 crore. Such stocks have been issued a
few more times thereafter. The key features of these securities are:

 They are issued at face value, but this amount is paid in installments over a
specified period.

 Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.

 The tenor of the security is also fixed.

 Interest /Coupon payment is made on a half yearly basis on its face value.
  The security is redeemed at par (face value) on its maturity date.

    Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over a
benchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and
minimum interest rate payable on it. Floating rate bonds of four year maturity were first issued
on September 29, 1995, followed by another issue on December 5, 1995. Recently RBI issued a
floating rate bond, the coupon of which is benchmarked against average yield on 364 Days
Treasury Bills for last six months. The coupon is reset every six months. The key features of
these securities are:

 They are issued at face value.

 Coupon or interest rate is fixed as a percentage over a predefined benchmark rate

at the time of issuance. The benchmark rate may be Treasury bill rate, bank rate
etc.

 Though the benchmark does not change, the rate of interest may vary according to
the change in the benchmark rate till redemption of the security.
The tenor of the security is also fixed.

 Interest /Coupon payment is made on a half yearly basis on its face value.

 The security is redeemed at par (face value) on its maturity date.

    Bonds with Call/Put Option: First time in the history of Government Securities market RBI
issued a bond with call and put option this year. This bond is due for redemption in 2012 and
carries a coupon of 6.72%. However the bond has call and put option after five years i.e. in year
2007. In other words it means that holder of bond can sell back (put option) bond to Government
in 2007 or Government can buy back (call option) bond from holder in 2007. This bond has been
priced in line with 5 year bonds.

    Capital indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale
price index. These provide investors with an effective hedge against inflation. These bonds were
floated on December 29, 1997 on tap basis. They were of five year maturity with a coupon rate
of 6 per cent over the wholesale price index. The principal redemption is linked to the Wholesale
Price Index. The key features of these securities are:

 They are issued at face value.

 Coupon or interest rate is fixed as a percentage over the wholesale price index at
the time of issuance. Therefore the actual amount of interest paid varies according
to the change in the Wholesale Price Index.
  The tenor of the security is fixed.

 Interest /Coupon payment is made on a half yearly basis on its face value.

 The principal redemption is linked to the Wholesale Price Index.

Features of Government Securities

    Nomenclature
The coupon rate and year of maturity identifies the government security.
Example: 12.25% GOI 2008 indicates the following:
12.25% is the coupon rate, GOI denotes Government of India, which is the borrower, 2008 is the
year of maturity.

    Eligibility
All entities registered in India like banks, financial institutions, Primary Dealers, firms,
companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional
Investors, State Governments, Provident Funds, trusts, research organisations, Nepal Rashtra
bank and even individuals are eligible to purchase Government Securities.

    Availability
Government securities are highly liquid instruments available both in the primary and secondary
market. They can be purchased from Primary Dealers. PNB Gilts Ltd., is a leading Primary
Dealer in the government securities market, and is actively involved in the trading of government
securities.

    Forms of Issuance of Government Securities

 Banks, Primary Dealers and Financial Institutions have been allowed to hold these
securities with the Public Debt Office of Reserve Bank of India in dematerialized
form in accounts known as Subsidiary General Ledger (SGL) Accounts.

 Entities having a Gilt Account with Banks or Primary Dealers can hold these
securities with them in dematerialized form.

 In addition government securities can also be held in dematerialized form in demat

accounts maintained with the Depository Participants of NSDL.

    Minimum Amount

In terms of RBI regulations, government dated securities can be purchased for a minimum
amount of Rs. 10,000/-only.Treasury bills can be purchased for a minimum amount of Rs
25000/- only and in multiples thereof. State Government Securities can be purchased for a
minimum amount of Rs 1,000/- only.
    Repayment

Government securities are repaid at par on the expiry of their tenor. The different repayment
methods are as follows :

 For SGL account holders, the maturity proceeds would be credited to their current
accounts with the Reserve Bank of India.

 For Gilt Account Holders, the Bank/Primary Dealers, would receive the maturity
proceeds and they would pay the Gilt Account Holders.

 For entities having a demat acount with NSDL,the maturity proceeds would be
collected by their DP's and they in turn would pay the demat Account Holders.

    Day Count

For government dated securities and state government securities the day count is taken as 360
days for a year and 30 days for every completed month. However for Treasury bills it is 365 days
for a year.

    Example :   A client purchases 7.40% GOI 2012 for face value of Rs. 10 lacs.@ Rs.101.80,
i.e. the client pays Rs.101.80 for every unit of government security having a face value of Rs.
100/-  The settlement is due on October 3, 2002. What is the amount to be paid by the client?

The security is 7.40% GOI 2012 for which the interest payment dates are 3rd May, and 3rd
November every year.

The last interest payment date for the current year is 3rd May 2002. The calculation would be
made as follows:

Face value of Rs. 10 lacs.@ Rs.101.80%.

Therefore the principal amount payable is Rs.10 lacs X 101.80% =10,18,000

Last interest payment date was May 3, 2002 and settlement date is October 3, 2002. Therefore
the interest has to be paid for 150 days (including 3rd May, and excluding October 3, 2002)

(28 days of May, including 3rd May, up to 30th May + 30 days of June, July, August and
September + 2 days of October). Since the settlement is on October 3, 2002, that date is
excluded.

 Interest payable = 10 lacs X 7.40% X 150 = Rs. 30833.33.

                                    360 X 100

Total amount payable by client =10,18,000+30833.33=Rs. 10,48,833.33

Benefits of Investing in Government Securities

                         No tax deducted at source

 Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals

 Qualifies for SLR purpose

 Zero default risk being sovereign paper

 Highly liquid.

 Transparency in transactions and simplified settlement procedures through

CSGL/NSDL

Methods of Issuance of Government Securities

Government securities are issued by various methods, which are as follows:

    Auctions:
Auctions for government securities are either yield based or price based.

 In an yield based auction, the Reserve Bank of India announces the issue size(or
notified amount) and the tenor of the paper to be auctioned. The bidders submit
bids in terms of the yield at which they are ready to buy the security.

 In a price based auction, the Reserve Bank of India announces the issue size(or
notified amount), the tenor of the paper to be auctioned, as well as the coupon
rate. The bidders submit bids in terms of the price. This method of auction is
normally used in case of reissue of existing government securities.

The basic features of the auctions are given below:

 Method of auction: There are two methods of auction which are followed-

 Uniform price Based or Dutch Auction procedure is used in auctions of dated

government securities. The bids are accepted at the same prices as decided in the cut off.

Multiple/variable Price Based or French Auction procedure is used in auctions of

Government dated securities and treasury bills. Bids are accepted at different prices /
yields quoted in the individual bids.

 Bids: Bids are to be submitted in terms of yields to maturity/prices as announced

 at the time of auction.

 Cut off yield: is the rate at which bids are accepted. Bids at yields higher than the
cut-off yield is rejected and those lower than the cut-off are accepted. The cut-off
yield is set as the coupon rate for the security. Bidders who have bid at lower than
the cut-off yield pay a premium on the security, since the auction is a multiple
price auction.

 Cut off price: It is the minimum price accepted for the security. Bids at prices
lower than the cut-off are rejected and at higher than the cut-off are accepted.
Coupon rate for the security remains unchanged. Bidders who have bid at higher
than the cut-off price pay a premium on the security, thereby getting a lower
yield. Price based auctions lead to finer price discovery than yield based auctions.

 Notified amount: The amount of security to be issued is ‘notified’ prior to the

auction date, for information of the public.
The Reserve Bank of India (RBI) may participate as a non-competitor in the
auctions. The unsubscribed portion devolves on RBI or on the Primary Dealers if
the auction has been underwritten by PDs. The devolvement is at the cut-off
price/yield.

    Underwriting in Auctions

 For the purpose of auctions, bids are invited from the Primary Dealers one day
before the auction wherein they indicate the amount to be underwritten by them
and the underwriting fee expected by them.

 The auction committee of Reserve Bank of India examines the bids and based on
the market conditions, takes a decision in respect of the amount to be underwritten
and the fee to be paid to the underwriters.

 Underwriting fee is paid at the rates bid by PDs , for the underwriting which has
been accepted.

 In case of the auction being fully subscribed, the underwriters do not have to
subscribe to the issue necessarily unless they have bid for it.

If there is a devolvement, the successful bids put in by the Primary Dealers are set-off
against the amount underwritten by them while deciding the amount of devolvement.

    On-tap issue
This is a reissue of existing Government securities having pre-determined yields/prices by
Reserve Bank of India. After the initial primary auction of a security, the issue remains open to
further subscription by the investors as and when considered appropriate by RBI. The period for
which the issue is kept open may be time specific or volume specific. The coupon rate, the
interest dates and the date of maturity remain the same as determined in the initial primary
auction. Reserve Bank of India may sell government securities through on tap issue at lower or
higher prices than the prevailing market prices. Such an action on the part of the Reserve Bank of
India leads to a realignment of the market prices of government securities. Tap stock provides an
opportunity to unsuccessful bidders in auctions to acquire the security at the market determined
rate.

    Fixed coupon issue

Government Securities may also be issued for a notified amount at a fixed coupon. Most State
Development Loans or State Government Securities are issued on this basis.

    Private Placement

The Central Government may also privately place government securities with Reserve Bank of
India. This is usually done when the Ways and Means Advance (WMA) is near the sanctioned
limit and the market conditions are not conducive to an issue. The issue is priced at market
related yields. Reserve Bank of India may later offload these securities to the market through
Open Market Operations (OMO).

After having auctioned a loan whereby the coupon rate has been arrived at and if still the
government feels the need for funds for similar tenure, it may privately place an amount with the
Reserve Bank of India. RBI in turn may decide upon further selling of the security so purchased
under the Open Market Operations window albeit at a different yield.

    Open Market Operations (OMO)

Government securities that are privately placed with the Reserve Bank of India are sold in the
market through open market operations of the Reserve Bank of India. The yield at which these
securities are sold may differ from the yield at which they were privately placed with Reserve
Bank of India. Open market operations are used by the Reserve Bank of India to infuse or suck
liquidity from the system. Whenever the Reserve Bank of India wishes to infuse the liquidity in
the system, it purchases government securities from the market, and whenever it wishes to suck
out the liquidity from the system, it sells government securities in the market.

National Savings Certificate

National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument
that combines adequate returns with high safety. NSCs are an instrument for facilitating long-
term savings. A large chunk of middle class families use NSCs for saving on their tax, getting
double benefits. They not only save tax on their hard-earned income but also make an investment
which are sure to give good and safe returns.

How to Invest
National Savings Certificates are available at all post-offices. The application can be made either
in person or through an agent. Post office agents are active in nooks and corners of the country.
Following types of NSC are issued:

Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a
minor (b) A Trust.

Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the
survivor.

Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the
survivor.

Who can Invest

An adult in his own name or on behalf of a minor

A trust

Two adults jointly

Denomiations and Limit

National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs.
5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for
you to decide how much you want to put in the NSCs. This is of course a huge benefit for you
can decide as much as your budget allows.

Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half
yearly compounded. Maturity value of a certificate of any other denomination is at proportionate
rate. Premature encashment of the certificate is not permissible except at a discount in the case of
death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.

Tax Benefits

Interest accrued on the certificates every year is liable to income tax but deemed to have been
reinvested.
Income Tax rebate is available on the amount invested and interest accruing under Section 88 of
Income Tax Act, as amended from time to time.

Income tax relief is also available on the interest earned as per limits fixed vide section 80L of
Income Tax, as amended from time to time.

Public Provident Fund

Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also
serves as a retirement planning tool for many of those who do not have any structured pension
plan covering them. The balances in PPF account cannot be attached by any authority normally.

How to Open Account

Public Provident Fund account can be opened at designated post offices throughout the country
and at designated branches of Public Sector Banks throughout the country.

Who can Open Account

The account can be opened by an individual in his own name, on behalf of a minor of whom he
is a guardian.

Tabs on Investment
Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit
limit is Rs. 70,000 in a financial year. Maximum number of deposits is twelve in a financial year.

Maturity

The maturity period of the account is 15 years.

Rate of interest is 8% compounded annually.

One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.

The amount of deposit can be varied to suit the convenience of the account holders.

The account holder can retain the account after maturity for any period without making any
further deposits. In this case the account will continue to earn interest at normal rate as
admissible till the account is closed.
The account holder also has an option to extend the PPF account for any period in a block of 5
years at each time, after the maturity period of 15 years.

Lapse in Deposits
If deposits are not made in a PPF account in any financial year, the account will be treated as
discontinued. The discontinued account can be activated by payment of the minimum deposit of
Rs.500/- with default fee of Rs.50/- for each defaulted year.

Premature Closure or Withdrawl

Premature closure of a PPF Account is not permissible except in case of death. Nominee/legal
heir of PPF Account holder cannot continue the account after the death.

Premature withdrawal is permissible in the 7th year of the account subject, to a limit of 50% of
the amount at credit preceding three year balance. Thereafter one withdrawal in every year is
permissible.

Account Transfer
The Account is transferable from one post Office / bank to another and from post Office to bank
or from a bank to a post office.

Tax Benefits

Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.

The interest on deposits is totally tax free.

Deposits are exempt from wealth tax.

BONDS
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) 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.[1]

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 must be repaid at fixed intervals over a period of time

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 auction. 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.

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.

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:

Callability — 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.

Putability — 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 dates—the 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.

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

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.

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 are 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).

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.

Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator
(income, added value) or on a country's GDP.

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).

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, 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 asset-backed securities. The latter are often issued in tranches. The senior tranches get paid
back first, the subordinated tranches later.

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.

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.[2] 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.[3]

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.

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.

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 their use. Some book-entry bond issues
do not offer the option of a paper certificate, even to investors who prefer them.[4]

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.

War bond is a bond issued by a country to fund a war.

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.

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 "non-recourse," meaning that in the event of
default, the bond holder has no recourse to other governmental assets or revenues.

[edit] Investing in bonds

Bonds are bought and traded mostly by institutions like pension funds, insurance companies and
banks. Most individuals who want to own bonds do so through bond funds. Still, in the U.S.,
nearly 10% of all bonds outstanding are held directly by households.

Sometimes, bond markets rise (while yields fall) when stock markets fall. More relevantly, the
volatility of bonds (especially short and medium dated bonds) is lower than that of shares. Thus
bonds are generally viewed as safer investments than stocks, but this perception is only partially
correct. Bonds do suffer from less day-to-day volatility than stocks, and bonds' interest payments
are often higher than the general level of dividend payments. Bonds are liquid  – it is fairly easy
to sell one's bond investments, though not nearly as easy as it is to sell stocks  – and the
comparative certainty of a fixed interest payment twice per year is attractive. Bondholders also
enjoy a measure of legal protection: under the law of most countries, if a company goes
bankrupt, its bondholders will often receive some money back (the recovery amount), whereas
the company's stock often ends up valueless. However, bonds can also be risky:

Fixed rate bonds are subject to interest rate risk, meaning that their market prices will decrease
in value when the generally prevailing interest rates rise. Since the payments are fixed, a
decrease in the market price of the bond means an increase in its yield. When the market interest
rate rises, the market price of bonds will fall, reflecting investors' ability to get a higher interest
rate on their money elsewhere — perhaps by purchasing a newly issued bond that already
features the newly higher interest rate. Note that this drop in the bond's market price does not
affect the interest payments to the bondholder at all, so long-term investors who want a specific
amount at the maturity date need not worry about price swings in their bonds and do not suffer
from interest rate risk.

Price changes in a bond will also immediately affect mutual funds that hold these bonds. If the
value of the bonds held in a trading portfolio has fallen over the day, the value of the portfolio
will also have fallen. This can be damaging for professional investors such as banks, insurance
companies, pension funds and asset managers (irrespective of whether the value is immediately
"marked to market" or not). If there is any chance a holder of individual bonds may need to sell
his bonds and "cash out", interest rate risk could become a real problem. (Conversely, bonds'
market prices would increase if the prevailing interest rate were to drop, as it did from 2001
through 2003.) One way to quantify the interest rate risk on a bond is in terms of its duration.
Efforts to control this risk are called immunization or hedging.

Bond prices can become volatile depending on the credit rating of the issuer - for instance if the
credit rating agencies like Standard & Poor's and Moody's upgrade or downgrade the credit
rating of the issuer. A downgrade will cause the market price of the bond to fall. As with interest
rate risk, this risk does not affect the bond's interest payments (provided the issuer does not
actually default), but puts at risk the market price, which affects mutual funds holding these
bonds, and holders of individual bonds who may have to sell them.

A company's bond holders may lose much or all their money if the company goes bankrupt.
Under the laws of many countries (including the United States and Canada), bondholders are in
line to receive the proceeds of the sale of the assets of a liquidated company ahead of some other
creditors. Bank lenders, deposit holders (in the case of a deposit taking institution such as a bank)
and trade creditors may take precedence.

There is no guarantee of how much money will remain to repay bondholders. As an example,
after an accounting scandal and a Chapter 11 bankruptcy at the giant telecommunications
company World com, in 2004 its bondholders ended up being paid 35.7 cents on the dollar. In a
bankruptcy involving reorganization or recapitalization, as opposed to liquidation, bondholders
may end up having the value of their bonds reduced, often through an exchange for a smaller
number of newly issued bonds.

Some bonds are callable, meaning that even though the company has agreed to make payments
plus interest towards the debt for a certain period of time, the company can choose to pay off the
bond early. This creates reinvestment risk, meaning the investor is forced to find a new place for
his money, and the investor might not be able to find as good a deal, especially because this
usually happens when interest rates are falling.
 COMMODITIES
A commodity is a normal physical product used by everyday people during the course of their
lives, or metals that are used in production or as a traditional store of wealth and a hedge against
inflation. For example, these commodities include grains such as wheat, corn and rice or metals
such as copper, gold and silver. The full list of commodity markets is numerous and too detailed.
The best way to trade the commodity markets is by buying and selling futures contracts on local
and international exchanges. Trading futures is easy, and can be accessed by using the services
of any full or on-line futures brokerage service. Traditionally, there is an expectation when
trading commodity futures of achieving higher returns compared to shares or real estate, so
successful investors can expect much higher returns compared to more conventional investment
products.

The process of trading commodities, as mentioned above, must be facilitated by the use of
trading liquid, exchangeable, and standardized futures contracts, as it is not practical to trade the
physical commodities. Futures contracts give the investor ease of use and the ability to buy or
sell without delay. A futures contract is used to buy or sell a fixed quantity and quality of an
underlying commodity, at a fixed date and price in the future. Futures contracts can be broken by
simply offsetting the transaction. For example, if you buy one futures contract to open then you
sell one futures contract to close that market position.

The execution method of trading futures contracts is similar to trading physical shares, but
futures contracts have an expiry date and are deliverable.Futures contracts have an expiry date
and need to be occasionally rolled over from the current contract month to the following contract
month.

The reason is because the biggest advantage to trading commodity futures, for the private
investor is the opportunity to legally short-sell these markets. Short-selling is the ability to sell
commodity futures creating an open position in the expectation to buy-back at a later time to
profit from a fall in the market. If you wish to trade the up-side of commodity futures, then it will
simply be a buy-to-open and sell-to-close set of transactions similar to share trading.

The commodity markets will always produce rising of falling trends, and with the abundance of
information and trading opportunities available there is no reason for any investor to exclusively
trade the share market when there is potential profits from trading commodity futures.

The increased use of commodity trading vehicles in investment management has led practitioners

to create investable commodity indices and products that offer unique performance opportunities
for investors in physical commodities. As is true for stock and bond performance, as well as
investment in managed futures and hedge fund products, commodity-based products have a

variety of uses. Besides being a source of information on cash commodity and futures

commodity market trends, they are used as performance benchmarks for evaluation of

commodity trading advisors and provide a historical track record useful in developing asset

allocation strategies. However, the investor benefits of commodity or commodity-based products

lie primarily in their ability to offer risk and return trade-offs that cannot be easily replicated
through other investment alternatives. Previous research that
direct stock and bond investment offers little evidence of providing returns consistent with direct
commodity investment. commodity-based firms may not be exposed to the risk of commodity
price movement. Thus for investors, direct commodity investment may be the principal means by
which one can obtain exposure to commodity price movements.

The commodities that are traded in the market

 Gold
 Copper
 Silver
 Sugar
 Wheat
 Zeera
 Guar
Analysis
  Do you know about the following financial instruments?

120
100
80
60
40
YES
20 Column1
0
 100
90
80
70
60
50 YES
Column1
40
30
20
10
0
GOVT SECU REAL ESTATE IPO GOLD

The sample size consists of 100 respondents and out of which almost all the people are fully
aware about investment avenues like gold and fixed deposits and almost 95 are aware about
equity shares and mutual funds

 How do you get information about the following investment avenues?

INFORMATION

ADVERTISEMENT
EXECUTIVE
FRIENDS
MAGAZINES

Out of the 100 respondents about 50% of them get the information from advertisements on the
television and internet and the rest from the magazines , company sales executives and friends
and relatives.
  Rate the following according to your preference?
90
80
70
60
50
40
MORE PREFERRED
30 MODERATE
20 LESS PREFERRED
10
0

Out of the 100 respondents asked the most preferred financial instrument is fixed deposits and
the then the rest like equity shares with 70 % and insurance.

 What is your age?

AGE

20-30
31-40
41-50
51-60
60 ABOVE
Out of the respondents that were surveyed the maximum were of the age group of 31-40

 What are the factors that you consider while investing in any financial instrument?

60

50

40

30
Column1

20

10

0
RETURN TAX SAVING LIQUIDITYREGULAR INCOME SAFETY
Out of the respondents 50% were of the opinion that return and safety are the main reasons
behind their investment decisions .

 On what basis you invest in any particular financial instrument?

35
30
25
20
15
10
Column2
5
0
CE IO GE
R
YS
IS
EN
T
AN FOL A A L IM
M RT AN AN NT
FOR PO M SE
ER ND
TP FU
P AS

The respondents were mostly of the opinion that portfolio is the most important factor before
investing and then fundamental analysis done by them or by the financial advisor and then the
other factors

 How will you invest your money in any financial instrument?

 HOW DO YOU INVEST

BROKER
SUB BROKER
AGENTS
BANKS

Most of the respondents surveyed that they mostly invest their money through a broker and then
through sub brokers and agents

What is your annual income?

INCOME
15%
58%
1-3LAKHS
3-5LAKHS
5-10LAKHS
MORE THAN10LAKHS

22%

Out the total respondents around 60 %were in the income group of 1- 3lakhs and 22% in the 3-
5lakhs bracket

 How much of your money you invest in financial instruments?

 60

50

40

30
Column1

20

10

0
10%to20% 20%to30% 30%to50% MORE THAN 50%

Most of the respondents surveyed were mostly those people who invest 10 to 30 % of their
money in these instruments.

 How long do you prefer to keep your money invested

70

60

50

40
Column1
30

20

10

0
6 MONTHS 1 YEAR 1TO 3 YEAR 3 TO 5 YEAR

Out of the 100 respondents mostly were of the view that they invested there for a money at least
for a period of 1year to 3 years
  How much return do you expect from your investments?

Column1
50
45
40
35
30 Column1
25
20
15
10
5
0
10 TO 20% 20 TO 30% 30 TO 50% MORE THAN 50%

CONCLUTION AND RECOMMENDATIONS

The over all project is depending up on the findings that has been explained previously. All my
survey findings are correlated and being explain in the above graphs.

After completing the survey and watching the analysis I come to this conclusiion that the before
investment investors do have focus on Tax savings, Income, Capiatal preservation etc. They also
have a predetermination of the time period of investment.
According to my view the age group of 21-30 can be a great potential investors for the company
as the has high risk profile, more disposible income, and the time horizon is perfect 3-5 years.

 Recommendation for this category is company must follow up these high potential
customers, they can be offered Equity shares because this group of people have a high
risk profile and they can afford to takes risks which is usually associated with equity
shares. This group of customers can also be offerd Mutual funds because in that also the
exposure is in equities. ULIPS can also be offered to this group.The ULIP has a 20%-
22% return which good enough for investment. The main focus should be to reach to the
customer, these customers are aware of ULIPs and aware of other product. Company
should try to reach them and tap the investor.
 Mutual Funds can also be offered as they have high risk profile. Company should take
initiative to get demat account of these customers.
 The age group of 31-40 years, investors are with ‘Moderate’ risk profile, most of the
investors are from the 10,000-15,000 Rs per month disposible income. Company will get
a good investor with diluted risk profile. Company can offer them ULIPs,and Fixed
Deposits as investment instrument. Mutual funds can be an option but that must be a debt
fund to invest.
 The age group of 41-50 years, investors are from the 15,000-20,000 Rs disposible
income group. Investor in this group are invested in Insurance sector, the primary focus
of these investors are retirement and time horizon is likely to be 6-9 years. This is also
good potential group for the retirement plan in ULIPs. Fixed deposits can be a good
option for them.

 For the age group of above 50 years, the rish profile would be low moderate,as the term
is not more than 3 years. Investors have invested in insurance sector but in this age
insurance would not be a good option for investor. Company should try to minimise the
risk tolerence by offering Fixed deposits.

 In the survey there were lot of people who were in the age group of above 60. For this
group of people the company can target Fixed deposits which gives continues return like
monthly interests so that they can keep on getting returns.

OCCUPATION

If we see the survey data it will seen that respondents are majorly Service peopole and Business
Class. Depending upon the data I conclude that the service class has a time horizon of 3-5 years
and risk tolerence ‘Low- Moderate’. They invested in FDs, Equity shares, Mutual Fund and
ULIPs.
  Recommendation company should tap these class by innovative marketing strategies as
they already invested, and offer FDs, ULIPs. Mutual fund can be a lucrative offer if the
Fund is any moderate fund or debt fund.
 For the business class, the risk profile is high-very high. Most investor are with negative
return acceptability and time horizon is < 3 years. Company should offer Mutual funds
with risk profile High to very high thus investor can get a high return. Apart from this
company should offer to open demat account with them.

Disposible Income

 The disposible income bracket less than Rs.5000 per month are basically safe investors
and have not and do not prefer investing in mutual funds and ULIP. Thus positioning of
these products should be such that people are attracted towards this scheme. Emphasis on
marketing of the products should be given.
 Respondents under disposible income bracket Rs.5,000-Rs.10,000 have mainly invested
in insurance and real estate. But when survey was done and their preferences was asked
these respondents strongly preferred investing in these strategies.
 Disposible Income Bracket of Rs.15,000-Rs.20,000 are the strong contenders for
investing their money and these people have invested in real estate, insurance and fixed
deposits. Moreover there is mixed preferences for their investments thus proper
segmentation of the sample should be done accordingly marketing strategies should be
adopted.
 Though there is a small percentage of respondents in disposible income bracket above
Rs.20,000 who least prefer investing in mutual fund. But this is the segment which can be
well targeted and their portfolio should be such that gives them more returns. The case of
ULIP is different as people strongly prefer investing in this investment strategy. Thus
emphasis for selling ULIP in this income bracket.

REFERENCE

www.karvy.com

www.icicidirect.com

www.mutualfundsindia.com
www.nseindia.com

www.bseindia.com

www.scribd.com

www.mcx.com

www.equitymaster.com

Business Today

The Economic Times

The Mint

Karvy Finapolis

Questionnaire
Name :
Occupation :
Contact No :
Email id :
1. Do you know about the following Financial Instrument?

o Mutual Fun Yes No

o Bond Yes No
o Insurance Yes No
o Equity Shares Yes No
o Fixed Deposits Yes No
o Govt. Securities Yes No
o Real Estate Yes No
o IPO’ Yes No
o Gold Yes No
o If any other please specify…….
…………………………………………………………………………..

2. How do you get information regarding these Financial Instrument?

o Advertisement
o Company Sales force
o Friends / Relatives
o Magazines /Newspaper
o If any other please
specify………………………………………………………………………………….
3. Please rate the Financial Instruments as per your Preference.

More preferred Moderate Less preferred

Mutual fund
Insurance
Equity Shares
Bonds 4.What is your age?
Fixed
15-20
Deposits
Govt.securitie 21-40
s 41-50 51-
Real estate 60 60 above
IPO’s
Gold 5. What are the factors
which you consider
while investing in any
Financial Instrument?

o Return (capital appreciation)

o Tax Saving
 o Liquidity
o Regular income flow
o Safety
o Risk
o If any other please
specify…………………………………………………………………….
6. On what basis you will invest in any particular Financial Instrument?

o Past Performance
o Portfolio
o Fund Manager
o Fundamental/Technical Analysis
o Market Sentiment
o If any other please
specify…………………………………………………………………………
7. How will you invest your money in any Financial Instrument?

o Yourself
o Through any stock broking company. Please specify name…………………………..
o Sub broker/ Agents
o Through Banks
o If any other please
specify…………………………………………………………………………..
8. In what type of Financial Instrument you like to invest?

o Equity based
o Debt based
o Balanced Fund
o Hybrid Fund
o ELSS (equity linked saving scheme)
o If any other please specify

9. What is your annual income?

1lac to 3 lac 3lac to 5lac 5lac to 10lac more than 10 lacs

10. How much of your money you invest in any Financial Instrument?

o 10% to 20%
o 20% to 30%
o 30% to 50%
 o More than 50%
o If any other please
specify……………………………………………………………………………………..
11. How long you prefer to keep your money in any Financial Instrument?

o Less than 6 months

o 6 months to 1 year
o 1 year to 3 year
o More than 3 years
o If any other please specify

12. How much return you expect from any Financial Instrument?

o 10% to 20%
o 20% to 30%
o 30% to 50%
o More than 50%
o If any other please
specify………………………………………………………………………………………
..

13. Will you invest your money for saving the Tax in any Financial Instrument?

Yes No

14. Are you satisfied with your investment decision, Please rate?

o Highly satisfied
o Satisfied
o Less satisfied
o No satisfaction

15. Any other comments.

………………………………………………………………………………………………………
………………………………………………………………………………………………………