PROJECT REPORT

ON

WORKING OF STOCK
MARKETS &
DEPOSITORY
PARTICIPANTS

SUBMITTED BY :
SWETA SINGH CHAUHAN
USM
KURUKSHETRA UNIVERSITY
INTRODUCTION
 Organisation Profile

India Infoline Ltd. is a one-stop financial services shop, most respected for
quality of its advice, personalised service and cutting-edge technology.

Vision Statement

The company’s vision is to be the most respected company in the financial

services space.

India Infoline Group

The India Infoline group, comprising the holding company, india infoline
limited and its wholly-owned subsidiaries, straddle the entire financial services
space with offerings ranging from equity research, equities and derivatives
trading, commodities trading, portfolio management services, mutual funds,
life insurance, fixed deposits, goi bonds and other small savings instruments
to loan products and investment banking.
India Infoline also owns and manages the websites www.indiainfoline.com
and www.5paisa.com. The company has a network of over 2100 business
locations (branches and sub-brokers) spread across more than 450 cities and
towns. The group caters to approximately a million customers.

India Infoline Group subsidiaries

• India Infoline Media and Research Services Limited

• India Infoline Commodities Limited
 • India Infoline Marketing & Services
• India Infoline Investment Services Limited
• IIFL (Asia) Pte Limited

Global Presence

USA, Dubai, Singapore

History
IIFL was founded in 1995 by Mr. Nirmal Jain (Chairman and Managing
Director) as an independent business research and information provider. It
gradually evolved into a one-stop financial services solutions provider. Its
strong management team comprises competent and dedicated professionals
It is a pan-India financial services organization across 1,361 business
locations and a presence in 428 cities. Its global footprint extends across
geographies with offices in New York, Singapore and Dubai. It is listed on the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
It offesr a wide range of services and products comprising broking (retail and
institutional equities and commodities), wealth management, credit and
finance, insurance, asset management and investment banking.
It is registered with the BSE and the NSE for securities trading, MCX, NCDEX
and DGCX for commodities trading, CDSL and NSDL as depository
participants. It is registered as a Category I merchant banker and is a SEBI
registered portfolio manager. It also received the FII license in IIFL Inc. IIFL
Securities Pte Ltd received approval from the Monetary Authority of Singapore
to carry out corporate advisory and dealing in securities operations. Two
subsidiaries – India Infoline Investment Services and Moneyline Credit Limited
– are registered with RBI as non-deposit taking non-banking financial services
companies. India infoline Housing Finance Ltd, the housing finance arm, is
registered with the National Housing Bank.
 Milestones
Year Achievements
1995 Incorporated as an equity research and consulting firm with a client
base that included leading FIIs, banks, consulting firms and
corporates.
1999 Restructured the business model to embrace the internet; launched
archives.indiainfoline.com mobilised capital from reputed private
equity investors.
2000 Commenced the distribution of personal financial products; launched
online equity trading; entered life insurance distribution as a
corporate agent. Acknowledged by Forbes as ‘Best of the Web’ and
‘...must read for investors’.
2004 Acquired commodities broking license; launched Portfolio
Management Service.

2005 Listed on the Indian stock markets.

2006 Acquired membership of DGCX; launched investment banking

services.

2007 Launched a proprietary trading platform; inducted an institutional

equities team; formed a Singapore subsidiary; raised over USD 300
mn in the group; launched consumer finance business under the
‘Moneyline’ brand.
2008 Launched wealth management services under the ‘IIFL Wealth’
brand; set up India Infoline Private Equity fund; received the
Insurance broking license from IRDA; received the venture capital
license; received inprinciple approval to sponsor a mutual fund;
received ‘Best broker- India’ award from FinanceAsia; ‘Most
Improved Brokerage- India’ award from Asiamoney.
2009 Received registration for a housing finance company from the
National Housing Bank; received ‘Fastest growing Equity Broking
House - Large firms’ in India by Dun & Bradstreet.
Company Structure
India Infoline Limited is listed on both the leading stock exchanges in India,
viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange
(NSE) and is also a member of both the exchanges. It is engaged in the
businesses of Equities broking, Wealth Advisory Services and Portfolio
Management Services. It offers broking services in the Cash and Derivatives
segments of the NSE as well as the Cash segment of the BSE. It is registered
with NSDL as well as CDSL as a depository participant, providing a one-stop
solution for clients trading in the equities market. It has recently launched its
Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services

to clients. These services are offered to clients as different schemes, which
are based on differing investment strategies made to reflect the varied risk-
return preferences of clients.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans
and financing activities under one subsidiary. Recently, Orient Global, a
Singapore-based investment institution invested USD 76.7 million for a 22.5%
stake in India Infoline Investment Services. This will help focused expansion
and capital raising in the said subsidiaries for various lending businesses like
loans against securities, SME financing, distribution of retail loan products,
consumer finance business and housing finance business. India Infoline
Investment Services Private Limited consists of the following step-down
subsidiaries.
(a) India Infoline Distribution Company Limited (distribution of retail loan
products)
(b) Moneyline Credit Limited (consumer finance)
(c) India Infoline Housing Finance Limited (housing finance)

India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of
commodities broking. Its experience in securities broking empowered it with
the requisite skills and technologies to allow it offer commodities broking as a
contra-cyclical alternative to equities broking. It enjoys memberships with the
MCX and NCDEX, two leading Indian commodities exchanges, and recently
acquired membership of DGCX. It has a multi-channel delivery model, making
it among the select few to offer online as well as offline trading facilities.

IIFL (Asia) Pte Limited

IIFL (Asia) Pte Limited is wholly owned subsidiary which has been
incorporated in Singapore to pursue financial sector activities in other Asian
markets. Further to obtaining the necessary regulatory approvals, the
company has been initially capitalized at 1 million Singapore dollars.

India Infoline Media and Research Services Limited.

The content services represent a strong support that drives the broking,
commodities, mutual fund and portfolio management services businesses.
Revenue generation is through the sale of content to financial and media
houses, Indian as well as global.
It undertakes equities research which is acknowledged by none other than
Forbes as 'Best of the Web' and '…a must read for investors in Asia'. India
Infoline's research is available not just over the internet but also on
international wire services like Bloomberg (Code: IILL), Thomson First Call
and Internet Securities where India Infoline is amongst the most read Indian
brokers.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers
Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate

Agent with the Insurance Regulatory and Development Authority
(IRDA). It is the largest Corporate Agent for ICICI Prudential Life
Insurance Co Limited, which is India's largest private Life Insurance
Company. India Infoline was the first corporate agent to get licensed by
IRDA in early 2001.
(b) India Infoline Insurance Brokers Limited is a newly formed subsidiary
which will carry out the business of Insurance broking. It has applied to
IRDA for the insurance broking licence and the clearance for the same
is awaited. Post the grant of license, it proposes to also commence the
general insurance distribution business.
History of stock market
Historian Fernand Braudel suggests that in Cairo in the 11th century, Muslim
and Jewish merchants had already set up every form of trade association and
had knowledge of many methods of credit and payment, disproving the belief
that these were originally invented later by Italians. In 12th century France the
courratiers de change were concerned with managing and regulating the
debts of agricultural communities on behalf of the banks. Because these men
also traded with debts, they could be called the first brokers. A common
misbelief is that in late 13th century Bruges commodity traders gathered
inside the house of a man called Van der Beurze, and in 1309 they became
the "Brugse Beurse", institutionalizing what had been, until then, an informal
meeting, but actually, the family Van der Beurze had a building in Antwerp
where those gatherings occurred ; the Van der Beurze had Antwerp, as most
of the merchants of that period, as their primary place for trading. The idea
quickly spread around Flanders and neighboring counties and "Beurzen" soon
opened in Ghent and Amsterdam. There are stock markets in virtually every
part of the world at this moment. Some of the important stock markets are
United States.

In the middle of the 13th century, Venetian bankers began to trade in

government securities. In 1351 the Venetian government outlawed spreading
rumors intended to lower the price of government funds. Bankers in Pisa,
Verona, Genoa and Florence also began trading in government securities
during the 14th century. This was only possible because these were
independent city states not ruled by a duke but a council of influential citizens.
The Dutch later started joint stock companies, which let shareholders invest in
business ventures and get a share of their profits - or losses. In 1602, the
Dutch East India Company issued the first shares on the Amsterdam Stock
Exchange. It was the first company to issue stocks and bonds.
The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have
been the first stock exchange to introduce continuous trade in the early 17th
century. The Dutch "pioneered short selling, option trading, debt-equity
swaps, merchant banking, unit trusts and other speculative instruments, much
as we know them" (Murray Sayle, "Japan Goes Dutch", London Review of
Books XXIII.7, April 5, 2001). There are now stock markets in virtually every
developed and most developing economies, with the world's biggest markets
being in the United States, Canada, China (Hongkong), India, UK, Germany,
France and Japan.

Function and purpose of stock market

The stock market is one of the most important sources for companies to raise
money. This allows businesses to be publicly traded, or raise additional
capital for expansion by selling shares of ownership of the company in a
public market. The liquidity that an exchange provides affords investors the
ability to quickly and easily sell securities. This is an attractive feature of
investing in stocks, compared to other less liquid investments such as real
estate.

History has shown that the price of shares and other assets is an important
part of the dynamics of economic activity, and can influence or be an indicator
of social mood. An economy where the stock market is on the rise is
considered to be an up coming economy. In fact, the stock market is often
considered the primary indicator of a country's economic strength and
development. Rising share prices, for instance, tend to be associated with
increased business investment and vice versa. Share prices also affect the
wealth of households and their consumption. Therefore, central banks tend to
keep an eye on the control and behavior of the stock market and, in general,
on the smooth operation of financial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that
they collect and deliver the shares, and guarantee payment to the seller of a
security. This eliminates the risk to an individual buyer or seller that the
counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in

that lower costs and enterprise risks promote the production of goods and
services as well as employment. In this way the financial system contributes
to increased prosperity

Relation of the stock market to the modern financial

system
The financial system in most western countries has undergone a remarkable
transformation. One feature of this development is disintermediation. A portion
of the funds involved in saving and financing flows directly to the financial
markets instead of being routed via the traditional bank lending and deposit
operations. The general public's heightened interest in investing in the stock
market, either directly or through mutual funds, has been an important
component of this process. Statistics show that in recent decades shares
have made up an increasingly large proportion of households' financial assets
in many countries. In the 1970s, in Sweden, deposit accounts and other very
liquid assets with little risk made up almost 60 percent of households' financial
wealth, compared to less than 20 percent in the 2000s. The major part of this
adjustment in financial portfolios has gone directly to shares but a good deal
now takes the form of various kinds of institutional investment for groups of
individuals, e.g., pension funds, mutual funds, hedge funds, insurance
investment of premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated
by new rules for most funds and insurance, permitting a higher proportion of
shares to bonds. Similar tendencies are to be found in other industrialized
countries. In all developed economic systems, such as the European Union,
the United States, Japan and other developed nations, the trend has been the
same: saving has moved away from traditional (government insured) bank
deposits to more risky securities of one sort or another.

The behavior of the stock market

From experience we know that investors may temporarily pull financial prices
away from their long term trend level. Over-reactions may occur—so that
excessive optimism (euphoria) may drive prices unduly high or excessive
pessimism may drive prices unduly low

According to the efficient market hypothesis (EMH), only changes in

fundamental factors, such as profits or dividends, ought to affect share prices.
(But this largely theoretic academic viewpoint also predicts that little or no
trading should take place—contrary to fact—since prices are already at or
near equilibrium, having priced in all public knowledge.) But the efficient-
market hypothesis is sorely tested by such events as the stock market crash
in 1987, when the Dow Jones index plummeted 22.6 percent—the largest-
ever one-day fall in the United States. This event demonstrated that share
prices can fall dramatically even though, to this day, it is impossible to fix a
definite cause: a thorough search failed to detect any specific or unexpected
development that might account for the crash. It also seems to be the case
more generally that many price movements are not occasioned by new
information; a study of the fifty largest one-day share price movements in the
United States in the post-war period confirms this. Moreover, while the EMH
predicts that all price movement (in the absence of change in fundamental
information) is random (i.e., non-trending), many studies have shown a
marked tendency for the stock market to trend over time periods of weeks or
longer.

Various explanations for large price movements have been promulgated. For
instance, some research has shown that changes in estimated risk, and the
use of certain strategies, such as stop-loss limits and Value at Risk limits,
theoretically could cause financial markets to overreact.
Other research has shown that psychological factors may result in
exaggerated stock price movements. Psychological research has
demonstrated that people are predisposed to 'seeing' patterns, and often will
perceive a pattern in what is, in fact, just noise. (Something like seeing
familiar shapes in clouds or ink blots.) In the present context this means that a
succession of good news items about a company may lead investors to
overreact positively (unjustifiably driving the price up). A period of good
returns also boosts the investor's self-confidence, reducing his (psychological)
risk threshold.

The stock market, as any other business, is quite unforgiving of amateurs.

Inexperienced investors rarely get the assistance and support they need. In
the period running up to the recent Nasdaq crash, less than 1 percent of the
analyst's recommendations had been to sell (and even during the 2000 - 2002
crash, the average did not rise above 5%). The media amplified the general
euphoria, with reports of rapidly rising share prices and the notion that large
sums of money could be quickly earned in the so-called new economy stock
market.

Crashes
A stock market crash is often defined as a sharp dip in share prices of equities
listed on the stock exchanges. In parallel with various economic factors, a
reason for stock market crashes is also due to panic. Often, stock market
crashes end speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of
billions of dollars and wealth destruction on a massive scale. An increasing
number of people are involved in the stock market, especially since the social
security and retirement plans are being increasingly privatized and linked to
stocks and bonds and other elements of the market. There have been a
number of famous stock market crashes like the Wall Street Crash of 1929,
the stock market crash of 1973–4, the Black Monday of 1987, the Dot-com
bubble of 2000.
One of the most famous stock market crashes started October 24, 1929 on
Black Thursday. The Dow Jones Industrial lost 50% during this stock market
crash. It was the beginning of the Great Depression.

Another famous crash took place on October 19, 1987 – Black Monday. On
Black Monday itself, the Dow Jones fell by 22.6% after completing a 5 year
continuous rise in share prices. This event not only shook the USA, but
quickly spread across the world. Thus, by the end of October, stock
exchanges in Australia lost 41.8%, in Canada lost 22.5%, in Hong Kong lost
45.8%, and in Great Britain lost 26.4%. The names “Black Monday” and
“Black Tuesday” are also used for October 28-29, 1929, which followed
Terrible Thursday--the starting day of the stock market crash in 1929. The
crash in 1987 raised some puzzles-–main news and events did not predict the
catastrophe and visible reasons for the collapse were not identified. This
event raised questions about many important assumptions of modern
economics, namely, the theory of rational human conduct, the theory of
market equilibrium and the hypothesis of market efficiency. For some time
after the crash, trading in stock exchanges worldwide was halted, since the
exchange computers did not perform well owing to enormous quantity of
trades being received at one time. This halt in trading allowed the Federal
Reserve system and central banks of other countries to take measures to
control the spreading of worldwide financial crisis.

In the United States the SEC introduced several new measures of control into
the stock market in an attempt to prevent a re-occurrence of the events of
Black Monday. Computer systems were upgraded in the stock exchanges to
handle larger trading volumes in a more accurate and controlled manner. The
SEC modified the margin requirements in an attempt to lower the volatility of
common stocks, stock options and the futures market. The New York Stock
Exchange and the Chicago Mercantile Exchange introduced the concept of a
circuit breaker.
Stock market index
The movements of the prices in a market or section of a market are captured
in price indices called stock market indices, of which there are many, e.g., the
S&P, the FTSE and the Euronext indices. Such indices are usually market
capitalization weighted, with the weights reflecting the contribution of the stock
to the index. The constituents of the index are reviewed frequently to
include/exclude stocks in order to reflect the changing business environment.

Investment strategies
One of the many things people always want to know about the stock market
is, "How do I make money investing?" There are many different approaches;
two basic methods are classified as either fundamental analysis or technical
analysis. Fundamental analysis refers to analyzing companies by their
financial statements found in SEC Filings, business trends, general economic
conditions, etc. Technical analysis studies price actions in markets through
the use of charts and quantitative techniques to attempt to forecast price
trends regardless of the company's financial prospects. One example of a
technical strategy is the Trend following method, used by John W. Henry and
Ed Seykota, which uses price patterns, utilizes strict money management and
is also rooted in risk control and diversification.

Additionally, many choose to invest via the index method. In this method, one
holds a weighted or unweighted portfolio consisting of the entire stock market
or some segment of the stock market (such as the S&P 500 or Wilshire 5000).
The principal aim of this strategy is to maximize diversification, minimize taxes
from too frequent trading, and ride the general trend of the stock market
(which, in the U.S., has averaged nearly 10%/year, compounded annually,
since World War II).
Stock exchange
A stock exchange, securities exchange or (in Europe) bourse is a corporation
or mutual organization which provides "trading" facilities for stock brokers and
traders, to trade stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities as well as other financial
instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include: shares issued
by companies, unit trusts and other pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it has to be listed
there. Usually there is a central location at least for recordkeeping, but trade is
less and less linked to such a physical place, as modern markets are
electronic networks, which gives them advantages of speed and cost of
transactions. Trade on an exchange is by members only. The initial offering of
stocks and bonds to investors is by definition done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is
often the most important component of a stock market. Supply and demand in
stock markets are driven by various factors which, as in all free markets,
affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself,
nor must stock be subsequently traded on the exchange. Such trading is said
to be off exchange or over-the-counter. This is the usual way that bonds are
traded. Increasingly, stock exchanges are part of a global market for
securities.

The role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the
following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for
expansion through selling shares to the investing public.
Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more
rational allocation of resources because funds, which could have been
consumed, or kept in idle deposits with banks, are mobilized and redirected to
promote business activity with benefits for several economic sectors such as
agriculture, commerce and industry, resulting in stronger economic growth
and higher productivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,

increase distribution channels, hedge against volatility, increase its market
share, or acquire other necessary business assets. A takeover bid or a
merger agreement through the stock market is one of the simplest and most
common ways for a company to grow by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual

and professional stock investors, through dividends and stock price increases
that may result in capital gains, will share in the wealth of profitable
businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to

improve on their management standards and efficiency in order to satisfy the
demands of these shareholders and the more stringent rules for public
corporations imposed by public stock exchanges and the government.
Consequently, it is alleged that public companies (companies that are owned
by shareholders who are members of the general public and trade shares on
public exchanges) tend to have better management records than privately-
held companies (those companies where shares are not publicly traded, often
owned by the company founders and/or their families and heirs, or otherwise
by a small group of investors).
However, some well-documented cases are known where it is alleged that
there has been considerable slippage in corporate governance on the part of
some public companies. The dot-com bubble in the early 2000s, and the
subprime mortgage crisis in 2007-08, are classical examples of corporate
mismanagement. Companies like Pets.com (2000), Enron Corporation (2001),
One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI
WorldCom (2002), Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008),
Lehman Brothers (2008), were among the most widely scrutinized by the
media.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in

shares is open to both the large and small stock investors because a person
buys the number of shares they can afford. Therefore the Stock Exchange
provides the opportunity for small investors to own shares of the same
companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to

finance infrastructure projects such as sewage and water treatment works or
housing estates by selling another category of securities known as bonds.
These bonds can be raised through the Stock Exchange whereby members of
the public buy them, thus loaning money to the government. The issuance of
such bonds can obviate the need to directly tax the citizens in order to finance
development, although by securing such bonds with the full faith and credit of
the government instead of with collateral, the result is that the government
must tax the citizens or otherwise raise additional funds to make any regular
coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on
market forces. Share prices tend to rise or remain stable when companies
and the economy in general show signs of stability and growth. An economic
recession, depression, or financial crisis could eventually lead to a stock
market crash. Therefore the movement of share prices and in general of the
stock indexes can be an indicator of the general trend in the economy.
 What Are Stocks?

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock

represents a claim on the company's assets and earnings. As one acquires
more stock, his/her ownership stake in the company becomes greater.
Whether one says shares, equity, or stock, it all means the same thing.

Being an Owner

Holding a company's stock means that a person is one of the many owners
(shareholders) of a company, and, as such, he/she has a claim (albeit usually
very small) to everything the company owns. Yes, this means that technically
the person owns a tiny sliver of every piece of furniture, every trademark, and
every contract of the company. As an owner, the person is entitled to his/her
share of the company's earnings as well as any voting rights attached to the
stock.

A stock is represented by a stock certificate. This is a fancy piece of paper

that is proof of a person’s ownership. In today's computer age, we can’t
actually get to see this document because the depository participant keeps
these records electronically, which is also known as holding shares "in street
name ." This is done to make the shares easier to trade. In the past when a
person wanted to sell his or her shares, that person physically took the
certificates down to the brokerage. Now, trading with a click of the mouse or a
phone call makes life easier for everybody.

Being a shareholder of a public company does not mean the shareholder

have a say in the day-to-day running of the business. Instead, one vote per
share to elect the board of directors at annual meetings is the extent to which
the holder has a say in the company. For instance, being a Microsoft
shareholder doesn't mean one can call up Bill Gates and tell him how he
thinks the company should be run. In the same line of thinking, being a
shareholder of Anheuser Busch doesn't mean oen can walk into the factory
and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the

firm for shareholders. If this doesn't happen, the shareholders can vote to
have the management removed--well, this is the theory anyway. In reality,
individual investors generally don’t own enough shares to have a material
influence on the company. It's really the big boys like large institutional
investors and billionaire entrepreneurs who make the decisions.

Shareholders not being able to manage the company isn't too big a deal. After
all, the idea is that you don't want to have to work to make money? The
importance of being a shareholder is that the person is entitled to a portion of
the company’s profits and have a claim on assets. Profits are sometimes paid
out in the form of dividends. The more shares you own, the larger the portion
of the profits you get. The claim on assets is only relevant if a company goes
bankrupt. In case of liquidation, shareholders receive what's left after all the
creditors have been paid. This last point is worth repeating: the importance
of stock ownership is your claim on assets and earnings. Without this,
the stock wouldn't be worth the paper it's printed on.

Another extremely important feature of stock is its limited liability. This is a

legal term, which means that the shareholder is not personally liable in the
case of the company not being able to pay its debts. Other companies such
as partnerships are set up so that if the partnership goes bankrupt the
creditors can come after the partners (shareholders) personally and sell of
their house, car, furniture, etc. Owning stock means that, no matter what, the
maximum value one can lose is the value of his/her investment. Even if a
company of which the person is a shareholder goes bankrupt, he/she can
never lose his/her personal assets.
Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits
with thousands of people when they could keep profits to themselves? The
reason is that at some point every company needs to raise money. To do this,
companies can either borrow it from somebody or raise it by selling part of the
company, which is known as issuing stock. A company can borrow by taking a
loan from a bank or by issuing bonds. Both methods fit under the umbrella of
"debt financing." On the other hand, issuing stock is called "equity financing."
Issuing stock is advantageous for the company because it does not require
the company to pay back the money or make interest payments along the
way. All that the shareholders get in return for their money is the hope that the
shares will some day be worth more. The first sale of a stock, which is issued
by the private company itself, is called the initial public offering (IPO).

It is important to understand the distinction between a company financing

through debt and financing through equity. When a debt investment such as a
bond is bought, the return of money (the principal) along with promised
interest payments is guaranteed. This isn't the case with an equity investment.
By becoming an owner, the shareholder assumes the risk of the company not
being successful. Just as a small business owner isn't guaranteed a return,
neither is a shareholder. As an owner the shareholder’s claim on assets is
lesser than that of creditors. This means that if a company goes bankrupt and
liquidates, a shareholder doesn't get any money until the banks and
bondholders have been paid out; this is called absolute priority. Shareholders
earn a lot if a company is successful, but they also stand to lose their entire
investment if the company isn't successful.

Risk

It must be emphasized that there are no guarantees when it comes to

individual stocks. Some companies pay out dividends, but many others do
not. And there is no obligation to pay out dividends even for those firms that
have traditionally given them. Without dividends an investor can make money
on a stock only through its appreciation in the open market. On the downside,
any stock may go bankrupt, in which case your investment is worth nothing.
Although risk might sound all negative, there is also a bright side. Taking-on
greater risk demands a greater return on your investment. This is the reason
why stocks have historically outperformed other investments such as bonds or
savings accounts. Over the long term, an investment in stocks has historically
had an average return of around 10%-12%. A great proof of the power of
owning equities is General Electric. One share bought in 1928 would be worth
over $65,000 today!

Different Types of Stock

There are two main types of stocks: common stock and preferred stock.

Common Stock

Common stock is, well, common. When people talk about stocks in general
they are most likely referring to this type. In fact, the majority of stock issued is
in this form. Common shares represents ownership in a company and a claim
on a portion of profits (dividends). Investors get one vote per share to elect
the board members who oversees the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher
returns than almost every other investment. This higher return comes at a
cost as common stocks entail the most risk. If a company goes bankrupt and
liquidates, the common shareholders will not receive money until the
creditors, bondholders, and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but
usually doesn’t have the same voting rights (this may vary depending on the
company). On preferred shares, investors are usually guaranteed a fixed
dividend forever. This is different than common stock that has variable
dividends that are never guaranteed. Another advantage is in the event of
liquidation preferred shareholders are paid off before the common
shareholder (but still after debt holders). Preferred stock may also be callable,
meaning that the company has the option to purchase the shares from
shareholders at anytime for any reason (usually for a premium).

Some people consider preferred to be more like debt than equity. A good way
to think of these shares is in-between bonds and common shares.

Different Classes of Stock

Common and preferred are the two main forms of stock. However, it's also
possible for companies to customize different classes of stock in any way they
want. The most common reason for this is when a company wants voting
power to remain with a certain group. Hence, different classes of shares are
given different voting rights. For example, one class of shares would be held
by a select group and given 10 votes per share while a second class would be
issued to the majority of investors with 1 vote per share.
When there is more than one class of stock, the classes are traditionally
designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), the
company of Warren Buffett (one of the greatest investors of all time), has two
classes of stock. The different forms are represented by placing the letter
behind the ticker symbol in a form like: "BRKa, BRKb" or "BRK.A, BRK.B".

How Stocks Trade

Most stocks are traded on exchanges, which are places where buyers and
sellers meet and decide on a price. Some exchanges are physical locations
where transactions are carried out on a trading floor. The other type of
exchange is virtual, composed of a network of computers where trades are
made electronically.
The purpose of a stock market is to facilitate the exchange of securities
between buyers and sellers, thus, reducing the risks of investing. A stock
market is nothing more than a super-sophisticated farmers market linking
buyers and sellers.

What Causes Prices To Change?

Stock prices are changed everyday by market forces. It means that share
prices change because of supply and demand. If more people want to buy a
stock (demand) than sell it (supply), then the price moves up. Conversely, if
more people want to sell a stock, there would be more supply than demand
and the price would fall.

Understanding supply and demand is easy. What is difficult to comprehend is

what makes people like a particular stock yet dislike another stock. This
comes down to figuring out what news is positive for a company and what
news is negative. There are many answers to this problem and just about any
investor asked has their own ideas and strategies.

That being said, the principal theory is that the price movement of a stock
shows what investors feel a company is worth. The value of a company is its
market capitalization, which is the stock price multiplied by the number of
shares outstanding. For example, a company that trades at $100 per share
and has 1,000,000 shares outstanding is worth less that a company that
trades at $50 but has 5,000,000 shares outstanding. ($100 x 1,000,000 =
$100,000,000 while $50 x 5,000,000 = $250,000,000). To further complicate
things, the price of a stock doesn't just reflect what a company is worth
currently, it takes into account the growth that investors expect in the future.
The most important indicator of the worth of a company is its earnings.
Earnings are the profit a company makes, and in the long run no company
can survive without them. If a company never makes money, they aren't going
to stay in business. Public companies are required to report their earnings 4
times a year (once each quarter). Wall Street watches with rabid attention at
this time that is referred to as earnings season. The reason behind this is
because analysts base their future value of a company on their earnings
projection. If a company's results surprise (are better than expected), the price
jumps up. If a company's results disappoint (are worse than expected), then
the price will fall.

Of course, it's not just earnings that can change the price of a stock. It would
be a rather simple world if this were the case! A perfect example of this was
the dot-com bubble. Dozens of Internet companies rose to have market
capitalizations in the billions of dollars without ever making even the smallest
profit. But these valuations did not hold and most of the Internet companies
saw their values shrink to a fraction of their highs. Still, the fact that prices did
move this much demonstrates that there are factors other than earnings that
influence stocks. Investors have developed literally hundreds of these
variables, ratios and indicators such as the P/E ratio, while others are
extremely complicated and obscure with names like Chaikin Oscillator or
Moving Average Convergence Divergence (MACD).

So, why do stock prices change? The best answer is that nobody really knows
for sure. Some believe that it isn't possible to predict how stocks will change in
price while others think that by drawing charts and looking at past price
movements, you can determine when to buy and sell. The only thing we do
know as a certainty is that stocks are volatile and can change in price
extremely rapidly.

The important things to grasp about this subject are:

1. Supply and demand in the market determine stock price.
2. Price times the number of shares outstanding (market capitalization) is the
value of a company. Comparing just the share price of two companies is
meaningless.
3. Theoretically, earnings are what makes a company increase its value, but
there are other indicators which investors use to predict stock price.
4. There is no consensus as to why stock prices move the way they do.
Buying Stocks

There are twomain ways to purchase stock:

Using a Brokerage

The most common method to buy stocks is to use a brokerage. Brokerages

come in two different flavors. Full-service brokerages offer you (supposedly)
expert advice and can manage your account but also charge a lot. Discount
brokerages offer little in the way of personal attention but are much cheaper.

It used to be that only the wealthy could afford a broker as full service brokers
aren't cheap! With the Internet came the explosion of online discount brokers.
Because of them nearly anybody can now afford to invest in the market.

DRIPs & DIPs

Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) are
plans in which individual companies allow shareholders to purchase stock
directly from the company for a minimal cost. Drips are a great way to invest
small amounts of money at regular intervals.

How to Read a Stock Table/Quote

Any financial paper has stock quotes that will look something like the image
below:
Columns 1 & 2: 52-Week Hi and Low. These are the highest and lowest
prices that a stock has traded at over the previous 52-weeks (1 year). This
typically does not include the previous day's trading.

Column 3: Company Name & Type of Stock. This column lists the name of
the company. If there are no special symbols or letters following the name, it
is common stock. Different symbols imply different classes of shares. For
example, "pf" means the shares are preferred stock.

Column 4: Ticker Symbol. This is the unique alphabetic name which

identifies the stock. If you watch financial TV the ticker tape will quote the
latest prices alongside this symbol. If you are looking for stock quotes online,
you always search for a company by the ticker symbol.

Column 5: Dividend Per Share. This indicates the annual dividend payment
per share. If this space is blank, the company does not currently pay out
dividends.

Column 6: Dividend Yield. This is the percentage return on the dividend. It is

calculated as annual dividends per share divided by price per share.

Column 7: Price/Earnings Ratio. This is calculated by dividing the current

stock price by earnings per share from the last four quarters.

Column 8: Trading Volume. This figure shows the total number of shares
traded for the day, listed in hundreds. To get the actual number traded, add
"00" to the end of the number listed.
Column 9 & 10: Day High & Low. This indicates the price range the stock
has traded at throughout the day's trading. In other words, these are the
maximum and the minimum people have paid for the stock.

Column 11: Close. The close is the last trading price recorded when the
market closed on the day. If the closing price is up or down mo re than 5%
than the previous day's close, the entire listing for that stock is bold-faced.
Keep in mind, you are not guaranteed to get this price if you buy the stock the
next day because the price is constantly changing (even after the exchange is
closed for the day). The close is merely an indicator of past performance and
except in extreme circumstances serves as a ballpark of what you should
expect to pay.

Column 12: Net Change. This is the dollar value change in the stock price
from the previous day's closing price. When you hear about a stock being "up
for the day," it means the net change was positive.

The Bulls, the Bears, and the Farm

The Bulls

A bull market is when everything in the economy is great, people are finding
jobs, GDP is growing, and stocks are rising. Things are just plain rosy! Picking
stocks during a bull market is easier because everything is going up. Bull
markets cannot last forever though, and sometimes they can lead to
dangerous situations if stocks become overvalued. If a person is an optimist,
believing that stocks will go up, he is called a bull and said to have a bullish
outlook.

The Bears
A bear market is when the economy is bad, recession is looming, and stock
prices are falling. Bear markets make it tough for investors to pick profitable
stocks. One solution to this is to make money when stocks are falling using a
technique called short selling. Another strategy is to wait on the sidelines until
you feel that the bear market is nearing its end and only then start buying in
anticipation of a bull market. If a person is a pessimist, believing that stocks
are going to drop, he is called a bear and said to have a bearish outlook.

The Other Animals on the Farm - Chickens and Pigs

Chickens are afraid to lose anything. Their fear overrides their need to make
profits and so they turn to only money- market securities or get out of the
markets all together. While it's true you should never investment in something
that you lose sleep over, if you avoid the market completely and never take
any risk, you are guaranteed to never see any return.

Pigs are high risk investors looking for the one big score in a short period of
time. Pigs buy on hot tips and invest in companies without doing their due
diligence. They get impatient, greedy, and emotional about their investments,
and are drawn to high-risk securities without putting in the proper time or
money to learn about these investment vehicles. Professional traders love the
pigs, as it's often from their losses that the bulls and bears reap their profits.
 INTRODUCTION OF DEPOSITORY

Depository
A depository is an organization which holds securities of investors in electronic
form at the request of the investors through a registered Depository
Participant. It also provides services related to transactions in securities.

In India ,Depository Act defines a depository to mean “a company formed and

registered under Companies Act,1956 and which has been granted a certificate
of registration under sub section(IA) of section 12 of Securities and Exchange
Board of India Act,1992”

DEPOSITORY SYSTEM
It is a system whereby the transfer and settlement of scripts take place not
through the traditional method of transfer deeds and physical delivery of scripts
but through modern system of effecting transfer of ownership of securities by
means of book entry on the ledgers or the depository without physical
movement of scripts.
The new system thus eliminates paper work, facilitates automatic and
transparent trading in scripts, shortens the settlement period and ultimately
contributes to the liquidity of investment in securities. This system is also
known as ‘Scriples trading system’.

CONSTITUENTS OF DEPOSITORY SYSTEM

There are essentially four players in the depository system:-

1. The Depository Participant
2. The Beneficial Owner/Investor
3. The issuer
4. The Depository
 FACILITIES OFFERED BY DEPOSITORY SYSTEM:

The following are some of important facilities offered by depository

system:-
1. Dematerialization
2. Rematerialisation
3. Electronic settlement of trade
4. Electronic credit of securities allotted in public, rights and bonus issue.
5. Pledging or hypothecation of dematerialized securities.
6. Freezing of demat account.

ADVANTAGES OF DEPOSITORY SYSTEM:

The system is expected to offer the much awaited custodial services to Indian
and Foreign investors together. It is likely to bring about the following benefits
to various investors, issuing companies as well as nation:

(A) Advantages to the Investors:

 Quick transfer of funds and securities.

 Elimination of all risks associated with physical certificates.
 Minimized chances of fraud, theft of securities.
 Statement of accounts.
(B) Advantages to the issuer:
 Costs of registration & transfer of shares get reduced which were
earlier incurred by the issuer company.
 Saving in cost involved at the time of public issues.
 Easy to attract foreign investors without any cost of issuance in
overseas market.
 (C) Advantages to Intermediaries:

 Faster settlement
 Less risk of Bad Delivery
 Reduced chances of forgery, counterfeit certificates, loss in transit,
theft etc.

SOME IMPORTANT POINTS

 Who is the depository participant?

A Depository Participant (DP) is an agent of the depository through which

it interfaces with the investor. A DP can offer depository services only after
it gets proper registration from SEBI. Banking services can be availed
through a branch whereas depository services can be availed through a DP.

 What is the minimum net worth required depositary?

The minimum net worth stipulated by SEBI for a depository is Rs.100

crore.

 How many depository participants are registered with SEBI?

As on 31/03/2009, total of 711 DPs are registered with SEBI.

 Can an investor operate a joint account on “either or survivor”

basis just like a bank account?

No. The demat account cannot be operated on “either or survivor” basis like
the bank account.

 Can an investor close his demat account with one DP and

transfer all securities to another account with another DP?
Yes. The investor can submit account closure request to his DP in the
prescribed form. The DP will transfer all the securities lying in the account,
as per the instruction, and close the demat account.

 Whether investors can freeze or lock their accounts?

Investors can freeze or lock their accounts for any given period of time, if
so desired. Accounts can be frozen for debits (preventing transfer of
securities out of accounts) or for credits (preventing any movements of
hindrances into accounts) or for both.

 Do dematerialised shares have distinctive numbers?

Dematerialized shares do not have any distinctive numbers. These shares

are fungible, which means that all the holdings of a particular security will
be identical and interchangeable.

 What is ‘Standing Instruction’ given in the account opening

form?

In a bank account, credit to the account is given only when a ‘pay in’ slip is
submitted together with cash/cheque. Similarly, in a depository account
‘Receipt in’ form has to be submitted to receive securities in the account.
However, for the convenience of investors, facility of ’standing instruction’
is given. If you say ‘Yes’ for standing instruction, you need not submit
‘Receipt in’ slip every time you buy securities. If you are particular that
securities can be credited to your account only with your consent, then do
not say ‘yes’ [or tick ] to standing instruction in the application form.

 Is it possible to give delivery instructions to the DP over

Internet and if yes, how?

Yes. Both NSDL and CDSL have launched this facility for delivering
instructions to your DP over Internet, called SPEED-e and EASI
respectively. The facility can be used by all registered users after paying the
applicable charges.

 Is it possible to get securities allotted in public offering directly

in the electronic form?

Yes, it is possible to get securities allotted to in Public Offerings directly in

the electronic form. In the public issue application form there is a provision
to indicate the manner in which an investor wants the securities allotted. He
has to mention the BO ID and the name and ID of the DP on the application
form. Any allotment made will be credited into the BO account.

 How cash corporate are benefit such as dividend / interest

received?

The concerned company obtains the details of beneficiary holders and their
holdings as on the date of the book closure / record date from Depositories.
The payment to the investors will be made by the company through the
ECS (Electronic Clearing Service) facility, wherever available. Thus the
dividend / interest will be credited to your bank account directly. Where
ECS facility is not available dividend / interest will be given by issuing
warrants on which your bank account details are printed. The bank account
details will be those which you would have mentioned in your account
opening form or changed thereafter.

 How would one receive non-cash corporate benefit such as

bonus etc.?

The concerned company obtains the details of beneficiary holders and their
holdings as on the date of the book closure / record date from depositories.
 The entitlement will be credited by the company directly into the BO
account

DEMAT ACCOUNT
The whole depository system is based on demats account. So it is
necessary to understand the concept of demat accounts.

 What’s a demat account?

Demat refers to a dematerialised account. Just as you have to open an

account with a bank if you want to save your money, make cheque
payments etc, you need to open a demat account if you want to buy or sell
stocks. So it is just like a bank account where actual money is replaced by
shares. You have to approach the DPs (remember, they are like bank
branches), to open your demat account.

Let’s say your portfolio of shares looks like this: 40 of Infosys, 25 of

Wipro, 45 of HLL and 100 of ACC. All these will show in your demat
account. So you don’t have to possess any physical certificates showing that
you own these shares. They are all held electronically in your account. As
you buy and sell the shares, they are adjusted in your account. Just like a
bank passbook or statement, the DP will provide you with periodic
statements of holdings and transactions.

 Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialised form.

Although the market regulator, the Securities and Exchange Board of India
(SEBI), has allowed trades of upto 500 shares to be settled in physical form,
nobody wants physical shares any more. So a demat account is a must for
trading and investing
  Why demat?

The demat account reduces brokerage charges, makes

pledging/hypothecation of shares easier, enables quick ownership of
securities on settlement resulting in increased liquidity, avoids confusion in
the ownership title of securities, and provides easy receipt of public issue
allotments. It also helps you avoid bad deliveries caused by signature
mismatch, postal delays and loss of certificates in transit. Further, it
eliminates risks associated with forgery, counterfeiting and loss due to fire,
theft or mutilation. Demat account holders can also avoid stamp duty (as
against 0.5 per cent payable on physical shares), avoid filling up of transfer
deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

Buying & Selling

The procedure for buying and selling dematerialized securities is similar to the
procedure for buying and selling physical securities. The difference lies
in the process of delivery (in case of sale) and receipt (in case of
purchase) of securities.

In case of purchase:-

• The broker will receive the securities in his account on the payout day

• The broker will give instruction to its DP to debit his account and credit
investor’s account

• Investor will give ‘Receipt Instruction to DP for receiving credit by

filling appropriate form. However one can give standing instruction

• For credit in to ones account that will obviate the need of giving Receipt
Instruction every time.
In case of sale:-

The investor will give delivery instruction to DP to debit his account and credit
the broker’s account. Such instruction should reach the DP’s office at least 24
hours before the pay-in as other wise DP will accept the instruction only at the
investor’s risk.

Demat Benefits

The benefits are enumerated below:-

• A safe and convenient way to hold securities;

• Immediate transfer of securities;

• No stamp duty on transfer of securities;

• Elimination of risks associated with physical certificates such as bad

delivery, fake securities, delays, thefts etc.;

• Reduction in paperwork involved in transfer of securities;

• Reduction in transaction cost;

• No odd lot problem, even one share can be sold;

• Nomination facility;

• Change in address recorded with DP gets registered with all companies

in which investor holds securities electronically eliminating the need to
correspond with each of them separately;

• Transmission of securities is done by DP eliminating correspondence

with companies;

• Automatic credit into demat account of shares, arising out of

bonus/split/consolidation/merger etc.

• Holding investments in equity and debt instruments in an account

 Demat Conversion

Converting physical holding into electronic holding (dematerializing securities)

In order to dematerialize physical securities one has to fill in a DRF (Demat

Request Form) which is available with the DP and submit the same along with
physical certificates one wishes to dematerialize. Separate DRF has to be filled
for each ISIN Number.

The complete process of dematerialization is outlined below:

• Surrender certificates for dematerialization to respective depository

participant.

• Depository participant intimates Depository of the request through the

system.

• Depository participant submits the certificates to the registrar of the

Issuer Company.

• Registrar confirms the dematerialization request from depository.

• After dematerialization of the certificates, Registrar updates accounts

and informs depository of the completion of dematerialization.

• Depository updates its accounts and informs the depository participant.

• Depository participant updates the demat account of the investor.

Fees Involved

NOW to the crux — the cost of opening and holding a demat account. There
are four major charges usually levied on a demat account: Account opening
fee, annual maintenance fee, custodian fee and transaction fee. All the charges
vary from DP to DP.

 Account-opening fee
 Depending on the DP, there may or may not be an opening account fee.
Private banks, such as ICICI Bank, HDFC Bank and UTI Bank do not
have one. However, players such as India Infoline Ltd., Karvy
Consultants and the State Bank of India do so. But most players levy
this when the person re-opens a demat account, though the Stock
Holding Corporation offers a lifetime account opening fee, which allows
you to hold on to your demat account over a long period. This fee is
refundable.

 Annual maintenance fee

This is also known as folio maintenance charges, and is generally levied

in advance.

 Custodian fee

This fee is charged monthly and depends on the number of securities

(international securities identification numbers — ISIN) held in the
account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month.
DPs will not charge custody fee for ISIN on which the companies have
paid one-time custody charges to the depository.

 Transaction fee

The transaction fee is charged for crediting/debiting securities to and

from the account on a monthly basis. While some DPs, such as SBI,
charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the
fee to the transaction value, subject to a minimum amount. The fee also
differs based on the kind of transaction (buying or selling). Some DPs
charge only for debiting the securities while others charge for both. The
DPs also charge if your instruction to buy/sell fails or is rejected. In
addition, service tax is also charged by the DPs.
In addition to the other fees, the DP also charges a fee for converting the
shares from the physical to the electronic form or vice-versa. This fee varies
for both demat and remat requests. For demat, some DPs charge a flat fee
per request in addition to the variable fee per certificate, while others charge
only the variable fee.

For instance, Stock Holding Corporation charges Rs 25 as the request fee

and Rs 3 per certificate as the variable fee. However, SBI charges only the
variable fee, which is Rs 3 per certificate. Remat requests also have charges
akin to that of demat. However, variable charges for remat are generally
higher than demat. Some of the additional features (usually offered by
banks) are:

• Some DPs offer a frequent trader account, where they charge frequent
traders at lower rates than the standard charges.

• Demat account holders are generally required to pay the DP an advance

fee for each account which will be adjusted against the various service
charges. The account holder needs to raise the balance when it falls
below a certain amount prescribed by the DP. However, if you also hold
a savings account with the DP you can provide a debit authorization to
the DP for paying this charge.

• Finally, once you choose your DP, it will be prudent to keep all your
accounts with that DP, so that tracking your capital gains liability is
easier. This is because, for calculating capital gains tax, the period of
holding will be determined by the DP and different DPs follow different
methods. For instance, ICICI Bank uses the first in first out (FIFO)
method to compute the period of holding. The proof of the cost of
acquisition will be the contract note. The computation of capital gains is
done account-wise.
 Rematerialisation

The process of converting electronic holdings (demat shares) back

into Physical Certificates is called Rematerialisation.

If one wishes to get back his securities in the physical form one has to fill in the
RRF (Remat Request Form) and request his DP for rematerialisation of the
balances in his securities account. The process of rematerialisation is outlined
below;

• One makes a request for rematerialisation.

• Depository participant intimates depository of the request through the

system.

• Depository confirms rematerialisation request to the registrar.

• Registrar updates accounts and prints certificates.

• Depository updates accounts and downloads details to depository

participant.

• Registrar dispatches certificates to investor.

Some important points

 Can one pledge dematerialised securities?

Yes. In fact, pledging dematerialised securities is easier and more

advantageous as compared to pledging physical securities.

 What should one do to pledge electronic securities?

The procedure to pledge electronic securities is as follows:

• Both investor (pledgor) as well as the lender (pledgee) must have

depository accounts with the same depository;
 • Investor has to initiate the pledge by submitting to DP the details of the
securities to be pledged in a standard format ;

• The pledgee has to confirm the request through his/her DP;

• Once this is done, securities are pledged.

• All financial transactions between the pledgor and the pledgee are
handled as per usual practice outside the depository system.

 How can one close the pledge after repayment of loan?

After one has repaid the loan, one can request for a closure of pledge by
instructing the DP in a prescribed format. The pledge on receiving the
repayment will instruct his DP accordingly for the closure of the pledge.

TRANSACTION STATEMENTS
How does one know that the DP has updated the account after each
transaction?

The DP gives a Transaction Statement periodically, which will detail

current balances and various transactions made through the depository
account. If so desired, DP may provide the Transaction Statement at
intervals shorter than the stipulated ones, probably at a cost.

 At what frequency will the investor receive his Transaction

Statement from his DP?

DPs have to provide transaction statements to their clients once in a month,

if there are transactions and once in a quarter, if there are no transactions.
Moreover, DPs can provide transaction statement in electronic form under
digital signature subject to their entering into a legally enforceable
arrangement with the BOs to this effect.
 What is to be done if there are any discrepancies in transaction

statement?

In case of any discrepancy in the transaction statement, one can contact

his/her DP. If the discrepancy cannot be resolved at the DP level, one
should approach the Depository.
 LENDING AND BORROWING

• What is Lending and Borrowing of Securities?

If any person required to deliver a security in the market does not

readily have that security, he can borrow the same from another
person who is willing to lend as per the Securities Lending and
Borrowing Scheme.

• Can lending and borrowing be done directly between two

persons?

No. Lending and borrowing has to be done through an ‘Approved

Intermediary’ registered with SEBI. The approved intermediary
would borrow the securities for further lending to borrowers.
Lenders of the securities and borrowers of the securities enter into
separate agreements with the approved intermediary for lending and
borrowing the securities. Lending and borrowing is effected through
the depository system.

NOMINATION

 Who can nominate?

Nomination can be made only by individuals holding beneficiary accounts

either singly or jointly. Non-individuals including society, trust, body
corporate, karta of Hindu Undivided Family, holder of power of attorney
cannot nominate.

 Who can be a nominee?

Only an individual can be a nominee. A nominee shall not be a society,
trust, body corporate, partnership firm, Karta of Hindu Undivided
Family or a power of attorney holder.
  What is transmission of demat securities?

Transmission is the process by which securities of a deceased account

holder are transferred to the account of his legal heirs / nominee. Process of
transmission in case of dematerialised holdings is more convenient as the
transmission formalities for all securities held in a demat account can be
completed by submitting documents to the DP, whereas in case of physical
securities the legal heirs/nominee/surviving joint holder has to
independently correspond with each company in which securities are held.

 In the event of death of the sole holder, how the successors

should claim the securities lying in the demat account?

The claimant should submit to the concerned DP an application

Transmission Request Form (TRF) along with the following supporting
documents

• In case of death of sole holder where the sole holder has appointed a
nominee : Notarized copy of the death certificate

• In case of death of the sole holder, where the sole holder has not
appointed a nominee : Notarized copy of the death certificate

Any one of the below mentioned documents

• Succession certificate

• Copy of probated will

• Letter of Administration

The DP, after ensuring that the application is genuine, will transfer
securities to the account of the claimant.
The major advantage in case of dematerialised holdings is that the
transmission formalities for all securities held with a DP can be completed
by interaction with the DP alone, unlike in the case of physical share
certificates, where the claimant will have to interact with each Issuing
company or its Registrar separately.
LITERATURE
REVIEW
 LITERATURE REVIEW
After the formulation of the problem, a brief summary of it should be written
down and the researcher should have to do its extensive literature survey
connected with the problem. For this purpose, abstracting and indexing journals
and published or unpublished bibliographies are first place to go Academic
Journals, Conference proceedings, reports etc. must be tapped depending upon
nature of the problem. The literature for this project includes various
newspapers, magazines

 Economic Survey” for the information regarding the depository services by

depository participants. In the external sector of the Economic survey the
trends over the period of time are given.
 “RBI bulletin” for the information regarding the demat services of
different banks over the period of last years.
 C.R Kothari1” The information regarding the basics of research and
research methodology, what are the different types of research designs,
what is problem statement, what are the sources of data collection and what
are the methods of data collection is given in this section.
 “S.P Gupta2”. The information regarding the statistical tools and their
limitations in different fields the research is given in this section. This
section explains why to use correlation and what are the situations in which
correlation can be used, and what does correlation means.
 “Sashi K. Gupta4”, Financial Institutions And Markets, Kalyani
Publications, New Delhi To have information regarding depositories in
India
 “Bhole L.M.5”, Management of Financial institutions, Tata MC Graw Hill,
2000 to have information regarding dematerialization and rematerialisation
process.
 “Khan M.Y.6” , Indian Financial System, Tata MC Graw Hill,2000
 http://www.nseindia.com/ In order to get information regarding national
stock exchange of India this site is used.
OBJECTIVEs
OF
STUDY
 OBJECTIVE OF STUDY

The objective of the research means the purpose for which the research is being
carried out. The objectives of this research are as follows:
Primary Objective:-
The primary objective of my report is to impart a comparative and analytical

study of the depository and online share trading services of Depository

Participants in India and basic understanding of the manner in which they

function in this competitive environment, the products and services offered by

DPs, entire process of share transactions and account openings and brokerage

charged and different software used to facilitate the trading process. To know

about the benefits derived from such system.

Secondary Objective:-

Apart from understanding the stock Exchange terminologies or jargons, it was

also aimed about reading of market conditions, the feasibility and growth of

depository services of various depository participants in India. The client

servicing offered by the online share trading sites in real market situations.
RESULTS
&
FINDINGS
 RESULTS AND FINDINGS

Comparative Table of Demat A/c Charges of ICICI , HDFC,

Sharekhan, Indiabulls, Kotak Mahindra Bank, INDIA
INFOLINE LTD.

DPs:- ICICI HDFC SHARE INDIA Kotak INDIA

KHAN BULLS Mahindra INFOLINE
LTD.
Annual Rs.500/- Rs.499/- Rs.300/- Nil Rs.400/- Rs.300/-
Maintenance
Charges
Debit Instruction Rs.10/- per0.04% of 0.04% of 0.05% of 0.04% of value 0.05% of value
ISIN value or value or value or or minimum or minimum
minimu minimum minimum Rs.20/- Rs.15-100/-
m Rs.15/- Rs.21/-
Rs.25/-
Dematerialisation Rs.35/-+ Rs.35/- + Rs.5/- per Rs. 3/- per Rs.25/- +Rs.3/- Rs.25/- +Rs.3/-
Rs.22/- per Rs.3/- certificate certificate, per certificate per certificate
certificate per for min Rs.10/-
certificat securities + Rs.35/-
e upto 100 postage
Rematerialisation Rs. 20/- per Actual as Rs. 30/- Rs. 30/- per Rs.10/- per Rs.10/- per
certificate levied by per certificate Certificate Certificate
NSDL certificate Min Rs.50/-
Min
Rs.50/-
Pledge Creation 0.02% Min 0.02% 0.02%+ 0.02% Min 0.02% min 0.02% min
Rs.15/-& Min. Min Rs. Rs 100/- Rs.50 Rs.50/-
0.04% Rs.25/- 50/-
min.Rs.
30/-
Closure Same as Same as Rs.100/- Same as Same as above Rs. 250/- +S.T.
above above above
SIGNIFICANCE
OF
STUDY
 INDIAN CAPITAL MARKET OVERVIEW
The function of the financial market is to facilitate the transfer of funds
from surplus sectors (lenders) to deficit sectors (borrowers).Normally ,
households have investigable funds or savings, which they lend to
borrowers in the corporate and public sectors whose requirement of funds
far exceed their savings. A financial market consists of investors or buyers
of securities, borrowers or seller of securities, intermediaries and regulatory
bodies.

ORGANISED MONEY MARKET

Indian financial system consists of money market and capital market. The
money market has two components –the organized and the unorganized.
The organized market is dominated by commercial banks. The other major
participants are Reserve Bank of India, Life Insurance Corporation, General
Insurance Corporation, and Unit Trust Of India, Securities Trading
Corporation of India Ltd., other primary dealers, commercial banks and
mutual funds. The core of the money market is the inter bank call money
market whereby short term money borrowing /lending is effected to manage
temporary liquidity mismatches.
UNORGANISED MONEY MARKET
Despite rapid expansion of organized money market through a large
network of banking institutions that have extended their reach even to rural
areas, there is still an active unorganized market. It consists of indigenous
bankers and money lenders. In unorganized market, there is no clear
demarcation between short term and long term finance and even between
purposes of finance. The inability of the poor to meet the “creditworthiness”
requirements of banking sector make them to take recourse to the
institutions that still remain outside the regulatory framework of banking.
THE CAPITAL MARKET

The Capital market consists of primary and secondary markets. The

Primary Market deals with issue of new instruments by corporate sector
such as equity shares, preference shares and debt instruments. The
secondary market or stock exchange is a market for trading and settlement
of securities that have already been issued. It may have a physical location
like stick exchange and a trading floor. Since 1995, trading in securities is
screen based and Internet based trading has also made an appearance in
India. Secondary market consists of 22 stock exchanges the secondary
market provides a trading place for securities already issued, to be brought
and sold. It provides liquidity to the initial buyers in the primary market.

CAPITAL MARKET PARTICIPANTS

There are several major players in the primary market These includes the
merchant bankers, mutual funds, financial institutions, foreign institutional
investors (FIIs) and individual investors .In the secondary market , there are
the stock exchanges, stock brokers (who are members of stock
exchange),the mutual funds, financial institutions, foreign institutional
investors (FIIs), and individual investors.

MARKET REGULATION

It is important to ensure smooth working of capital market, as it is the arena

for the players associated with the economic growth of the country. Various
laws have been passed from time to time to meet this objective.
The financial market in India was highly segmented until the initiation of
reforms in 1992-93 on account of a variety of regulations and administered
prices including barriers to entry. The reform process was initiated with the
establishment of Securities and Exchange Board of India (SEBI).

NATIONAL STOCK EXCHANGE

The National Stock Exchange commenced its operations in 1994 as a first

step in reforming the securities market through improved technology and
introduction of best practices in management. It started with the concept of
an independent governing body without any broker representation thus
ensuring that the operator’s interests were not allowed to dominate the
governance of the exchange.
Before the NSE was set up, trading on stock exchange in India used to take
place through open outcry without the use of Information Technology for
immediate matching or recording of trades. This was time consuming and
inefficient. This practice of physical trading imposed limits on trading
volumes as well as the speed with which new information was incorporated
into prices. To obviate this, the NSE introduced screen based trading system
(SBTS).
BIBLIOGRAPHY
 BIBLIOGRAPHY
 BOOKS:-
“C.R Kothari” Research Methodology, Wishwa Parkashan, 2nd Edition ( pg.
39-67 & 117-157).
“S.P Gupta” .Statistical Methods, 30th edition, “Sultan Chand &
. . Sons” (Page no .378-418)
“Hooda R.P”, Statistics for Business and Economics, 10th Edition

 WEBSITES:-
http://www.icicibank.com/pfsuser/aboutus/overview/overview.htm
http://www.hdfcbank.com/aboutus/general/default.htm
http://www.utibank.com/Banking/bank.asp
http://www.centurionbop.co.in/site/aboutus.html
http://www.kotak.com/Kotak_GroupSite/aboutus/default.htm
http://www.indiainfoline.com
http://www.5paisa.com

 JOURNALS & MAGZINES:-

SEBI Bulletin, August 2006, Volume 4
Economic Survey 2005-06
Marketing Research
RBI Bulletin

 OTHER REFRENCES:-
Books of NSDL (Operations Module)