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INRODUCTION
FINANCE
Finance is the lifeblood of any business and it is very vital for its growth
and development. It is very essential for the smooth functioning of the
business activity function smoothly unless it has got sufficient funds at its
disposal for purchase of machines, materials and land and building to
house them and to meet day to day expenses to meet several other
purposes to run the business.
According to the Guthumann and Dougall, Business finance can
broadly be defined as the activity concerned with planning, raising,
controlling, administering of the funds used in the business.
Finance is classified into two classes; Public finance Private finance
Public finance:
It deals with the requirements, receipts and disbursements of funds
in the government institutions like states, local self-government
Private finance:
It is concerned with requirements, receipts and disbursement of
funds in case of an individual, a profit seeking business organization and
a non-profit organization.
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The main reasons a business needs finance are to: Start a business:-Depending on the type of business, it will need
to finance the purchase of assets, materials and employing people.
There will also need to be money to cover the running costs. It may
be some time before the business generates enough cash from sales
to pay for these costs. Link to cash flow forecasting.
Finance expansions to production capacity:-As a businessgrows, it needs higher capacity and new technology to cut unit
costs and keep up with competitors. New technology can berelatively expensive to the business and is seen as a long
term investment, because the costs will outweigh the money saved
or generated for a considerable period of time. And remember new
technology is not just dealing with computer systems, but also new
machinery and tools to perform processes quicker, more efficiently
and with greater quality.
To develop and market new products:-In fast moving markets,where competitors are constantly updating their products, a
business needs to spend money on developing and marketing new
products.
To enter new markets:-When a business seeks to expand it maylook to sell their products into new markets. These can be new
geographical areas to sell to (e.g. export markets) or new types of
customers. This costs money in terms of research and marketing
e.g. advertising campaigns and setting up retail outlets.
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Take-over/ Acquisition:-When a business buys another business,it will need to find money to pay for the acquisition (acquisitions
involve significant investment). This money will be used to pay
owners of the business which is being bought.
Moving to new premises:-Finance is needed to pay for simpleexpenses such as the cost of renting of removal vans, through to
relocation packages for employees and the installation of
machinery.
To pay for the day to day running of business:-A business hasmany calls on its cash on a day to day basis, from paying a supplier
for raw materials, paying the wages through to buying a new
printer cartridge.
FIANANCIAL MARKETS
Generally speaking, there is no specific place or location to
indicate a financial market. Wherever a financial transaction takes place,
it is deemed to have taken place in the financial market. Hence financial
markets are pervasive throughout the economic system. For instance,
issue of equity share, granting of loan by term landing institutions,
deposits of money into bank, purchase of debentures, sale of shares and
so on.
However, financial markets can be referred to as those centers and
arrangement, which facilitate buying and selling of financial assets, it
claims and services. Sometimes, we do find the existence of a specific
place or location for financial markets as in the case of stock exchange
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NEW FINANCIAL PRODUCTS AND SERVICE
Today, the importance of financial services is gaining momentum all overthe world. With the injection of the economic liberation policy into our
economy and the opening of the economy to multinationals, the free
market concept has assumed much significance. As a result, the clients
both corporate and individuals are exposed to the phenomena of volatility
and uncertainty and hence they expect the financial service company to
innovate new products and services so as to meet their varied
requirements. Some of them are briefly discussed below:-
I) Mutual Funds: A mutual funds refers to a fund raised by a financial
service company by pooling the savings of the public. It is invested in a
diversified portfolio with a view to spreading and minimizing risk. The
fund provides Investment Avenue for small investors who cannot
participate in the equity of big companies. Its ensures low risks, steady
returns, high liquidity and better capital appreciation in the long run.
II) Derivative Security: A derivative security is a security whose Value
depends upon the values of other basic variables backing the security. In
most cases, these variables are nothing but the prices of traded securities.
A derivative security is basically used as risk management tool and it is
resorted to cover Ac risks due to price fluctuations by the investmentsmanager. Derivative helps to break the ; risks into various components
such as credit risk, interest rates risk, exchange rates risk and so on. It
enables the various risk components to be identified precisely and priced
them and even traded them if necessary, In India some forms of
derivatives are in operation. Example: Forwards in forex market.
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INTRODUCTION TO DERIVATIVES
The origin of derivatives can be traced back to the need of farmers to
protect themselves against fluctuations in the price of their crop. From the
time it was sown to the time it was ready for harvest, farmers would face
price uncertainty. Through the use of simple derivative products, it was
possible for the farmer to partially or fully transfer price risks by locking-
in asset prices. These were simple contracts developed to meet the needs
of farmers and were basically a means of reducing risk.
A farmer who sowed his crop in June faced uncertainty over the
price he would receive for his harvest in September. In years of scarcity,
he would probably obtain attractive prices. However, during times of
oversupply, he would have to dispose off his harvest at a very low price.
Clearly this meant that the farmer and his family were exposed to a high
risk of price uncertainty.
On the other hand, a merchant with an ongoing requirement of
grains too would face a price risk that of having to pay exorbitant prices
during dearth, although favourable prices could be obtained during
periods of oversupply. Under such circumstances, it clearly made sense
for the farmer and the merchant to come together and enter into contractwhereby the price of the grain to be delivered in September could be
decided earlier. What they would then negotiate happened to be futures-
type contract, which would enable both parties to eliminate the price risk.
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In 1848, the Chicago Board Of Trade, or CBOT, was established to
bring farmers and merchants together. A group of traders got together and
created the to-arrive contract that permitted farmers to lock into price
upfront and deliver the grain later. These to-arrive contracts proved useful
as a device for hedging and speculation on price charges. These were
eventually standardized, and in 1925 the first futures clearing house came
into existence.
Today derivatives contracts exist on variety of commodities such
as corn, pepper, cotton, wheat, silver etc. Besides commodities,
derivatives contracts also exist on a lot of financial underlying like stocks,
interest rate, exchange rate, etc.
THE NEED OF DERIVATIVES MARKET:
The derivatives market performs a number of economic functions:
1. They help in transferring risks from risk adverse people to risk oriented
People
2. They help in the discovery of future as well as current prices
3. They catalyze entrepreneurial activity
4. They increase the volume traded in markets because of participation of
risk adverse people in greater numbers
5. They increase savings and investment in the long run
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DERIVATIVES
A derivative is a product whose value is derived from the value of one or
more underlying variables or assets in a contractual manner. The
underlying asset can be equity, forex, commodity or any other asset. In
our earlier discussion, we saw that wheat farmers may wish to sell their
harvest at a future date to eliminate the risk of change in price by that
date. Such a transaction is an example of a derivative. The price of this
derivative is driven by the spot price of wheat which is the underlying
in this case.
The Forwards Contracts (Regulation) Act, 1952, regulates the
forward/futures contracts in commodities all over India. As per this the
Forward Markets Commission (FMC) continues to have jurisdiction over
commodity futures contracts. However when derivatives trading in
securities was introduced in 2001, the term security in the SecuritiesContracts (Regulation) Act, 1956 (SCRA), was amended to include
derivative contracts in securities. Consequently, regulation of derivatives
came under the purview of Securities Exchange Board of India (SEBI).
We thus have separate regulatory authorities for securities and
commodity derivative markets.
Derivatives are securities under the SCRA and hence the trading of
derivatives is governed by the regulatory framework under the SCRA.
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The Securities Contracts (Regulation) Act, 1956 defines derivative to
include-
A security derived from a debt instrument, share, loan whethersecured or unsecured, risk instrument or contract differences or any
other form of security.
A contract which derives its value from the prices, or index ofprices, of underlying securities
The National Stock Exchange of India Limited (NSE) is aMumbai-based Stock Exchange. It is the second largest stock
exchange in India in terms of daily turnover and number of trades,
for both equities and derivative tradingNSE is mutually owned by
a set of leading financial institutions, banks, insurance companies
Types Of Derivative Market
NSE
Index Option
BSE
Exchange Traded
Derivatives
Index Future
National Commodity and
Derivative Exchange
Over the counter
Traded Derivatives
Future RateStock
Option
Stock Future
Interest
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and other financial intermediaries in India but its ownership and
management operate as separate entities.
The Bombay Stock Exchange (BSE) is the first stock exchange inthe country, which obtained permanent recognition (in 1956) from
the Government of India under the Securities Contracts
(Regulation) Act 1956. BSE's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized. It
migrated from the open outcry system to an online screen-based
order driven trading system in 1995.
Index Option:-A financial derivative that gives the holder theright, but not the obligation, to buy or sell a basket of stocks, such
as the S&P 500, at an agreed-upon price and before a certain date.
An index option is similar to other options contracts, the difference
being the underlying instruments are indexes.
Stock Option:-A privilege, sold by one party to another, that givesthe buyer the right, but not the obligation, to buy (call) or sell (put)
a stock at an agreed-upon price within a certain period or on a
specific date.
Index Futures:-A futures contract on a stock or financial index.For each index there may be a different multiple for determining
the price of the futures contract.
Future Interest Rate:-A futures contract with an underlyinginstrument that pays interest. An interest rate future is a contract
between the buyer and seller agreeing to the future delivery of any
interest-bearing asset. The interest rate future allows the buyer and
seller to lock in the price of the interest-bearing Asset for a future
date.
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Derivatives
Future Option Forward Swaps
TYPES OF DERIVATIVES
FORWARD CONTRACTS
A forward contract is an agreement to buy or sell an asset on a
specified date for a specified price. One of the parties to the contract
assumes a long position and agrees to buy the underlying asset on a
certain specified future date for a certain specified price. The other
party assumes a short position and agrees to sell the asset on the
same date for the same price. Other contract details like delivery
date, price and quantity are negotiated bilaterally by the parties to the
contract. The forward contracts are no r ma l l y traded outside the
exchanges.
The salient features of forward contracts are:
They are bilateral contracts and hence exposed to counter-
party risk.
Each contract is custom designed, and hence is unique in terms
of contract size, expiration date and the asset type and quality.
The contract price is generally not available in public domain.
On the expiration date, the contract has to be settled by
delivery of the asset.
If the party wishes to reverse the contract, it has to compulsorily go
to the same counter-party, which often results in high pricesbeing charged.
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FUTURE CONTRACT
In finance, a futures contract is a standardized contract, traded on afutures exchange, to buy or sell a certain underlying instrument at a
certain date in the future, at a pre-set price. The future date is called the
delivery date or final settlement date. The pre-set price is called the
futures price. The price of the underlying asset on the delivery date is
called the settlement price. The settlement price, normally, converges
towards the futures price on the delivery date. A futures contract gives the
holder the right and the obligation to buy or sell, which differs from an
options contract, which gives the buyer the right, but not the obligation,
and the option writer (seller) the obligation, but not the right. To exit the
commitment, the holder of a futures position has to sell his long position
or buy back his short position, effectively closing out the futures position
and its contract obligations. Futures contracts are exchange traded
derivatives. The exchange acts as counterparty on all contracts, sets
margin requirements, etc.
BASIC FEATURES OF FUTURE CONTRACT
1. Standardization:
Futures contracts ensure their liquidity by being highly standardized,
usually by specifying:
The underlying. This can be anything from a barrel of sweet crudeoil to a short term interest rate.
The type of settlement, either cash settlement or physicalsettlement.
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The amount and units of the underlying asset per contract. This canbe the notional amount of bonds, a fixed number of barrels of oil,
units of foreign currency, the notional amount of the deposit over
which the short term interest rate is traded, etc.
The currency in which the futures contract is quoted. The grade of the deliverable. In case of bonds, this specifies which
bonds can be delivered. In case of physical commodities, this
specifies not only the quality of the underlying goods but also the
manner and location of delivery. The delivery month.
The last trading date. Other details such as the tick, the minimum permissible price
fluctuation.
2. Margin:
Although the value of a contract at time of trading should be zero, its
price constantly fluctuates. This renders the owner liable to adversechanges in value, and creates a credit risk to the exchange, who always
acts as counterparty. To minimize this risk, the exchange demands that
contract owners post a form of collateral, commonly known as Margin
requirements are waived or reduced in some cases for hedgers who have
physical ownership of the covered commodity or spread traders who have
offsetting contracts balancing the position.
Initial margin: is paid by both buyer and seller. It represents theloss on that contract, as determined by historical price changes,
which is not likely to be exceeded on a usual day's trading. It may
be 5% or 10% of total contract price.
Mark to market Margin: Because a series of adverse pricechanges may exhaust the initial margin, a further margin, usually
called variation or maintenance margin, is required by the
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exchange. This is calculated by the futures contract, i.e. agreeing
on a price at the end of each day, called the "settlement" or mark-
to-market price of the contract.
To understand the original practice, consider that a futures trader, when
taking a position, deposits money with the exchange, called a "margin".
This is intended to protect the exchange against loss. At the end of every
trading day, the contract is marked to its present market value. If the
trader is on the winning side of a deal, his contract has increased in value
that day, and the exchange pays this profit into his account. On the other
hand, if he is on the losing side, the exchange will debit his account. If he
cannot pay, then the margin is used as the collateral from which the loss
is paid.
3. Settlement
Settlement is the act of consummating the contract, and can be done in
one of two ways, as specified per type of futures contract:
Physical delivery - the amount specified of the underlying asset ofthe contract is delivered by the seller of the contract to the
exchange, and by the exchange to the buyers of the contract. In
practice, it occurs only on a minority of contracts. Most are
cancelled out by purchasing a covering position - that is, buying a
contract to cancel out an earlier sale (covering a short), or selling a
contract to liquidate an earlier purchase (covering a long).
Cash settlement - a cash payment is made based on the underlyingreference rate, such as a short term interest rate index such as
Euribor, or the closing value of a stock market index. A futures
contract might also opt to settle against an index based on trade in a
related spot market.
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Expiry: is the time when the final prices of the future aredetermined. For many equity index and interest rate futures
contracts, this happens on the Last Thursday of certain trading
month. On this day the t+2 futures contract becomes the t forward
contract.
In the case where the forward price is higher:
1. The arbitrageur sells the futures contract and buys the underlyingtoday (on the spot market) with borrowed money.
2.
On the delivery date, the arbitrageur hands over the underlying,and receives the agreed forward price.
3. He then repays the lender the borrowed amount plus interest.4. The difference between the two amounts is the arbitrage profit.
In the case where the forward price is lower:
1. The arbitrageur buys the futures contract and sells the underlyingtoday (on the spot market); he invests the proceeds.
2. On the delivery date, he cashes in the matured investment, whichhas appreciated at the risk free rate.
3. He then receives the underlying and pays the agreed forward priceusing the matured investment. [If he was short the underlying, he
returns it now.]
4. The difference between the two amounts is the arbitrage profit.
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DISTINCTION BETWEEN FUTURES AND FORWARDS
CONTRACTS
FEATURES FORWARD CONTRACT FUTURE CONTRACT
Operational
Mechanism
Traded directly between two
parties (not traded on the
exchanges).
Traded on the exchanges.
Contract
Specifications
Differ from trade to trade. Contracts are standardized contracts.
Counter-party
risk
Exists. Exists. However, assumed by the clearing
corp., which becomes the counter party to
all the trades or unconditionally
guarantees their settlement.
Liquidation
Profile
Low, as contracts are tailor
made contracts catering to
the needs of the needs of the
parties.
High, as contracts are standardized
exchange traded contracts.
Price discovery Not efficient, as markets are
scattered.
Efficient, as markets are centralized and
all buyers and sellers come to a common
platform to discover the price.
Examples Currency market in India. Commodities, futures, Index Futures and
Individual stock Futures in India.
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OPTIONS -
A derivative transaction that gives the option holder the right but not the
obligation to buy or sell the underlying asset at a price, called the strike
price, during a period or on a specific date in exchange for payment of a
premium is known as option. Underlying asset refers to any asset that is
traded. The price at which the underlying is traded is called the strike
price.
There are two types of options i.e., CALL OPTION AND PUT
OPTION.
I. CALL OPTION:
A contract that gives its owner the right but not the obligation to buy an
underlying asset-stock or any financial asset, at a specified price on or
before a specified date is known as a Call option. The owner makes a
profit provided he sells at a higher current price and buys at a lower
future price.
II. PUT OPTION:
A contract that gives its owner the right but not the obligation to sell an
underlying asset-stock or any financial asset, at a specified price on or
before a specified date is known as a Put option. The owner makes a
profit provided he buys at a lower current price and sells at a higher
future price. Hence, no option will be exercised if the future price does
not increase.
Put and calls are almost always written on equities, although occasionally
preference shares, bonds and warrants become the subject of options.
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4. SWAPS -
Swaps are transactions which obligates the two parties to the contract to
exchange a series of cash flows at specified intervals known as payment
or settlement dates. They can be regarded as portfolios of forward's
contracts. A contract whereby two parties agree to exchange (swap)
payments, based on some notional principle amount is called as a
SWAP. In case of swap, only the payment flows are exchanged and not
the principle amount. The two commonly used swaps are:
I.INTEREST RATE SWAPS:
Interest rate swaps is an arrangement by which one party agrees to
exchange his series of fixed rate interest payments to a party in exchange
for his variable rate interest payments. The fixed rate payer takes a short
position in the forward contract whereas the floating rate payer takes a
long position in the forward contract.
II.CURRENCY SWAPS:
Currency swaps is an arrangement in which both the principle amount
and the interest on loan in one currency are swapped for the principle and
the interest payments on loan in another currency. The parties to the swap
contract of currency generally hail from two different countries. This
arrangement allows the counter parties to borrow easily and cheaply in
their home currencies. Under a currency swap, cash flows to be
exchanged are determined at the spot rate at a time when swap is done.
Such cash flows are supposed to remain unaffected by subsequent
changes in the exchange rates.
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PARTICIPANTS IN DERIVATIVE CONTRACTS:
HEDGERS: They are in the position where they face riskassociated with the price of an asset. They use derivatives to reduce
or eliminate risk. For example, a farmer may use futures or options
to establish the price for his crop long before he harvests it.
Various factors affect the supply and demand for that crop, causing
prices to rise and fall over the growing season. The farmer can
watch prices discovered in trading at the commodity exchange and
when they reflect the price he wants, sell futures contracts to assure
him of a fixed price for his crop. Hedging usually presupposes that
the spot and futures markets of any commodity move in the same
direction and by almost the same magnitude. But this relationship
depends on the amount of carrying or storage costs till the maturity
month of the futures contract. Normally when the stocks are
abundant, the futures price will exceed the spot price by the cost
of storage till the maturity month of the futures contract. This is
called as Contango.
SPECULATORS: Speculators wish to bet on the futuresmovement in the price of an asset. They use derivatives to get extra
leverage. A speculator will buy and sell in anticipation of future
price movements, but has no desire to actually own the physicalcommodity.
ARBITRAGEURS: They are in the business to take advantage ofa discrepancy between prices in two different markets. If, for
example, they see the future prices of an asset getting out of line
with the cash price, they will take offsetting positions in the two
markets to lock in a profit.
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TRADING ASPECTS IN DERIVATIVES:
Derivative contracts can be traded either in an exchange or OTC.
1. EXCHANGE:Exchange is a central marketplace for buyers and
sellers. The contracts are standardized to ensure that the prices mean the
same to everyone in the market. The prices in an exchange are
determined in the form of a continuous auction by the members who are
acting on behalf of their clients.
2. OVER-THE-COUNTER: Over-the-Counter is an alternative-trading
platform linked to a network of dealers who do not physically meet but
instead communicate through a network of phones and computers. Trades
are usually transacted between financial institutions that can also act as
market makers for the commonly traded instruments. All transactions
over the telephone are recorded, in case of future disputes that may arise.
The buyer and seller to suit their requirements can customize the
contracts traded in these markets. Hence, terms of the contract need not
Bespecified as in the case of an exchange.
There are 3 types of OTC Markets.
Traditional Dealer Market: In this, the dealers act as market makers bymaintaining bid and offer quotes. The dealers communicate the quotes
and the execution prices are negotiated upon over the telephone andsometimes through an electronic bulletin board. It is a bilateral trading as
only the two ends of a phone observe prices at a given point of time.
Electronic Broking Market: This is similar to the electronic tradingplatforms used by exchanges. These are considered to be Over-the-
Counter since the contracts are less standardized. The EBM neither sets
the contract design not clears the derivative transactions.
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Proprietary Trading Platform Markets: This is a combination of thefirst two in which a dealer sets up his own proprietary electronic trading
platform. The dealer quotes the Bids and Asks exclusively for the market
participants to observe his quotes only and not each others.
BENEFITS OF DERIVATIVES
Derivative markets help investors in many different ways:
RISK MANAGEMENT: Futures and options contract can beused for altering the risk of investing in spot market. For instance,
consider an investor who owns an asset. He will always be worried
that the price may fall before he can sell the asset. He can protect
himself by selling a futures contract, or by buying a Put option. If
the spot price falls, the short hedgers will gain in the futures
market, as you will see later. This will help offset their losses in the
spot market. PRICE DISCOVERY: Price discovery refers to the markets
ability to determine true equilibrium prices. Futures prices are
believed to contain information about future spot prices and help in
disseminating such information. As we have seen, futures markets
provide a low cost trading mechanism. Thus information pertaining
to supply and demand easily percolates into such markets.
Accurate prices are essential for ensuring the correct allocation of
resources in a free market economy.
OPERATIONAL ADVANTAGES:- As opposed to spot markets,derivatives markets involve lower transaction costs. Secondly, they
offer greater liquidity. Large spot transactions can often lead to
significant price changes. However, futures markets tend to be
more liquid than spot markets, because herein you can take large
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positions by depositing relatively small margins. Consequently, a
large position in derivatives markets is relatively easier to take and
has less of a price impact as opposed to a transaction of the same
magnitude in the spot market. Finally, it is easier to take a short
position in derivatives markets than it is to sell short in spot
markets.
MARKET EFFICIENCY: The availability of derivativesmakes markets more efficient; spot, futures and options markets
are inextricably linked. Since it is easier and cheaper to trade in
derivatives, it is possible to exploit arbitrage opportunities quickly
and to keep prices in alignment. Hence these markets help to
ensure that prices reflect true values.
EASE OF SPECULATION: Derivative markets providespeculators with a cheaper alternative to engaging in spot
transactions. Also, the amount of capital required to take a
comparable position is less in this case. This is important because
facilitation of speculation is critical for ensuring free and fair
markets. Speculators always take calculated risks.
The derivative market performs a number of economic functions.
The prices of derivatives converge with the prices of theunderlying at the expiration of derivative contract. Thus derivativeshelp in discovery of future as well as current prices.
An important incidental benefit that flows from derivatives tradingis that it acts as a catalyst for new entrepreneurial activity.
Derivatives markets help increase savings and investment in thelong run. Transfer of risk enables market participants to expand
their volume of activity.
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DEVELOPMENT OF DERIVATIVES MARKET IN INDIA
The first step towards introduction of derivatives trading in India was the
promulgation of the Securities Laws (Amendment) Ordinance, 1995,
which withdrew the prohibition on options in securities. The market for
derivatives, however, did not take off, as there was no regulatory
framework to govern trading of derivatives. SEBI set up a 24member
committee under the Chairmanship of Dr.L.C.Gupta on November 18,
1996 to develop appropriate regulatory framework for derivatives tradingin India. The committee submitted its report on March 17, 1998
prescribing necessary preconditions for introduction of derivatives
trading in India. The committee recommended that derivatives should be
declared as securities so that regulatory framework applicable to trad ing
of securities could also govern trading of securities. SEBI also set up a
group in June 1998 under the Chairmanship of Prof.J.R.Varma, to
recommend measures for risk containment in derivatives market in India.
The report, which was submitted in October 1998, worked out the
operational details of margining system, methodology for charging initial
margins, broker net worth, deposit requirement and realtime monitoring
requirements. The Securities Contract Regulation Act (SCRA) was
amended in December 1999 to include derivatives within the ambit of
securities and the regulatory framework were developed for governing
derivatives trading. The act also made it clear that derivatives shall be
legal and valid only if such contracts are traded on a recognized stock
exchange, thus precluding OTC derivatives. The government also
rescinded in March 2000, the three decade old notification, which
prohibited forward trading in securities. Derivatives trading commenced
in India in June 2000 after SEBI granted the final approval to this effect
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In may 2001 SEBI permitted the derivative segment of two stock
exchanges NSE and BSE and their clearing house/corporation to
commence trading and settlement in approved derivatives contracts. To
begin with SEBI approved trading in index futures contract based on S&P
CNX Nifty and BSE-30(sense) index this was followed by approval for
trading in options based on these two indexes and options on individual
securities
TURNOVER OF CASH MARKET AFTER DERIVATIVES
INTRODUCED:
TURNOVER OF CASH MARKET BEFORE DERIVATIVES
INTRODUCED:
YEAR BSE Turnover(Rs.Cr,)(F.Y. Jan-Dec)
NSE Turnover (Rs.Cr.)(F.Y. Apr-Mar)
2009-10(up to 31stAug.) 587901 1922783
2008-2009 1586441.49 2,752,023
2007-2008 1160248.63 3,551,038
2006-2007 701709.67 1,945,285
2005-2006 547922.44 1,569,556
2004-2005 365613.61 1,140,071
2003-2004 409372.67 1,099,535
2002-2003 332909.01 617,9892001-2002 475278.79 513,167
YEAR BSE Turnover(Rs.
Cr,)(F.Y. Jan-Dec)
NSE Turnover (Rs.
Cr.)(F.Y. Apr-Mar)
2000-2001 998655.28 1,339,5101999-2000 527960.16 839,052
1998-1999 414,474
1997-1998 370,193
1996-1997 294,503
1995-1996 67,287
1994-1995 1,805
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The Bank of International Settlements measures the size and the growth of
the derivative market. According to BIS, the derivative market growth in the
over the counter derivative market witnessed a slump in the second half of
2006. Although the credit derivative market grew at a rapid pace, such
growth was made offset by a slump somewhere else. The notional amount of
the Credit Default Swap witnessed a growth of 42%. Credit derivatives grew
by 54%. The single name contracts grew by 36%. The interest derivatives
grew by 11%. The OTC foreign exchange derivatives slowed by 5%, the
OTC equity derivatives slowed by 10%. Commodity derivatives also
experienced crawling growth pattern.
Business Growth in Derivatives segment
Yea Index Futures Stock Futures Index Options Stock Options
No. of contract Turnover
(Rs. cr.)
No. of
contracts
Turnover
(Rs. cr.)
No. of
contracts
Notional
Turnover
(Rs. cr.)
No. of
contracts
Notional
Turnove
(Rs. cr.)
2009-10 86651879 1715349.01 59128122 2257189.61 13288975 2789950.24 4731748 187261.34
2008-09 210428103 3570111.40 221577980 3479642.12 212088444 3731501.84 13295970 229226.81
2007-08 156598579 3820667.27 203587952 7548563.23 55366038 1362110.88 9460631 359136.55
2006-07 81487424 2539574 104955401 3830967 25157438 791906 5283310 193795
2005-06 58537886 1513755 80905493 2791697 12935116 338469 5240776 180253
2004-05 21635449 772147 47043066 1484056 3293558 121943 5045112 168836
2003-04 17191668 554446 32368842 1305939 1732414 52816 5583071 217207
2002-03 2126763 43952 10676843 286533 442241 9246 3523062 100131
2001-02 1025588 21483 1957856 51515 175900 3765 1037529 25163
2000-01 90580 2365
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Research Design
Meaning of research design
According to Green and Tull "A research design is the specification of
methods and procedures for acquiring the information needed. It is the
over-all operational pattern or framework of the project that stipulates
what information is to be collected from which source by what
procedures."
Research design can also be defined as the - plan, structure and
strategy. The plan is the outline of the research scheme on which the
researcher is to work. The structure of the research work is a more
specific scheme and the strategy suggests how the research will be carried
out i.e. methods to be used for the collection and analysis of data. In brief,
research design is the blueprint of research. It is the specification of
methods and procedures for acquiring the information needed for solving
the problem. Questionnaires, forms and samples for investigation are
decided while framing research design. Finally, the research design
enables the researcher to arrive at certain meaningful conclusions at the
end of proposed study.
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STATEMENT OF THE PROBLEM
Any business concerns in the economy needs money in order to run the
business successfully, money is available with the general public in the
form of savings. The investors invest their savings in various investment
avenues in order to get returns. Now a days investors have lost their
interest in investing in non-marketable securities due to less rate of
returns, but they are much aware of and interest in making investments in
marketable securities which gives back higher returns in minimum period
of time.
But investment in one type of security is very risky, because the investors
have to do security analysis. Investors have the other option of investing
in portfolios where the investment is made on different types of securities
of different companies where again risk and returns are uncertain.
Therefore there is confusion prevailing between investors have to do
security analysis.
SCOPE OF THE STUDY
The corporate Exposure & Learning Research on A study of Perception
towards Derivative Market, helps to know the attitude, awareness,
preferences of the investors. Based on this information stock brokers can
carry out further research on specific problems. The researchers
suggestion through this report may be helpful for stockbrokers to improve
their services in stock broking & particularly in derivative market. The
services like counselling, fundamental analysis, technical analysis can be
improved to attract new investors. This study helps to give value added
services & maintain healthy investor relationship.
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NEED OF THE STUDY
The study has been done to know the different types of derivatives and
also to know the derivative market in India. This study also covers the
recent developments in the derivative market taking into account the
trading in past years. Through this study I came to know the trading done
in derivatives and their use in the stock markets.
TYPE OF RESEARCH
Descriptive is fact finding investigation with adequate interpretation it
provides information for formulating more sophisticated studies. Data are
collected by filled questionnaire the researcher has no control over
variables he can only report the happenings. The research is descriptive in
nature the sources of information are both primary and secondary. a well
structured questionnaire was prepared for the primary research to collect
responses of the target population
OBJECTIVES OF THE STUDY:
1. To study investors attitude towards stock market investment.2. To study the investors preferences towards Derivative Market.3. To study the factors influencing for Derivative Investment.4. To suggest the improvement of services in Derivative Trading.
TITLE OF THE STUDY
A STUDY ON THE PERCEPTION OF INVESTOR TOWARDS
DERIVATIVES MARKET
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AREA OF THE STUDY
The area of the study of the topicA STUDY ON THE PERCEPTION
OF INVESTOR TOWARDS DERIVATIVES MARKETwas conducted
in Bangalore city only
DATA COLLECTION METHOD
Both Primary Data and Secondary Data were used for the study.
Primary Data: are obtained by a study specifically designed tofulfil the data needs of the problem at hand. Such data are original
in character. Primary data for the study were collected through
questionnaires. The selection of respondents is made on the basis
of simple random method of sampling. The questionnaire is
prepared in a structural manner. Also information was collected
from personal interview with clients.
Secondary Data: are those data which are not originally collectedbut rather obtained from published or unpublished sources. The
Secondary data for study has been collected from various sources:
Books Journals Magazines Internet sources Reports
TOOLS USED FOR ANALYSIS
Simple tools like graphs, Ms-Excel and tables have been used.
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SAMPLING METHODOLOGY
Sampling is the process of learning about the population on the basis of a
sample drawn from it thus in sampling technique instead of every unit of
the universe only a part of the universe is studied and the conclusion are
drawn on the basis for the entire universe
Sampling technique
The non-probability sampling technique was used to collect the data from
the respondent. Convenience sampling is obtained by selecting
convenient people. This method is also called the chunk. A chunk refers
to the fraction of the population being investigated which is selected
neither by probability nor by judgement but by convenience
Sampling Unit
The respondent who were asked to fill out the questionnaire in the
Bangalore city are the sampling units. These respondents comprise of the
person dealing in derivative market. The people have been asked to fill
the questionnaire in the open market, in front of the companies and
through other sources also.
Sample Size
The sample size was restricted to only 30 respondents.
Sampling Area
The area of the research was held in Bangalore city.
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LIMITATIONS OF THE STUDY
1. Due to time constraint, extensive study is not conducted on thetopic.
2. Sampling survey is restricted to only 30 respondents.3. Sampling survey is restricted to only Bangalore city.4. Availability of information is limited.5. Language barrier
CHAPTER SCHEME
1. INTRODUCTION: This chapter covers the introduction tofinance, and Introduction to derivative and types of derivatives.
2. RESEARCH DESIGN: This chapter covers the following topic-Introduction, type of research, statement of problem, Scope of the
study, topic of the study, objective of the study, area of the
study,samplingtools used for analysis, limitation of the study,
chapter scheme
3. COMPANY PROFILE: Brief information about the company i.e.into what the business is, When it came into existence, its products.
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4. ANANLYSIS AND INTERPRETATION: This chapter deals inapplication of statistical tools on the data collected for the project
report and is being represented in graphs and tables.
5. FINDINGS SUGGESTIONS AND CONCLUSIONS:-Thischapter gives details on the findings dealt with analysis and
interpretation. providing suitable suggestion to the company based
on the findings and conclusion stating how a project was dealt with
and its suitability to the organization
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Company Profile
Religare is one of the leading integrated financial services institutions of
India. The company offers a large and diverse bouquet of services
ranging from equities, commodities, insurance broking, to wealth
advisory, portfolio management services, personal finance services,
Investment banking and institutional broking services. The services are
broadly clubbed across three key business verticals- Retail, Wealth
management and the Institutional spectrum. Religare Enterprises Limited
is the holding company for all its businesses, structured and being
operated through various subsidiaries.
Religare Enterprises Limited (REL) is a leading emerging markets
financial services group anchored in India.
In India, we offer a wide array of services including broking, insurance,
asset management, lending solutions, investment banking and wealth
management. With a network of over 2,200 business centres across 550
plus locations, and more than a million clients, REL enjoys a dominant
presence in the Indian financial services space.
We have also built an emerging markets Investment Banking business
and a multi-boutique global asset management platform to tap the broader
opportunities offered by the most promising emerging markets around theworld. Our robust experience of doing business in India equips us with
the ability to work around the constraints and peculiarities of other
emerging markets that are in the middle of similar multi-year growth
cycles.
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Religares retail network spreads across the length and breadth of the
country with its presence through more than 1,217 locations across more
than 392 cities and towns. Having spread itself fairly well across the
country and with the promise of not resting on its laurels, it has also
aggressively started eyeing global geographies.
Religare Enterprises Limited (REL) is a significant player in the
field of Retail, Institutional and Wealth spectrums. It has a diverse and
wide base of clientele. REL holds 44% equity in AEGON Religare Life
Insurance Company Ltd. Talking about Bennett, Coleman & Co. Ltd.
(BCCL) it is a mammoth in the field of media, since it is associated with
the Times Group, India's largest media house. The Joint Venture of the
three giants (of their respective fields) has given rise to AEGON Religare
Life Insurance word that translates as 'to bind together'. This name has
been chosen to reflect the integrated nature AEGON Religare Life
Insurance Company (ARLI) in India is a joint venture
between AEGON (26%), Religar Enterprises Limited (44%) and Bennett,
Coleman & Company (30%).
AEGON, with its headquarters in Netherlands, is one of the worlds
largest providers of life insurance, pension, long-term savings and
investment products. With approximately 28,000 employees, the group
serves over 40 million customers in over 20 markets. Aegon was formed
in 1983 though the companys history goes back to the 19th
century. Religare Enterprises Limited is one of the leading integrated
financial services groups in India which offers insurance, asset
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management, broking, consumer finance, investment banking and wealth
management solutions to its clients. Bennett, Coleman & Co. Ltd.
(BCCL) is part of the mammoth Times Group, is Indias largest media
house and is part of this venture through Times Private Treaties arm.
Aegon Religare has launched multiple products, but the iTerm
Plan which is the cheapest term insurance plan available in India, is by far
their most attractive offering. It is an online product which can be
purchased on the internet by anyone and is very simple to understand thus
eliminating the need of agents.
3.2 Our Brand Identity
Name
Religare is a Latin of the financial services the company offers.
The name is intended to unite and bring together the phenomenon of
money and wealth to co-exist and serve the interest of individuals and
institutions, alike.
Symbol
The Religare name is paired with the symbol of a four-leaf clover.
The four-leaf clover is used to define the rare quality of good fortune that
is the aim of every financial plan. It has traditionally been considered
good fortune to find a single four leaf clover considering that statistically
one may need to search through over 10,000 three-leaf clovers to even
find one four leaf clover. Each leaf of the four-leaf clover has a special
meaning in the sphere of Religare.
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Mission
Providing financial care driven by the core values of diligence and
transparency.
Vision
"To be the leading emerging markets financial services group driven by
innovation, delivering superior value for all stakeholders globally"
This vision animates our Three Pillar Strategy that seeks to maximize
value from our vast presence in India and to build a financial services
franchise that connects the most promising emerging markets globally.
Our Three Pillar Strategy
An Integrated Indian Financial Services Platform that leverages therobust Indian growth story, providing solid breadth and depth to the
financial services sector, resulting in rapid growth of profit pools.
An Emerging Markets Capital Markets Platform that intermediatesthe flow of capital into and out of emerging markets based on its
global reach and an on-the-ground understanding of how emerging
markets function.
A Global Asset Management Platform that brings together nicheasset managers with proven track record and capabilities in the
alternatives space.
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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 the foundations 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 ateam. 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
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3.5 The Milestone
CustodialService
1999 InstitutionalBusiness
2001 RetailOperations
2002 CorporateFinance
2003 PortfolioManagement Service
2004 BSE Membership &
Commodities
2004 Mutual fund
distribution
2004 100+ Branches &200+ FranchiseLocations
2005
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3.6 Our Envisaged Group Structure
Client Interface
Retail Spectrum- To cater to a large number of retail clients by offering all products
under one roof through the Branch Network and Online mode
Equity and Commodity Trading
Personal Finance Services Mutual Funds Insurance Saving Products Personal Credit Personal Loans Loans against Shares Online Investment Portal
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Institutional Spectrum- To Forge & build strong relationships with Corporate and
Institutions
Institutional Equity Broking
Investment Banking Merchant Banking Transaction Advisory Corporate Finance
Wealth Spectrum - To provide customized wealth advisory services to High Net
worth Individuals
Wealth Advisory Services Portfolio Management Services International Advisory Fund Management Services Priority Equity Client Services Arts Initiative
Religare Service Offering
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MAJOR COMPETITORS IN THE REGION
ICICI DIRECT
INDIA INFOLINE SECURITY PVT. LTD.
INDIA BULLS
KOTAK SECURITIES
RELIANCE MONEY
SHARE KHAN SECURITIES
MOTILAL OSWAL
ANAND RATHI SECURITIES
SHAREKHAN SECURITIES :Sharekhan Securities is one of theleading retail brokerage of Citi Venture which is running
successfully since 1922 in the country. Earlier it was the retail
broking arm of the Mumbai- based SSKI Group, which has overeight decades of experience in the stock broking business.
Sharekhan offers its customers a wide range of equity related
services including trade execution on BSE, NSE, Derivatives,
depository services, online trading, investment advice etc.
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ANANDRATHI SECURITIES :Anand Rathi is a leading full serviceinvestment bank founded in 1994 offering a wide range offinancial services and wealth management solutions to institutions,
corporations, high-net worth individuals and families. The firm has
rapidly expanded its footprint to over 350 locations across India
with international presence in Dubai & New York. Founded by Mr.
Anand Rathi and Mr. Pradeep Gupta, the group today employs
over 2,500 professionals throughout India and its internationaloffices.
HDFC SECURITIES:HDFC Securities, a trusted financial serviceprovider promoted by HDFC Bank and JP Morgan Partners and
their associates, is a leading stock broking company in the country,
serving a diverse customer base of institutional and retail investors.
INDIA BULLS: India bulls Securities Limited (ISL) is the pioneerin Retail Broking Industry having a pan India presence and
providing services to a customer base exceeding half a million. ISL
is in the business of providing securities broking and advisory
services and is a corporate member of capital market, wholesale
debt market and derivative segment of NSE and of the capital
market and derivative segment of BSE. ISL is the first and only
brokerage house to be assigned the highest rating BQ-1 by CRISIL.
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Joint Venture
AEGON RELIGARE
ReligareThe largest shareholder in the JV Launched with pan-India multi-channel operation in July 2008
with over 30 branches spread across India
Targeting to be one of the strongest life insurance brands with astrong retail network
Successfully beginning to build the brand through the much talkedabout KILB Campaign.
Religare Macquaire
Indias 1st Wealth Management JV between Religare andMacquarie
Poised to redefine the landscape of wealth management for theHNIs In India
ACTIVE Advisory led approach Powered By Religares strong local insights and Macquaries
global expertise
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Vistaar Religare
Religare and Vistaar entertainment ventures private limited entereda 74:26 joint venture agreement
Vistaar Religare capital advisors limited (VRCAL) formed SEBI approved Film Fund Category First Aims at completing 50 projects in one year Four releases till date including one international releases
Milestone Religare
Religare Venture Capital Limited and Milestone Capital Entered a50:50 Joint venture agreement
Together they will manage a Rs 600 crores health care andeducation fund to be raised domestically
They would manage Milestones current India Build out Fund Iwith a clear focus on healthcare and education space.
Religare along with its affiliates has also committed to contributeRs 60 Crores to the fund which has an existing corpus of more
than Rs.100 Crores.
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About Promoters
AEGON
160 years of experience in the insurance business Ranked 5th largest insurance company in the world on revenues* Present in 20 countries throughout the America, Europe & Asia Track record of finding beneficiaries of policies and settling claims Even in the wake of crisis in the financial world, rated AA# by
rating agencies
AEGON is an international business, providing life insurance,pensions and other long-term savings and investment products to
millions of customers around the world.
The company has major operations in the United States, theNetherlands and the United Kingdom as well as other businesses in
Asia, the Americas and elsewhere in Europe.
AEGON is listed on the stock exchanges of Amsterdam, London,New York and Tokyo.
With just over EUR 330 billion in revenue-generating investmentsat the end of 2008, AEGON companies employ just over 31,000
people worldwide, serving more than 40 million policyholders in
over twenty countries across the globe.
It holds 26% equity in AEGON Religare.
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RELIGARE
A diversified financial services group with a pan-India presenceand presence in multiple international locations, Religare
Enterprises Limited ("REL") offers a comprehensive suite of
customer-focused financial products and services targeted at retail
investors, high net worth individuals and corporate and institutional
clients.
REL, along with its joint venture partners, offers a range ofproducts and services in India, including asset management, life
insurance, wealth management, equity and commodity broking,
investment banking, lending services, private equity and venture
capital.
Religare has also ventured into the alternative investments spherethrough its holistic arts initiative and film fund.
Has launched India's first wealth management joint venture underthe brand name 'Religare Macquarie Private Wealth'.
REL, through its subsidiaries, has launched India's first holistic artsinitiative - with a gallery - as well as the first SEBI approved film
fund, which is an initiative towards innovation and spotting new
opportunities for creation and maximization of wealth for
investors.
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REL operates from seven domestic regional offices, 43 sub-regional offices, and has a presence in 498* cities and towns
controlling 1,837* business locations all over India.
To make a mark in the global arena, REL acquired UK-basedHichens, Harrison & Co. in 2008 which was subsequently re-
named as Religare Hichens Harrison PLC ("RHH"). Hichens,
Harrison & Co. was incorporated in London in the year 1803 and is
believed to be one of the oldest firms of stockbrokers in the City of
London.
Pursuant to expansion of REL's business, the company has grownfrom largely an equity trading company into a diversified financial
services company.
With the addition of RHH the REL group now operates out ofmultiple global locations, other than India, (the UK, the USA,
Brazil, South Africa, Dubai and Singapore).
It holds 44% equity in AEGON Religare.
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Bennett, Coleman & Co. Limited
Bennett, Coleman & Co. Limited, is the flagship company of TheTimes Group, which has a heritage of over 150 years and is one of
India's leading media groups.
It reaches out to 2468 cities and towns all over India.
The group owns and manages powerful media brands like The Timesof India, The Economic Times, Maharashtra Times, Navbharat Times,
Femina, Filmfare, Grazia, Top Gear, Radio Mirchi, Zoom, Times
Now, Times Music, Times OOH, Private Treaties and indiatimes.com
All of its brands are multinational in outlook, traditional at heart andnational in spirit.
From the very first edition on November 3, 1838 the mammoth BCCLGroup has come a long way.
By way of the innovative venture of Times Private Treaties, theBCCL Group holds 30% equity in our company.
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3.9 Awards and Accolades
Religare Capital Markets has been adjudged the Most ImprovedBrokerage in the Last 12 Months by Asia Money Brokers Poll.
Religare Broking TVC (archery creative) won Silver Abby in theSound and Design craft category at Goafest 2011.
Religare Capital Markets Limited has been awarded the covetedStarmine award for the ''Best Brokerage Research House''.
Religare Commodities Ltd has been awarded the ''The BestCommodity Broker of the year'' at the Bloomberg UTV''s financial
Leadership awards.
Religare Enterprises Ltd presented the the Best Retail MarketingCampaign of the Year 2010 at Asia Retail Congress.
Religare Enterprises Ltd received the coveted Master BrandAward for 2010 and Best Marketing Campaign of the year atWorld Brand Congress 2010.
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Religare Securities Limited was awarded the "Best Broking Housewith a Global Presence" by Dun and Bradstreet for 2010.
Religare Tax Plan awarded the first runner up for NDTV mutualfund awards in the Equity Tax plan Category.
Religare Capital Markets Ltd was awarded Best Deal in the HealthCare Category for Acquisition of stake in Parkway Holdings Ltd by
Fortis Health Care Ltd in the HealthCare/ Life Sciences Category.
Religare awarded Greentech HR Excellence Awards, 2010 in 2categories - Innovation in Recruitment & Technology Excellence in
HR.
Mr. Sunil Godhwani, conferred the ''Indian Business Leader of theYear'' award at the Global Indian Business Meeting hosted by
Horasis.
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Table 4.1
TABLE SHOWING THE EDUCATIONAL QUALIFICATION OF
INVESTORS
S.No Education No. of respondent Percentage
1 Graduate 11 37
2 Post graduate 17 56
3 Professional 2 7
Total 30 100
Interpretation
From the above table we can conclude that 37% are graduates, 56% of
respondent are post graduate and 7% of them are professional degreeholder.
GRAPH 4.1
GRAPH SHOWING THE EDUCATIONAL QUALIFICATION OF
INVESTORS
1
10
17
24%
33%
56%
7%
Under graduate Graduate Post graduate Professional
No. of respondent Percentage
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Table 4.2
TABLE SHOWING THE ANNUAL INCOME RANGE OF
INVESTORS IN DERIVATIVE MARKET
S.No Income range
No. of
Respondent Percentage
1 Below Rs
1,50,000 5
7
2 Rs 1,50,000- Rs
3,00,000 9
30
3 Rs 3,00,000- Rs
5,00,000 14
46
4 above Rs
5,00,000 2
17
Total 30 100
Interpretation
The above table shows that 7% of respondent are having income range
below Rs 150000,30% are having income range between Rs 1,50,000-Rs
3,00,000,46% of respondent are having income range of Rs 3,00,000-Rs
5,00,000 and 17% of the respondent are having income range above Rs
5,00,000
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GRAPH 4.2
GRAPH SHOWING THE ANNUAL INCOME RANGE OF
INVESTORS IN DERIVATIVE MARKET
7%
30%
46%
17%
below Rs 1,50,000 Rs1,50,000-Rs3,00,000
Rs3,00,000-Rs5,00,000 above Rs5,00,000
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Table 4.3
TABLE SHOWING THE INVESTMENT TERM PREFERRED BY
INVESTOR
S.No Term No. Of
Respondent
Percentage
1 Long Term Investor 10 34
2 Short Term Investor 15 50
3 Daily Trader 5 16
Total 30 100
Interpretation
The above table shows that 34% of the respondents are long term
investor, 50% of the respondents are short term investor and 16% of the
respondents are daily trader.
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GRAPH 4.3
GRAPH SHOWING THE INVESTMENT TERM PREFERRED BY
INVESTOR
10
15
5
34%
50%
16%
Long Term Investor Short Term Investor Daily Trader
No. Of Respondent Percentage
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Table 4.4TABLE SHOWING PERCENTAGE OF THE MONTHLY
HOUSEHOLD INCOME AVAILABLE FOR INVESTMENT
S.No Investment
No. of
RespondentPercentage
1 Between 5% to 10% 8 27
2 Between 11% to 15% 12 40
3 Between 16% to 20% 6 20
4 Between 21% to 25% 4 13
5 More than 25% 0 0
Total 30 100
Interpretation
The above table shows that 27% of respondent provide between 5-10% of
their income for investment, 40% of respondent provide between 11-15%
of their income for investment, 20% of the respondent provide
between16-20% of their income for investment and 13% of the
investment provide between 21-25% of income for investment.
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GRAPH 4.4
GRAPH SHOWING PERCENTAGE OF THE MONTHLY
HOUSEHOLD INCOME AVAILABLE FOR INVESTMENT
27%
40%
20%
13%
Between 5% to 10% Between 11% to 15% Between 16% to 20%
Between 21% to 25% More than 25%
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Table 4.5
TABLE SHOWING THE REASON FOR NOT INVESTING IN
DERIVATIVE MARKET
S.No Reason No. of
respondent
Percentage
1 Lack of knowledge 15 50
2 Increase speculation 6 20
3 Risky & highly leveraged 8 26
4 Counter party risk 1 4
Total 30 100
Interpretation
The above table shows that 50% of the respondent do not invest in derivative
market because of lack of knowledge and understanding,20% of respondent do not
invest because of increase speculation,26% of the respondent do not invest
because of risk and high leverage and 4% of respondent because of counter party
risk.
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GRAPH 4.5
GRAPH SHOWING THE REASON FOR NOT INVESTING IN DERIVATIVE
MARKET
15
68
1
50%
20%
26%
4%
Lack of knowledge &
understanding
Increase speculation Risky & highly
leveraged
Counter party risk
No.of Responant Percentage
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Table 4.6
TABLE SHOWING PERCENTAGE OF INVESTMENT
ALLOCATED FOR DERIVATIVES
S.No Allocated for
derivatives
No.Of
Respondent
Percentage
1 Less than 20% 16 53
2 20%-40% 12 40
3 40%-60% 2 7
4 Above 60% 0 0
Total 30 100
Interpretation
The above table shows that 53% of respondent allocate less than 20
percentage of their investment for derivative, 40% of the respondentallocate 20-40% of their investment and 7% of the respondent allocate
40-60% of their investment for derivatives.
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GRAPH 4.6
GRAPH SHOWING PERCENTAGE OF INVESTMENT
ALLOCATED FOR DERIVATIVES
53%40%
7%
Less than 20% 20%-40% 40%-60% Above 60%
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Table 4.7
TABLE SHOWING INSTRUMENT INVESTORS TRADE INDERIVATIVES
S.No Instruments No.Of Result Percentage
1 Futures 18 60
2 Options 12 40
Total 30 100
Interpretation
The above table shows that 40% of the respondent trade in option
derivative and 60% of them trade in future derivatives.
GRAPH 4.7
GRAPH SHOWING INSTRUMENT INVESTORS TRADE IN
DERIVATIVES
60%
40%
Futures Options
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Table 4.8
TABLE SHOWING THE FACTOR INFLUENCING INVESTORS
FOR TRADING IN DERIVATIVE MARKET
S.No Factors for trading
in derivative
No.Of Respondent Percentage
1 Technical
Information
1 3
2 Market Information 8 27
3 Individual Analysis 6 20
4 All of the above 15 50
Total 30 100
Interpretation
The above table shows that 3% of respondent invest in derivative market
using technical information, 27% of respondent using market
information, 20 % of respondent by individual analysis of market and
50% of respondent using all the above factors.
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GRAPH 4.8
GRAPH SHOWING THE FACTOR INFLUENCING INVESTORS
FOR TRADING IN DERIVATIVE MARKET
1
86
15
3%
27%
20%
50%
Technical
Information
Market Information Individual Analysis All of the above
No.Of Respondent Percentage
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Table 4.9
TABLE SHOWING THE EXPECTATION OF INVESTORS IN
OPTIONS
S.No Expectation No. Of
Respondent
Percentage
1 Grow very fast 5 17
2 Grow moderately 18 60
3 Not grow much 2 6
4 Cant say anything 5 17
Total 30 100
Interpretation
The above table shows that 17% of the respondents expect option will
grow very fast, 60% of the respondents predict that it will grow
moderately, 6% of the respondents expect that option will not grow much
and 17% of respondents cannot say anything about option.
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GRAPH 4.9
GRAPH SHOWING THE EXPECTATION OF INVESTORS IN
OPTIONS
5
18
25
17%
60%
6%
17%
Grow very fast Grow modearately Not grow much Cant say anything
No.Of Respondent Percentage
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Table 4.10
TABLE SHOWING THE RISK INVESTOR PERCEIVE WHILEINVESTING IN THE STOCK MARKET
S.No Risk in stock market No. of
Respondent
Percentage
1 Uncertainty of returns 23 77
2 Slump in stock market 5 16
3 Fear of windup of
company
2 7
4 Others 0 0Total 30 100
Interpretation
From the above graph we can say that 77% of respondent are having the
risk of uncertainty of returns, 16% of respondent are having risk of slump
in stock market and 7% of respondent are having fear of winding up of
the company.
GRAPH 4.10
GRAPH SHOWING THE RISK INVESTOR PERCEIVE WHILE
INVESTING IN THE STOCK MARKET
23
52 0
77%
16% 7% 0
Uncertainity ofreturns
Slump in stockmarket
Fear of windup ofcompany
Others
No.of Respondent Percentage
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Table 4.11
TABLE SHOWING THE MOST FAVORED FACTORS BY
INVESTORS IN DERIVATIVE MARKET
S.No Factors Favored No. Of
Respondent
Percentage
1 Stock index futures 15 50
2 Stock index options 2 7
3 Futures on
individual stocks
10 33
4 Options on
individual stocks
3 10
Total 30 100
Interpretation
The above table shows that 50% of the respondent favors stock index
futures, 7% of respondent favor stock index option, 33% of respondent
favor futures on individual stocks and 10% of the respondent favor
options on individual stocks.
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GRAPH 4.11
GRAPH SHOWING THE MOST FAVORED FACTORS BY
INVESTORS IN DERIVATIVE MARKET
15
2
10
3
50%
7%
33%
10%
Stock index futures Stock index options Futures on
individual stocks
Options on
individual stocks
No.Of Respondent Percentage
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Table 4.12TABLE SHOWING STRATEGIES USED BY INVESTORS IN A
BEARISH MARKET
S.No Strategies No. of respondent Percentage
1 Short futures 15 50
2 Short Call 5 17
3 Short Index Futures 10 33
4 Short Index Call 0 0
Total 30 100
Interpretation
The above table shows that 50% of the respondent used short future
strategy in a bearish market, 17% of the respondents prefer short call
strategy in a bearish market and remaining 33% of the respondents prefer
short index future strategy in a bearish market.
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GRAPH 4.12
GRAPH SHOWING STRATEGIES USED BY INVESTORS IN A
BEARISH MARKET
15
5
10
0
50%
17%
33%
0%
Short futures Short Call Short Index Futures Short Index Call
No. of respondent Percentage
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Table 4.13
TABLE SHOWING THE PURPOSE OF INVESTING IN
DERIVATIVE MARKET
S.No Purpose of investment No. Of
Respondent
Percentage
1 Hedge their fund 10 33
2 Risk Control 9 30
3 More Stable 6 20
4 Direct investment without
buying & holding assets
5 17
Total 30 100
Interpretation
The above table shows that 33% of respondent invest in derivative to
hedge their fund, 30% invest for risk control, 20% invest because it is
more stable and remaining 17% prefer because of direct investment
without buying and holding assets.
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GRAPH 4.13
GRAPH SHOWING THE PURPOSE OF INVESTING IN
DERIVATIVE MARKET
109
6