INTRODUCTION

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:

OBJECTIVES OF THE PROJECT

To find different investment avenues available in India.

To find out how the investors get information about the various financial instrument
and how he invest (his own or through broker?).

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

To provide post investment steps to customers.

To find that how customer are looking for long term investment or short term investing
opportunities.

To give a recommendation to the investors when they plan to invest.

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 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 the requirement of the different categories
of customers is

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.

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 LIMITATIONS OF THE STUDY

The project is based upon various financial instruments 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 them can affect the
validity of responses.

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

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.

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MY WORK IN EDELWEISS 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 investments 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 EDELWEISS
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:

Primary Data : Questionnaire, visiting organization.

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

Sample Size : 100.

Sampling technique:Random sampling.

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SAMPLING METHODOLOGY

Sampling Technique: 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 Edelweiss 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 Employed and existing
customers of Edelweiss Stock broking Ltd

Sampling Area:

The area of the research was Hyderabad & secunderabad.

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.

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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.

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 EDELWEISS AS AN ORGANIZATION

Edelweiss, a rare flower found in Switzerland. You will discover in our identity: A
graphic flower that represents ideas. Around it, the protective arms of the letter ‘e’: We
believe ideas create wealth, but values protect it.

It is the practice of this core thought that has led to Edelweiss becoming one of the
leading financial services company in India. Its current businesses include investment
banking, securities broking, and investment management. We provide a wide range of
services to corporations, institutional investors and high net-worth individuals.

The core inspiring thought of ‘ideas creating wealth and values protecting it’ is
translated into an approach that is led by intrapreneurship and creativity and protected
by intellectual rigour, research and analysis.

Business Principles:

Ideas create, values protect’ is how we define what Edelweiss believes in. But when we
say ‘values protect’ what do we mean? Here’s a handy guide to the values and
principles we will live by and live up to.

We will be a Thinking Organization. We will constantly bring ‘thought’ to everything

we do. Our clients’ and our own success depends on our ability to use greater ideation
and more imagination in our approach.

We will be Fair to our clients, our employees and all stake holders. We want our clients
and our employees to be ‘richer’ for their relationship with us.

We will take care of our People seriously. Our policies – in spirit and in letter – will
ensure transparency and equal opportunity for all. We will go beyond the normal goals
of attracting, recruiting, retaining and rewarding fine talent: We will ensure that every
individual in Edelweiss has an opportunity to achieve their fullest potential.

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We will operate as a Partnership, internally and externally. Though individuals are very
often brilliant, we believe teamwork and collaboration will always ensure a better and
more balanced organization. We will also treat our clients as partners and show them
the same respect and consideration that we would toward our internal team members.

We will focus on the Long Term. Though the world will change a lot in the coming
years and our assumptions for the future may not hold up, we will reflect on the long-
term implications of our actions. Even when making short-term decisions we will be
aware of the long-term implications.

We will focus on Growth for our clients, employees and shareholders.

Our Reputation and image is more important than any financial reward. Reputation is
hard to build and even harder to rebuild. Reputation will be impacted by our ability to
think for our clients, maintain confidentiality and by our adherence to our value system.

We will Obey and Comply with the rules of the land. We will maintain the highest
standard of integrity and honesty. When we are unclear we will seek clarifications.

We will respect Risk. Our business is going to be a constant challenge of balancing risk
and reward. Our ability to constantly keep one eye on risk will guide us through this
fine balance.

Our Financial Capital is a critical resource for growth. We will endeavour to grow,
protect, and use our financial capital wisely.

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Approach:

Client Focus

Edelweiss is driven by the emphasis we place on building long-term relationships with

our clients. We work closely with our clients to equip them with the ability to address
large, fast-growing market opportunities. Our emphasis on long-term relationships also
means that we have a significant ongoing involvement with almost all of the clients that
we work with.

Execution Orientation

We focus obsessively on delivering high quality execution through our experienced

team of professionals. Each team is led by senior personnel and is highly research and
ideas driven. We place strong emphasis on confidentiality and integrity in a sensitive
business environment.

Culture

Edelweiss fosters a culture that is entrepreneurial and results-driven and that

emphasizes teamwork and intellectual rigour. Our team is encouraged to display higher
levels of initiative, drive, and hunger for learning and taking on additional
responsibility.

Professional Integrity

We place a strong emphasis on confidentiality, honesty and integrity in our business

dealings. We expect our people to maintain high ethical standards, both in their
professional and personal lives. We strive to be fair in all our dealings. We respect our
competitors.

Research Driven

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All our businesses are built on a research and analytics foundation. Our understanding
of underlying market trends and strong analytical expertise has resulted in a
demonstrated ability to identify emerging trends and themes early. We seek to provide
the highest quality research and investment opinions to our clients.

Corporate Social Responsibility:

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At Edelweiss, Corporate Social Responsibility is part of our DNA and we focus on
initiatives that help to build a better, more equitable and sustainable society. For us,
CSR means giving back to society – beyond the call of business.

The idea of EdelGive was conceived to provide strategic direction to the philanthropic
activities of Edelweiss and its employees. Having worked with several talented and
successful entrepreneurs in the for-profit world, our approach to philanthropy is to help
create stronger and more sustainable organizations in the social sector through a
venture capital approach. Advice and high quality engagement on key organizational
and managerial issues is the fulcrum of our work and we believe, will help multiply
significantly over time, the impact of our grant-making.

EdelGive Foundation is the strategic philanthropic arm of the Edelweiss Group, one of
India’s leading financial services firms. We seek to enrich and broaden the impact of

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the entrepreneurial activities of nonprofits in India through leveraging Edelweiss’
human, financial and intellectual resources. Our investments in nonprofits, which are
evaluated through an intensive due-diligence process, are in the form of financial
support and, more importantly, capacity building support.

Investment Banking
Our Investment Banking business is dedicated to providing corporations, entrepreneurs
and investors, the highest quality independent financial advice and transaction
execution. Our professionals offer a full range of services and transaction expertise,
including private placements of equity, capital raising services in public markets,
mezzanine and convertible debt, mergers and acquisition and restructuring advisory
services. We have a track record of successfully closing more than 100 transactions to
date.
Our focused effort and research-driven approach enable our
professionals to be among the most knowledgeable and best in the business. Our
business has been built on strong relationships, innovation, and uncompromising ethical
standards. We aim to create significant value for entrepreneurs and mature companies
by helping them execute the right capitalization strategy.

Institutional Equities
Edelweiss Securities Ltd., a subsidiary of Edelweiss Capital Ltd., is the equities arm of
the Edelweiss Group. The company is a corporate member of both The Bombay Stock
Exchange and The National Stock Exchange of India Limited, providing equity broking
and research services, as well as marketing of equity related products, including
IPOs/FCCBs, to domestic and foreign institutional investors.

In our approach lies our difference. In a short span of six years, Edelweiss Capital’s
Institutional Equities Business (IE) has become one of the top five domestic brokerage

12
houses and top three derivatives desks. We are the only brokerage on the Street with a
quant desk that provides a wide product range, servicing all investor categories. Our
innovative mindset, unparalleled research, agile sales teams, and intensive execution
systems have enabled us to relentlessly service our clients in newer and different ways.

Asset Management

Edelweiss Asset Management offers a range of investment products and advisory

services across the risk return spectrum to individual and institutional investors. Our
close focus on client requirements is our inspiration in designing products which offer
the best opportunity for asset growth with a constant focus on risk and preservation of
capital.

Over the past 7 years we have significantly strengthened our equity product offerings to
cover the entire gamut of products. We have developed significant expertise in
providing advisory services in the alternative investments space through a deep
knowledge of non traditional asset classes such as derivatives.

Our products are designed to provide our clients with superior performance through
market cycles by virtue of our deep understanding of the equities markets and our
analytical approach to risks and return.

Wealth Management

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It is a specialized profession where our experts combine their efforts to meet the wealth
planning, investment, and financial management needs of individuals, families, family
offices, or corporates.

Edelweiss Wealth Management takes one step closer to you, by providing an "all-in-
one approach”.

Advice on asset allocation and thereby creating customized financial solutions for
HNWIs, NRIs, Trusts and Corporates

We offer advisory services on Structured Products, Portfolio Management, Mutual

Funds, Insurance, Derivative Strategies, Direct Equity, IPOs, Real Estate Funds and Art
Funds.
Based on our holistic investment approach we advise you, using a mix of asset classes
& innovative products.

A Dedicated Edelweiss Wealth Manager (EWM) working for You

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Private Client Brokerage

The Private Client Services Group at Edelweiss is focused on providing products,

strategies and services to High Networth Individuals and Corporate Clients. We have
geographic reach through our Branches, Channel Partners & Investment Consultants in
over 19 locations in India. The PCG team has highly trained equity professionals, who
act as your Equity Advisor. Our ESL Equity Advisor proactively helps you take
informed investment decisions and build a healthy portfolio.

Our main objective is to provide clients with all the tools and services they need to
reduce the administrative burdens of managing money and focus on what you do best -
maximizing your trading performance, building your business, and attracting new
sources of capital.

Our investment philosophy is rooted in the following :

• Capital preservation is key - Capital gains follow from a well-thought out investment
strategy.
• Invest in stocks with a long term view.
• Use a combination of top-down and bottom-up approach to arrive at a basket of
investment worthy stocks
• Invest on the basis of fundamental analysis of companies taking into account market
sentiments.
• Maintain discipline in booking profits and use index futures to manage short term
volatility.

Wholesale Financing

Edelweiss Financing understands your needs and helps you meet liquidity
requirements. We offer various products and services to individuals and corporates with
a close focus on client requirements

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 Over a period of time we have been offering short term loans
against securities and/or to buy new securities. We also provide finance for investment
in primary market issues. We help promoters by financing against their share holding to
meet their business requirements, expansion of businesses and for diversification of the
lines of business.

We possess expertise in financing short and long term loan facility, risk analysis,
transfer and assessment besides a broad spectrum of services. The company is
headquartered in Mumbai and our network of branches across India enables us to
service you across locations.

Client Advisory Services

At Edelweiss Client Advisory Services, our team is driven not just by the quality of our
ideas, but also professional ethics and integrity. We take pride in our philosophy of
offering advice which is in the best interest of our clients. Our emphasis on building
long term relationship ensures that we work closely with our clients empowering them
to gain from market opportunities through our online portal www.edelweiss.in

www.edelweiss.in is a product that offers a unique online investment experience that is

intuitive, information rich and a hassle-free way to trade online. It defines the next level
in online trading technology. It enables intelligent investing with market strategies
custom suited to the client’s investment profile and current portfolio.

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 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.

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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

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 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.

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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.

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 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

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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:-

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 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.

23
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:-

24
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:-

25
 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: -

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 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,

27
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.

28
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

29
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

30
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

31
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.

EQUITY SHARES

32
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

33
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:-

34
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

35
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

36
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.

37
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.

38
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.

39
 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.

40
 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

41
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.

42
• 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.

43
 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:

44
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 3 rd 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

45
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.

46
• 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.

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

47
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

48
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.

49
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

50
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

51
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

52
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]

53
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:

54
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.

55
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.

56
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).
57
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.

58
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.

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.

59
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

60
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

61
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.

62
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

63
• Silver

• Sugar

• Wheat

• Zeera

• Guar

64
  Do you know about the following financial instruments?

120

100

80

60 YES
40 NO

20

0
EQUITY MUTUAL BONDS INSURANCE FIXED DEPOSIT
SHARES FUNDS

1 00

80

60 YES
NO
40
Column1
20

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

65
 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
20 MODERATE
10 LESS PREFERRED
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.

66
 What is your age?

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?

Out of the respondents 50% were of the opinion that return and safety are the main
reasons behind their investment decisions .

67
 On what basis you invest in any particular financial instrument?

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?

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

68
 What is your annual income?

15
% 58%

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?

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

69
 How long do you prefer to keep your money invested

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?

70
 CONCLUSION 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

71
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

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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.

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 BIBILOGRAPHY

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

Edelweiss Finapolis

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