Professional Documents
Culture Documents
Training Undertaken at
ICICI Securities Ltd
Titled
(2009-2011)
Dated :
Niyaz Syeg
Regional
Production Manager
ICICI
Securities Ltd
PREFACE
Practical training is one of the major components for any professional course like M.B.A. the
real place where a professional person faces a problem in a field. It was a good exposure for
me to undergo training in a highly esteemed organization like ICICI Direct Ltd. where I got to
enhance my knowledge and experience with respect to Study of the Emerging Investment
Products and its scope in the Indian Financial Markets.
I was able to get familiarized with the corporate environment, team support and management
operations in working out the operations successfully for the achievement of the end objectives
of the organization as a whole.
Thus I would say that this training was beneficial, educative and good exposure to me, which
will certainly help me in my near future.
Acknowledgement
I express my sincere thanks to my project guide, Mr. Niyaz Syeg, Regional Production
Manager, ICICI Securities Limited. , for guiding me right form the inceptions till the successful
completion of the project. I sincerely acknowledge him for extending their valuable guidance,
support for literature, critical reviews of project and the report and above all the moral support
he had provided to me with all stages of this project. I would also like to thank the supporting
staff of the ICICI Direct. ,for their help and cooperation throughout our project.
(Signature of Student)
RICHA SINGH
TABLE OF CONTENTS
Particulars
1. Executive summary
2. Introduction to the Industry
3. Introduction to the Organization
4. Introduction to the project
a. Indian market growth
b. RBI and SEBI
c. Indian financial market
d. Investment products
e. Types of Risk associated with the Investments
f. Investment Strategies
g. An Analytical Introduction to Indian Financial System and Reforms
h. Market needs
5. Research Methodology
0 5.1 Title of the Study
1 5.2 Duration of the Project
2 5.3 Objective of Study
3 5.4 Type of Research
4 5.5 Sample Size and method of selecting sample
5 5.6 Scope of Study
6 5.7 Limitation of Study
6. Survey findings
1. Brief details
2. Questionnaire
3. Analysis of questionnaire
4. Common investment mistakes
7. Conclusion
9. Bibliography
EXECUTIVE SUMMARY
A financial market is a mechanism that allows people to easily buy and sell (trade) financial
securities (such as stocks and bonds), commodities (such as precious metals or agricultural
goods), and other fungible items of value at low transaction costs and at prices that reflect the
efficient market hypothesis.
Financial markets have evolved significantly over several hundred years and are undergoing
constant innovation to improve liquidity
The Indian financial market has also grown substantially. The Indian stock
markets are now amongst the best in the world in terms of modernizations and the technology.
India was among the few countries, which was not badly effected by the contagion effects of
the Asian crisis of 1997. Policy makers attribute this to the slow and cautious pace of capital
account liberalization
Today-- with the 'feel good' factor about India in the global arena rising,
increased confidence of the investors in the Indian market, Sensex looking more attractive than
ever before, foreign exchange reserves at an all-time high of more than $140 billion -- is the
most vulnerable period for the regulators of the Indian financial sector, particularly SEBI and
RBI
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The financial markets can be divided into different subtypes:
1.Capital markets which consist of: Stock markets, which provide financing through the
issuance of shares or common stock, and enable the subsequent trading thereof.
2. Bond markets, which provide financing through the issuance of Bonds, and enable the
subsequent trading thereof.
4. Money markets, which provide short term debt financing and investment.
The capital markets consist of primary markets and secondary markets. Newly formed (issued)
securities are bought or sold in primary markets. Secondary markets allow investors to sell
securities that they hold or buy existing securities.
ICICI Securities Limited . amongst the leading Brokerage Houses and the value based
financial services which make it preferred service provider. As India's fastest growing financial
services conglomerate, with deep moorings in the Indian economy for over five decades, ICICI
Group of companies have endeavoured to contribute to address the challenges posed to the
community in multiple ways.
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The ICICI group has following companies which include: ICICI Bank , ICICI Prudential Life
Insurance Company , ICICI Securities Limited , ICICI Securities Primary Dealership Limited ,
ICICI Lombard General Insurance Company , ICICI Prudential Asset Management Company ,
ICICI Venture. .
It provides Prime brokerage services in the area of: Equity, Commodities,
Derivatives Depository services, IPO Underwritings, Mutual Fund Distribution, Insurance
product distribution, The company also provides investment management services like:
Portfolio Management Services, Portfolio Advisory Services
My project will be focusing on the new areas of investment available to investors and how their
behavior is changing. They are now leaving behind the traditional approach of investment like
fixed deposits, gold, post office schemes, bank deposits etc. Investors are now looking towards
new diversification of their wealth by making investment in mutual funds, capital market,
derivatives, insurance, ETF(Exchange traded funds) etc. Like most developed and developing
countries Indian investors are searching for new investment avenues.
Mutual funds have become one of the largest financial intermediaries in the leading
world economies. Every person has his/her own set of plans for savings to meet any financial
adversity in future that suddenly occurs and to be a market leader the company has to be
aware of its competitors and investors behavior as the competition is very high..
A mutual fund is a form of collective investment that pools money from many
investors and invests their money in stocks, bonds, short-term money market instruments,
and/or other securities. In a mutual fund, the fund manager trades the fund's underlying
securities, realizing capital gains or losses, and collects the dividend or interest income. The
investment proceeds are then passed along to the individual investors.
Similarly there are various other investment products in the Indian Financial
Market such as fixed income securities, bond ,equity shares, public deposits, commercial
paper, certificate of deposits etc. of which I will be discussing in the report. Many individuals
find investments to be fascinating because they can actively participate in the decision making
process and see the results of their choices. Not all investment will be profitable as investment
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investor will not always make the correct investment decision over the period of years,
however you should earn a positive return on a diversified portfolio. In addition there is a thrill
from the major success, along with the agony associated with the stock that dramatically rose
after you sold or did not buy. Both the big fish you catch and the big fish that get away can
make wonderful stories.
Investment is not a game but a serious subject that can have a major effect on
the investor’s future well being. Virtually everyone makes investment. Even if the individual
does not select specific assets such as stock, investment are still made through participation in
pension plans, and employee saving program or through purchase of life insurance or a home.
Each of these investments has a common characteristic such as potential returns and the risk
you must bear.
The future is uncertain, and you must determine how much risk you are willing to bear since
higher return is associated with accepting more risk. The individual should start by specifying
investment goals. Once these goals are established, the individual should be aware of the
mechanics of investing and the environment in which investment decisions are made. These
include the processes by which securities are issued and subsequently bought and sold, the
regulations and tax laws that have been enacted by various levels of government, and the
sources of information concerning investment that are available to the individual.
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Introduction to the Industry
ICICI Bank India is the largest private sector bank. Its banking products and financial services
are some of the superior ones. The reach and market of ICICI Bank is unmatched in India as
yet. It offers a countrywide network of 950 branches and 35,00 ATM's reaching out to your
doorstep.
Snapshot
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K. V. Kamath
Chanda Kochhar
V. Vaidyanathan
K. Ramkumar
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Executive Director Executive Director
Sonjoy Chatterjee
Executive Director
HISTORY:-
# Founded by the Government of India in the 1960's, it was one of the three financial
institutions set up to finance large industrial projects
# Earlier known as Industrial Credit and Investment Corporation of India, it did not entertain
retail customers and was thus not a bank in the literal sense.
# It was in the 1990's that a subsidiary was set up in the name of ICICI Bank to take up retail
banking services including deposits, credit cards, loans etc. In 2002, the ICICI Bank was
merged back with the ICICI and the result was the ICICI Bank Limited operational now
And the rest as they say is history not exactly the above-mentioned one. ICICI is a now
household name synonym to superior banking services. It was also the first of the leading
banks to set up a nation wide network of ATM's that has multiplied exponentially making the
bank more accessible to its dear customers. A look at the annual report establishes the fact
that ICICI Bank is the second largest amongst the other Indian Banks. The total assets as
measured till Mar'07 are US $ 79 billion. The local Stock Exchange Listings include:
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The overseas operations of ICICI Bank were set up in 2002. Today it boasts of wholly owned
subsidiaries and offices in 18 countries including US, UK, Canada and Russia. The American
Depository Receipts or ARD's enjoy listings in the New York Stock Exchange (NYSE). The
company profile shows an increasing number of satisfied retail and corporate customers
dedicating their loyalty to the bank. They also offer Internet and Mobile Banking and online
customer services facilities. An ATM and Branch Locator is available online on the official
ICICI Bank Website.
The Banking Services Portfolio can be broadly classified into three categories:
# Personal Banking
# Corporate Banking
# NRI Banking
Deposits: deposits into savings account, fixed deposits, security deposits and recurring
deposits.
Loans: home loans, car loans, personal loans, loans against property, gold and securities
besides many other special financial assistances for rural and industrial use.
Investments: bonds, mutual funds, Senior citizens savings and Pure Gold.
Insurance: home, vehicle and health insurance.
Foreign Exchange Services
Demat And Credit Services
Wealth Management
Private Baking
Online Banking Services
The NRI Banking Services were set up world over to accumulate the funds for the rural
development. It became so popular that it has become one of the prime categories in banking
services. These include:
The Customer Service of ICICI Bank is handled by the BPO's working 24x7. ICICI Bank
believes in complete customer satisfaction and has employed many contact methods in case
any one wants to reach them. The major Indian cities like Delhi, Bangalore, Hyderabad,
Chennai, Mumbai and Pune boast of numerous branches in every corner of the city. One can
visit their help desk at every branch or drop in a note in the suggestion boxes set-up in every
ATM or email them or even call their customer care executives working 24x7.
Contact details:
Phone: 91-11- 41718000, 91-098181-78000
Website:http://www.icicibank.com
Product Portfolio
Banking
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• Personal Banking
o Savings & Deposits
o Loans
o Cards
o Wealth Management
• Global Private Clients
• Corporate Banking
o Transaction Banking
o Treasury Banking
o Investment Banking
o Capital Markets
o Custodial Services
o Rural & Agri Banking
o Structured Finance
o Technology Finance
• Business Banking
o Current Account
o Business Loans
o Forex
o Trade
o Cash Management Services
• NRI Banking
o Money Transfer
o Bank Accounts
o Investment
o Property Solutions
o Insurance
o Loans
• Securities
o Corporate Finance
o Institutional Equities
o Institutional Research
o Retail Equities
o ICICI Direct Financial Superstore
o Retail Research
o Active Trader Services
• Mutual Fund
o Our Funds
o Performance Analyser
o Systematic Investing
o Compare Schemes
Group Philosophy
We seek to partner India's growth and globalisation through delivery of world-class financial
services across all cross-sections of society.
As India's fastest growing financial services conglomerate, with deep moorings in the Indian
economy for over five decades, ICICI Group of companies have endeavoured to contribute to
address the challenges posed to the community in multiple ways.
AWARDS
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The ICICI Group Representation
ICICI Bank also has banking subsidiaries in UK, Canada and Russia
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ICICI Group offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialised group
companies, subsidiaries and affiliates in the areas of personal banking, investment banking,
life and general insurance, venture capital and asset management. With a strong customer
focus, the ICICI Group Companies have maintained and enhanced their leadership position in
their respective sectors.
ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95 billion (US$ 100
billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the year ended March 31,
2008. ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in
terms of free float market capitalisation*. The Bank has a network of about 1,308 branches and
3,950 ATMs in India and presence in 18 countries.
ICICI Prudential Life Insurance Company is a 74:26 joint venture with Prudential plc (UK). It
is the largest private sector life insurance company offering a comprehensive suite of life,
health and pensions products. It is also the pioneer in launching innovative health care
products like Diabetes Care and Cancer Care. The company operates on a multi-channel
platform and has a distribution strength of over 2,90,000 financial advisors operating from 1956
branches spread across 1669 locations across the country. In addition to the agency force, it
also has tie-ups with various banks, corporate agents and brokers. In fiscal 2008, ICICI
Prudential attained a market share of 12.7% with new business weighted premium growth of
68.3% to Rs. 66.84 billion and held assets of Rs. 285.78 billion at March 31, 2008.
ICICI Lombard General Insurance Company, a joint venture with the Canada based Fairfax
Financial Holdings, is the largest private sector general insurance company. It has a
comprehensive product portfolio catering to all corporate and retail insurance needs and is
present in over 200 locations across the country. ICICI Lombard General Insurance has
achieved a market share of 29.8% among private sector general insurance companies and an
overall market share of 11.9% during fiscal 2008. The gross return premium grew by 11.4%
from Rs. 30.3 billion in fiscal 2007 to Rs. 33.45 billion in fiscal 2008.
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ICICI Securities Ltd is the largest equity house in the country providing end-to-end solutions
(including web-based services) through the largest non-banking distribution channel so as to
fulfill all the diverse needs of retail and corporate customers. ICICI Securities (I-Sec) has a
dominant position in its core segments of its operations - Corporate Finance including Equity
Capital Markets Advisory Services, Institutional Equities, Retail and Financial Product
Distribution.
ICICI Securities Primary Dealership is the largest primary dealer in Government securities.
In fiscal 2008, it achieved a profit after tax of Rs.1.40 billion.
ICICI Prudential Asset Management is the second largest mutual fund with asset under
management of Rs. 547.74 billion and a market share of 10.2% as on March 31, 2008. The
Company manages a comprehensive range of mutual fund schemes and portfolio
management services to meet the varying investment needs of its investors through 235
branches spread across the country.
Incorporated in 1987, ICICI Venture is the oldest and the largest private equity firm in India.
The funds under management of ICICI Venture have increased at a 5 year CAGR of 49% to
Rs.95.50 billion as on March 31, 2008.
*Free float holding excludes all promoter holdings, strategic investments and cross holdings
among public sector entities.
With a full-service portfolio, a roster of blue-chip clients and performance second to none, we
have a formidable reputation within the industry.
Today ICICI Securities is among the leading Financial Institutions both on the institutional as
well as retail side.
ICICI Securities Inc., the stepdown wholly owned US subsidiary of the company is a member
of the National Association of Securities Dealers, Inc. (NASD). As a result of this membership,
ICICI Securities Inc. can engage in permitted activities in the U.S. securities markets. These
activities include Dealing in Securities and Corporate Advisory Services in the United States
and providing research and investment advice to US investors.
ICICI Securities Inc. is also registered with the Financial Services Authority, UK (FSA) and the
Monetary Authority of Singapore (MAS).
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Product Portfolio
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Products and Services
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Awards & Recognition
Institutional
• ICICI Securities is awarded as the Best Investment Bank 2008 by Global Finance
Magazine
• The Corporate Finance group also was awarded a runner-up Best Merchant Banker by
Outlook Money in 2007.
• ICICI Securities (I-Sec) topped the Prime Database League Tables 2007 for money
raised through IPOs/FPOs.
• The equities team was adjudged the 'Best Indian Brokerage House-2003' by Asiamoney.
Retail
• ICICIdirect, the neighborhood financial superstore won the prestigious Franchise India
`Service Retailer of the Year 2008 award.
• ICICIdirect wins the prestigious Outlook Money - India's Best e-Brokerage House for
2008.
• ICICIdirect been winning the prestigious Outlook Money - India's Best e-Brokerage
House for 2003-2004, 2004-2005, 2006-2007 and 2007-2008.
• ICICIdirect has also won the CNBC AWAAZ Consumer Award for the Most Preferred
Brand of Financial Advisory Services.
• Best Broker - Web 18 Genius of the Web Awards 2007
Technology
• Indian Bank's Association Business Technology Awards for Best Online Trading
Platform in 2006 and 2007
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ICICI Direct
ICICI Direct (or ICICIDirect.com) is stock trading company of ICICI Bank. Along with stock
trading and trading in derivatives in BSE and NSE, it also provides facility to invest in IPOs,
Mutual Funds and Bonds. Trading is available in BSE and NSE.
ICICIdirect.com is the online share trading service by ICICI Bank Ltd. Through ICICI Direct
Account; you can trade in share markets, commodities, and invest in mutual funds and other
products and prepare charts and research to create an investment portfolio for your personal
finances.
ICICI Direct helps you in your investment planning that helps you safeguard your investment
returns from the inflation rates. The experts at ICICI Direct help you plan your retirement so
that you retire in glory and never feel burdened financially. ICICI offers free demat trading
account that helps you in secure trading in stocks and bonds online. ICICI Mutual Funds and
tax saving plans help you in saving a major chunk of your hard earned money.
Icicidirect.com offers trading in shares that can be of the form cash trading, margin trading,
spot trading and BTST (Buy Today Sell Tomorrow) facility along with trading on NSE or BSE or
through market orders. ICICI Securities Limited is also a syndicate member for the Reliance
Power IPO Issue that is available through icicidirect.com. A new introduction to online trading
is ICICI Direct Overseas Trading available on their website.
Key elements that place ICICI Direct Ltd. amongst the leading Brokerage Houses and
makes it the preferred service provider for value based financial services are:
• Integrated and innovative use of Technology enabling clients to trade offline, online
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• Strategic tie-ups with latest technology partners to facilitate trading access and direct
processing across more than 700 Branches spread over 300 cities
A product for every need: ICICIdirect.com is the most comprehensive website, which allows
you to invest in Shares, Mutual funds, Derivatives (Futures and Options) and other financial
products. Simply put we offer you a product for every investment need of yours.
1. Trading in shares:
Cash Trading : This is a delivery based trading system, which is generally done with the
intention of taking delivery of shares or monies.
Margin Trading : You can also do an intra-settlement trading upto 3 to 4 times your available
funds, wherein you take long buy/ short sell positions in stocks with the intention of squaring off
the position within the same day settlement cycle.
Spot Trading : This facility can be used only for selling your demat stocks which are already
existing in your demat account. When you are looking at an immediate liquidity option, 'Cash
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on Spot' may work the best for you, On selling shares through "cash on spot", money is
credited to your bank a/c the same evening & not on the exchange payout date. This money
can then be withdrawn from any of the ICICIBank ATMs.
BTST : Buy Today Sell Tomorrow (BTST) is a facility that allows you to sell shares even on 1st
and 2nd day after the buy order date, without you having to wait for the receipt of shares into
your demat account.
CallNTrade® : CallNTrade® allows you to call on a local number in your city & trade on the
telephone through our Customer Service Executives. This facility is currently available in over
11 major states across India.
Trading on NSE/BSE : Through ICICIdirect.com, you can trade on NSE as well as BSE.
Market Order : You could trade by placing market orders during market hours that allows you
to trade at the best obtainable price in the market at the time of execution of the order.
Limit Order : Allows you to place a buy/sell order at a price defined by you. The execution can
happen at a price more favorable than the price, which is defined by you, limit orders can be
placed by you during holidays & non market hours too.
2. TRADE IN DERIVATIVES:
FUTURES
Through ICICIdirect.com, you can now trade in index and stock futures on the NSE. In futures
trading, you take buy/sell positions in index or stock(s) contracts having a longer contract
period of up to 3 months.
Trading in FUTURES is simple! If, during the course of the contract life, the price moves in
your favour (i.e. rises in case you have a buy position or falls in case you have a sell position),
you make a profit.
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Presently only selected stocks, which meet the criteria on liquidity and volume, have been
enabled for futures trading.
Calculate Index and Know your Margin are tools to help you in calculating your margin
requirements and also the index & stock price movements. The ICICIDIRECT UNIVERSITY on
the HOME page is a comprehensive guide on futures and options trading.
OPTIONS
An option is a contract, which gives the buyer the right to buy or sell shares at a specific price,
on or before a specific date. For this, the buyer has to pay to the seller some money, which is
called premium. There is no obligation on the buyer to complete the transaction if the price is
not favorable to him.
To take the buy/sell position on index/stock options, you have to place certain % of order value
as margin. With options trading, you can leverage on your trading limit by taking buy/sell
positions much more than what you could have taken in cash segment.
The Buyer of a Call Option has the Right but not the Obligation to Purchase the Underlying
Asset at the specified strike price by paying a premium whereas the Seller of the Call has the
obligation of selling the Underlying Asset at the specified Strike price.
The Buyer of a Put Option has the Right but not the Obligation to Sell the Underlying Asset at
the specified strike price by paying a premium whereas the Seller of the Put has the obligation
of Buying the Underlying Asset at the specified Strike price.
By paying lesser amount of premium, you can create positions under OPTIONS and take
advantage of more trading opportunities.
ICICIdirect.com brings you the same convenience while investing in Mutual funds also - Hassle
free and Paperless Investing.
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With the inclusion of Fidelity MF, you can now invest on-line in 19 mutual Funds through
ICICIdirect.com. Prudential ICICI MF, JM MF, Alliance MF, Franklin Templeton MF, Sundaram
MF, Birla Sun Life MF, HDFC MF, Principal MF, UTI MF,Reliance MF,Kotak MF,Tata MF,DSP
Merrill Lynch MF, ING MF,CHOLA MF,Deutsche MF,HSBC MF and Standard Chartered MF
are the Mutual Funds available for investment. You can invest in mutual funds without the
hassles of filling application forms or any other paperwork. You need no signatures or proof of
identity for investing.
Once you place a request for investing in a particular fund, there are no manual processes
involved. Your bank funds are automatically debited or credited while simultaneously crediting
or debiting your unit holdings.
You also get control over your investments with online order confirmations and order status
tracking. Get to know the performance of your investments through online updation of MF
portfolio with current NAV.
Purchase: You may invest/purchase Prudential ICICI MF, JM MF, Alliance MF, Franklin
Templeton MF, Sundaram MF, Birla Sun Life MF, HDFC MF, Principal MF, UTI MF ,Standard
Chartered MF ,Reliance MF,Kotak MF, Tata MF,DSP merrill lynch MF,ING MF,CHOLA
MF,Deutsche MF,HSBC MF and Fidelity MF without the hassles of filling application forms.
Switch: To suit your changing needs you may wish to shift monies between different schemes.
You can switch your monies online from one scheme to another in the same fund family
without any hassles.
Systematic Investment plans (SIP): SIP allows you to invest a certain sum of money over a
period of time periodically. Just fill in the investment amount, the period of investment and the
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frequency of investing and submit. ICICIdirect.com will do the rest for you automatically
investing periodically for you.
Systematic withdrawal plan: This allows you to withdraw a certain sum of money over a
period of time periodically.
Transfer-in: You can convert your existing Mutual funds into electronic mode through a
transfer-in request.
You could also invest in Initial Public Offers (IPOs) and Bonds online without going through the
hassles of filling ANY application form/ paperwork.
Get in-depth analyses of new IPOs issues (Initial Public Offerings) which are about to hit the
market and analysis on these. IPO calendar, recent IPO listings, prospectus/offer documents,
and IPO analysis are few of the features, which help you, keep on top of the IPO markets.
5. Overseas Trading:
6. Content Features:
There are a host of features on ICICIdirect.com that shall help you make informed investment
decisions.
We provide you with the indices of major world markets, nifty futures and ADR prices of
Indian scrips. Get daily share prices of all scrips, monthly and yearly high/lows etc through
Market Watch.
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Get breaking news from CNBC and Reuters. Catch a glimpse of News Headlines through our
scrolling Direct News Headlines.
Get a snapshot of the latest developments in the markets through the day using Market
Commentary. You can get weekly snapshots also. Use Pick of the week which focuses on
fundamental stocks with sound prospects.
Catch interviews, reactions and comments from industry leaders with CEO Call. Track the
movement of leading scrips within a sector across 12 sectors using Market@Desktop.
Equip yourself with our barometers. Market Barometer gives you in-depth information of the
weightages of shares on Nifty and Sensex. Get a glimpse of the performance of various
industry sectors through Industry Barometer.
Direct Technical Charts offer interactive charting with advanced indicators. Get a bird's eye
view of over 5000 companies at a single click using Company Snapshot. Glance through
analyst recommendations using Multex Global Estimates.
In case, you are not too comfortable with share trading, try our Learning Centre, which is a
tutorial on investments and My Research, that helps you to research a stock better.
7. Personal Finance:
Use our Personal Finance section and get hold of tools that can help you plan your
investments, retirement, tax etc. Analyse your risk profile through the Risk Analyzer and get a
suitable investment portfolio plan using Asset Allocator.
With 'ICICIdirect Customer Tools & Updates' you can trouble shoot all your problems online.
Address your trading queries on-line through "Easy Mail". You can view and change your
profile or password on-line through General Profile option.
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Get details of ICICI Centers, our sales and service offices, across India through branch
locator.
View your Account Statement and Bill Summary of your transactions online using bills &
accounts.
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Introduction to the Project
Financial Market
In economics, a financial market is a mechanism that allows people to easily buy and sell
(trade) financial securities (such as stocks and bonds), commodities (such as precious metals
or agricultural goods), and other fungible items of value at low transaction costs and at prices
that reflect the efficient market hypothesis.
Financial markets have evolved significantly over several hundred years and are undergoing
constant innovation to improve liquidity.
Both general markets (where many commodities are traded) and specialized markets where
only one commodity is traded) exist. Markets work by placing many interested sellers in one
"place", thus making them easier to find for prospective buyers. An economy which relies
primarily on interactions between buyers and sellers to allocate resources is known as a
market economy in contrast either to a command economy or to a non-market economy that is
based, such as a gift economy
1. Organizations that facilitate the trade in financial products. i.e. Stock exchanges facilitate the
trade in stocks, bonds and warrants.
2. The coming together of buyers and sellers to trade financial products. i.e. stocks and shares
are traded between buyers and sellers in a number of ways including: the use of stock
exchanges; directly between buyers and sellers etc.
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The financial markets can be divided into different subtypes:
• Money markets, which provide short term debt financing and investment.
• Derivatives market, which provide instruments for the management of financial risk.
The capital markets consist of primary markets and secondary markets. Newly formed
(issued) securities are bought or sold in primary markets. Secondary markets allow investors to
sell securities that they hold or buy existing securities.
India Market Growth over the years have attained a high benchmark to sustain her business
and competition with other nations. From the early 1990s, Indian market economy have been
following a liberalized policy, by reducing government restrictions on foreign trade and
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investment. The publicly owned industries are privatized and profit earning sectors like the
software and financial services, pharmaceutical, biotechnology, nanotechnology,
telecommunication, shipbuilding and aviation are now been opened to private and foreign
interests. India's GDP, currently more than 9%, makes it one of the fastest developing
economies in the world. Indian market growth ranks her in the tenth position in the world
economy.
The easing of restrictions in capacity expansion for incumbents, removal of price controls and
reduction in the corporate tax rate in the 1980s initiated the process of market growth in India
. India Market Growth got further accelerated with the economic liberalization of 1991 which
marked an end to the License Raj, thereby ending many public monopolies and allowing direct
foreign investment in many sectors. The public sector is involved with sectors like railways and
postal system which are considered either to be too important or not enough profitable to leave
to the market forces only.
Today the leading markets of India are the - Indian Bullion Market, Indian Car Market,
India Commodity Market, India Debt Market, India Design Market, Indian Equity Market,
Indian Food Market, India Financial Market, Indian Gold Market, India IT Market, India
Money Market, Indian Real Estate Market, Indian Retail Market, India Semiconductor
Market, Indian Stock Market, India Telecoms Market.
There's been an increase in the India Market Growth specially in the industries dealing with
manufacturing, construction, transport and communication, tourism, personal products, health
care, education and recreation, vehicle, telecommunications and software. According to the
Indian Finance Minister, P. Chidambaram, companies like General Motors Corp., Royal Dutch
Shell Plc. and the like have invested in about 3,000 new factories and other expansion projects
worth about more than twenty billion dollars in Indian market since 2004, in order to tide the
growing market demand.
To hold the India Market Growth rate steadily, the government need to follow certain policies
which would widen and broaden the scope for the growth of Indian markets in the near
future. these are:
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• Systematic reform Programme
• Promoting competition and higher corporate investment
• Investing in infrastructure, health care and education
The increase in India Market Growth is reflected in the actions of the government like
boosting productivity, reducing poverty and providing people with more sustainable lifestyles in
both the urban and rural sector.
The organized part of the Indian Financial System can be classified from the point of view
of the regulators as:
Regulatory Authorities
Regulator y Authorities
RBI SEBI
Commercia l Banks Primary Market
Forex Markets Secondary market
Financia l Institutions Derivatives Market
Primary Dealers
Financial Institutions may be of all India level like IDBI, IFCI, ICICI, NABARD or
sectoral financial institutions like, EXIM, TFCIL etc. IFCI was the first term lending
institution to be set up. IDBI is the apex developmen t financial institution set up to
provide funds for rapid industrializatio n in India. In order to boost the disbursemen t of
credit to the agriculture sector, Agriculture Refinance Corporation was set up by RBI
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to provide refinance to banks and institutions extending credit to the agriculture
sector.
The participants in Foreign exchange market include banks, financial institutions and
are regulated by RBI.
Primary dealers are registered participants of the wholesale debt market. They bid at
auctions for government debts, treasury bills , which are then retailed to banks and
financial institutions, whic h invest in these papers to maintain their Statutory Liquidity
Ratio (SLR).
40
“ INDIAN FINANCIAL MARKETS”
41
Spot Market Forward Market
Primary Market
The primary market is the place where the new offerings by companies
are made either as Initial Public Offer (IPO) or Rights Issue. IPOs are
offerings made by the companies for the first time while rights are
offerings made to the existing shareholders . Investors who prefer to
invest in the primary issues are called Stags.
Secondar y Market
Secondary market consists of stock exchanges where the buy orders
and sell orders are matched in the organised manner/ there are at
present 25 recognized stock exchanges in India and are governed by the
Securities Contracts (Regulation) Act
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(SCRA).
Derivatives Market
It is the market for the financial instrument, which derives their values from
the underlying assets like stock, commodity or currency. Derivatives’
trading has started with Index Futures, followed by Index Option and then
Stock Option as per the recommendation of the SEBI appointed L. C.
Gupta Commit- tee.
SEBI is authorized to promote and regulate SROs. SROs are practical and
efficient tool for regulating various kinds of participants in the market. They
have bylaws and code of conduct to bind their members.
Early Years
The equity brokerage industry in India is one of the oldest in the Asia region. India had
an active stock market for about 150 years that played a significant role in developing
risk markets as also promoting enterprise and supporting the growth of industry.
The roots of a stock market in India began in the 1860s during the American Civil War
that led to a sudden surge in the demand for cotton from India resulting in setting up of a
number of joint stock companies that issued securities to raise finance. This trend was
akin to the rapid growth of securities markets in Europe and the North America in the
background of expansion of railroads and exploration of natural resources and land
development.
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Historical records show that as early as 1864, there were about 1,000 brokers with the
stock markets functioning from three places in Mumbai; between 9 am to 7 pm at the
junction of Meadows Street and Rampart Row, from day break till 9 am and from 7 pm
to early hours of next morning at Bazargate.
Share prices rose sharply even at that time. A share of Colaba Land Company during
the boom period of the 1860s rose from Rs 10,000 at par to Rs 120,000 and that of
Backbay Shares went up from Rs 2,000 to Rs 54,000. Bombay, at that time, was a
major financial centre having housed 31 banks, 20 insurance companies and 62 joint
stock companies.
Reports on stock markets around that time indicate that an ordinary broker in 1864
earned about Rs 200 per day, a huge sum in those days. The boom period came to an
abrupt end in 1865. In Jul 1865, what was then used to be called the share mania
ended with burst of the stock market bubble. “Never I witnessed in any place a run so
widely distributed nor such distress followed so quickly on the heels of such prosperity”
thus wrote Richard Temple, who served as the Governor of Bombay at that time. An
interesting aspect is that despite the collapse of the stock market, most of the brokers
met their payment commitments.
In the aftermath of the crash, banks, on whose building steps share brokers used to
gather to seek stock tips and share news, disallowed them to gather there, thus forcing
them to find a place of their own, which later turned into the Dalal Street. A group of
about 300 brokers formed the stock exchange in Jul 1875, which led to the formation of
a trust in 1887 known as the “Native Share and Stock Brokers Association”.
A unique feature of the stock market development in India was that that it was entirely
driven by local enterprise, unlike the banks which during the pre-independence period
were owned and run by the British. Following the establishment of the first stock
exchange in Mumbai, other stock exchanges came into being in major cities in India,
namely Ahmedabad (1894), Calcutta (1908), Madras (1937), Uttar Pradesh and Nagpur
(1940) and Hyderabad (1944). The stock markets gained from surge and boom in
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several industries such as jute (1870s), tea (1880s and 1890s), coal (1904 and 1908)
etc, at different points of time.
A new phase in the Indian stock markets began in the 1970s, with the introduction of
Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the
multinational companies, which created a surge in retail investing. The early 1980s
witnessed another surge in stock markets when major companies such as Reliance
accessed equity markets for resource mobilisation that evinced huge interest from retail
investors.
A new set of economic and financial sector reforms that began in the early 1990s gave
further impetus to the growth of the stock markets in India. As a part of the reform
process, it became imperative to strengthen the role of the capital markets that could
play an important role in efficient mobilisation and allocation of financial resources to the
real economy. Towards this end, several measures were taken to streamline the
processes and systems including setting up an efficient market infrastructure to enable
Indian finance to grow further and mature. The importance of an efficient micro market
infrastructure came into focus following the incidence of market abuses in securities and
banking markets in 1991 and 2001 that led to extensive investigations by two respective
Joint Parliamentary Committees.
The Securities and Exchange Board of India (SEBI), which was set up in 1988 as an
administrative arrangement, was given statutory powers with the enactment of the SEBI
Act, 1992. The broad objectives of the SEBI include
• to protect the interests of the investors in securities
• to promote the development of securities markets and to regulate
the securities markets
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The scope and functioning of the SEBI has greatly expanded with the rapid growth of
securities markets in India in the last fifteen years.
Rapid Growth
The last decade has been exceptionally good for the stock markets in India. In the back
of wide ranging reforms in regulation and market practice as also the growing
participation of foreign institutional investment, stock markets in India have showed
47
phenomenal growth in the early 1990s. The stock market capitalization in mid-2007 is
nearly the same size as that of the gross domestic product as compared to about 25
percent of the latter in the early 2000s. Investor base continued to grow from domestic
and international markets. The value of share trading witnessed a sharp jump too.
Foreign institutional investment in Indian stock markets showed continuous rise
reaching about USD10 bn in each of these years between FY04 to FY06. Stock markets
became intensely technology and process driven, giving little scope for manual
intervention that has been the source of market abuse in the past. Electronic trading,
digital certification, straight through processing, electronic contract notes, online broking
have emerged as major trends in technology. Risk management became robust
reducing the recurrence of payment defaults. Product expansion took place in a speedy
manner. Indian equity markets now offer, in addition to trading in equities, opportunities
in trading of derivatives in futures and options in index and stocks. ETFs are showing
gradual growth. Within five years of introduction of derivatives, Indian stock markets
now are ranked first in stock futures and fourth in index futures. Indian stock markets
are transaction intensive and thus rank among the top five markets in this regard. Stock
exchange reforms brought in professional management separating conflicts of interest
between brokers as owners of the exchanges and traders/dealers. The demutualisation
and corporatisation of all stock exchanges is nearing completion and the boards of the
stock exchanges now have majority of independent directors. Foreign institutions took
stake in India’s two leading domestic stock exchanges. While NYSE Group led
consortium took stake in the National Stock Exchange, Deutsche Borse and Singapore
Stock Exchange bought equity in the Bombay Stock Exchange Ltd.
Investment Products
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Fixed Income
1. Yield to maturity.
3. Risk preference.
For fixed income securities interest is the major decisive factor. Credit rating of the
securities published periodically helps the investor in credit risk assessment.
• Government Securities:-
It includes T-Bills (364, 182, 91 & 14 days), Bonds issued by the Central
& State Government, State Financial Institutions, Municipal Bodies, Port
Trusts, and Electricity Bodies etc. T-Bills are discounted instruments and
these may be traded with a repurchase clause, called repos. Repos are
allowed in 364, 182 and 91 days T-Bills and the minimum repo term is 1
day. The banks purchase these securities; financial institutions and
Provident fund trust for their SLR requirements and are normally referred
to as gilt- edged securities.
• Bonds:-
It can be of many types like Regular Income, Infrastructure, Tax saving or
Deep Discount Bonds. These are investment products with fixed coupon
rates and a definite period after which they are redeemed. The bonds may
be regular income with the coupons being paid at fixed intervals or
cumulative in which interest is paid on redemption. Deep Discount bonds
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are one, which is issued at a discount at the face value, and the investor is
paid the face value at redemption.
• Debentures:-
It may be many types like, Fully convertible debentures (FCDs), Partly
convertible debentures (PCDs) and non-convertible debentures (NCDs).
FCDs are those whose face value is converted into fixed number of
equities at a fixed price. The price of each equity share is received by the
way of converting the face value of convertible securities i.e. the
debenture is called the conversion price and the number of equity shares
exchanable per unit of the convertible security i.e. debenture is called
conversion ratio.
• Public Deposits:
Corporates can raise funds from the public in the form of fixed deposits.
These deposits are unsecured and are mainly used for the working capital
requirements. These unsecured public deposits are governed by the
Companies (Acceptance of Deposits) Amendment Rules 1978. Under this
rule, public deposits can’t exceed 25% of the share capital and free
reserves and the maximum maturity period is 3 years while the minimum
is 6 months.
• Certificate of Deposits:
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These are short term funding instruments issued by banks and financial
institutions at a discount to the face value. Banks can issue CDs for
duration of less than 1 year while FIs can only issue this for more than 1
year. The issuing bank or financial institution can’t repurchase the
instruments. CDs have to be issued for a minimum of Rs. 5 lakhs with
multiples of Rs. 1 lakh thereafter. These are generally used by corporates
to meet their short-term requirements.
• Commercial Papers:
These represent short-term promissory notes issued by firms with a high
credit rating. The maturity of these varies from 15 days to 1 year, sold at a
discount to the face value and redeemed at the face value. CPs can be
issued by the companies having minimum net worth of Rs. 4 crores and
needs a mandatory credit rating of P2 (CRISIL), D2 (Duff & Phelps), PR2
(Credit Analysis & Research) and A2 (ICRA). The rating should not be
more than 2 months old. It can be issued for a minimum amount of Rs. 25
lakhs and more in multiples of Rs. 5 lakhs.
Equity Shares
An equity share in a company is a share in its ownership.
Equityshareholders collectively constitute the ownership of the company
and enjoy the fruits of the ownership like dividends and voting in the
meetings etc., but they are not liable for the debts of the company beyond
the value that has already been subscribed through the share capital.
However certain shares do not carry ownership privileges like voting etc.
these shares are preferential or non – voting shares. But preference
shareholders get assured dividends, if the company makes profit and they
would get back their money invested after a specified period of time.
Equity shareholders can only redeem their investment by selling the share
at the market price.
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Today choosing a best investment plan is difficult because there are so
many investment options available. These days we are getting more
money compared to last decades.
Stock Market
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Investing in share market is another investment option to get more returns.
But share market investment is volatile to market conditions. Before
investing you should have a thorough knowledge about its operation.
MUTUAL FUNDS
All mutual funds have management fees and some have additional fees
when shares are bought and sold. The prospectus must disclose all fees
and costs. Many mutual funds are part of a family of funds (i.e. issued by
the same mutual company). A financial service company may offer a
number of funds with different objectives and the investor may switch from
one fund to another within the same family at little or no expense.
The reason that mutual funds are so popular is that they offer the ability to
easily invest in increasingly more complicated financial markets. A large
part of the success of mutual funds is also the advantages they offer in
terms of diversification, professional management and liquidity.
Flexibility
Mutual Fund investments also offer you a lot of flexibility with features
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such as systematic investment plans, systematic withdrawal plans &
dividend reinvestment.
Affordability
They are available in units so this makes it very affordable. Because of the
large corpus, even a small investor can benefit from its investment
strategy.
Liquidity
In open ended schemes, you have the option of withdrawing or redeeming
your money at any point of time at the current NAV
Diversification
Risk is lowered with Mutual Funds as they invest across different
industries & stocks.
Professional Management
Expert Fund Managers of the Mutual Funds analyze all options based on
experience & research
Potential of return
The fund managers who take care of your Mutual Fund have access to
information and statistics from leading economists and analysts around
the world. Because of this, they are in a better position than individual
investors to identify opportunities for your investments to flourish.
Low Costs
The benefits of scale in brokerage, custodial and other fees translate into
lower costs for investors.
SAVINGS
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The rate of return and risk for savings accounts are often lower than for
other forms of investment. Saving are also usually more liquid; you may
quickly and easily convert your investments into cash. Interest bearing
checking and savings accounts are offered by banks and credit unions. It
pays to shop for the best rates, as interest rates, compounding
frequencies (how often interest is paid), and services vary widely.
CERTIFICATES OF DEPOSIT
Certificates of Deposit or CDs are purchased for specific amounts of
money at a fixed interest rate for a specific time. CDs are generally priced
in multiples of $1000. Usually, the longer the CD is held, the higher the
interest rate. If you cash in the CD before the specified time, you will have
to pay a penalty. CDs are also insured (up to $100,000) if the institution is
federally insured.
SAVINGS BONDS
Savings bonds are issued by the United States Treasury and come in two
variety. The Series EE and Series HH. EE bonds are available at most
banks. The minimum purchase is a $25 bond which will mature to pay $50
in eight to 12 years depending on the interest rate. The interest rate on the
bond is related to the market interest rate and there is a penalty for
cashing a bond in early.bonds are purchased from a Federal Reserve
Bank or through the Treasury at face value. They can be bought only by
trading in EE bonds or an old H bond. The HH bond matures in 10 years
with interest paid semi-annually.
Treasury Bonds are considered the safest bond investment. They are not
insured but are backed by the full faith and credit of the United States
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government. The US guarantees that the investor will receive full principal
amount upon maturity. There are no sales charges for Treasury bonds and
the interest they earn is exempt from state and local taxes and can be
deferred from federal income tax until the money is received.
GOVERNMENT SECURITIES
The United States government also issues debt securities to raise funds.
Other US securities (besides the savings bonds) include Treasury Bills
(Tbills) with up to one year maturities, Treasury Notes with up to 10 year
maturities, and other United States Agency bonds. T-bills are sold to
selected securities dealers by the Treasury at auction. Investors can buy
all three types, without paying commission, directly from a Federal
Reserve Bank, or from a dealer.
OTHER INVESTMENTS:
BONDS
Municipal Bonds are issued by states, cities, or certain local government
agencies. An important feature of these bonds is that the interest which a
bondholder receives is not subject to federal income tax. Also the interest
is exempt from state and local tax if the bondholder lives in the jurisdiction
of the issuer. Because of these tax advantages the interest rate is usually
lower than that paid on corporate bonds Municipal bonds are issued to
fund needed projects; such as bridges, schools, and new roads.
Corporate Bonds usually pay higher interest than government bonds but
they are somewhat riskier. If a corporation goes bankrupt, bondholders, as
creditors, are paid their money before stockholders. Corporate bonds are
either secured or unsecured. A secured bond is backed by specified
assets or collateral, while an unsecured bond is backed only by the faith
and credit of the corporation. Companies offering bonds to the public must
file a registration statement with the SEC.
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Why Bonds are resold on the market: Why would someone want to sell a
$1,000 bond for less than its full value? Suppose you buy a bond for
$1,000 that pays 10% interest and matures in ten years. Each year you
would receive $100. After a few years, lets say interests rates in general
rise to $15. Your $1000 investment could be paying $150 a year. You
want to sell the bond to reinvest as much of the $1000 as you can, but
who wants to pay $1000 for a bond only paying $100 a year when they
could pay $1,000 for a bond paying $150 a year. To sell your bond you
have to discount its price. On the other hand, if interest rates fall you
would be able to sell it for more than $1,000.
STOCKS
As already discussed, when you buy stock, you are becoming an owner of
the company. If the company does well, the value of your stock should go
up over time. If the company does not do well, the value of your
investment will decrease. Many companies distribute a portion of their
profits to shareholders as dividends. As owners, shareholders generally
have the right to vote on electing the board of directors and on certain
other matters of particular significance to the company.
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There are five basic categories of stock:
2. "Blue chip stocks" are issued by very solid and reliable companies
with long histories of consistent growth and stability. Blue chip stocks
usually pay small but regular dividends and maintain a fairly steady price.
Examples of Blue chip stocks include IBM, Exxon, Kodak, GE, and Sears.
5. "Defensive stocks" are the opposite of cyclical stock. they are issued
by companies producing staples such as food, beverages, drugs and
insurance and they usually maintain their value.
STOCK SPLITS
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When a company increase the amount of its shares it is said to split. A 2
for 1 split means that the company has doubled the amount of outstanding
shares. The sale price will decrease proportionally to the split so if a stock
holder held 100 share of stock for $40 per share, after the spit she would
have 200 shares at $20 a share. The stockholder's equity remains he
same. The stock split in intended to reward shareholders. By making the
company's stock less expensive, it is hoped to attract more investment,
thus leading to an increase in the price of its stock.
FUTURES
DERIVATIVES
LAND
The most common investment people hold is real estate (in the form of
home ownership). Over two-thirds of American's own their homes.
Generally, home ownership is a good investment, as real estate prices
generally rise. However, as the purchase of a home is usually the largest
single investment a person makes, if real estate prices fall owners may
have a hard time keeping up with their mortgages.
TANGIBLE ASSETS
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Assets that you can hold onto or touch are called tangible. They include
gold coins, and other collectible items like dolls, baseball cards, or stamps.
Generally collectibles pay no interest and may or may not increase in
value over the years. There is no regulated market for collectibles and
should be used for enjoyment rather than investment.
Silver
Silver as an investment:-
Silver, like other precious metals, may
be used as an investment. For more
than four thousand years, silver has
been regarded as a form of money
and store of value. However, since the
end of the silver standard, silver has
lost its role as legal tender in the
United States.
(A 500gm Silver Bullion Bar)
(It continued to be used in coinage until 1964, when the intrinsic value of
the silver approached to overtake the coins' face values.)
Silver price
The price of silver has been notoriously volatile as it can fluctuate between
industrial and store of value demands. At times this can cause wide
ranging valuations in the market, creating volatility.
Silver often tracks the gold price due to store of value demands, although
the ratio can vary. The gold/silver ratio is often analyzed by traders and
investors. Over most of the 19th century, the gold/silver ratio was fixed by
law in Europe and the United States at 1:15.5, which meant that one troy
60
ounce of gold would buy 15.5 ounces of silver. The average gold/silver
ratio during the 20th century, however, was 1:47.0
Bars
• 100 oz bars. – These bars weigh 6.8 pounds (3.11 kg), and are
among the most popular with retail investors. Popular brands are
Engelhard and Johnson Matthey. Those two brands cost a bit more,
usually about 40-50 cents per ounce above the spot price, but that price
may vary with market conditions.
• Odd weight retail bars. – These bars cost less, and generally have
a wider spread, due to the extra work it takes to calculate their value, and
extra risk due to the lack of good brand name.
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• 1 kilogram bars (32.15 oz)
Coins
Buying silver coins is another popular
method of physically holding silver.
One example is the 99.99% pure
Canadian Silver Maple Leaf. Coins
may be minted as either fine silver
or junk silver, the latter being older
coins with a smaller percentage of
silver. For example, U.S. pre-1965
half dollars, dimes, and quarters are (American Silver Eagle Bullion coin)
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Rounds
Some hard money enthusiatists use .999 fine silver rounds as a store of value. A cross
between bars and coins, silver rounds are produced by a huge array of mints, generally
contain an ounce of silver in the shape of a coin but have no status as legal tender.
Rounds can be ordered with a custom design stamped on the faces or in assorted
batches.
Certificates
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GOLD
* Gold is indestructible which does not tarnish and is also not corroded by
acid-except by a mixture of nitric and hydrochloric acids.
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* Gold has long proven ability to retain value and appreciate in value.
The last few years show a steep rise in oil prices resulting in a rise in
inflation not only in India but globally. The impact has been varied across
countries depending on factors such as economic cycle and oil
consumption. This general price rise has added to the attractiveness of
gold.
In other words when the stock market crashes or when the dollar
weakens, gold continues to be a safe haven investment because gold
prices rise in such circumstances.
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Gold investment options
Not many people know that there are various investment options in gold
like gold bars, numismatic coins, and gold accumulation plans by banks
and financial institutions, and gold mutual funds.
Across the world, several investment options are available for investors to
put their money in the yellow metal.
* Gold savings accounts: They operate like regular bank accounts where
the customers account is credited with balances of gold and withdrawals
can be either in the form of gold coins or currency equivalents.
* Gold chits: Also there are gold chits run by jewelers where at the end of
the year, housewives can buy gold jewellery or coins from the same
jeweler worth the total money they have paid in instalments.
* Gold deposit scheme: It is one of the options to invest in gold where one
can keep gold in banks for specified period like a fixed deposit and can
claim as and when required .But it is not like pledging as the ornaments
will not be returned in its original form because the banks melt them and
rent to the industry.
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include allowing banks to offer gold backed investment products and gold
loans to local jewellers.
* Buying Gold in seasons other than wedding season and festive seasons
like Diwali will offer best returns.
* The investor has to lose the making charges when invested in the gold
deposit scheme
The benefits of investing in gold are that besides earning a decent rate of
return there are no headaches about keeping it safe. When investments
are valued in a depreciating currency allocating a portion to gold is similar
to a financial insurance policy.
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Factors influencing the gold price
Today, like all investments and commodities, the price of gold is ultimately
driven by supply and demand, including hoarding and dis-hoarding. Unlike
most other commodities, the hoarding and dis-hoarding plays a much
bigger role in affecting the price, because almost all the gold ever mined
still exists and is potentially able to come on to the market at the right
price. Given the huge quantity of above-ground hoarded gold, compared
to the annual production, the price of gold is mainly affected by changes in
sentiment, rather than changes in annual production.
According to the World Gold Council, annual mine production of gold over
the last few years has been close to 2,500 tonnes. About 3,000 tonnes
goes into jewelry or industrial/dental production, and around 500 tonnes
goes to retail investors and exchange traded gold funds. This translates to
an annual demand for gold to be 1000 tonnes in excess over mine
production which has come from central bank sales and other dishoarding.
Demand from the electronics industry is rising by 11% a year, jewelry by
19%, and industrial and dental by 21%.
Central banks and the International Monetary Fund play an important role
in the gold price. At the end of 2004 central banks and official
organizations held 19 percent of all above-ground gold as official gold
reserves. The Washington Agreement on Gold (WAG), which dates from
September 1999, limits gold sales by its members (Europe, United States,
Japan, Australia, Bank for International Settlements and the International
Monetary Fund) to less than 400 tonnes a year . European central banks,
such as the Bank of England and Swiss National Bank, have been key
sellers of gold over this period.
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gold reserves again as of late 2005 . In early 2006, China, which only
holds 1.3% of its reserves in gold , announced that it was looking for ways
to improve the returns on its official reserves. Many bulls hope that this
signals that China might reposition more of its holdings into gold in line
with other Central Banks.
Bank failures
When dollars were fully convertible into gold, both were regarded as
money. However, most people preferred to carry around paper banknotes
rather than the somewhat heavier and less divisible gold coins. If people
feared their bank would fail, a bank run might have been the result. This is
what happened in the USA during the Great Depression of the 1930s,
leading President Roosevelt to impose a national emergency and to
outlaw the holding of gold by US citizens.
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ADVANTAGES AND DISADVANTAGES OF VARIOUS ASSET CLASSES
• Interest will
• Paying interest on
always
bonds is a higher
be paid.
priority for
companies than
paying dividends on
shares.
CASH – BONDS – EQUITIES -
DISADVANTAGES DISADVANTAGES DISADVANTAGES
• Interest rates are • The bond issuer may • Equities can also fall
variable and default on interest significantly in value.
currently very low. payments or be
unable to make the
final repayment. • It’s very difficult to
• The best rates may
• The value of a bond predict what will happen
only be Available
in the open market in the short term.
on special terms or
may go down.
for larger amounts.
Types of risks
70
All investments involve some form of risk. Consider these common types
of risk and evaluate them against potential rewards when you select an
investment.
Market Risk
At times the prices or yields of all the securities in a particular market rise
or fall due to broad outside influences. When this happens, the stock
prices of both an outstanding, highly profitable company and a fledgling
corporation may be affected. This change in price is due to "market risk".
Also known as systematic risk.
Inflation Risk
Credit Risk
In short, how stable is the company or entity to which you lend your money
when you invest? How certain are you that it will be able to pay the
interest you are promised, or repay your principal when the investment
matures?
Changing interest rates affect both equities and bonds in many ways.
Investors are reminded that "predicting" which way rates will go is rarely
successful. A diversified portfolio can help in offseting these changes.
Investment Risks
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The sectoral fund schemes, investments will be predominantly in equities
of select companies in the particular sectors. Accordingly, the NAV of the
schemes are linked to the equity performance of such companies and may
be more volatile than a more diversified portfolio of equities.
Exchange risk
An industries' key asset is often the personnel who run the business i.e.
intellectual properties of the key employees of the respective companies.
Given the ever-changing complexion of few industries and the high
obsolescence levels, availability of qualified, trained and motivated
personnel is very critical for the success of industries in few sectors. It is,
therefore, necessary to attract key personnel and also to retain them to
meet the changing environment and challenges the sector offers. Failure
or inability to attract/retain such qualified key personnel may impact the
prospects of the companies in the particular sector in which the fund
invests.
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A good portfolio is a balance of 5 parameters. Have a right balance of
following parameters in your portfolio:
conditions?
instruments?
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RISK RETURN GRID-:
Post Office Schemes Low risk and MIS scheme Since returns Good for very
74
low Liquidity. give 8% are taxable, low risk
interest. the post-tax investors and
Time returns will those in the nil
deposit be still or low tax
6.25-7.5%. lower. brackets.
PPF Low risk with 8% assured Interest is Good tax saving
very low returns. tax-free. investment
liquidity (15- Also Sec option.
year lock-in 80C benefit. Good for
period. Partial Hence a investing the
withdrawal good debt portion of
allowed after 6 scheme. one’s portfolio.
years).
NSC Low risk with 8% assured Interest fully Not very
low liquidity (6 returns. taxable. But attractive vis-à-
years lock-in). eligible for vis other options
Sec 80C like 5-year Bank
benefit. FDs.
INVESTMENT STRATEGIES
Investments:
Savings form an important part of the economy of any nation. With the
savings invested in various options available to the people, the money
acts as the driver for growth of the country. Indian financial scene too
presents a plethora of avenues to the investors. Though certainly not the
best or deepest of markets in the world, it has reasonable options for an
ordinary man to invest his savings.
78
An investment can be described as perfect if it satisfies all the needs of all
investors. So, the starting point in searching for the perfect investment
would be to examine investor needs. If all those needs are met by the
investment, then that investment can be termed the perfect investment.
79
long-term performance of a portfolio. Wealth accumulation is the ultimate
measure of the success of an investment decision.
• Life Cover: Many investors look for investments that offer good
return with adequate life cover to manage the situations in case of any
eventualities.
• Ease of withdrawal: This refers to the ability to invest long term but
withdraw funds when desired. This is strongly linked to a sense of
ownership. It is normally triggered by a need to spend capital, change
investments or cater to changes in other needs. Access to a long-term
investment at short notice can only be had at a substantial cost.
Starting a job, Recently Married, Kids going Higher studies for Children
Single married, no with kids to school, child, marriage independent,
individual kids college nearing the
golden years
Your Low protection, Reasonable Higher Higher Lump sum money Safe
Need high asset protection, still protection, Protection, for education, accumulation for
creation and high on asset still high on high on marriage. Facility the golden
accumulation creation asset creation asset to stop premium yrs.Considerably
but steadier creation but for 2-3 yrs for lower life
options, steadier these extra insurance as the
increase options, expenses dependencies
savings for liquidity for have decreased
child education
expenses
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Flexibility Choose low Increase death Increase Withdrawal Withdrawal from Decrease the
death benefit, benefit, choose death benefit, from the the account for death benefit-
choose growth/balanced choose account for higher reduce it to the
growth/balanced option for asset balanced the education/marriage minimum
option for asset creation option for education expenses of the possible. Choose
creation asset expenses of child. Premium the income
creation. the child holiday-to stop investment
Choose premium for a option. Top-ups
riders for period without form the
enhanced lapsing the policy accumulation
protection. (with reduced
Use top-ups expenses) for the
to increase golden yrs cash
your accumulation
accumulation
82
providers of long term capital. Agricultures need for credit was to by met
by cooperative banks. UTI was set up to canalize resources from retail
investors to the capital market. In essence, the understanding that
motivated financial market architecture was that the requirement of
financial intermediation for accelerated growth and development was best
met by specialized financial intermediaries who performed specialized
functions. To ensure that these specializations were adhered to, financial
intermediaries developed and promoted by the Reserve Bank of India had
significant restrictions on both the asset and liabilities side of their balance
sheets.
By the mid-seventies it was felt that commercialized banks did not have
sufficient expertise in rural banking and hence in 1975 Regional Rural
Banks (RRBs) were set up to help bring rural India into the ambit of the
financial network. This effort was capped in 1980 with the formation of
National Bank for Agriculture and Rural Development (NABARD), which
was to function as an apex bank for all cooperative banks in the country,
helping control and guide their activities. NABARD was also given the
remit of regulating rural credit cooperatives.
83
Following with the logic of specialization, the 1980s saw other DFIs with
specific remits being set up e.g. the EXIM Bank for export financing, the
Small Industries Development Bank of India (SIDBI) for small scale
industries and the National Housing Bank (NHB) for housing finance. Long
term finance for the private sector came from DFIs and institutional
investors or through the capital market. However both price and quantity of
capital issues was regulated by the Controller of Capital Issues.
Concomitant with nationalization was the restriction of new foreign
entrants into financial markets.
At least one indicator of the fact that the strategy paid off in deepening
financial intermediation is the near doubling of the M3/GDP ratio from
24.1% in 1970/71 to 48.5 in 1990/91 (see Table 4)1. Over the same
period, bank credit to the commercial sector as a proportion of GDP more
than doubled from 14.3 to 30.2%. However net bank credit to government
(including lending by the Reserve Bank) doubled as well, from 12 to 24.6%
(see Table 4). Therefore the deepening of financial intermediation had
occurred with an increase in the draft by both the commercial sector and
the government on financial resources mobilized. It needs bearing in mind
that the draft of the commercial sector on financial resources is
understated by the ratio mentioned above, given that, outside the
commercial banking sector, there were a large number of specialized
financial intermediaries that funnelled resources to the private sector.
At the end of the 1980s then the Indian financial system was characterized
segmented financial markets with significant restrictions on both the asset
and liability side of the balance sheet of financial intermediaries as well as
the price at which financial products could be offered. In the Indian context
segmentation meant that competition was muted. In a scenario where
price was determined from outside the system and targets were set in
terms of quantities, there was no pressure for non-price competition as
well. As a result the financial system had relatively high transaction costs
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and political economy factors meant that asset quality was not a prime
concern. Therefore even though the Indian financial system at the end of
1980s had achieved substantial expansion in terms of access, this had
come at the cost of asset quality. In addition, was the fact that the draft of
the government on resources of the financial system had increased
significantly. This in itself need necessarily not be a problem but over this
period, i.e., the 1980s, the composition of government expenditure was
changing as well, with shift towards current rather than capital
expenditure. In addition, in the absence of a reasonably liquid market for
government securities, an increase in net bank lending to the government
meant that the asset side of banks balance sheets tended to become
increasingly illiquid.
The impetus for change came from one expected and one unexpected
quarter - first, the importance of prudential capital adequacy ratios was
underlined by the announcement of Basel I norms that banks were
expected to adhere to; second the macroeconomic crisis of 1990-91. The
reform process that followed accelerated the process of liberalization
already begun in the 1980s and began a series of measured and
deliberate steps to integrate India into the global economy, including the
global financial network.
Briefly however, given the problems facing the financial system and
keeping in mind the institutional changes necessary to help India
financially integrate into the global economy, financial reform focused on
the following: improving the asset quality on bank balance sheets in
particular and operational efficiency in general; increasing competition by
removing regulatory barriers to entry; increasing product competition by
removing restrictions on asset and liability sides of financial intermediaries;
allowing financial intermediaries freedom to set their prices; putting in
place a market for government securities; and improving the functioning of
the call money market.
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The government security market was particularly important not only
because it was decided the RBI would no longer monetize the fiscal
deficit, which would now be financed by directly borrowing from the
market, but also monetary policy would be conducted through open
market operations and a large liquid bond market would help the RBI
sterilise, if necessary, foreign exchange movements. The attempt was to
ensure the fact that both the call and term money market had sufficient
depth and width to establish a short term and long term yield curve so as
to ensure effective transmission of monetary policy.
In effect reforms then stood the earlier quantity driven model on its head.
The attempt was de-segment markets and remove asset and liability
restriction of the balance sheets of financial intermediaries. Regulatory
barriers to entry would be removed and markets would determine prices.
Specialisation, if any, would be market driven rather than by policy design
and financial intermediaries were free to use economies of scale and
scope to achieve efficiency gains and improve market reach.
Background
Unfortunate events of the decade of nineties and the beginning of the 21st
century have led us to believe that regulators around the globe have failed
to achieve their primary objectives of 'maintaining systemic stability' and
'protecting interests of the retail customer.
The financial sector plays an important role in the economy of any nation.
A well-regulated and well-developed financial sector is vital to achieving
the most basic need of efficient allocation of scarce resources.
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The main objectives of any regulator are to improve market efficiency,
enhance transparency, and prevent unfair practices.
"The crises that have swept emerging market nations in recent years
should have left no-one in any doubt about the importance of a strong and
well-regulated financial sector, in dealing with capital flows that can be
very large and reverse very quickly." -- IMF Managing Director, Stanley
Fisher, June 2000.
I now look at a few events that shook the financial markets and the
challenges they pose to the regulators.
The Indian stock markets are now amongst the best in the world in terms
of modernisation and the technology. India was among the few countries,
which was not badly effected by the contagion effects of the Asian crisis of
1997. Policy makers attribute this to the slow and cautious pace of capital
account liberalisation.
However, it has also been a decade marred with scams, which were huge
even by international standards, revealing the many gaps in our regulatory
regime.
Nearly a decade later, after a 'dream budget' by Yashwant Sinha, the then
finance minister, on February 28 2001, the Bombay Stock Exchange index
rose initially but thereafter crashed. Nearly
700 points were lost in eight trading sessions leading to erosion in market
capitalisation of Rs 146,000 crore (Rs 1,460 billion).
This erratic behaviour was once again traced to a handful of brokers, wishing to trap a leading
'bull', Ketan Parekh, who had manipulated prices of shares of a few select companies in
information technology, communication and entertainment sector.
Units of US-64, the flagship scheme of Unit Trust of India --the largest public sector mutual
fund in India, dropped from a peak of Rs 19 to Rs 5.81 in January 2002. Middle class people
and retirees were the hardest hit because of the irregularities.
The recurrence of financial 'scams' periodically exhibits the helplessness of regulators,
particularly the SEBI and the Reserve Bank of India. "It is easier to build a modern stock
exchange from scratch than change century-old trading practices," says Jayanth Varma, a
former board member at SEBI. Traders loathe any change in the market because many thrive
on its imperfections.
Against this backdrop, the regulatory bodies are making endeavours to bring up the Indian
market to international standards. It is working towards making India a global benchmark for
capital market development.
Today-- with the 'feel good' factor about India in the global arena rising,
increased confidence of the investors in the Indian market, Sensex looking
more attractive than ever before, foreign exchange reserves at an all-time
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high of more than $140 billion -- is the most vulnerable period for the
regulators of the Indian financial sector, particularly SEBI and RBI.
Some of the issues that need the regulators' attention and action in the Indian
financial markets are:
Also, as new instruments like the derivatives are being introduced in the
market, the emphasis on investor education should also be enhanced.
Then the issue of providing a level playing field for these investors also
remains so that there is continued confidence in the market.
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Corporate governance: With sophistication in the marketplace, the
demand for improved corporate governance by public companies will also
increase. Ensuring high confidence of the investors in the business so as
to improve investment levels through good corporate governance is a
must.
90
AGENDA for Future
Money Market
days.
91
• Introduction of screen based dealing systems for money market
Government securities.
At the outset, it is easy to tell why new financial products come about: they
come about because people in the economy find them useful. If we look at
a stream of new products like index funds, index futures, index options,
etc., we see a common thread where these products are extremely
successful internationally because they fulfil basic economic objectives of
people in the economy.
All this hedging involves trading, and brings up the problem of liquidity.
Suppose the hedging that is required for the creation of product A involves
trading on the market for B. It is desirable that the market for B is highly
liquid. If the market for B is illiquid (i.e. the hedging involves large
transactions costs) then product A will become expensive and less
attractive. Here we see the peculiar nature of financial innovation:
As long as the market for B is illiquid, it will be hard for A to come about.
The market for B will have to have a minimum level of liquidity, otherwise
A will become too expensive and will not succeed.
2. Once index funds come to exist, they make it possible for people to
sell options on the index while being covered (i.e., they would own
units of the index fund before selling somebody the right to buy the
4. Index funds generate an order flow for index futures markets, and
6. Access to index futures and index options makes index funds more
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option protecting against some level of downside loss) or ``index
8. These new products in turn generate order flow for index futures
9. In all this, a steady stream of arbitrage keeps the spot, futures and
This set of products is a perfect illustration of the process that was outlined
early in this article. The key ingredients here are new products which are
useful to economic agents, a building--block approach towards obtaining
low--cost implementation of new products, and a spiral of innovation in
which the innovations all reinforce each other.
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Today in India, the enormous transformation of markets has given us new
market practises in trading, clearing, and settlement. This collapse of
transaction costs is a very significant achievement. We are now close to
having an Indian securities industry where normal market practise in
trading, clearing and settlement are equal to the best practises in the
world, and superior to those found in many OECD countries.
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Research methodology
98
Duration of the project is 15 days from 15th April to 30th April,
2009.
Type of Research :
Data Source: Data was collected from both primary as well as secondary
sources.
99
• First phase included identification and selection of the target
audience to be studied and to determine the parameters on which
respondents will justify their preferences. The audience were targeted and
analyzed basically on the basis of the parameters like when, why and
where investors prefer to invest their money ; what is their horizon for
investment ; their preferences , risk taking capacity and expected return on
investments ; their awareness of financial markets and the
changes/innovations taking place? A questionnaire was designed to
collect the needed information from the respondents.
My study was limited to only Jaipur region as the training was done in
Jaipur. Targeting of the customers was limited to the people I know.
Another factor was that my study was limited to only Jaipur region as the
training was done in Jaipur. Targeting of the customers was limited to the
people I know.
101
Study of the Emerging Investment Products and their Scope in Indian
Financial Markets is a very vast topic and there are many topics,
which can be studied under it, but this project will limit itself to the
basic understanding of the topic.
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4- The people surveyed belonged to Jaipur region only-This
survey has been confined to only Jaipur region as training was
done in Jaipur only.
HOW MOST INDIANS SAVE:- This data was provided in the report published by RBI
Provident and
pension funds,
13.0% Currency, 10.1%
Insurance funds,
14.9%
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SURVEY FINDINGS
This whole project made me understand that what all investors look at the
time when they are investing their money. Due to my project I was able to
gain knowledge about their ideas i.e. why they are investing their saving is
few particular product. And side by side my other questions will be sorted
out like:-
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What is the scope of these products in the Indian Financial
Market?
3. What are the reasons when the investors invest at a particular time &
what are the reasons behind investment in a particular product?
PROBLEMS FACED
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QUESTIONNAIRE
Name_______________________ ________
E-mail ID_____________________________
Age ________________________________
Contact No____________________________
Salaried
Self-Employed
Business
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2. What is your monthly income ?
50,000 to 1 lakh
1-5 lakh
10,000 to 50,000
50,000 to 1 lakh
Real Estate
Stocks / Commodity
Gold / Silver
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Post office / Banks
Retirement Benefits
others
1 to 3 years
Yes
No
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8. Do you have the awareness of the financial markets and the
changes / innovations taking place ?
Yes
No
9. If you have Rs 100000 to invest, out of these what will be the first
preference ? Rank accordingly .
When market is up
NFO
Ongoing scheme
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IN this report I did survey of 57 investors and on basis of their
answers I came to some final conclusions which will be explained as
under by the help of GRAPH
S e n s e x p e fo rm a n c e in 3 - y r p e rio d
re tu rn s
100%
80%
60%
40%
20%
0%
1980 1985 1990 1995 2000 2005 2010
-2 0 %
It can be seen from this graph that the sensex was very fluctuating
from last 25 Years. But it could be seen from last three years that it
has been rising continuously. But the worst situation was in year
2003 in which it touched (-13) which was a major downfall in last 25
years. It is beneficial for the investors to invest when the sensex
goes down and sell those investments when it goes up due to which
they could earn profits. Well its one of the good indications for the
economy of the country when the sensex seems to rise.
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Analysis Of The Questionnaires Filled By The Investors
According to this graph it can be analyzed that 15% of the investors have
their investment in Share Market , FDR & Mutual Funds , 25% have their
investment in other like gold, silver etc. 20% of the total have their
investment in Real Estate and 35% of them have invested in Post Office.
According to this we can interpret that specially in Jaipur people have
invested more in post office / banks than any other modes of investment.
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Investors were asked that do they think that there is a scope to earn
returns on their investment at competitive rates in the Indian Market. They
replied that as we all can see that the India stock market is fluctuating like
anything so it’s really difficult to pull returns out of this. 60% of the
investors said no and 40% said yes. This shows that investors are aware
of the fluctuations taking place in the market and then also they want to
invest in stock market.
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A most important question or we can say the most important point in this
study is that why do investors invest their money? According to the survey
and after doing complete analysis it was recognized that maximum
investors invest in those schemes through which they get maximum
returns and by which they can save their tax i.e. 55%. And 20% of them
invest so that they could get retirement benefits. And 10% of them invest
for other parameters.
It could be noticed that they want to invest safer and want to earn higher
returns through their investments. But in today’s world its not possible that
a person gets maximum return compared to others while remaining on the
most safer side.
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My next question was that are the investors aware of the financial market
and the changes/innovations taking place in it? To this question maximum
of them said No i.e.50%.
It means that the maximum investors in Ahmedabad just want to invest
their money in any of the investment products. Without even taking the
knowledge about the financial market, its condition and the innovations or
the new products coming up. Only 45% said that they are aware.
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My another question was that if they have Rs. 1,00,000 to invest, out of
these which will they would rank as, their First, second, third preference
and others accordingly. And finally I concluded from the whole data
analyzed, that maximum of the investors like to invest in post office/banks
i.e. 30%, 27% of them like to invest in Gold & silver, 20% in Real Estate
and only 18% of them in stock market.
By this it could be noticed that they want to invest their money at that
place where they could fetch Maximum return. And others want to play
safe game.
Maximum investors want to remain invested in the market for 1-3 Yrs of
time i.e. 35%, 30% of them want to keep their money invested in the
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market for More than 3 Yrs and only 25% of them want to invest their
money for Less than 1 Yr.
It seems that the investors don’t want to invest for a very short duration of
time as they will not get that much return which they have expected so
maximum of the investors want to invest their money between 1-3 yrs of
time and those investors who are professional they like to invest the
money for more than 3 yrs of time. As they are aware of the market
conditions and the day to day changes taking place in the Indian Market.
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Investors who are aware of the market and they understand what is
happening in the market, they invest at the time when the market goes
down and those are 16% out of 57. 31% of the people invest in those
conditions when the market is up. 26% of the investors invest in ongoing
schemes of different companies and only 22% of the people invest in
NFO.
By this we can analyze that investors are aware of what they have to
invest at what time and in what place. So by this they can minimize their
losses and earn more returns in less span of time period.
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3. Loosing sight of inflation:
While you may be aware of the fact that the cost of goods and services is
rising, people tend to forget the impact that inflation will have on
investments in the long term. The value of Rs. 100 in 1980 was down to
Rs. 26 in 1995. This means that the buying power of the rupee has
decreased, and you cannot buy as much for Rs. 100 now as you could
have bought in 1980. You have to keep in mind that inflation will eat your
savings faster than you can imagine.
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5. Do not put all your eggs in one basket, diversify:
When it comes to investing, most of us do not appreciate the importance
of diversification. While we know that we should not “put all our eggs in
one basket”, we often do not relate this concept to stocks and bonds. Take
the time to discuss the importance of diversifying your investments among
different asset categories and industries. When you spread your holdings
around, you do not have to rely on the success of just one investment.
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Conclusion:
To conclude, I would say that the opportunity zones in Financial Markets are
contracting somewhere and at the same time expanding elsewhere. Change
and the pace of change in the financial markets, both would be different,
tomorrow. Continuous exploration of scopes and exploitation of values would
demand a brilliant focus on emerging opportunities, competence building,
strategies for the leadership position in the opportunity zones and principles
centered business practices. Therefore, we need to create a culture, which
embraces change and move ahead with an objective to lead.
"We need markets that are known for their safety and integrity. We need
knowledgeable investors. And to build a sustainable, high-growth economy
which will ensure better living conditions for our people, now and in the
future," Vajpayee said.
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Investors will be the ultimate beneficiaries of all these changes in the
marketplace. Investors will have more choices and information on investment
products, easier accessibility to any market they wish to trade on, and better
and cheaper services from intermediaries.
2 Try to understand where the money is going: It is important to identify the nature
of investment and to know if one is compatible with the investment. One can lose
substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion
it is better to go through the literature such as offer document and fact sheets that
mutual fund companies provide on their funds.
3 Don't rush in picking funds, think first: one first has to decide what he wants the
money for and it is this investment goal that should be the guiding light for all
investments done. It is thus important to know the risks associated with the fund and
align it with the quantum of risk one is willing to take. One should take a look at the
portfolio of the funds for the purpose. Excessive exposure to any specific sector should
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be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with
a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their
share of critics but both philosophies work for investors of different kinds. Identifying the
proposed investment philosophy of the fund will give an insight into the kind of risks that
it shall be taking in future.
4 Invest. Don’t speculate: A common investor is limited in the degree of risk that he
is willing to take. It is thus of key importance that there is thought given to the process of
investment and to the time horizon of the intended investment. One should abstain from
speculating which in other words would mean getting out of one fund and investing in
another with the intention of making quick money. One would do well to remember that
nobody can perfectly time the market so staying invested is the best option unless there
are compelling reasons to exit.
5 Don’t put all the eggs in one basket: This old age adage is of utmost importance.
No matter what the risk profile of a person is, it is always advisable to diversify the risks
associated. So putting one’s money in different asset classes is generally the best
option as it averages the risks in each category. Thus, even investors of equity should
be judicious and invest some portion of the investment in debt. Diversification even in
any particular asset class (such as equity, debt) is good. Not all fund managers have the
same acumen of fund management and with identification of the best man being a
tough task, it is good to place money in the hands of several fund managers. This might
reduce the maximum return possible, but will also reduce the risks.
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one invests regularly through the ups and downs of the market, he would stand a better
chance of generating more returns than the market for the entire duration. The SIPs
(Systematic Investment Plans) offered by all funds helps in being systematic. All that
one needs to do is to give post-dated cheques to the fund and thereafter one will not be
harried later. The Automatic investment Plans offered by some funds goes a step
further, as the amount can be directly/electronically transferred from the account of the
investor.
8 Find the right funds Finding funds that do not charge much fees is of importance,
as the fee charged ultimately goes from the pocket of the investor. This is even more
important for debt funds as the returns from these funds are not much. Funds that
charge more will reduce the yield to the investor. Finding the right funds is important and
one should also use these funds for tax efficiency. Investors of equity should keep in
mind that all dividends are currently tax-free in India and so their tax liabilities can be
reduced if the dividend payout option is used. Investors of debt will be charged a tax on
dividend distribution and so can easily avoid the payout options.
9 Keep track of your investments: Finding the right fund is important but even more
important is to keep track of the way they are performing in the market. If the market is
beginning to enter a bearish phase, then investors of equity too will benefit by switching
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to debt funds as the losses can be minimized. One can always switch back to equity if
the equity market starts to show some buoyancy.
10 Know when to sell your mutual funds: Knowing when to exit a fund too is of
utmost importance. One should book profits immediately when enough has been earned
i.e. the initial expectation from the fund has been met with. Other factors like non-
performance, hike in fee charged and change in any basic attribute of the fund etc. are
some of the reasons for to exit.
14 Do not let emotions or ego get in the way of a sound investing strategy
You may feel foolish buying a stock at 60, selling at 55, only to buy it back at 65. Put
that aside. You might have been too early before, but if the time is right now, don't
hesitate. Getting shaken out of a stock should have no bearing on whether you buy it at
a later date. It's a new decision every time
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16. Do not make unplanned investing and starting without setting clear
investment objectives and time frame for achieving the same.
17. Not having an eye on what the big players / mutual funds buy & sell is a
pitfall and an opportunity lost to pick the right stocks. It takes big money to
move markets, and institutional investors have the cash. But how do you find
out where the smart money is going? Make sure the stock you have your eye
on is owned by at least one top-rated fund. If the stock has passed muster
with leading portfolio managers and analysts, it's a good confirmation its
business is in order. Plus, mutual funds pack plenty of buying power, which
will drive the stock higher
18. Patience is a virtue in investing. Do not panic on your existing stocks. It's
so important, we repeat: Be patient for your stocks to reap rewards.
20. Margin is not a luxury, it is a deep-seated risk, know your risk profile and
use margin trading sparingly. You as an investor might lose control of your
investments if you borrow too much.
12. Greed is dangerous; it may wipe out the gains already made. Once a
reasonable profit is made the investor should get out of the market quickly.
REFERENCES:-
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WEBSITES:-
1. www.valuesearchonline.com
2. www.wikipedia.com
3. www.indiainfoline.com
4. www.myiris.com
5. www.sebi.com
6. www.cartoonstock.com
7. www.rbi.org
8. http://www.ICICIDirect.com
9. Product Demo: http://content.icicidirect.com/mailimages/indexpage.html
10. FAQs: http://content.icicidirect.com/indexfaq.asp
SEARCH ENGINES:-
1. www.google.com
2. www.yahoosearch.com
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