A SUMMER INTERNSHIP PROJECT REPORT ON

MARKETING & ANALYSIS OF FINANCIAL PRODUCTS

IN RELIGARE SECURITIES BY

PARTHA CHATTERJEE

UNDER THE GUIDANCE OF

MR. ARUN KUMAR

(RELIGARE SECURITIES)

&

Prof Somroop Siddhanta

(NSHM BUSINESS SCHOOL)

DECLARATION

I hereby declare that this project report titled MARKETING & ANALYSIS OF FINANCIAL PRODUCTS IN RELIGARE SECURITIES as part of my Summer Internship Programme. To the best of my knowledge and belief, this report is original, except for the referenced material, and has not been submitted to any educational institution for the award of any degree or diploma.

Partha Chatterjee

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ACKNOWLEDGMENTS

It has been a wonderful experience working at Religare Securities Ltd. The two months have been very insightful with respect to the functioning of the stock market. Also, actually spending time in the work environment of a company gave a glimpse of the reality awaiting us in the future. I would like to take this opportunity to thank all at Religare Securities who helped me work at my project these last two months gave me continuous guidance and support, especially: MR. Arun Kumar MR. Somroop Siddhanta

I would also like to thank our Project Head faculty MR. Somroop Siddhanta, who acted as my project guide and helped me understand various issues about the project area and also gave direction to the project.

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EXECUTIVE SUMMARY

The Project focuses on Religare Securities Companys product which they provide to the customer and the marketing strategy of the company in the chapter number eight. The study starts with the introduction of the Stock Market and its function in the system in the chapter number twenty five. It also focuses on the Indian Stock Market and the regulatory body governing it and discusses the different broad categories which can be studied to analyze the reasons for fluctuations in the chapter number twenty five. I also describe the project title and its scope, objectives, sources of data and the limitations and future scope of the project. I give a small history of the company where I have been working in the chapter number three. I also briefly describe the fundamental reasons which cause the fluctuations in the market and which include the various global and national political and economical reasons in the chapter number twenty four. Each fiscal years economical scenario is discussed to see the reigning situation in the country in the chapter number twenty five. This project give the detail knowledge about the financial product like Equity Share, Insurance, derivative, commodity, Mutual fund in the chapter number fifty two, fifty four, sixty two, sixty three and seventy. The project goes on to give some suggestions and then finally ends with a conclusion in the chapter number seventy three.

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TABLE OF CONTENTS
DECLARATION ACKNOWLEDGMENTS EXECUTIVE SUMMARY 1. INTODUCTION 2. COMPANY OVERVIEW 3. LEGAL ISSUE 4. INDIAN FINANCIAL OVERVIEW 5. MODELLING AND ANALYSIS OF FINANCIAL MARKETS 6. INDIAN CAPITAL MARKETS 7. STOCK MARKET 8. DERIVATIVE INSTRUMENTS 9. COMMODITY 10. MUTUAL FUND 11. INSURANCE 12. OBJECTIVES OF THE STUDY 13. RESEARCH METHODOLOGY 14. INTERPRETATION OF RESULT CONCLUSION ANNEXURE REFERENCES 2 3 4 6 9 22 24 25 26 29 36 50 53 58 65 66 77 80 81 83

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INTODUCTION Chapter 1

ABOUT RELIGARE
Vision
"To be the leading emerging markets financial services group driven by innovation, delivering superior value for all stakeholders globally".

Mission Providing financial care driven by the core values of diligence and transparency. Brand Identity
Name

Religare is a Latin word that translates as 'to bind together'. This name has been chosen to reflect the integrated nature of the financial services the company offers.
Symbol

The Religare name is paired with the symbol of a four-leaf clover. Traditionally, it is considered good fortune to find a four-leaf clover as there is only one four-leaf clover for every 10,000 threeleaf clovers found. For Religare, each leaf of the clover has a special meaning. It is a symbol of Hope. Trust. Care. Good Fortune. For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream of becoming. Of new possibilities. It is the beginning of every step and

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the foundation on which a person reaches for the stars. The second leaf of the clover represents Trust. The ability to place ones own faith in another. To have a relationship as partners in a team. To accomplish a given goal with the balance that brings satisfaction to all, not in the binding, but in the bond that is built. The third leaf of the clover represents Care. The secret ingredient that is the cement in every relationship. The truth of feeling that underlines sincerity and the triumph of diligence in every aspect. From it springs true warmth of service and the ability to adapt to evolving environments with consideration to all. The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability to meld opportunity and planning with circumstance to generate those often looked for remunerative moments of success.

Hope. Trust. Care. Good Fortune. All elements perfectly combine in the emblematic and rare, four- leaf clover to visually symbolize the values that bind together and form the core of the Religare vision.

Religare Enterprises Limited (REL), a leading emerging markets financial services group, today announced its fourth quarter and full year FY11 unaudited financial results. The company reported total operating income of 10,330 million for Q4 FY11, an increase of 96% over Q4 of FY10. For the full year, total operating income was at 28,461 millions up 71% over last year.
Industry BSE Code Book Closure Group NSE Code : : : : : Finance - General 532915 11/08/2010 Religare RELIGARE

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Market Cap ISIN No Market Lot Face Value

: : : :

Rs. 6610.54 Cr. INE621H01010 1 Rs. 10.00

Company Structure Religare Enterprises Limited Religare AMC Limited

Asset Management Business, Portfolio Management

AEGON Religare Life Insurance Co. Ltd.

Life Insurance Company, JV with Aegon (26%), Religare (44%), and Bennett & Coleman (30%)

Religare Macquarie Wealth Mgmt. Ltd.

JV with Macquarie for Wealth Management Business

Religare Securities Limited

Retail Equity Broking, Online Investment Portal, Depository Services

Religare Commodities Limited

Commodity Broking Business

Religare Insurance Broking Limited

Life Insurance Broking Business Non-Life Insurance Broking Business

Religare Capital Markets Limited

Religare Arts Initiative Limited

PE and M&A Advisory, Institutional Broking, Business of Art, Art Gallery, Art Advisory Investment Banking

Religare Finvest Limited

Lending and Distribution business

Religare Venture Capital Limited

Private Equity and Investment Manager

Vistaar Religare Capital Advisors Ltd.

Religare - Milestone

JV with Vistaar Entertainment Ventures for film JV with Milestone Capital to manage a healthcare and fund, India's first ever film fund education fund

Religare Finance Ltd.

Capital Market Financing

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COMPANY OVERVIEW Chapter 2

ABOUT RELIGARE SECURITIES LIMITED

Religare Securities Ltd. (RSL), a wholly owned subsidiary of Religare Enterprises Limited (REL), an emerging markets financial services group is one of the market leading securities firm in India. The company offers equity & currency broking services to more than 7, 50,000 clients using both, offline and online platforms and also offers depository participant services. RSL is a member of the NSE, BSE, MCXSX, USE and a depository participant with NSDL and CDSL. RSL employs more than 4800 employees and has a wide distribution reach that spans across more than 1500 locations in India.
Religare Offers Equity and Derivatives

Trading in Equities with Religare truly empowers customers for their investment needs. We ensure them have a superlative trading experience through A highly process driven, diligent approach Powerful Research & Analytics and One of the "best-in-class" dealing rooms

Further, Religare also has one of the largest retail networks.

Depository

RSL provides depository services to investors as a Depository Participant with NSDL and CDSL. The Depository system in India links issuers, Depository Participants, Depositories National Securities

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Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and clearing houses / clearing Corporation of Stock Exchanges. These facilitate holding of securities in dematerialized form and securities transactions are processed by means of account transfers. Their customer centric account schemes have been designed keeping in mind the investment psychology. With a competent team of skilled professionals, Religare can manage over 5, 00,000 accounts and have a dedicated customer care centre, exclusively trained to handle queries from Religares customers. With their country wide network of branches, you are never far from Religare depository services. Religares depository service offers customers a secure, convenient, paperless and cost effective way to keep track of customers investment in shares and other instruments over a period of time, without the hassle of handling physical documents. Customers DP account with us takes care of your depository needs like dematerialization, rematerialisation, transfer and pledging of shares, stock lending and borrowing.
Currency Futures

Benefits of Currency Futures High Liquidity Extended trading hours - 9 am to 5 pm Opportunities to reap benefits owing to a highly dynamic market Small lot size of only US $1000 with low exchange specified margins

Currency Futures is best suited for SMEs / Individuals involved in Imports/Exports Corporate/ Institutions involved in Imports/Exports and anybody else who has foreign currency exposure

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Mutual Fund

Mutual Fund offers an opportunity for long term wealth creation. At RSL it ensure that customers investment are in safe hands backed by quality research and based on the needs of the client according to his Income, Saving, Age, Family Background etc.
Introduction of New Mutual Fund Service System (MFSS) & Bombay Stock Exchange Platform for Allotment and Redemption of Mutual Fund Units (BSE StAR MF)

Securities Exchange Board of India (SEBI) vide circular SEBI/IMD/CIR No. 11/ 183204/2009 dated November 13, 2009 allowed transaction in Mutual Fund schemes through the Stock Exchange infrastructure. Units of Mutual fund Schemes have been permitted to be transacted through registered Stock Brokers of recognized Stock Exchanges. This will give distributors and brokers a level- playing field with banks in enabling clients to invest in mutual fund and enable to expand the reach of mutual fund schemes to more towns and cities.
Office Location

Northern Regional Office

6 Regional offices
Gujarat Regional Office

25 Zonal Offices Present in 1000 location all over India Present in 350 Cities & Towns Total group employees 5,500 plus Present in Retail, Wealth and Institutional Spectrum
Mumbai Regional Office Eastern Regional Office

Southern Regional Office Maharashtra Regional Office

Among the largest Retail Brokerage branch network, present beyond Tier-I and Tier-II cities in India Overseas presence established in London, with aggressive plans of straddling other parts of the globe in this financial year
South Region Location

North Region Location

Branches

Branch

Chandigarh

13

Andhra Pradesh

65

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Delhi & NCR Haryana Madhya Pradesh North Rajasthan Punjab U.P. & Uttaranchal Madurai
Total North East Region

60 23 22 25 25 120 7
288

Chennai Chennai City Coimbatore Erode Karnataka Kerala

66 11 22 4 41 15

Total South Maharashtra Region

231

Bihar & Jharkhand Kolkata

6 83

Goa Nagpur

10 8

Orissa & Chhattisgarh and rest of east 53

Total East 142

Pune & rest of Maharashtra 98

Total Maharashtra 116

Gujarat Region Gujarat and West Rajasthan

Employees

Mumbai Region 116 Mumbai 86

Religare employed approximately 5,500 full time employees as on March 31, 2010. Religares employees are broadly categorized into seven departments: sales, operations, technology, risk management, research, administration and support. Religare consider its relationship with their employees to be good. Their Business Associates are third party entities and their staff members do not form part of Religares payroll.
Competitive Strengths

Regional management for retail branch network Geographical distribution with deep penetration in India Diversified product portfolio Distinctive expertise with focused servicing model

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Growing client base built on well-recognised brand Geared to address the competitive challenges of discount brokerage through online investment portal

Marketing Strategy

Increase geographical presence Expand our Internet-based delivery Grow existing product lines and expand our products and services portfolio Continue to develop client relationships Pursue strategic acquisitions and alliances.

Managerial Organizational Structure

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Top Management Team Mr. Malvinder Mohan Singh

Chairman Non Executive Director Non Independent Director Business Executive

Mr. Sunil Godhwani

Chartered accountant and income tax advisor 55 years D-70, Ranjit Avenue, Amritsar 143 001, India
Mr. Deepak Ramchand Sabnani

CEO and Managing Director Non Independent Director Business Executive

Mr. Shivinder Mohan Singh

Independent Director Business Executive

Mr. J. W. Balani

Independent Director Business Executive

Mr. R.K. Shetty

Non Executive Director Non Independent Director Business Executive

Mr. Harpal Singh

Alternate Director to Mr. J. W. Balani Business Executive

Captain G.P.S. Bhalla

Non Executive Director Non Independent Director Business Executive

Mr. Padam Bahl

Independent Director
Company Secretary and Compliance Officer Mr. Ravi Batra

Alternate Director to Mr. Deepak Ramchand Sabnani Business Executive

19, Nehru Place, New Delhi 110 019, India Telephone: +91 11 3081 5452 Facsimile: +91 11 3081 5288 Email: investorservices@religare.in
Legal Advisors Domestic Legal Advisor to the Company Luthra & Luthra Law Offices

103, Ashoka Estate, Barakhamba Road, New Delhi 110 001, India Telephone: +91 11 4121 5100 Facsimile: +91 11 2372 3909
International Legal Advisors to the BRLMs Jones Day

29th Floor, Edinburgh Tower, the Landmark 15 Queens Road Central, Hong Kong Telephone: +852 2526 6895 Facsimile: +852 2868 5871
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Domestic Legal Advisors to the BRLMs Amarchand & Mangaldas & Suresh A. Shroff and Co.

Amarchand Towers, 216, Okhla Industrial Estate, Phase III, New Delhi 110 020, India Telephone: +91 11 2692 0500 Facsimile: +91 11 2692 4900
Bankers to the Company HDFC Bank Limited

B 7 / 3, Asaf Ali Road, New Delhi 110 002, India Telephone: +91 11 2326 9138 Facsimile: +91 11 2324 3874 Email: ashish.sood@hdfcbank.com Website: www.hdfcbank.com Contact Person: Mr.Ashish Sood
Citibank N.A

Facsimile: +91 11 2336 0455 Email: p.k.khera@citi.com Website: www.citibank.co.in Contact Person: Mr.P. K. Khera
DBS Bank Limited

Jeevan Vihar Building, Connaught Place, New Delhi 110 001, India Telephone: +91 11 4135 3339
Lets look at the Religares Market Scenarios:

Upper Ground Floor, Birla Tower, 25 Barakhamba Road, New Delhi 110 001, India Telephone: +91 11 3041 8815 Facsimile: +91 11 3041 8899 Email: amit.j@dbs.com Website: www.dbsbank.com
Contact Person: Mr. Amit Jain

Equity Broking: Rising Equity Broking Turnover*

60000

Over 190,000 Retail Equity clients, with growth rates over 200% Current market share is at 4.5% - 5.5% Target increased presence in this segment both in India and abroad Doubling manpower by March 2008

50000 40000 30000 20000 10000 0 2003-04 2004-05 2005-06 2006-07

150000

Rising Client Base

Presence of 300 Branches all India Internationally, established office in London,

100000

50000

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2004-05 2005-06 2006-07

With the target of opening 7 offices abroad by March 2008 Targeting growth of 25% in brokerage by March 2008

Commodity Broking: Rising Client Base Commodity Broking

14000

Started operation in 2004 Member of MCX, NCDEX and NMCE

12000 10000 8000 6000 4000 2000

Presence in 1000 locations all over India, in addition to 45 Rural Branches Approx. 20,000 Commodity broking clients, with growth rates over 400%
2003 - 04

2004 - 05

2005 - 06

2006 - 07

Rising Commodity Broking Turnover

14000

Current market share is at 3-4% Over 40% growth in turnover YOY Doubling team of 15 dedicated research analysts for this segment by March 2008 Target ongoing international on

12000 10000 8000 6000 4000 2000 0 2004-05 2005-06 2006-07

Online Investment: Rising Number of Online Clients

14000

12000

Official Launch of E-broking in August 2006 Aggressive growth has been observed in the client base for online trading Targeting 300,000 online clients by the end of this financial year

10000 8000 6000 4000 2000 0 2003 - 04 2004 - 05 2005 - 06 2006 - 07

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Rising Turnover

1 0 0

90

Acquired market share of 8% in internet trading volumes Recently launched a revamped, unique 360 degrees customer centric online trading portal To increase team strength to 3000 employees purely for internet trading

80 70 60 50 40 30 20 1 0 0 A ug 06 Sep 06 Oct 06 No v06 Dec06 Jan-0 7 Feb 07 M ar07

Personal Credit: Personal Loans Scheme Wise Size

4.0

Official Launch of Personal Loans in August 2006 Total number clients till date are nearly 1500 Targeting book size $110 mn by March 2008

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 business+ Celebration +

LAS - Current and Projected Book Size

Current Book Size $144 mn, projected to increase to $ 284 mn by March 2008 Presence of 300 Branches all India, to double by March 2008 Total number clients till date are nearly 15,000

350 300 250 200 150 100 50 0 2006-07 2007-08*

Personal Financial Services: Rising MF Collections for both Debt & Equity

PFS caters to the financial needs of individuals by advising them on various financial plans Financial planning for retail investment is not widespread in India
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300 250 200 150 100 50 0 Apr06 May06 Jun- Jul-06 Aug06 06 Sep06 Oct 06 Nov06 Dec06 Jan07 Feb07 Mar07

PFS was started to target the rapidly expanding middle net worth individuals (MNIs) in India

Product Wise Clients

Rapid rollout of PFS Products offering, such as mutual funds, life and general insurance, fixed income, small savings instruments, capital bonds and equity IPOs Expert group of Religares PFS advisors provide high quality customized solutions Dedicated Team of more than 200 advisors, to be expanded to 800 by March 2008

30000 25000 20000 15000 10000 5000 0 Insurance IPO MF's

Institutional Broking: Institution-wise Breakup of Clients

30 25

20

With a nationwide reach this arm of REL caters to domestic mutual funds, insurance companies, banks and FIIs Led by a dedicated team of over 30 highly qualified professionals, based in Mumbai Fundamental support of a research team of 15, to be doubled by March 2008 Dealing capabilities on the NSE, BSE and in the cash and derivatives segment Currently present in Mumbai with a dedicated team of sales officers
15 10 5 0 PMS Insurance Co. FII's and DFI

MF's

Banks

Wealth Advisory Services: Total Assets Under Management in India

Religares third critical arm of Wealth Management focuses on providing customized solutions and advisory services to HNIs Total relationships as on Feb 2007 were 870, with strong anticipated growth rates Current assets under management to be increased to $160 mn by March 2008

30 25 20 15 10 5 0 Jan- Feb- Mar- Apr- May- Jun06 06 06 06 06 06 Jul06 Aug- Sep- Oct- Nov- Dec- Jan- Feb06 06 06 06 06 07 07

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Rising Client Base

1800

Nov-06

Jan-06

Jun-06

Mar-06

Aug-06

Sep-06

May-06

Dec-06

Feb-06

Oct-06

Jan-07

Apr-06

Jul-06

Competitor

Indiabulls Group is one of the country's leading business houses with business interests in Power, Financial Services, Real Estate and Infrastructure. Indiabulls Group companies are listed in Indian and overseas financial markets. The Net worth of the Group is Rs 16,844 Crore and the total planned capital expenditure of the Group by 2013-14 is Rs 35,000 Crore. Indiabulls Securities (ISL) is one of India's leading capital markets companies providing securities broking and advisory services. Indiabulls Securities also provides depository services, equity research services and IPO distribution to its clients and offers commodities trading through a separate company. Indiabulls Securities is a pioneer of on-line securities trading in India. Indiabulls Securities Limited (ISL) is the pioneer in Retail Broking Industry having a pan India presence and providing services to a customer base exceeding half a million. ISL is the first and only brokerage house to be assigned the highest rating BQ-1 by CRISIL. The company through various types of brokerage accounts provides product and services related to purchase and sale of securities listed in NSE and BSE. It also provides depository services, equity research services, mutual fund, and IPO distribution to its clients.

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Feb-07

Supported by dedicated team of highly qualified and reputed individuals Operating out of 5 locations Investment Advisory Team to be increased substantially by March

1600 1400 1200 1000 800 600 400 200 0

The Angel Group is the best Retail Broking House in India with the largest Distribution Network (Source: Dun & Bradstreet, 2009) spanning 184+ direct locations and 8000+ business partners. They constantly draw inspiration from our Group's success and its strong business philosophy to change the way Institutional Investment Services are offered. With Memberships of BSE and NSE, it offers their Institutional Investors the facility to perform and execute any trade in the Indian Equity Markets. Witnessing the Indian Equity Markets for over two decades holds there in good stead to predict market trends, sector cyclical movements and even spotting potential multi-baggers, to be picked at the right time for the right kind of investment as desired by the investment houses. There dedicated Sales Traders possess all the expertise, skills and resources to recommend stocks and sectors based on the outlook of their clients and satisfy their medium or long-term investment goals. It also ensures total transparency in their dealings and absolute confidentiality of information related to all of their clients. Angel Securities, they use state-of-the-art technology to help you keep up with the market pace. We also offer high end technological platform - Direct Market Access (DMA) based on your specific requirements.

Motilal Oswal Securities Ltd. (MOSL) was founded in 1987 as a small sub-broking unit, with just two people running the show. Focus on customer-first-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology has enabled them to blossom into an over 1600 member team. Today they

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are a well diversified financial services firm offering a range of financial products and services such as Wealth Management, Broking & Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities, Private Equity, Investment Banking Services and Principal Strategies. They have a diversified client base that includes retail customers (including High Net worth Individuals), mutual funds, foreign institutional investors, financial institutions and corporate clients. They are headquartered in Mumbai and as of June 30th, 2011, had a network spread over 586 cities and towns comprising 1,607 Business Locations operated by our Business Partners and them. As at June 30th, 2011, they had 722,303 registered customers. Shareholding Pattern at on 31st March, 2011. As of March 31st, 2011; the total shareholding of the Promoter and Promoter Group stood at 69.16%. The shareholding of institutions stood at 12.07% and non-institutions at 18.77%.

Sharekhan is Indias leading online retail broking house. Launched on February 8, 2000 as an online trading portal, Sharekhan has today a pan-India presence with over 1,529 outlets serving 950,000 customers across 450 cities. It also has international presence through its branches in the UAE and Oman. Sharekhan offers services like portfolio management, trade execution in equities, futures & options, commodities, and distribution of mutual funds, insurance and structured products. These services are backed by quality investment advice from an experienced research team which offers investment and trading ideas based on fundamental and technical research respectively, market related news, statistical information on equities, commodities, mutual funds, IPOs and much more.

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LEGAL ISSUE Chapter 3 REGULATIONS AND POLICIES IN INDIA

Religare offer varied financial services, including retail and institutional equity broking and research, commodities broking and research, depository services, lending services, mutual fund distribution services, risk analysis and distribution of life and non-life insurance products. Further, Religare intend to offer financial services such as wealth management services, portfolio management services, venture capital business and merchant banking. The legal framework governing the above financial services and products is discussed below. The statements below are based on the current provisions of Indian law, and the judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. I. NBFC Regulation The Reserve Bank of India Act Public Deposit Regulations Prudential Norms KYC Guidelines Corporate Governance Guidelines Norms for excessive interest rates Stock Broker Rules Stock Broker Regulations Internet Trading

III. Depository Regulation The Depositories Act Depository Regulations

IV. Merchant Banking Merchant Banker Rules Merchant Banker Regulations

II. Dealing in Securities SCRA SEBI Act

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V. Mutual Funds

Mutual Funds Regulations Mutual Fund distribution by NBFCs

FII Regulations

XI. Laws Regulating Transfer of Property Transfer of Property Act, 1882 Registration Act, 1908 The Indian Stamp Act, 1899 The Easements Act, 1882

VI. Insurance Broking Insurance Act Insurance Broker Regulations

VII. Commodities Regulation under FCRA VIII. Portfolio Management Services Portfolio Manager Rules Portfolio Manager Regulations

XII. Laws relating to Employment Shops and Establishments legislations in various states Labour Laws

IX. Insider Trading Insider Trading Regulations

XIII. Laws relating to Intellectual Property

X. Foreign Investment in NBFCs

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INDIAN FINANCIAL OVERVIEW Chapter 4 INDIAN FINANCIAL SECTOR

The Indian financial services industry has experienced significant growth in the last few years. There has been a considerable broadening and deepening of the Indian financial markets due to various financial market reforms undertaken by the Indian regulators, the introduction of innovative financial instruments in recent years and the entry of sophisticated domestic and international financial services participants. Sectors such as banking, asset management and brokerage have been liberalised to allow private sector involvement, which has contributed to the development and modernisation of the financial services sector. This is particularly evident in the nonbanking financial services sector, such as brokerage, residential mortgage and insurance services, where new products and expanding delivery channels have helped these sectors to achieve high growth rates recently. Financial services accounted for approximately 14% of total GDP in fiscal 2007. The combined average daily turnover of the BSE and the NSE for different market segments has increased from approximately Rs. 4.8 billion in March 1996 to approximately Rs. 312.1 billion in March 2006. Over this period, there has also been a substantial growth in the market for other financial products such as insurance, and mutual funds.

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MODELLING AND ANALYSIS OF FINANCIAL MARKETS Chapter 5

Much effort has gone into the study of financial markets and how prices vary with time. Charles Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not, correlated to the last change. The scale of changes in price over some unit of time is called the volatility. In 1900, Louis Bachelier modelled the time series of changes in the logarithm of stock prices as a random walk in which the short-term changes had a finite variance. This causes longer-term changes to follow a Gaussian distribution. Modelling the changes by distributions with finite variance is now known to be inappropriate. In the 1960s it was discovered by Benot Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather modelled better by Lvy alpha-stable distributions. The scale of change, or volatility, depends on the length of the time interval to a power a bit more than 1/2. Large changes up or down are more likely than what one would calculate using a Gaussian distribution with an estimated standard deviation.

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INDIAN CAPITAL MARKETS Chapter 6

There were 1,300 companies listed on the National Stock Exchange and 5,085 companies listed on the Bombay Stock Exchange as of March 31, 2011. In recent years, the capital markets have undergone substantial reforms in regulation and supervision. Reforms, particularly the establishment of SEBI, market-determined prices and allocation of resources, screen-based nationwide trading, T+2 settlement, scrip less settlement and electronic transfer of securities, rolling settlement and derivatives trading have greatly improved both the regulatory framework and efficiency of trading and settlement. There presently are 22 recognised stock exchanges in India, as well as the over-the-counter Exchange of India (OTCEI) for small and new companies and the NSE, which was set up as a model exchange to provide nationwide services to investors. In 2003, the NCDEX and the MCX were set up for trading of futures in various commodities.
Primary Equity Market

The primary segment of the capital markets in India has been witnessing a surge in activity driven by the strong fundamentals of the Indian economy, improved corporate results, a buoyant secondary market, structural reforms by the Government and an investor-friendly framework. In recent years, public offerings have in general received strong responses from FIIs, institutional and retail investors.
Secondary Equity Market

The average daily turnover at the NSE and for different market segments has increased from approximately Rs. 68 billion in 2001 to approximately Rs. 450 billion in March 2011. Over this period, there also has been a substantial growth in the market for other financial products, such as insurance and mutual funds.

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Equity Brokerage

The evolution of the Indian capital markets has stimulated rapid consolidation due to increased trading volumes, increased regulation, customer sophistication, better technology and increased back-office requirements. As a result, significant changes have been introduced to strengthen risk management systems. Changes in the regulatory framework and settlement mechanics have resulted in the smaller operating participants losing their market share, leading to a consolidation in the industry. The rapid growth in on-line trading volumes can be attributed to growing sophistication of retail investors, availability of reliable internet connectivity and sophistication of Internet-based trading products.
Internet Trading

At the end of March 2006, 142 members on the Capital Market segment and 127 on the Futures and Options Segment were permitted to allow investors web-based access to the NSEs trading system. The members of the Exchange in turn had registered 1,443,291 clients for web-based access as of March 31, 2011.
Mutual Funds

From 1963 to 1987, Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 at the initiative of the government and the RBI. From 1987, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, the Life Insurance Corporation of India and the General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the SEBI (Mutual Fund) Regulation, 1996. The mutual fund industry has also experienced considerable activity over last few years with total assets under management growing from Rs. 1,396 billion as of March 31, 2004 to Rs. 3,263 billion as of March 31, 2007. In recent years, the industry has

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witnessed consolidation in favour of private sector mutual funds whose assets under management have grown from Rs. 1,049 billion as of March 31, 2004 to Rs. 2,567 billion as of March 31, 2011.
Insurance Sector

The insurance market was opened to the private sector in 2001. Since then, various foreign and Indian private sector participants have targeted market potential by providing a range of customized products. As a result of the increased competition, state sector companies have become more aggressive in their product offerings, marketing strategies and distribution channels.
Investment Banking

With the Indian economy maturing, Indian companies are also evaluating different means to raise capital in the equity and debt capital markets. The volume of activity in equity capital markets as well as the transaction advisory market has increased significantly. With the increase in activity levels and entry of foreign investment banks in India, competition is intensifying. However, there are a large number of small and mid-sized companies, which is increasing the market size of investment banking activities.

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STOCK MARKET Chapter 7

A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete) entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE).
History

Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange in 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelieve is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred. The idea quickly spread around Flanders and neighbouring counties and "Beurzen" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumours intended to

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lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. The Dutch East India Company (founded in 1602) was the first jointstock company to get a fixed capital stock and as a result, continuous trade in company stock emerged on the Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives, among which options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short selling - a practice which was banned by the Dutch authorities as early as 1610. There are now stock markets in virtually every developed and most developing economy, with the world's biggest market being in the United States, United Kingdom, Japan, India, China, Canada, Germany's (Frankfurt Stock Exchange), France, South Korea and the Netherlands.
Trading

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. When the bid and ask prices match, a sale takes place, on a first-comefirst-served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a

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marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
Arbitrage trading

When companies raise capital by offering stock on more than one exchange, the potential exists for discrepancies in the valuation of shares on different exchanges. A keen investor with access to information about such discrepancies may invest in expectation of their eventual convergence, known as arbitrage trading. Electronic trading has resulted in extensive price transparency (efficient market hypothesis) and these discrepancies, if they exist, are short-lived and quickly equilibrate.
Market issues

Tax policy Consumer debt Corporate debt Government debt Late 2000s recession

Types of Market

Public market Spot market Other markets

Importance of stock market

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

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

From experience we know that investors may 'temporarily' move financial prices away from their long term aggregate price 'trends'. Positive or up trends are referred to as bull markets; negative or down trends are referred to as bear markets. Overreactions may occur so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. Economists continue to debate whether financial markets are 'generally' efficient. According to one interpretation of the efficientmarket hypothesis (EMH), only changes in fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share prices beyond the short term, where random 'noise' in the system may prevail. But this largely theoretic academic viewpoint known as 'hard' EMH also predicts that little or no trading should take place, contrary to fact, since prices are already at or near equilibrium, having priced in all public knowledge.

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Stock price fluctuations

The price of a stock fluctuates fundamentally due to the theory of supply and demand. Like all commodities in the market, the price of a stock is sensitive to demand. However, there are many factors that influence the demand for a particular stock. The field of fundamental analysis and technical analysis attempt to understand market conditions that lead to price changes, or even predict future price levels. A recent study shows that customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), is significantly correlated to the market value of a stock. Stock price may be influenced by analyst's business forecast for the company and outlooks for the company's general market segment.
Irrational behaviour

Sometimes the market seems to react irrationally to economic or financial news, even if that news is likely to have no real effect on the fundamental value of securities itself. But this may be more apparent than real, since often such news has been anticipated, and a counter reaction may occur if the news is better (or worse) than expected. Therefore, the stock market may be swayed in either direction by press releases, rumours, euphoria and mass panic; but generally only briefly, as more experienced investors (especially the hedge funds) quickly rally to take advantage of even the slightest, momentary hysteria. Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally obscure. Behaviourists argue that investors often behave 'irrationally' when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money.
Crashes

A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due
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to panic and investing public's loss of confidence. Often, stock market crashes end speculative economic bubbles. There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. There have been a number of famous stock market crashes like the Wall Street Crash of 1929, the stock market crash of 19734, the Black Monday of 1987, the Dot-com bubble of 2000, and the Stock Market Crash of 2008. One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50 % during this stock market crash. It was the beginning of the Great Depression. Another famous crash took place on October 19, 1987 Black Monday. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time.
Stock market index

The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euro next indices. Such indices are usually market capitalization weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.
Stock picking

Although many companies offer courses in stock picking, and numerous experts report success through technical analysis and fundamental analysis, many economists and academics state that because of the efficient-market hypothesis (EMH) it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself. In the distribution of investors, many academics believe that the richest are simply outliers in such a distribution (i.e. in a game of chance, they have flipped heads twenty times in a row). When money is put into the stock market, it is done

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with the aim of generating a return on the capital invested. Many investors try not only to make a profitable return, but also to outperform, or beat, the market. However, market efficiency championed in the EMH formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This "random walk" of prices, commonly spoken about in the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently.

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DERIVATIVE INSTRUMENTS Chapter 8

Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange-traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be traded on futures exchanges (which are distinct from stock exchangestheir history traces back to commodities futures exchanges), or traded over-the-counter. As all of these products are only derived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market.
Types of derivatives

In broad terms, there are two groups of derivative contracts, which are distinguished by the way they are traded in the market: Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts are difficult because trades can occur in private, without activity being visible on any exchange. Because OTC derivatives are not traded on an exchange, there is no central counter-party. Exchange-traded derivative contracts (ETD) are those derivatives instruments that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange is a market where individuals trade standardized contracts that have been defined by the exchange. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin

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from both sides of the trade to act as a guarantee. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive.
Common derivative contract types

There are three major classes of derivatives: Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold, whereas a forward contract is a non-standardized contract written by the parties themselves. Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset. The price at which the sale takes place is known as the strike price, and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. If the owner of the contract exercises this right, the counter-party has the obligation to carry out the transaction. Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets. More complex derivatives can be created by combining the elements of these basic types. For example, the holder of a swap ion has the right, but not the obligation, to enter into a swap on or before a specified future date. Examples:Page 37

The overall derivatives market has five major classes of underlying asset: Interest rate derivatives (the largest), Foreign exchange derivatives, Credit derivatives, Equity derivatives, Commodity derivatives
Other derivatives

Credit default option CLN Contract for difference CPPI Credit derivative ELN Equity derivative Foreign exchange derivative Fund derivative Inflation derivatives Interest rate derivative PRDC Real estate derivatives Real options
Options on futures

In many cases, options are traded on futures, sometimes called simply "futures options". A put is the option to sell a futures contract, and a call is the option to buy a futures contract. For both, the option strike price is the specified futures price at which the future is traded if the option is exercised. Futures are often used since they are delta one instruments. Calls and options on futures may be priced similarly to those on traded assets by using an extension of the Black-Scholes formula, namely Black's formula for futures.
Vanilla options

Bond option Call Employee stock option Fixed income FX Option styles Put Warrants
Exotic options

Asian Barrier Binary Cliquet Compound option Forward start option Interest rate option Lookback Mountain range Rainbow option Swaption
Combinations

Collar Fence Iron butterfly Iron condor Straddle Strangle Covered call Protective put Risk reversal

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Options spreads

Back spread Bear spread Bull spread Butterfly spread Calendar spread Diagonal spread Ratio spread Vertical spread Inter market Spread
Valuation of options

Binomial Black BlackScholes Finite difference Garman-Kohlhagen Putcall parity Simulation Trinomial Vanna Volga method
Swap

In finance, a swap is a derivative in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest (or coupon) payments associated with the bonds.

Specifically, the two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are calculated. Usually at the time when the contract is initiated at least one of these series of cash flows is determined by a random or uncertain variable such as an interest rate, foreign exchange rate, equity price or commodity price. The cash flows are calculated over a notional principal amount, which is usually not exchanged between counterparties. Consequently, swaps can be in cash or collateral. Swaps can be used to

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hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement. Today, swaps are among the most heavily traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding is more than $426.7 trillion in 2009, according to International Swaps and Derivatives Association (ISDA).
Swap market

Most swaps are traded over-the-counter (OTC), "tailor-made" for the counterparties. Some types of swaps are also exchanged on futures markets such as the Chicago Mercantile Exchange Holdings Inc., the largest U.S. futures market, the Chicago Board Options Exchange, Intercontinental Exchange and Frankfurt-based Eurex AG. The Bank for International Settlements (BIS) publishes statistics on the notional amounts outstanding in the OTC derivatives market.
Types of swaps

The five generic types of swaps, in order of their quantitative importance, are: interest rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps. There are also many other types. Interest rate swaps Currency swaps Commodity swaps Equity Swap Credit default swaps

Margining

Futures are margined daily to the daily spot price of a forward with the same agreed-upon delivery price and underlying asset. Forwards do not have a standard. They may transact only on the

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settlement date. More typical would be for the parties to agree to true up, for example, every quarter. The fact that forwards are not margined daily means that, due to movements in the price of the underlying asset, a large differential can build up between the forward's delivery price and the settlement price, and in any event, an unrealized gain (loss) can build up. Again, this differs from futures which get 'trued-up' typically daily by a comparison of the market value of the future to the collateral securing the contract to keep it in line with the brokerage margin requirements.
Option valuation

The theoretical value of an option is evaluated according to any of several mathematical models. These models, which are developed by quantitative analysts, attempt to predict how the value of an option changes in response to changing conditions. For example how the price changes with respect to changes in time to expiration or how an increase in volatility would have an impact on the value. Hence, the risks associated with granting, owning, or trading options may be quantified and managed with a greater degree of precision, perhaps, than with some other investments. Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-thecounter options are traded between private parties, often well-capitalized institutions that have negotiated separate trading and clearing arrangements with each other.

The Options can be classified into following types

Exchange-traded options Over-the-counter Other option types

Option styles

Naming conventions are used to help identify properties common to many different types of options. These include:

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European option an option that may only be exercised on expiration. American option an option that may be exercised on any trading day on or before expiry. Bermudan option an option that may be exercised only on specified dates on or before expiration. Barrier option any option with the general characteristic that the underlying security's price must pass a certain level or "barrier" before it can be exercised. Exotic option any of a broad category of options that may include complex financial structures. Vanilla option any option that is not exotic.
Historical uses of options

Contracts similar to options are believed to have been used since ancient times. In the real estate market, call options have long been used to assemble large parcels of land from separate owners; e.g., a developer pays for the right to buy several adjacent plots, but is not obligated to buy these plots and might not unless he can buy all the plots in the entire parcel. Film or theatrical producers often buy the right but not the obligation to dramatize a specific book or script. Lines of credit give the potential borrower the right but not the obligation to borrow within a specified time period. Many choices, or embedded options, have traditionally been included in bond contracts. For example many bonds are convertible into common stock at the buyer's option, or may be called (bought back) at specified prices at the issuer's option. Mortgage borrowers have long had the option to repay the loan early, which corresponds to a callable bond option. In London, puts and "refusals" (calls) first became well-known trading instruments in the 1690s during the reign of William and Mary. Privileges were options sold over the counter in nineteenth century America, with both puts and calls on shares offered by specialized dealers. Their exercise price was fixed at a

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rounded-off market price on the day or week that the option was bought, and the expiry date was generally three months after purchase.
Leveraged strategies

Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales.
Buying

There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange. There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker. There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers. When it comes to financing a purchase of stocks

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there are two ways: purchasing stock with money that is currently in the buyer's ownership, or by buying stock on margin.
Selling

Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss. As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction. After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.
Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets.

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Margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50 %% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales. Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).
Types of stocks

Common stock , Concentrated stock , Golden share , Growth stock , Issued shares , Preferred stock, Restricted stock , Shares authorized , Shares outstanding , Tracking stock , Treasury stock

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Stock derivatives

A stock derivative is any financial instrument which has a value that is dependent on the price of the underlying stock. Futures and options are the main types of derivatives on stocks. The underlying security may be a stock index or an individual firm's stock, e.g. single-stock futures. Stock futures are contracts where the buyer is long, i.e., takes on the obligation to buy on the contract maturity date, and the seller is short, i.e., takes on the obligation to sell. Stock index futures are generally not delivered in the usual manner, but by cash settlement. A stock option is a class of option. Specifically, a call option is the right (not obligation) to buy stock in the future at a fixed price and a put option is the right (not obligation) to sell stock in the future at a fixed price.
Share price determination

At any given moment, equitys price is strictly a result of supply and demand. The supply, commonly referred to as the float, is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and maintain equilibrium. The product of this instantaneous price and the float at any one time is the market capitalization of the entity offering the equity at that point in time. When prospective buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium. Thus, the value of a share of a company at any given moment is determined by all investors voting with their money. If more investors want a stock and are willing

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to pay more, the price will go up. If more investors are selling a stock and there aren't enough buyers, the price will go down.
Share classes

A single mutual fund may give investors a choice of different combinations of front-end loads, backend loads and 12b-1 fees, by offering several different types of shares, known as share classes. All of the shares classes invest in the same portfolio of securities, but each has different expenses and, therefore, a different net asset value and different performance results. Typical share classes for funds sold through brokers or other intermediaries are: Class A shares usually charge a front-end sales load together with a small 12b-1 fee. Class B shares don't have a front-end sales load. Instead they, have a high contingent deferred sales charge, or CDSC that declines gradually over several years, combined with a high 12b-1 fee. Class B shares usually convert automatically to Class A shares after they have been held for a certain period. Class C shares have a high 12b-1 fee and a modest contingent deferred sales charge that is discontinued after one or two years. Class C shares usually do not convert to another class. They are often called "level load" shares. Class I are subject to very high minimum investment requirements and are, therefore, known as "institutional" shares. They are no-load shares. Class R are for use in retirement plans such as 401(k) plans. They do not charge loads, but do charge a small 12b-1 fee. No-load funds often have two classes of shares: Class I shares do not charge a 12b-1 fee.

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Class N shares charge a 12b-1 fee of no more than 0.25% of fund assets.

Participants

Broker-dealer, Floor broker, Floor trader, Investor, Market maker, Proprietary trader, Quantitative analyst, Stock trader
History

During Roman times, the empire contracted out many of its services to private groups called publican. Shares in publican were called "socii" (for large cooperatives) and "particulate" which were analogous to today's Over-The-Counter shares of small companies. Though the records available for this time are incomplete, Edward Chancellor states in his book Devil Take the Hindmost that there is some evidence that a speculation in these shares became increasingly widespread and that perhaps the first ever speculative bubble in "stocks" occurred. The first company to issue shares of stock after the Middle Ages was the Dutch East India Company in 1606. The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could be undertaken only by governments or by very wealthy individuals or families. Economic historians find the Dutch stock market of the 17th century particularly interesting: there is clear documentation of the use of stock futures, stock options, short selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695, and a change in fashion that unfolded and reverted in time with the market (in this case it was headdresses instead of hemlines).
Shareholder

A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Both private and public traded

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companies have shareholders. Companies listed at the stock market are expected to strive to enhance shareholder value. Shareholders are granted special privileges depending on the class of stock, including the right to vote on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. The largest shareholders (in terms of percentages of companies owned) are often mutual funds, and, especially, passively managed exchange-traded funds.
Shareholder transaction fees

Shareholders may be required to pay fees for certain transactions. For example, a fund may charge a flat fee for maintaining an individual retirement account for an investor. Some funds charge redemption fees when an investor sells fund shares shortly after buying them (usually defined as within 30, 60 or 90 days of purchase); redemption fees are computed as a percentage of the sale amount. Shareholder transaction fees are not part of the expense ratio.
Application

The owners of a company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use. By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company, a fraction of the decision making power, and potentially a fraction of the profits, which the company may issue as dividends. In the common case of a publicly traded corporation, where there may be thousands of shareholders, it is impractical to have all of them making the daily decisions required to run a company. Thus, the shareholders will use their shares as votes in the election of members of the board of directors of the company. In a typical case, each share constitutes one vote.

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COMMODITY Chapter 9
Commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats it as equivalent or nearly so no matter who produces it. Examples are petroleum and copper. The price of copper is universal, and fluctuates daily based on global supply and demand. Stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface, the perceived quality etc. And, the more valuable a stereo is perceived to be, the more it will cost. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, salt, sugar, coffee beans, soybeans, aluminium, copper, rice, wheat, gold, silver, palladium, and platinum. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through mining. There is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the particular characteristic that it is either impossible or uneconomical to store; hence, electricity must be consumed as soon as it is produced. Commoditization (also called commoditisation) occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently, even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar). Many

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products' degree of commoditisation depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are considered by many customers as completely UN differentiable and fungible.
Commodity Types

History

Agricultural Colonial Metal Commodity of the future

Corn - Wheat - Soybeans Coffee - Sugar - Cocoa Gold - Silver Cobalt - Molybdenum

The concerns of U.S. merchants to ensure that there were buyers and sellers for commodities have resulted into forward contracts to sell and buy commodities. Still, credit risk remained a serious problem. The CBOT took shape to provide a centralized location, where buyers and sellers can meet to negotiate and formalize forward contracts. In 1864, the CBOT listed the first ever standardized "exchange traded" forward contracts, which were called futures contracts. In 1919, the Chicago Butter and Egg Board, a spin-off of the CBOT, was reorganized to enable member traders to allow future trading, and its name was changed to Chicago Mercantile Exchange (CME). On October 19, 2005, the initial public offering (IPO) of 3,191,489 CBOT shares was priced at $54.00 (USD) per share. On its first day of trading the stock closed up +49% at $80.50 (USD) on the NYSE. In 2007, the CBOT and the CME merged to form the CME Group. Since 1930, the Chicago Board of Trade has been operating out of 141 West Jackson Boulevard, Chicago. It is housed in a building designed by architects Holabird & Root that is 605 feet (184 m) tall, the tallest in Chicago until the Richard J. Daley Center superseded it in 1965. This Art Deco building incorporates sculptural work by Alvin Meyer and is capped by a 31 foot (9.5 m) tall statue of the Roman goddess Ceres in reference to the exchange's heritage as a commodity market.

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Commodities exchanges

Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), Dalian Commodity Exchange (DCE), Euronext. liffe (LIFFE), Kansas City Board of Trade (KCBT), Kuala Lumpur Futures Exchange (KLSE), London Metal Exchange (LME), New York Mercantile Exchange (NYMEX), National Commodity Exchange Limited (NCEL), Multi Commodity Exchange (MCX), International Indonesian Forex Change Market (IIFCM)
Commodities trading

Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises. Speculators and investors also buy and sell the futures contracts in attempt to make a profit and provide liquidity to the system. However, due to the leverage provided by the exchange to traders those participating in commodity futures trading face substantial amounts of speculative risk.
Soft Commodities market

Trading on commodities began in Japan in the 18th century with the trading of rice and silk, and similarly in Holland with tulip bulbs. Trading in the US began in the mid 19th century, when central grain markets were established and a marketplace was created for farmers to bring their commodities and sell them either for immediate delivery (also called spot or cash market) or for forward delivery. These forward contracts were private contracts between buyers and sellers and became the forerunner to today's exchange-traded futures contracts.

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MUTUAL FUND Chapter 10

A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities. In the United States, a mutual fund is registered with the Securities and Exchange Commission (SEC) and is overseen by a board of directors (if organized as a corporation) or board of trustees (if organized as a trust). The board is charged with ensuring that the fund is managed in the best interests of the fund's investors and with hiring the fund manager and other service providers to the fund. The fund manager, also known as the fund sponsor or fund management company, trades (buys and sells) the fund's investments in accordance with the fund's investment objective. A fund manager must be a registered investment advisor. Funds that are managed by the same fund manager and that have the same brand name are known as a "fund family" or "fund complex". The Investment Company Act of 1940 (the 1940 Act) established three types of registered investment companies or RICs in the United States: open-end funds, unit investment trusts (UITs); and closedend funds. Recently, exchange-traded funds (ETFs), which are open-end funds or unit investment trusts that trade on an exchange, have gained in popularity. While the term "mutual fund" may refer to all three types of registered investment companies, it is more commonly used to refer exclusively to the open-end type. Hedge funds are not considered a type of mutual fund. Mutual funds are not taxed on their income as long as they comply with certain requirements established in the Internal Revenue Code.
History

Mutual funds first became popular in the United States in the 1920s. The first funds were of the closed-end type with shares that trade on an exchange. The first open-end mutual fund, the

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Massachusetts Investors Trust was established on March 21, 1924. It is now part of the MFS family of funds. This was the first fund with redeemable shares. However, closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets. After the stock market crash of 1929, Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the Securities and Exchange Commission (SEC) and that they provide prospective investors with a prospectus that discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds, while the Investment Company Act of 1940 governs their structure. When confidence in the stock market returned in the 1950s, the mutual fund industry began to grow again. By 1970, there were approximately 360 funds with $48 billion in assets.
Types of mutual funds

There are three basic types of registered investment companies defined in the Investment Company Act of 1940: open-end funds, unit investment trusts (UITs); and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange.
Open-end funds

Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business

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day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, redemptions and fluctuation in market valuation.
Closed-end funds

Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate.
Advantages of mutual funds

Mutual funds have advantages compared to direct investing in individual securities. These include: Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight

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Ease of comparison Services

Disadvantages of mutual funds

Mutual funds have disadvantages as well, which include: Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize

Leading mutual fund complaies

At the end of 2009, the top 10 mutual fund complexes in the United States were:[10] 1. Fidelity Investments 2. Vanguard Group 3. Capital Research & Management (American Funds) 4. JP Morgan Chase & Co. 5. BlackRock Funds 6. PIMCO Funds 7. Franklin Templeton Investments 8. Federated Investors 9. Bank of New York Mellon 10. Goldman Sachs & Co.
Mutual fund expenses

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Investors in mutual funds pay fees. This fall into four categories: distribution charges (sales loads and 12b-1 fees), the management fee, other fund expenses, shareholder transaction fees and securities transaction fees. Some of these expenses reduce the value of an investor's account; others are paid by the fund and reduce net asset value. Recurring expenses are included in a fund's expense ratio.
Net asset value or NAV

A fund's net asset value or NAV equals the current market value of a fund's holdings minus the fund's liabilities (sometimes referred to as "net assets"). It is usually expressed as a per-share amount, computed by dividing by the number of fund shares outstanding. Funds must compute their net asset value every day the New York Stock Exchange is open. Valuing the securities held in a fund's portfolio is often the most difficult part of calculating net asset value. The fund's board of directors (or board of trustees) oversees security valuation.
Average annual total return

The SEC requires that mutual funds report the average annual compounded rates of return for 1year, 5-year and 10-year periods using the following formula: P (1+T) n = ERV Where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion).

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INSURANCE Chapter 11
Insurance is a risk management technique primarily used to hedge against the risk of a contingent, uncertain loss that may be suffered by those individuals or entities that have an insurable interest in scarce resources, by transferring the possibility of this loss from one interested person, persons, or entity to another. The scarce resources referred to her fall into three divisions: human resources, financial resources, and capital, or tangible resources. In the context of insurance, scarce resources are also known as "exposures," because they are "exposed" to perils, those things, or forces, which cause destruction or reduction, in the usefulness, or value, of an exposed resource. Human resources are thus exposed to perils such as illness or death; financial resources to legal judgements that may result from negligent acts, and capital resources to physical perils such as fire, theft, windstorm, and vandalism, to name but a few. A hazard is the cause of a peril. It is that thing or condition which increases the likelihood of a peril. Thus perils and hazards are identified by the exposure that they threaten. For example a slippery roadway could be viewed as a financial hazard, capital hazard, or human hazard by automobile owners, and rightly so, since this condition increases the likelihood of an automobile accident that might result in an unfavourable legal judgement, automobile damage, and bodily injury. In the context of commercial trade, insurance is further defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for consideration, payment, in the form of a risk premium. The insurance premium develops at an actuarially-determined rate. This rate is a factor used to determine the amount of premium to charge for a certain limit, and type, of insurance on the scarce resource. The premium can further be viewed as a guaranteed, known, relatively small financial loss to the insured, paid to the insurer, in exchange for the insurer's promise to compensate (indemnify) the insured in the

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case of a loss to the insured resource(s). The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be indemnified. Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk.
History of insurance

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea. Achaemenian monarchs of Ancient Persia were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant
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whose goods were deliberately jettisoned in order to lighten the ship and save it from total loss. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies. Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in postRenaissance Europe, and specialized varieties developed. Some forms of insurance had developed in London by the early decades of the 17th century. For example, the will of the English colonist Robert Hayman mentions two "policies of insurance" taken out with the diocesan Chancellor of London, Arthur Duck. Of the value of 100 each, one relates to the safe arrival of Hayman's ship in Guyana and the other is in regard to "one hundred pounds assured by the said Doctor Arthur Ducke on my life". Hayman's will was signed and sealed on 17 November 1628 but not proved until 1633. Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is an insurance market rather than a company) for marine and other specialist types of insurance, but it operates rather differently than the more familiar kinds of insurance. Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses.

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Types of insurance

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which is not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance policy in the U.S. typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property. Business insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are discussed below under that name; and the business owner's policy (BOP), which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners' insurance packages the coverages that a homeowner needs. Auto insurance Home insurance Health insurance Accident, sickness and unemployment insurance Casualty Life Burial insurance Closed community self-insurance Credit

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Insurers' business model

The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss - underwriting expenses. Insurers make money in two ways: Through underwriting, the processes by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks; By investing the premiums they collect from insured parties. The most complicated aspect of the insurance business is the actuarial science of ratemaking (pricesetting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process. At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and comparing these prior losses to the premium collected in order to assess rate adequacy. Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" - a policy with twice as money policies would therefore be charged twice as much. However, more complex multivariate analyses through generalized linear modelling are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses. Upon termination of a given policy, the amount of premium collected and the investment gains thereon, minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting performance is measured by

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something called the "combined ratio" which is the ratio of expenses/losses to premiums. A combined ratio of less than 100 percent indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings. Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange. In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held. Naturally, the float method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle.
Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insured directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD. Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data
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entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment. The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim. Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge. If a claims adjuster suspects under-insurance, the condition of average may come into play to limit the insurance company's exposure. In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages.
Marketing

Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. Commissions to agents represent a significant portion of an insurance cost and insurers such as State Farm that sell policies directly via mass marketing campaigns can offer lower prices. The existence and success of companies using insurance agents (with higher prices) is likely due to improved and personalized service.
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OBJECTIVES OF THE STUDY Chapter 12

The objectives of the study are To open the new Equity, Mutual Fund, PMS Accounts with offering better service including charging of lower brokerage rate to the clients. To increase the company client database. To study the investment habit of the general public. To find the broader reasons that affect the market prices and to make aware of the clients to take right decision. To help one understand the various factors that influence the market. To give an idea as to the factors that should influence the investing decision, in these stocks.

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Research Methodology Chapter 13

On joining Religare the first assignment which was given to me to know what is the view of general public about the investment in gold?. The investment may be following types it can be in the physical market as well as commodity market. Then plans are quickly made that how to proceed in the task so that it is possible to got the exact view of the general public the plan was as follows: Make a questioner with some important question which is given in later part of the project report. Recognize the people whom to survey, they are gold jewellery shop owner and people who invest in commodity market. Specify the area where to survey, like Durgapur city centre, Durgapur Chandidas market, Durgapur Muchipara, Durgapur station market, Durgapur Benachiti market, Andal market, Ranigung market. collect twenty data from each market

The research was on basics of data which is collected during the survey was done during SIP, the data were analysed and then the view was put about the topic which was given to me. Two surveys, one on gold view and another on the investment habit of the general public had been conducted. The data was primary data that means the was came from general public and the information which they give for collecting the data a questioner was used for the questioner please refer to the annexure 1.The sample size of the first survey is 142 which is randomly selected from the different geographical area. The data analysed in graphical way by drawing a histogram and the detail data of the survey 2 was given below of different geographical area.
1. Durgapur city centre

Total number of people which I surveyed: Page 66

21

Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

16 05

2. Durgapur Chandidas market

Total number of people which I surveyed: Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

20 18 02

3. Durgapur Muchipara

Total number of people which I surveyed: Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

22 15 07

4. Durgapur station market

Total number of people which I surveyed: Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

21 10 11

5. Andal market

Total number of people which I surveyed: Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

21 18 02

6. Ranigung

Total number of people which I surveyed: Total number of people who said yes that the gold market will go up: Total number of people who said no that the gold market will not go up: -

37 34 03

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Graph
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 No Yes

So by analysing the data the fact which was coming in front that majority of the people believes that investment on the gold is a good investment and the gold market will grow up in the future.

Expert comment on investment on gold

Michael J. Kosares: Question. What is your view of gold stocks? Answer. Many of our clients own gold stocks and we believe they have a place in the portfolio. However, it should be emphasized that gold stocks are not a substitute for real gold ownership, that is, in its physical form as coins and bars. Instead, stocks should be viewed as an addition to the portfolio after one has truly diversified with gold coins and bullion. Gold stocks can actually act opposite the intent of the investor, as some justifiably disgruntled mine company shareholders learned in the recent past when their stocks failed to perform as the price rose. There is no such ambiguity involved in actual gold ownership.

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Sundeep Sikka: Q: Take us through this product and how it compares with buying physical gold, the pros and cons? A: Indias love for gold is well-known. Indians have been investing in gold for years now. Last year, Indians bought about 700 tonne of gold, which is equivalent to Rs 1, 40,000 crore. We have been buying gold in spite of all the problems with the physical gold purity and pricing. The love for gold with Indians starts even before a child is born. When it comes to the mutual fund industry, it has been all about two asset classes debt and equity. We thought there is an opportunity, you have 4 crore mutual fund investors, hence, rather than pushing gold to these investors, why not push mutual fund to 50 crore investors who have been investing in gold? This is how this idea came by. After knowing all the fact about gold investment the second task was given to me is what the investment habit of the general people is? Where the general people prefer to invest their money or I can say that what the investment habit of the general people is? For solving this question I must do a plan in the similar fashion so that I can understand the exact blood flow form which vein. The plan was as follows. Make a questioner with some important question which is given in later part of the project report. Recognize the people whom I was going to survey they are general bank investor and people who related with business whose business transaction was above one crore. Specify the area where I going to survey like Durgapur city centre, Durgapur Chandidas market, Durgapur Muchipara, Durgapur station market, Durgapur Benachiti market, Andal market, Ranigung market. This research also was on basis of data which was collected during the survey was done during SIP, the data were analysed and then the view was put about the topic which was given to me as I had done in the previous survey. The data is primary data which was collected from general public with the help of a questionnaire. (Please refer to the annexure 2). The sample size of the first survey is

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194 which is randomly selected from the different geographical area. The data analysed in graphical way by drawing a pie chart and the detail data of the survey 2 was given below of different geographical area.

1. Durgapur city centre

Total number of peoples was surveyed: Total number of peoples who invested in bank: Total number of peoples who invested in insurance:Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: -

30 25 15 12 14 05 08

2. Durgapur Chandidas market

Total number of peoples was surveyed: Total number of peoples who invested in bank: Total number of peoples who invested in insurance: Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: -

35 20 15 18 19 03 07

3. Durgapur Muchipara

Total number of peoples was surveyed: Total number of peoples who invested in bank: Total number of peoples who invested in insurance: Page 70

30 22 18

Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: -

17 16 06 09

4. Durgapur station market

Total number of peoples was surveyed: Total number of peoples who invested in bank: Total number of peoples who invested in insurance: Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: -

32 26 17 10 15 02 10

5. Andal market

Total number of peoples was surveyed: Total number of peoples who invested in bank: Total number of peoples who invested in insurance: Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: 6. Ranigung

30 23 20 13 14 04 08

Total number of peoples was surveyed: Total number of peoples who invested in bank: -

37 31

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Total number of peoples who invested in insurance: Total number of peoples who invested in mutual fund: Total number of people who invested in fixed deposit: Total number of people who invested in stock market: Total number of people who knew the name of Religare: Graph

15 12 17 04 15

24

1 Total numbed of
people invested in stock market

2 Total numbed of
people invested in others

170

So we can conclude that maximum people invest in bank and then in fixed deposit and very less number of peoples are investing in stock market they mainly fear that it is risky to invest in stock market. After doing the survey the fact which came in front that people are wants to invest in safe place where the risk is minimum may be they earn less return. I can understand that there is a huge scope for brooking company and they can grow well in Indian market. The next task was given is to the collect the information about the competition so I collect the maximum information about the competitor by go through the site of our competitor and collect the information about how they work and about their marketing strategy and about their profile

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and how they handle their client and what are the benefits they were giving to their client. Competitor means the people who were working in the same field with having the same work they were also having the same targeted customer. The information which was collected finds out the weak point of them by analysing the data and makes a strategy how to convert my companys client to my companys client. Then I visit my competitor office and search for the information. I was also interrogate the client of my company competitor's client ask what are the more benefit they wants and also about the expectation and one important which I came to knew that some of non popular local broking company taking the major market share. It is a hard task for me to collect the Information no one wanted to give me information but somehow I make it. It is given in the Chapter 2 which is present above part of the project.

After all the analysis the fact comes in front that the competition is tough the Religare must have strong marketing strategy to sustain in the market and compete their competitor and go in the top position so thats way they concentrated on the research part and maintain it for long period of time and they also concentrated on the brokerage. Religare having a unique research so that when a call given by them for a particular share the call will match up to 70%.The next task which was given by company to convincing the customer to open the demat account for this I did the telecalling to the potential customer which was collected in the survey. Firstly I divided the in the category like. Age (18-25), (25-30), (30-35), (35-40+) Occupation (Business), (jobs) Investment (fixed deposit), (insurance), (bank), (mutual funds)

Names was randomly selected from the base and gave a call to them and said to them that he was selected for an offer for opening a minimum deposit and took a appointment form them according
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to their convenient time in their work place or in their home. When I was talking to them over the phone in the mean time needs were analysed of the customer and their mentality about the investment in the stock market and the ratio of getting appointment was 5:1 and I got 2 to 3 appointment daily. For the client meet I prepare myself for handle every question of the client. Mr Arun gave me complete product knowledge which they were having like they deals with two kind of product one is online and another one is offline. Rally (offline) Race (online)

The sales presentation was in the Microsoft power point and made the information in brief I usually went to work place of the client and the sales presentation was presented before client. It gave all the information about the Religare like Religare Security Ltd is part of the Religare Enterprises Ltd so that the client could understand the origin of the company in this slide I also gave the information about the number of the clients which the company had by this statement client could easily understood the popularity of the Religare and client get impressed by the companys popularity. In this slide I also give the information about the reach of the company that where the client could find the office of the company and lastly I talk about the membership of the company and the legal bodies. One thing which I kept in mind that when I was delivering the presentation we must speak confidently and make them impress with the body language. When I was doing the conversation I talked about the back ground of the client by that I could knew the background of the client and also came to know the financial status of the customer and also knew the Investment habit of the client. After given this presentation one thing came to customers mind that what is DEMAT account and a DEMAT could be opened and what is the difference between the DEMAT

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account and savings account and in this continuous conversation I continuously probe them about their needs and exception. It explain that how DEMAT account works and how it is linked with trading account and bank account. I also explain them that how the Religare manage the bank account. I have to make them understand in a clear simple language then only they could understand. After make them understand then they ask about the return which they will get after investing in the stock market. It shows sensex index of present time as well as index at the year 1991 and I compared the index and sowed them the return which an investor could get after the investment. I showed the return is about 20 times after most of the people showed their interest in share market a common question which came in front that What is sensex? and they ask about how the sensex works? and I make them understand another couple for question aroused that is Under whom the sensex works? What are NSE and BSE? How the price of a particular share? I saw many people who invested in share market who made a loss what is guarantee that I will make profit? How much return would I get after I invested in the share market? Why I invest my money in Religare and why not others?

The question would vary from one person to another and I gave the answer of each question and make their view clear about the investment strategy of them then I feel that I had to explain the benefits of them to investing in share market.

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It was compared between the various investments and the investment done in the share market and it made the people understand what in the return they will get if they invested in share market. I showed the benefit to the client which made my point more strong and they started thinking about investment and I also made them understand why the Religare is the best for investment for I have to put view on the research part of the Religare. In the mean time the client was free enough to discuss about their problem or they agree to invest in share market. I also focus the Religares service which the company use to give to their client.

It motivate the client to invest in share market and one question came in front that what are the charges required to open a DEMAT account.

It explained the charge for opening DEMAT account and the minimum investment which is needed and I also explained them about the brokerage for intraday and holding. I also explained the client about the competitive advantage in the term of brokerage.

I helped the company add two clients in their client list by successfully registering two Demat account openings and by giving them ten active prospects/ leads to the company.

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INTERPRETATION OF RESULTS Chapter 14

About findings in pie chart is that there is huge scope for the Religare to grow and penetrate deep in the rural market it only require little bit of promotion.
In Respect of the Stock Market:

The main factors influencing the stock markets and its movements have been discussed. There are innumerable reasons behind the performance of the markets and the Religare itself. It is next to impossible to study all that which influences the market. Also, no matter how good an analyst is, it is not possible to predict the market accurately every time in the long run. But even the presence of these restrictions does not deter investors from the stock market. So my suggestions are that to make a good investment, one should: Check for the political situation in the country and how it will affect the stock prices. Look at the economic scenario and the development taking place. This would help in analyzing the long term prospects of the company or the market as a whole. Study the industry of the company and see whether its doing well or not and what is its future scope. Analyze the company and look into its annual reports and performance of the years. The investor should see to it that the company has been performing steadily over the years. Also the long term plans and the management of the company should be taken under consideration. Use the concept of intrinsic value, since it says that the price of the share will always reflect the intrinsic value in the long run.

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In Respect of the Marketing Securities:

To capture and to increase the market share Religare have to improve its marketing strategy. While its providing and offering a lower rate of brokerage and providing commendable tips to the clients, but as the other company like Indiabulls, which are providing lower rate of Annual Maintenance Charge of Demat account or Reliance Money, who are charging a very lower rate of brokerage, Religare can improve its marketing strategy. Also By giving attractive Advertisement on TV, newspapers, hooding and by mobile Ads. By improving its online transactions. By implying the Marketing Mix strategy for improving the client base. By implying the BUZZ marketing strategy before the coming of new stocks. By opening new branches at outside of Kolkata to attracts outside clients.
In Respect of the Company business:

Religare is growing firm in the field of financial sector its having very well and the strong point is their customer service. It is going to deep in the rural area of the country and maximizes their reach among the general people. Religare also give competitive brokerage to the customer and to attack the common people by their policy and product. As the survey was done on the gold view of the general public the fact which was came in front that maximum number of the people said that the gold will go up and the maximum of the people said that they wanted to invest in gold so there is huge scope for the commodity market to grow and they preferred to invest in commodity market. From the survey 2 the fact which is came in front was that the people keeping their money in FD LIP etc because it is safe to invest money but the share market is risky and, markets not doing well in

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India. Foreign markets are also not doing well due to economic problem or Slowdown of the economy. So in near future the stock market not going to do well as survey was conducted during this time so such result came in front that general people do not want to invest in the stock market because there is fear factor is going on the peoples mind. The company must take different marketing strategy to break down the fear from the peoples mind and position it in a different way.

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CONCLUSION

The project covers the different reasons of the price fluctuations. It was seen that the investment habit of the common people. This project also views the thought of the common people about the stock market as well as the other investment. This also views the detail of their compotator profile and the product they are providing to the common people, it also gives detail about Religares company profile. This project also gives light on the Indian as well as global economic status in the present world and also the Indian rules and regulation of investment and the tax benefit for the investment. This project also views the political scenarios or the tension across borders directly influenced the prices. This project also cover the selling part of the demat account and as well as it cover the customer service part. Apart from this the whims of the investors, their own way of studying and predicting the market also plays a role in the fluctuations. Anything and everything can have its say in the market. Hence, one should always keep the element of risk in mind while investing in the market.

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Annexure 1

Survey About Gold View Name:Occupation:Contact Number:Place:The Investment on gold is good investment: Will the gold market will grow: Remark:Date:Up Down Yes No

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Annexure 2
Survey of Investment Habit

Name:Contact Number:Investment Habit: Insurance Bank Mutual Fund Fixed deposit Stock market Mutual fund

According to you name best five brooking company in India:1. 2. 3. 4. 5. ________________________ ________________________ ________________________ ________________________ ________________________

Where do you thing that safest place for investment?:1. ________________________ 2. ________________________ 3. ________________________ Are you intrested to invest in share market?: Remark:Date:Yes No

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References
1.
http://www.moneycontrol.com/news/mf-interview/looking-to-investgold-heresnforeliance amc_523079.html

2. 3. 4. 5. 6. 7. 8. 9.

http://www.usagold.com/cpm/goldhelp.html http://www.religaresecurities.com/ http://www.religare.com/ http://www.wikipedia.org/ http://www.mcxindia.com/ http://www.commodityindia.com/ http://en.wikipedia.org/wiki/Derivative_(finance) http://en.wikipedia.org/wiki/Insurance

10.http://en.wikipedia.org/wiki/Stock_market 11.http://en.wikipedia.org/wiki/Mutual_funds 12.http://www.anglesecurity.com/ 13.http://indiabulls.com/ 14.http://www.sharekhan.com/stock-market/11/home.htm 15.http://www.motilaloswal.com/home/

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