CHAPTER -1

1
 COMPANY INTRODUCTION

Religare is driven by ethical and dynamic process for wealth creation. Based on
this, the company started its Endeavour in the financial market. Religare
Enterprises Limited (A Ranbaxy Promoter Group Company) through Religare
Securities Limited, Religare Finvest Limited, Religare Commodities Limited and
Religare Insurance Advisory Services Limited provides integrated financial
solutions to its corporate, retail and wealth management clients. Today, we
provide various financial services which include Investment Banking, Corporate
Finance, Portfolio Management Services, Equity & Commodity Broking,

Religare is proud of being a truly professional financial service provider managed

by a highly skilled team, who have proven track record in their respective
domains. Religare operations are managed by more than 2000 highly skilled
professionals who subscribe to Religare philosophy and are spread across its
country wide branches. Today, we have a growing network of more than 150
branches and more than 300 business partners spread across more than 180 cities
in India and a fully operational international office at London. However, our target
is to have 350 branches and 1000 business partners in 300 cities of India and more
than 7 International offices by the end of 2006. Unlike a traditional broking firm,
Religare group works on the philosophy of partnering for wealth creation. We not
only execute trades for our clients but also provide them critical and timely
investment advice. The growing list of financial institutions with which Religare is
empanelled as an approved broker is a reflection of the high level service standard
maintained by the company.

A diversified financial services group with a pan-India presence and 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 of products 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 sphere
through its holistic arts initiative and film fund.

With a view to expand and diversify, REL operates in the life insurance space
under 'AEGON Religare Life Insurance Company Limited' and has launched
India's first wealth management joint venture under the brand name 'Religare
Macquarie Private Wealth'.

2
REL, through its subsidiaries, has launched India's first holistic arts initiative -
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.

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. A diversified financial services group with a pan-India presence and
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.

Religare is one of the leading integrated financial services institutions in the

country today, backed by a blue chip promoter pedigree and a proven track record.
The Religare promoter family is the same that has promoted Ranbaxy, Fortis
Hospitals and other diversified globally present business models

The Financial services businesses are broadly clubbed across 3 key verticals, the
retail, institutional and wealth spectrums, catering to a diverse and wide base of
clients spread across the length and breadth of the country. Structurally all
businesses are operated through various subsidiaries held throe The rights issue is
generally kept open for one month. A person entitled to the rights is at a liberty to
apply for the whole or a part of his entitlement. He is also allowed to transfer or
renounce the whole or a part of the entitlement to any other person at a price.
During the period immediately preceding the rights issue or during the early part
of the same, the shareholder receives a rights form that has four parts. An investor
wanting to apply to his entitlement without renunciation should fill in Part A of the
form. If he prefers to renounce his entire entitlement, he should fill in part B. The
renounce should fill in Part C. In case, the holder wants to renounce a part and
apply to the other part, he must fill in Part D appropriately. Part D is the
instruction to the company to supply split forms. the holding company Religare
Enterprises Limited, which recently concluded its resoundingly successful public
offer and was oversubscribed a record 161 times.Religare offers a diverse bouquet
of services ranging from equities, commodities and insurance broking to wealth
management, portfolio management services, personal financial services,
investment banking and institutional broking services. Religare‘s retail network
spreads across the length and breadth of the country with its presence in more than
1300 locations across more than 400 cities and towns. As part of its recent
initiatives the group has also started expanding globally. Religare has also
successfully partnered with AEGON, one of the global leaders to launch Life
Insurance and Mutual fund products in India and with Macquarie, Bank of
Australia for a wealth management joint venture. The vision is to build Religare as
a globally trusted brand in the financial services domain and present it as the
‗Investment Gateway of India‘. All employees of the group, currently more than

3
 9,500 in number, ceaselessly strive to provide financial care driven by the core
values of diligence and transparency.

A RANBAXY Promoter Group Comp. Ltd

Designation Software Trainee

Functional Area IT Software

Location Delhi/NCR

Job Description

Website http://www.religare.in

Address Religare Securities Ltd

93, Ashoka Bhawan

4th Floor, Nehru Place

New Delhi - Delhi ,INDIA 110019

Board of Directors - Religare Enterprises Limited

 Mr. Malvinder Mohan Singh
Non Executive Chairman
 Mr. Sunil Godhwani
CEO & Managing Director, Religare Enterprises Limited
 Mr. Shivinder Mohan Singh
Non Executive Director
 Mr. Harpal Singh
Non Executive Director
 Mr. Deepak Ramchand Sabnani
Independent Director
 Mr. Padam Bahl
Independent Director

4
CHAPTER -2

5
 BRIEF HISTORY OF COMPANY

RELIGARE SECURITIES LIMITED (RSL)

Religare Securities Limited (RSL) is a leading equity and

securities firm in India. The company currently handles sizeable volumes
traded on NSE and in the realm of online trading and investments if
currently holds a reasonable share of the market the major activities and
offerings of the company today are Equity broking, depository participant
services, portfolio management services, institutional brokerage and
Research Investment Banking and Corporate Finance. To broaden he gamut
of services offered to its investors, the company has also recently unveiled a
new avatar of its online investment portal armed with a host of
revolutionary features.

RSL is a member of the National Stock Exchange of India, Bombay Stock

Exchange of India, Depository participant with National Securities
Depository securities (In) Limited, and SEBI approved portfolio Manager.

Religare has been constantly innovating in terms of product and services

and to offer such incisive services to specific user segments it has also
started the NRI and Corporate Servicing groups. These groups take all the
portfolio investment decisions depending upon a client‘s risk / return
parameter. Religare has a very credible Research and Analysis division,
which not only caters to the need of our Institutional clientele, but also
gives their valuable inputs to investment dealers.

Religare is also providing in house Depository services to its clientele and is one
of the leading depository service providers in the country. Our customer centric
account schemes have been designed keeping in mind the investment psychology.
With a competent team of skilled professionals, we manage over 380,000
accounts and have a dedicated customer care centre, exclusively trained to handle
queries from our customers. With our country wide network of branches, you are
never far from Religare depository services.

Religare‘s depository service offers you a secure, convenient, paperless and cost
effective way to keep track of your investment in shares and other instruments
over a period of time, without the hassle of handling physical documents. Your
DP account with us takes care of your depository needs like dematerialization,
rematerialisation, transfer and pledging of shares, stock lending and borrowing.
6
Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises
Limited is a leading equity and securities firm in India. The company currently
handles sizeable volumes traded on NSE and in the realm of online trading and
investments; it currently holds a reasonable share of the market. The major
activities and offerings of the company today are Equity Broking, Depository
Participant Services, Portfolio Management Services, International Advisory Fund
Management Services, Institutional Broking and Research Services. To broaden
the gamut of services offered to its investors, the company offers an online
investment portal armed with a host of revolutionary features.

RSL is a member of the National Stock Exchange of India, Bombay Stock

Exchange of India, Depository Participant with National Securities Depository
Limited and Central Depository Services (I) Limited, and is a SEBI approved
Portfolio Manager.

Religare has been constantly innovating in terms of product and services and to
offer such incisive services to specific user segments it has also started the NRI,
and Corporate Servicing groups. These groups take all the portfolio investment
decisions depending upon a client‘s risk / return parameter.
Religare has a very credible Research and Analysis division, which not only
caters to the need of our Institutional clientele, but also gives their valuable inputs
to investment dealers.
Your demat account is safe and absolutely secure in our hands, every debit
instruction is executed only after its authenticity is established. Our hi-tech
in-house capabilities cater to the needs of software maintenance, database
administration, network maintenance, backups and disaster recovery. This
extra cover of security has gained the trust of our clients.

VISION AND MISSION

Vision:

To built Religare as a globally trusted brand in the financial

service domain and present it as the ―Investment Gateway of India‖.

Mission:

Providing financial care driven by the core value of diligence

and transparency.

7
 Brand Essence:

Religare is driven by ethical and dynamic processes for wealth

creation.

Our 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 three-leaf clovers found.For us, 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 the
foundation on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place one‘s 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.
8
Fortis Healthcare Limited, established in 1996 was founded on the vision of
creating an integrated healthcare delivery system. With 22 hospitals in India,
including multi-specialty & super specialty centers, the management is
aggressively working towards to a significant level in the next few years to
provide quality healthcare facilities and services acrossnation.

Super Religare Laboratories Limited (formerly SRL Ranbaxy) within 11 years

of inception has become the largest Pathological Laboratory network in South
Asia. It started a revolution in diagnostic services in India by ushering in the most
specialized technologies, backed by innovation and diligence. The current
footprint extends well beyond India in the Middle.

About Stock Market

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

History has shown that the price of shares and other assets is an important part of
the dynamics of economic activity, and can influence or be an indicator of social
mood. An economy where the stock market is on the rise is considered to be an up
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.
9
Therefore, central banks tend to keep an eye on the control and behavior of the
stock market and, in general, on the smooth operation of financial system
functions. Financial stability is the raison d'être of central banks.

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

The smooth functioning of all these activities facilitates economic growth in that
lower costs and enterprise risks promote the production of goods and services as
well as employment. In this way the financial system contributes to increased
prosperity. An important aspect of modern financial markets, however, including
the stock markets, is absolute discretion. For example, in the USA stock markets
we see more unrestrained acceptance of any firm than in smaller markets. Such as,
Chinese firms with no significant value to American society to just name one
segment. This profits USA bankers on Wall Street, as they reap large commissions
from the placement, and the Chinese company which yields funds to invest in
China. Yet accrues no intrinsic value to the long-term stability of the American
economy, rather just short-term profits to American business men and the Chinese;
although, when the foreign company has a presence in the new market, there can
be benefits to the market's citizens. Conversely, there are very few large foreign
corporations listed on the Toronto Stock Exchange TSX, Canada's largest stock
exchange. This discretion has insulated Canada to some degree to worldwide
financial conditions.

Stock Market of India

Introduction
Stock markets refer to a market place where investors can buy and sell stocks. The
price at which each buying and selling transaction takes is determined by the
market forces (i.e. demand and supply for a particular stock).Let us take an
example for a better understanding of how market forces determine stock prices.
ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an
upward movement in its stock price. More and more people would want to buy
this stock (i.e. high demand) and very few people will want to sell this stock at
current market price (i.e. less supply). Therefore, buyers will have to bid a higher
price for this stock to match the ask price from the seller which will increase the
stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers
(i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its
price will fall down. In earlier times, buyers and sellers used to assemble at stock
exchanges to make a transaction but now with the dawn of IT, most of the
operations are done electronically and the stock markets have become almost
10
paperless. Now investors don't have to gather at the Exchanges, and can trade
freely from their home or office over the phone or through Internet.

Relation of the stock market to the modern financial system

The financial systems in most western countries have undergone a remarkable
transformation. One feature of this development is disintermediation. A portion of
the funds involved in saving and financing flows directly to the financial markets
instead of being routed via the traditional bank lending and deposit operations. The
general public's heightened interest in investing in the stock market, either directly
or through mutual funds, has been an important component of this process.
Statistics show that in recent decades shares have made up an increasingly large
proportion of households' financial assets in many countries. In the 1970s, in,
deposit accounts and other very liquid assets with little risk made up almost 60
percent of households' financial wealth, compared to less than 20 percent in the
2000s. The major part of this adjustment in financial portfolios has gone directly
to shares but a good deal now takes the form of various kinds of institutional
investment for groups of individuals, e.g., pension funds, mutual funds, hedge
funds, insurance investment of premiums, etc. The trend towards forms of saving
with a higher risk has been accentuated by new rules for most funds and insurance,
permitting a higher proportion of shares to bonds. Similar tendencies are to be
found in other industrialized countries. In all developed economic systems, such as
the European Union, the and other developed nations, the trend has been the same:
saving has moved away from traditional (government insured) bank deposits to
more risky securities of one sort or another.

The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability to manage
the associated increased risks. Stock prices fluctuate widely, in marked contrast to
the stability of (government insured) bank deposits or bonds. This is something
that could affect not only the individual investor or household, but also the
economy on a large scale. The following deals with some of the risks of the
financial sector in general and the stock market in particular. This is certainly
more important now that so many newcomers have entered the stock market, or
have acquired other 'risky' investments (such as 'investment' property, i.e., real
estate.

With each passing year, the noise level in the stock market rises. Television
commentators, financial writers, analysts, and market strategists are all overtaking
each other to get investors' attention. At the same time, individual investors,
immersed in chat rooms and message boards, are exchanging questionable and
11
often misleading tips. Yet, despite all this available information, investors find it
increasingly difficult to profit. Stock prices skyrocket with little reason, then
plummet just as quickly, and people who have turned to investing for their
children's education and their own retirement become frightened. Sometimes there
appears to be no rhyme or reason to the market, only folly.

This is a quote from the preface to a published biography about the long-term
value-oriented stock investor Warren Buffett. Buffett began his career with from
seven limited partners consisting of Buffett's family and friends. Over the years he
has built himself a fortune. The quote illustrates some of what has been happening
in the stock market during the end of the 20th century and the beginning of the
21st century.

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.) Over-reactions may occur—so that excessive optimism (euphoria) may
drive prices unduly high or excessive pessimism may drive prices unduly low.
New theoretical and empirical arguments have since been put forward against the
notion that financial markets are 'generally' efficient.

According to the efficient market 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.) The 'hard' efficient-
market hypothesis is sorely tested by such events as the stock market crash in
1987, when the Dow Jones index plummeted—the largest-ever one-day fall in the
United States. This event demonstrated that share prices can fall dramatically even
though, to this day, it is impossible to fix a generally agreed upon definite cause: a
thorough search failed to detect any 'reasonable' development that might have
accounted for the crash. (But note that such events are predicted to occur strictly
by chance , although very rarely.) It seems also to be the case more generally that
many price movements (beyond that which are predicted to occur 'randomly') are
not occasioned by new information; a study of the fifty largest one-day share price
movements in the United States in the post-war period seems to confirm this.

However, a 'soft' EMH has emerged which does not require that prices remain at
or near equilibrium, but only that market participants not be able to systematically
profit from any momentary market 'inefficiencies'. Moreover, while EMH predicts
that all price movement (in the absence of change in fundamental information) is
random (i.e., non-trending), many studies have shown a marked tendency for the
stock market to trend over time periods of weeks or longer. Various explanations
for such large and apparently non-random price movements have been
promulgated. For instance, some research has shown that changes in estimated

12
risk, and the use of certain strategies, such as stop-loss limits and Value at Risk
limits, theoretically could cause financial markets to overreact. But the best
explanation seems to be that the distribution of stock market prices is (in which
case EMH, in any of its current forms, would not be strictly applicable). Other
research has shown that psychological factors may result in exaggerated
(statistically anomalous) stock price movements (contrary to EMH which assumes
such behaviors 'cancel out'). Psychological research has demonstrated that people
are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in
fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.) In
the present context this means that a succession of good news items about a
company may lead investors to overreact positively (unjustifiably driving the price
up). A period of good returns also boosts the investor's self-confidence, reducing
his (psychological) risk threshold.

Another phenomenon—also from psychology—that works against an objective

assessment is group thinking. As social animals, it is not easy to stick to an
opinion that differs markedly from that of a majority of the group. An example
with which one may be familiar is the reluctance to enter a restaurant that is
empty; people generally prefer to have their opinion validated by those of others in
the group.

In one paper the authors draw an analogy with gambling. In normal times the
market behaves like a game of roulette; the probabilities are known and largely
independent of the investment decisions of the different players. In times of
market stress, however, the game becomes more like poker (herding behavior
takes over). The players now must give heavy weight to the psychology of other
investors and how they are likely to react psychologically.

Irrational behavior
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 technical 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, rumors, 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.

Over the short-term, stocks and other securities can be battered or buoyed by any
number of fast market-changing events, making the stock market behavior difficult
to predict. 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.
Behaviorists argue that investors often behave 'irrationally' when making
13
investment decisions thereby incorrectly pricing securities, which causes market
inefficiencies, which, in turn, are opportunities to make money. However, the
whole notion of EMH is that these non-rational reactions to information cancel
out, leaving the prices of stocks rationally determined.

Crashes

"The stock market has not come down to historical levels: the price-earnings ratio
as I define it in this book is still, at this writing in the mid, far higher than the
historical average. People still place too much confidence in the markets and have
too strong a belief that paying attention to the gyrations in their investments will
someday make them rich, and so they do not make conservative preparations for
possible bad outcomes."

Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by

Robert Shiller . The horizontal axis shows the real price-earnings ratio of the
Composite Stock Price Index as computed in Irrational Exuberance (inflation
adjusted price divided by the prior ten-year mean of inflation-adjusted earnings).
The vertical axis shows the geometric average real annual return on investing in
the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty
years later. Data from different twenty year periods is color-coded as shown in the
key. See also ten-year returns. Shiller states that this plot "confirms that long-term
investors—investors who commit their money to an investment for ten full
years—did do well when prices were low relative to earnings at the beginning of
the ten years. Long-term investors would be well advised, individually, to lower
their exposure to the stock market when it is high, as it has been recently, and get
into the market when it is low."

A stock market crash is often defined as a sharp dip in share prices of equities
listed on the stock exchanges. In parallel with various economic factors, a reason
for stock market crashes is also due to panic 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. For some time after the crash, trading
in stock exchanges worldwide was halted, since the exchange computers did not
perform well owing to enormous quantity of trades being received at one time.
This halt in trading allowed the Federal Reserve system and central banks of other
countries to take measures to control the spreading of worldwide financial crisis.
In the United States the introduced several new measures of control into the stock

14
market in an attempt to prevent a re-occurrence of the events of Black Monday.
Computer systems were upgraded in the stock exchanges to handle larger trading
volumes in a more accurate and controlled manner. The modified the margin
requirements in an attempt to lower the volatility of common stocks, stock options
and the futures market. The New York Stock Exchange and the Chicago
Mercantile Exchange introduced the concept of a circuit breaker. 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. 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.

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 or 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 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

15
CHAPTER -3

16
 INTRODUCTION OF TOPIC

Religare Securities Limited (RSL) is a leading equity and securities firm in

India. The company currently handles sizeable volumes traded on NSE and
in the realm of online trading and investments if currently holds a
reasonable share of the market the major activities and offerings of the
company today are Equity broking, depository participant services,
portfolio management services, institutional brokerage and Research
Investment Banking and Corporate Finance. To broaden he gamut of
services offered to its investors, the company has also recently unveiled a
new avatar of its online investment portal armed with a host of
revolutionary features. RSL is a member of the National Stock Exchange of
India, Bombay Stock Exchange of India, Depository participant with
National Securities Depository securities (In) Limited, and SEBI approved
portfolio Manager.

Who regulates the Indian capital market?

Sebi regulates the entire capital market and the stock

exchanges (SE) are a very significant part of it. Besides, Sebi regulates
mutual funds (MFs), foreign institutional investors, stockbrokers, merchant
bankers, depositories, venture capital, portfolio managers and other related
entities.
A major portion of Sebi‘s time and energy goes in
regulating the secondary market which is the cash market where the trading
of listed stocks takes place. Sebi has created a separate division called the
secondary markets division to look after the day-to-day regulatory function
of the segment. Recently, this division was renamed the markets regulation
department.

What is the risk containment measures sebi resorts to for curbing market
volatility?

Besides discharging its day-to-day regulatory

function. Sebi also keeps a close watch on price movements and volatility
in the market. To curb this volatility, vhich was the order of the day till
recently, the regulator along with the bourses takes various steps for risk
containment and tightening of the surveillance mechanism.

17
 These steps may include tightening of various
margins or relaxing them, depending on the situation. Different types of
margins are the best weapon at the disposal of the regulator. It is through
this measure that the regulator can control price volatility of stock. When
the price of the stock is rising unabatedly or it is supported without any
fundamentals, the SEs in consultation with the regulatory can hike the
margins to contain volatility.
Other stricter measures to contain volatility include
shifting them to trade-to-trade segment where every order (buy or sell)
results in compulsory delivery and no netting is allowed.

Does the union finance ministry have a role to play in monitoring price
movements in stock markets?

The ministry of finance too keeps a watchful eye on

the stock market through its capital market division, headed by an officer of
the rank of joint secretary. Though the ministry does not interfere in the
day-to-day affairs of the market regulator, does step in when major market
movements happen. For instance, the one recently when the 30-share
Sensex of the Bombay Stock Exchange (BSE) dipped 1,111 points intra-
day and trading had to be halted for half-an-hour. On that day, the finance
ministry got in touch with the capital market regulatory as well as the
banking sector regulator the reserve bank of India to prevent any liquidity
problems.

What step has Sebi taken in the recent past to curb market volatility?

Sebi recently tightened the margining system in the cash

market. The cash market margins which are based on value at risk (VAR)
will also be updated five times a day in line with the derivatives market.
The new Sebi measures will come into force from July 10 for BSE and
NSE, while for the other it will be implemented from August 28, 2006.
Currently, in the cash market margin rate is calculated at
the end of the trading day and then applied to the open positions of the
subsequent trading day. However, in the derivative market, the risk
parameter files for computation of the margins are updated intra-day.

What are stocks? Definition:

Plain and simple, a ―stock‖ is a share in the ownership

of a company. A stock represents a claim on the company‘s assets and
earnings. As you acquire more stocks, your ownership stake in the company
becomes greater.
18
Note: Some times different words like shares, equity, stocks etc are used.
All these words mean the same thing.

How to make money in the stock market?

This article is a COMPLETE guide to the basics of

making money in the stock market! If you are considering investing in the
stock market, you MUST read this article! We have explained all the
concepts and talked about all the ―myths‖ that people have about the stock
market!

What does ownership of a company give you?

Holding a company‘s stock means that you are one of the many owners
(shareholders) of a company and, as such, you have a claim to everything
the company owns.
This means that technically you own a tiny little piece
of all the furniture, every trademark, and every contract of the company. As
an owner, you are entitled to your share of the company‘s earnings as well.

These earnings will be given to you. These earnings are called ―dividends‖
and are given to the shareholders from time to time.

A stock is represented by a ―stock certificate‖. This is

a piece of paper that is proof of your ownership. However now-a-days you
could also have a ―demat‖ account. This means that there will be no ―stock
certificates‖. Everything will be done though the computer electronically.
Selling and buying stocks can be done just by a few clicks.

Being a shareholder of a public company does not

mean you have a say in the day-to-day running of the business. Instead,
―one vote per share‖ to elect the board of directors of the company at
annual meetings is all of you can do. For instance, being a Microsoft
shareholder doesn‘t mean you can call up Bill gates and tell him how you
think the company should be run.

The management of the company is supposed to

increase the value of the firm for shareholders. If this doesn‘t happen, the
shareholders can vote to have the management removed. In reality,
individual investors like you and I don‘t own enough shares to have a
material influence on the company. It‘s really the big boys like large
institutional investors and billionaire entrepreneurs who make the decisions.

19
 For ordinary shareholders, not being able to
manage the company isn‘t such a big deal. After all, the idea is that you
don‘t want to have to work to make money, right? The importance of being
a shareholder is that you are entitled to a portion of the company‘s profits
and have a claim on assets.

Profits are sometimes paid out in the form of

dividends as mentioned earlier. The more shares you own, the larger the
portion of the profits you get. Your claim on assets is only relevant if a
company goes bankrupt. In case of liquidation, you‘ll receive what‘s left
after all the creditors have been paid.

Another extremely important feature of stock is

―limited liability‖, which means that, as an owner of a stock, you are ―not
personally liable ― if the company is not able to pay its debts.

In other legal structures such as partnerships, if

the partnership firm goes bankrupt the creditors can come after the partners
―personally‖ and sell off their house, car, furniture, etc. To understand all
this in more detail you could read our ―How to incorporate?‖ article.
Owning stock means that, no matter what
happens to the company the maximum value you can lose is the value of
your stocks. Even if a company of which you are a shareholder goes
bankrupt. You can never lose your personal assets.

Why would the founders share the profits with

thousands of people when they could keep profits to themselves? This is the
obvious question that comes up next. This what the next section is all
about!

What are the Sensex and the Nifty?

The Sensex is an ―index‖. What is an index?

An index is basically an indicator. It gives you a general idea about whether
most of the stocks have gone up or most of the stocks have gone down.

The Sensex is an indicator of all the major companies of the BSE.

The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the

prices of the stocks of most of the major companies on the BSE have gone
up. If the Sensex goes down, this tells you that the stock price of most of
the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks

of the BSE, the nifty represents the top stocks of the NSE.
20
 Just in case you are confused, the BSE, is the
Bombay Stock Exchange and the NSE is the National Stock Exchange. The
BSE is situated at Bombay and the NSE is situated at Delhi. These are the
major stock exchanges in the country. There are other stock exchanges like
the Calcutta stock Exchange etc. but they are not as popular as the BSE and
the NSE. Most of the stock trading in the country is done though the BSE &
the NSE.

Besides Sensex and the nifty there are many

other indexes. There is an index that gives you an idea about whether the
mid-cap stocks go up and down. This is called the ―BSE mid-cap index‖.
There are many other types of indexes.

PRODUCT & OFFERINGS OF RSL

Equity
Portfolio Management services
Investment Advisory
Investment Banking

EQUITY

Trading in equities with religare truly empowers the

investor for their investment needs. Religare ensure investors have a
superlative trading experience through-

A highly process driven diligent approach

Powerful Research & Analytical and

One of the ―best in class‖ dealing rooms

Further, Religare also has one of the largest retail networks, with
its presence in more than 1300 locations across more than 400 towns &
cities. This means, you can walk into any of these branches and connect to
our highly skilled
and dedicated relationship managers to get the best services.

The Indian Equity Market is also the other name for Indian share market or
Indian stock market. The forces of the market depend on monsoons, global
fundings flowing into equities in the market and the performance of various
21
 companies. The Indian market of equities is transacted on the basis of two
major stock indices, National Stock Exchange of India Ltd. (NSE) and The
Bombay Stock Exchange (BSE), the trading being carried on in a
dematerialized form. The physical stocks are in liquid form and cannot be
sold by the investors in any market. Two types of funds are there in the
Indian Equity Market, Venture Capital Funds and Private Equity Funds.

The equity indexes are correlated beyond the boundaries of different

countries with their exposure to common calamities like monsoon which
would affect both India and Bangladesh or trade integration policies and
close connection with the foreign investors. From 1995 onwards, both in
terms of trade integration and India has made an advance. All these have
established a close relationship between the stock market indexes of India
stock market and those of other countries. The Stock derivatives add up all
futures and options on all individual stocks. This stock index derivative was
found to have gone up from 12 % of NSE derivatives turnover in 2002 to
35 % in 2004. the Indian Equity Market also comprise of the Debt Market,
dominated by primary dealers, banks and wholesale investors.

Indian Equity Market at present is a lucrative field for the investors and
investing in Indian stocks are profitable for not only the long and medium-
term investors, but also the position traders, short-term swing traders and
also very short term intra-day traders. In terms of market capitalization,
there are over 2500 companies in the BSE chart list with the Reliance
Industries Limited at the top. The SENSEX today has rose from 1000 levels
to 8000 levels providing a profitable business to all those who had been
investing in the Indian Equity Market. There are about 22 stock exchanges
in India which regulates the market trends of different stocks. Generally the
bigger companies are listed with the NSE and the BSE, but there is the
OTCEI or the Over the Counter Exchange of India, which lists the medium
and small sized companies. There is the SEBI or the Securities and
Exchange Board of India which supervises the functioning of the stock
markets in India.

PORTFOLIO MANAGEMENT SERVICE

WHAT IS PMS?

 PMS gives investors access to an institutional process of money

management
22
  Provides a customized solution by matching the unique circumstances and
objectives of each investor.
 Wealth creation based on disciplined investment process is the crux of PMS
 Effective diversification helps reduce portfolio volatility and enhances risk-
adjusted returns over long term
 PMS gives investor direct ownership of the individual securities in the
portfolio

BENEFITS OF PMS

Professional Management
The service provides professional management of equity portfolios designed to
deliver consistent long-term performance while identifying and controlling risks.

Continued Monitoring
We at Karvy understand the need to constantly monitor your portfolios and bring
in periodic changes to optimize the results.

Research Support
A research team responsible for establishing our investment strategy and providing
us real time information backs our portfolio managers.

Identifying Investor Objectives

The foundation of every financially sound portfolio is the ability to identify one‘s
investment objective. It‘s a process that requires expertise. Karvy provides every
investor a Relationship manager who comes with the required expertise and
experience to understand an investor‘s financial goals.

Hassle free operation

Karvy ensures investors enjoy healthy portfolios without having to involve
themselves personally in monitoring and maintaining them. We provide you with a
customized service. All the administrative aspects of your portfolio is taken care of
by us for you.

Transparency
A dedicated website allows you access to all information relating to your
investment. You will also receive quarterly account performance statement on the
overall status of the portfolio and Karvy research reports.

Religare offers PMS to address varying investment preferences. As a

focused service, PMS pays attention to details, and portfolios are customized to
suit the unique requirements of investors. Religare PMS currently extends five
portfolio management schemes, viz panther, Tortoise, Elephant, caterpillar and
Leo. Each scheme is designed keeping in mind the varying tastes, objectives and
risk tolerance of our investors.
23
What to expect from PMS

Okay, you have fallen for the sales pitch and entrusted your money to a PMS.
What can you now expect from this service?

More handholding from your portfolio manager than you have been accustomed
to from your mutual fund. You can expect to have a personal relationship
manager through whom you can interact with the fund manager at any time of
your choice. You can also expect frequent (maybe monthly) interaction with the
portfolio manager to discuss any concerns that you might have. Expect to be
consulted on any major changes in asset allocation or in the investment strategy
relating to your portfolio. All administrative matters, including operating a bank
account and dealing with settlement and depository transactions, will be handled
by the PMS.
If you are the type who likes to watch over your money like a baby, the
disclosures offered by a PMS may be just right for you. On handing over your
money, you will receive a user-ID and password from the PMS, which will grant
you online access to your portfolio details. You can use these to check back on
your portfolio as often as you like. Keeping track of capital gains (and losses) for
the taxman can be a depressing chore, when you have furiously churned your
investments through the year. Opting for PMS will free you of this chore, as a
detailed statement of the transactions on your portfolio for tax purposes comes as a
part of the package.

INVESTMENT PHILOSOPHY
We believe that our investors are better served by a disciplined investment
approach, which combines an understanding of the goals and objectives of the
investor with a fine tuned strategy backed by research.

Stock specific selection procedure is based on fundamental research for making

sound investment decisions. Focus on minimizing investment risk by following
rigorous valuation disciplines.

Capital preservation.
Selling discipline and use of Derivatives are to control volatility.
Overall to enhance absolute return for investors.

OUR SCHEMES

PANTHER
The panther portfolio aims to achieve higher returns by taking
aggressive positions across sectors and market capitalizations. It is suitable
24
for the ―High Risk High Return‖ investor with a strategy to invest across
sectors and take advantage of various market conditions.

TORTOISE
The tortoise portfolio aims to achieve growth in the portfolio
value over a period of time by way of careful and judicious investment in
fundamentally sound companies having good prospects. The scheme is
suitable for the ―Medium Risk Medium Return‖ investor with a strategy to
invest in companies which have consistency in earnings, growth and
financial performance.

ELEPHANT
The Elephant portfolio aims to generate steady returns over a
longer period by investing in Securities selected only from BSE 100 and
NSE 100 index. This plan is suitable for the ―Low Risk Low Return‖
investor with a strategy to invest in blue chip companies, as these
companies have steady performance and reduce liquidity risk in the market.

CATERPILLAR
The caterpillar portfolio aims to achieve capital
appreciation over a long period of time by investing in a diversified
portfolio. This scheme is suitable for investors with a high risk appetite.
The investment strategy would be to invest in scrip‘s which are poised to
get a re-rating either because of change in business, potential fancy for a
particular sector in the coming years/months, business diversification
leading to a better operating performance, stocks in their early stages of an
upturn or for those which are in sectors currently ignored by the market.

LEO
Leo is aimed at retail customers and structured to provide medium
to long-term capital appreciation by investing in stocks across the market
capitalization range. This scheme is a mix of moderate and aggressive
investment strategies. Its aim is to have a balanced portfolio comprising
selected investments from both Tortoise and Panther Exposure to
Derivatives is taken within permissible regulatory limits.

The Religare Edge

We serve you with a diligent, transparent and process

driven approach and ensure that your money gets the care it deserves.
25
No experts, only expertise: PMS brought to you by Religare with its solid
reputation of an ethical and scientific approach to financial management.
While we offer you the services of a dedicate relationship manager who is
at your service 24x7, we do not depend on individual expertise alone. For
you, this means lower risk, higher dependability and unhindered continuity.
Moreover, you are not limited by a particular individual‘s investment style.

No hidden profits: we ensure that a part of the broking at Religare Portfolio

Management Services is through external broking houses. This means that your
portfolio is not churned needlessly.

How to Start Investing in Shares

When I wanted to know about share market investing, I just typed ―how to invest
in shares‖ in google and looked for a detailed answer. Most of the time I got a
high tech, high funda output but none of the thing helped me as a layman when I
was looking for the first brick to build my house.

I just learned by inquiring and practically working on several issues. Now I am an

MBA student which further helps me in enriching my knowledge. I am just
publishing this article to help beginners practically how to start with stock market
investing. To start investing in share trading, we have to open an account called
―Demat account‖ which is called as dematerialized account.

What is a Demat Account?

It is an account which can be compared to a bank account wherein here your

shares are in electronic form with its respective value (either purchase price or
selling price). Don‘t get bogged down by high funds like ―Demat Account‖. In
simple words, instead of having shares in paper form we are having it in
electronic form .That‘s it! In early days, stocks and shares are traded in paper
form by people gathering in stock exchanges and showing signs of company and
price through signals. Even now Chicago stock markets operate in this way. The
highest bidder or the one who is quoting for highest price will be awarded the
shares. Now you can trade electronically and so you need an electronic format and
hence demat.

What should I do to open a Demat Account and where?

You can open a demat account with depositary participant (DP). You can
compare this DP with a bank. They will charge you for every purchase and every
sale you make. To find a list of DP you can type ―Depository Participant‖ in the
search engine and find a one close to your location. Some of the notable ones are
India bulls and goliath. And most of the banks like ICICI also provide you this
option.

26
 What should I have to open a Demat Account?

 You should have a three months bank statement.

 PAN Card.
 An identity proof.

These depository participants will also advice on stocks and shares. However I
personally advice you to have market watch before investing. In next article I will
further explain how to trade.

Stock Exchange
A stock exchange is a mutual organization which provides "trading" facilities for
stock brokers and traders, to trade stocks and other securities. Stock exchanges
also provide facilities for the issue and redemption of securities as well as other
financial instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include: shares issued by
companies, unit trusts, derivatives, pooled investment products and bonds. To be
able to trade a security on a certain stock exchange, it has to be listed there.
Usually there is a central location at least for recordkeeping, but trade is less and
less linked to such a physical place, as modern markets are electronic networks,
which gives them advantages of speed and cost of transactions. Trade on an
exchange is by members only. The initial offering of stocks and bonds to investors
is by definition done in the primary market and subsequent trading is done in the
secondary market. A stock exchange is often the most important component of a
stock market. Supply and demand in stock markets is driven by various factors
which, as in all free markets, affect the price of stocks (see stock valuation).

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

The role of stock exchanges

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

Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for
expansion through selling shares to the investing public.[2]

27
Mobilizing savings for investment

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

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase

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

Profit sharing

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

Corporate governance

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

improve on their management standards and efficiency in order to satisfy the
demands of these shareholders and the more stringent rules for public corporations
imposed by public stock exchanges and the government. Consequently, it is
alleged that public companies (companies that are owned by shareholders who are
members of the general public and trade shares on public exchanges) tend to have
better management records than privately-held companies (those companies where
shares are not publicly traded, often owned by the company founders and/or their
families and heirs, or otherwise by a small group of investors). However, some
well-documented cases are known where it is alleged that there has been
considerable slippage in corporate governance on the part of some public
companies.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares
is open to both the large and small stock investors because a person buys the
number of shares they can afford. Therefore the Stock Exchange provides the
opportunity for small investors to own shares of the same companies as large
investors.

28
Government capital-raising for development projects

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

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

Barometer of the economy

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

National Stock Exchange

National Stock Exchange of India (NSE) is India's largest Stock Exchange &
World's third largest Stock Exchange in terms of transactions. Located in Mumbai,
NSE was promoted by leading Financial Institutions at the behest of the
Government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993, NSE was recognized as a Stock exchange under the
Securities Contracts (Regulation) Act-1956. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. Capital Market (Equities)
segment of the NSE commenced operations in November 1994, while operations
in the Derivatives segment commenced in June 2000. NSE has played a catalytic
role in reforming Indian securities market in terms of microstructure, market
practices and trading volumes. NSE has set up its trading system as a nation-wide,
fully automated screen based trading system. It has written for itself the mandate
to create World-class Stock Exchange and use it as an instrument of change for the
industry as a whole through competitive pressure. NSE is set up on a demutualised
model wherein the ownership, management and trading rights are in the hands of
three different sets of people. This has completely eliminated any conflict of
interest.

NSE was set up with the objectives of:

* Establishing nationwide trading facility for all types of securities

29
 * Ensuring equal access to investors all over the country through an appropriate
telecommunication network
* Providing fair, efficient & transparent securities market using electronic
trading system
* Enabling shorter settlement cycles and book entry settlements
* Meeting International benchmarks and standards

Within a very short span of time, NSE has been able to achieve its objectives for
which it was set up. Indian Capital Markets are a far cry from what they were 12
years back in terms of market practices, infrastructure, technology, risk
management, clearing and settlement and investor service. To ensure continuity of
business, NSE has built a full fledged BCP site operational for last 7 years.

NSE's markets

NSE provides a fully automated screen-based trading system with national reach
in the following major market segments:-

* Equity OR Capital Markets {NSE's market share is over 65%}

* Futures & Options OR Derivatives Market {NSE's market share over 99.5%}
* Wholesale Debt Market (WDM)
* Mutual Funds (MF)
* Initial Public Offerings (IPO)

What are the IT initiatives of NSE in the last one year?

NSE believes that technology shall continue to provide necessary impetus for any
organisation to retain its competitive edge, ensure timeliness & satisfaction in
customer service. Being fully dependant on Information Technology, NSE has
stressed on innovation and sustained investment in technology on a continual basis
to ensure customer satisfaction, improvement in services which automatically
helps in sustaining business and remain ahead of competition. As a policy, NSE
looks to improve the quality of Services to its customers. Projects are not initiated
based on a business model to reap profits but from a strategic perspective of better
productivity, Value-adds & features, improving efficiency, reducing operational
costs, compliance, operational transparency etc for the customers, investors and to
the entire Indian Securities Industry. Some of the projects taken by NSE last year
are as follows:-

1. Trading System Capacity enhancement

2. Re-engineering of Online Position Monitoring (OPMS)
3. Augmentation of Data Warehouse (DWH)

What was the objective, business benefits that the company derived and
beneficiaries of the implementation of Trading System Capacity enhancement?

Project Objective
30
NSE's Capital Market Trading system was operational on two machine split
architecture using Fault Tolerant mainframes and geared to handle 3 million
trades. However, the CM segment had started to experience trades nearing 3
Million trades which form a threshold. Based on the trends & expected volumes,
growth in the medium term is more than thrice the current trading volume, i.e.
about 10 Million transactions per day. However with the then existing 2-machine
split architecture, it was required to improve the trading system transaction
handling capacity. The 3-machine split architecture project was thus taken up to
enhance the load handling capacity of the system by introducing a 3-way split
Hardware, Application optimization and improving the processes for achieving
market volume of around 6 million transactions per day.

Project was completed as per schedule & is currently operational since last 1 year.

Business Benefits

1. System scaled on 3 machines with distribution of users and securities with

complete transparency to market participants.
2. System witnessed 3 million trades with faster response time to members at
significantly lower system resource utilisation level.
3. Scalability to handle higher volumes (3 million to 6 million transactions per
day).

Beneficiaries
Trading Members have experienced a faster response time. The trading system is
able to handle higher volume of transactions which translates into higher turnover.
It therefore directly translates into more opportunities and growth for the Entire
Indian Securities market.

In the fast growing Indian financial market, there are 23 stock exchanges trading
securities. The National Stock Exchange of India (NSE) situated in Mumbai - is
the largest and most advanced exchange with 1016 companies listed and 726
trading members.

The NSE is owned by the group of leading financial institutions such as Indian
Bank or Life Insurance Corporation of India. However, in the totally de-
mutualised Exchange, the ownership as well as the management does not have a
right to trade on the Exchange. Only qualified traders can be involved in the
securities trading.

The NSE is one of the few exchanges in the world trading all types of securities on
a single platform, which is divided into three segments: Wholesale Debt Market
(WDM), Capital Market (CM), and Futures & Options (F&O) Market. Each
segment has experienced a significant growth throughout a few years of their

31
launch. While the WDM segment has accumulated the annual growth of over 36%
since its opening in 1994, the CM segment has increased by even 61% during the
same period.

The National Stock Exchange of India has stringent requirements and criteria for
the companies listed on the Exchange. Minimum capital requirements, project
appraisal, and company's track record are just a few of the criteria. In addition,
listed companies pay variable listing fees based on their corporate capital size.

The National Stock Exchange of India Ltd. provides its clients with a single, fully
electronic trading platform that is operated through a VSAT network. Unlike most
world exchanges, the NSE uses the satellite communication system that connects
traders from 345 Indian cities. The advanced technologies enable up to 6 million
trades to be operated daily on the NSE trading platform.

National Stock Exchange of India (NSE) is India's largest Stock Exchange &
World's third largest Stock Exchange in terms of transactions. Located in Mumbai,
NSE was promoted by leading Financial Institutions at the behest of the
Government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993, NSE was recognized as a Stock exchange under the
Securities Contracts (Regulation) Act-1956. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. Capital Market (Equities)
segment of the NSE commenced operations in November 1994, while operations
in the Derivatives segment commenced in June 2000. NSE has played a catalytic
role in reforming Indian securities market in terms of microstructure, market
practices and trading volumes. NSE has set up its trading system as a nation-wide,
fully automated screen based trading system. It has written for itself the mandate
to create World-class Stock Exchange and use it as an instrument of change for the
industry as a whole through competitive pressure. NSE is set up on a demutualised
model wherein the ownership, management and trading rights are in the hands of
three different sets of people. This has completely eliminated any conflict of
interest.

NSE was set up with the objectives of:

 Establishing nationwide trading facility for all types of securities

 Ensuring equal access to investors all over the country through an
appropriate telecommunication network
 Providing fair, efficient & transparent securities market using electronic
trading system
 Enabling shorter settlement cycles and book entry settlements
32
  Meeting International benchmarks and standards

Within a very short span of time, NSE has been able to achieve its objectives for
which it was set up. Indian Capital Markets are a far cry from what they were 12
years back in terms of market practices, infrastructure, technology, risk
management, clearing and settlement and investor service. To ensure continuity of
business, NSE has built a full fledged BCP site operational for last 7 years.

NSE's markets

NSE provides a fully automated screen-based trading system with national reach
in the following major market segments:-

 Equity OR Capital Markets {NSE's market share is over 65%}

 Futures & Options OR Derivatives Market {NSE's market share over
99.5%}
 Wholesale Debt Market (WDM)
 Mutual Funds (MF)
 Initial Public Offerings (IPO)

What are the IT initiatives of NSE in the last one year?

NSE believes that technology shall continue to provide necessary impetus for any
organisation to retain its competitive edge, ensure timeliness & satisfaction in
customer service. Being fully dependant on Information Technology, NSE has
stressed on innovation and sustained investment in technology on a continual basis
to ensure customer satisfaction, improvement in services which automatically
helps in sustaining business and remain ahead of competition. As a policy, NSE
looks to improve the quality of Services to its customers. Projects are not initiated
based on a business model to reap profits but from a strategic perspective of better
productivity, Value-adds & features, improving efficiency, reducing operational
costs, compliance, operational transparency etc for the customers, investors and to
the entire Indian Securities Industry. Some of the projects taken by NSE last year
are as follows:-

1. Trading System Capacity enhancement

2. Re-engineering of Online Position Monitoring (OPMS)
3. Augmentation of Data Warehouse (DWH)

What was the objective, business benefits that the company derived and
beneficiaries of the implementation of Trading System Capacity enhancement?

Project Objective
NSE's Capital Market Trading system was operational on two machine split
architecture using Fault Tolerant mainframes and geared to handle 3 million
trades. However, the CM segment had started to experience trades nearing 3
Million trades which form a threshold. Based on the trends & expected volumes,
growth in the medium term is more than thrice the current trading volume, i.e.
33
about 10 Million transactions per day. However with the then existing 2-machine
split architecture, it was required to improve the trading system transaction
handling capacity. The 3-machine split architecture project was thus taken up to
enhance the load handling capacity of the system by introducing a 3-way split
Hardware, Application optimisation and improving the processes for achieving
market volume of around 6 million transactions per day.

Project was completed as per schedule & is currently operational since last 1 year.

Business Benefits

1. System scaled on 3 machines with distribution of users and securities with

complete transparency to market participants.
2. System witnessed 3 million trades with faster response time to members at
significantly lower system resource utilisation level.
3. Scalability to handle higher volumes (3 million to 6 million transactions per
day).

Beneficiaries
Trading Members have experienced a faster response time. The trading system is
able to handle higher volume of transactions which translates into higher turnover.
It therefore directly translates into more opportunities and growth for the Entire
Indian Securities market.

PRIMARY AND SECONDARY MARKET

The industrial securities market in India consists of new issue market and stock
exchange. The new issue market deals with the new securities which were not
previously available to the investing public i.e. the securities that are offered to the
investing public for the first time. The market, therefore makes available a new
block of securities for public for subscriptions. In other words, new issue market
deals with raising of fresh capital by companies either for cash or for consideration
other then cash.

The new issue market encompasses all institutions dealing in fresh claim. The
forms in which these claims created are equity shares, preference shares,
debentures, rights issues, deposits etc. all financial institutions which contribute,
underwrite and directly subscribe to the securities are part of new issue market.

The primary market is that part of the capital markets that deals with the issuance
of new securities. Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done
34
through a syndicate of securities dealers. The process of selling new issues to
investors is called underwriting. In the case of a new stock issue, this sale is an
initial public offering (IPO). Dealers earn a commission that is built into the price
of the security offering, though it can be found in the prospectus.

In the public securities markets can be divided into primary and secondary
markets. The distinguishing difference between the two markets is that in the
primary market, the money for the securities is received by the issuer of those
securities from investors, typically in an initial public offering transaction,
whereas in the secondary market, the securities are simply assets held by one
investor selling them to another investor (money goes from one investor to the
other). An initial public offering is when a company issues public stock newly to
investors, called an "IPO" for short. A company can later issue more new shares,
or issue shares that have been previously registered in a shelf registration. These
later new issues are also sold in the primary market, but they are not considered to
be an IPO but are often called a "secondary offering". Issuers usually retain
investment banks to assist them in administering the IPO, obtaining (or other
regulatory body) approval of the offering filing, and selling the new issue. When
the investment bank buys the entire new issue from the issuer at a discount to
resell it at a markup, it is called a firm commitment underwriting. However, if the
investment bank considers the risk too great for an underwriting, it may only
assent to a best effort agreement, where the investment bank will simply do its best
to sell the new issue.

In order for the primary market to thrive, there must be a secondary market, or
aftermarket which provides liquidity for the investment security, where holders of
securities can sell them to other investors for cash. Otherwise, few people would
purchase primary issues, and, thus, companies and governments would be
restricted in raising equity capital (money) for their operations. Organized
exchanges constitute the main secondary markets. Many smaller issues and most
debt securities trade in the decentralized, dealer-based over-the-counter markets.

In Europe, the principal trade organization for securities dealers is the

International Capital Market Association. In the U.S., the principal trade
organization for securities dealers is the Securities Industry and Financial Markets
Association, which is the result of the merger of the Securities Industry
Association and the Bond Market Association. The Financial Information Services
Division of the Software and Information Industry Association represents a round-
table of market data industry firms, referring to them as Consumers, Exchanges,
and Vendors.

Features of primary markets are:

35
 This is the market for new long term equity capital. The primary market is
the market where the securities are sold for the first time. Therefore it is
also called the new issue market (NIM).
 In a primary issue, the securities are issued by the company directly to
investors.
 The company receives the money and issues new security certificates to the
investors.
 Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business.
 The primary market performs the crucial function of facilitating capital
formation in the economy.
 The new issue market does not include certain other sources of new long
term external finance, such as loans from financial institutions. Borrowers
in the new issue market may be raising capital for converting private capital
into public capital; this is known as "going public."
 The financial assets sold can only be redeemed by the original holder.

36
 SERVICES

PUBLIC RIGHT PRIVATE

ISSUES ISSUES SUBSCRIPTION

INITIAL PUBLIC
OFFERING

OFFER FOR SALE

Methods of issuing securities in the primary market are:

 Public Issue
 Rights issue (for existing companies);
 Private Subscription

37
Public offer and private placement

In the primary markets, securities may be offered to the public in a public offer.
Alternatively, they may be offered privately to a limited number of qualified
persons in a private placement. Sometimes a combination of the two is used. The
distinction between the two is important to securities regulation and company law.
Privately placed securities are not publicly tradable and may only be bought and
sold by sophisticated qualified investors. As a result, the secondary market is not
nearly as liquid as it is for public (registered) securities.

Another category, sovereign bonds, is generally sold by auction to a specialized

class of dealers.

Listing and OTC dealing

Securities are often listed in a stock exchange, an organized and officially

recognized market on which securities can be bought and sold. Issuers may seek
listings for their securities in order to attract investors, by ensuring that there is a
liquid and regulated market in which investors will be able to buy and sell
securities.

Growth in informal electronic trading systems has challenged the traditional

business of stock exchanges. Large volumes of securities are also bought and sold
"over the counter" (OTC). OTC dealing involves buyers and sellers dealing with
each other by telephone or electronically on the basis of prices that are displayed
electronically.
Function of New Issue market

The main function of new issue market is to facilitate transfer of resources from
savers to the users. The savers are individuals, commercial banks, insurance
company etc. The users are public limited companies and the government. The
new issue market plays an important role of mobilizing the funds from the savers
and transfer them to borrowers for production purposes, an important requisite of
economic growth. It is not only a platform for raising finance to establish new
enterprises but also for expansion or diversification or modernization of existing
units. In this basis the new issue market can be classified as:-

(1) Market where firms go the the public for the first time through initial
public offering (IPO)

(2) Market where firms which are already trade raise additional capital
through seasoned equity offering (SEO).

38
The main function of new issue market can be divided into a triple service
functions :-

1) Origination.

2) Underwriting.

3) Distribution.

The function of origination is done by merchant bankers who may be commercial

banks, all India financial institution or private firms. Initially this services was
provided by specialize division of commercial banks. At present, financial
institutions and private firms also perform this service. Though the service is
highly important, the success of the issue depends, to a large extent, on the
efficiency of the market.
The origination itself does not guarantee the success of the issue Underwriting, a
specialize service is required in this regard.
1) Origination :- Origination refers to the work of investigation, analysis and
processing of new project proposals. Origination starts before an issue is
actually floated in the market. There are two aspects in this function:

(a) A careful study of the technical, economic and financial viability

to ensure soundness of the project. This is a preliminary
investigation undertaken by the sponsors of the issue.
(b) Advisory services which improve the quality of capital issues and
ensure its success.

2) Underwriting :- Underwriting is an agreement whereby the underwriter

promises to subscribe to a specified number of shares or debentures or a
specified amount of stock in the event of public not subscribing to the
issue. If the issue is fully subnscribed then there is no liability for the
underwriter. If a part of share issues remain unsold, the underwriter will
buy the shares. Thus underwriting is a guarantee for the marketability of
shares. Before appointing an underwriter, the financial strength of the
prospective underwriter is considered because he has to undertake the
agreed non-subscribed portion of the public issue. The other aspects
considered are
a) Experience in the primary market.
b) Past underwriting performance and default.
c) Outstanding underwriting commitment.
d) The network of investor clientele of the underwriter.
e) His overall reputation.

39
 The company after the closure of subscription list communicates in writing to
the underwriter the total number of shares or debentures remaining
unsubscribed, the number of shares or debentures are required to be taken up
by the underwriter. The underwriter would take up the agreed portion. If the
underwriter fails to pay, the company is free to allot the shares to others or take
up proceeding against the underwriter to claim damages for any loss suffered
by the company for his denial.

Methods of Underwriting :- An underwriting agreement may take any of the

following three forms:-

(i) Standing behind the issue :- Under this method, the underwriter guarantees
the sale of a specified number of hares within a specified period. If the public
do not subscribe to the specify amount o issue, the underwriter buyer the
balanced in the issue.

(ii) The underwriter, in this method, makes outright purchase of shares and
resell them to the investors.

(iii) Consortium method:- Underwriting is jointly done by a group of

underwriters in this method. The underwriters from syndicate for this purpose.
This method is adopted for large issues.

BSE
The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its
history to the 1850s, when stockbrokers would gather under banyan trees in front
of Mumbai's Town Hall. The location of these meetings changed many times, as
the number of brokers constantly increased. The group eventually moved to Dalal
Street in 1874 and in 1875 became an official organization known as 'The Native
Share & Stock Brokers Association'. In 1956, the BSE became the first stock
exchange to be recognized by the Indian Government under the Securities
Contracts Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE
a means to measure overall performance of the exchange. In 2000 the BSE used
this index to open its derivatives market, trading Sensex futures contracts. The
development of Sensex options along with equity derivatives followed in 2001 and
2002, expanding the BSE's trading platform.

Historically an open-cry floor trading exchange, the Bombay Stock Exchange

switched to an electronic trading system in 1995. It took the exchange only fifty
days to make this transition.
40
MUTUAL FUND
Mutual Funds has evolved over the years and it is sure to appear as something very
interesting for all the investors of the world. In present world, mutual funds have
become a main form of investment because of its diversified and liquid features.
Not only in the developed world, but in the developing countries also different
types of mutual funds are gaining popularity very fast in a tremendous way. But,
there was a time when the concept of Mutual Funds were not present in the
economy.

There is an ambiguity about the fact that when and where the Mutual Fund
Concept was introduced for the first time. According to some historians, the
mutual funds were first introduced in Netherlands in 1822. But according to some
other belief, the idea of Mutual Fund first came from a Dutch Merchant ling back
in 1774. In 1822, that idea was further developed. In 1822, the concept of
Investment Diversification was properly incorporated in the mutual funds. In fact,
the Investment Diversification is the main attraction of mutual funds as the small
investors are also able to allocate their little Funds in a diversified way to lower
Risks.

After 1822 in Netherlands, the Mutual Funds Concept came in Switzerland in

1849 and thereafter in Scotland in the 1880s. After being popular in Great Britain
and France, Mutual fund concept traveled to U.S.A in the 1890s. In 1920s and
1930s, the Mutual Fund popularity reached a new high. There was record
investment done in mutual funds. But, before 1920s,the mutual funds were not like
the modern day mutual funds. The modern day mutual funds came into existence
in 1924, in Boston. Massachusetts Investors Trust introduced the Modern Mutual
Funds and the funds were available from 1928. At present this Massachusetts
Investors Trust is known as MFS Investment Management Company. After the
glorious year of 1928, Mutual fund ideas expanded to different levels and different
regulations came for well functioning of the funds.

The origin of mutual fund industry in India is with the introduction of the concept
of mutual fund by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements,
both quality wise as well as quantity wise. Before, the monopoly of the market
had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn.
The private sector entry to the fund family rose the AUM to Rs. 470 bn in March
1993 and till April 2004, it reached the height of 1,540 bn.Putting the AUM of the
Indian Mutual Funds Industry into comparison, the total of it is less than the
41
deposits of SBI alone, constitute less than 11% of the total deposits held by the
Indian banking industry.The main reason of its poor growth is that the mutual
fund industry in India is new in the country. Large sections of Indian investors are
yet to be intellectuated with the concept. Hence, it is the prime responsibility of all
mutual fund companies, to market the product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
First Phase - 1964-87Unit Trust of India (UTI) was established on 1963 by an Act
of Parliament. It was set up by the Reserve Bank of India and functioned under the
Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI
was de-linked from the RBI and the Industrial Development Bank of India (IDBI)
took over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had
Rs.6,700 crores of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked
Rs.47,004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 2003, there were 33 mutual funds with
total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores
of assets under management was way ahead of other mutual funds.

Fourth Phase - since February 2003

42
This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of
Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust
of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC.
It is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking
place among different private sector funds, the mutual fund industry has entered
its current phase of consolidation and growth. As at the end of September, 2004,
there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.

The year 1993 was a remarkable turning point in the Indian Mutual Fund industry.
The stock investment scenario till then was restricted to UTI (Unit Trust of India)
and public sector. This year marked the entry of private sector mutual funds,
giving the Indian investors a wider choice of selecting mutual funds. From then
on, the graph of mutual fund players has been on the rise with many foreign
mutual funds also setting up funds in India. The industry has also witnessed
several mergers and acquisitions proving it advantageous to the Indian investors.

Are mutual funds emerging as preferred investment option? Are they safe and will
your money be secured with them? Before proceeding to answer these questions, a
look at the February 2006, Indian bull market scenario is worth a mention.

For the first time ever, stock market indices in India are at a record high. The
Bombay Stock Exchange closed above the 10,000-mark for the first time ever, an
ecstatic event in the history of the Stock exchange. Market savvy Indian investors
have been busy transacting across sectors such as banking automobile, sugar,
consumer durable, fast moving consumer goods (FMCG) and pharmaceutical
scripts. And, the Union Finance Minister, Mr.P.Chidambaram, has responded
positively and advised investors to take informed decisions or invest through
mutual funds.

Mutual funds are not considered any more as obscure investment opportunities.
The mutual funds assets have registered an annual growth rate of 9% over the past
5 years. Considering the current trend and the relative positive response of the
Indian economy, a much bigger jump is on the anvil.

The history of the Indian mutual fund industry can be traced to the formation of
UTI in 1963. This was a joint initiative of the Government of India and RBI. It
held monopoly for nearly 30 years. Since 1987, non-UTI mutual funds entered the

43
scenario. These consisted of LIC, GIC and public-sector bank backed Indian
mutual funds. SBI Mutual fund was the first of this kind. 1993 saw the entry of
private sector players on the Indian Mutual Funds scene. Mutual fund regulations
were revised in 1996 to accommodate changing market needs.

With the Sensex on a scorching bull rally, many investors prefer to trade on stocks
themselves. Mutual funds are more balanced since they diversify over a large
number of stocks and sectors. In the rally of 2000, it was noticed that mutual funds
did better than the stocks mainly due to prudent fund management based on the
virtues of diversification.

A Brief of How Mutual Funds Work

Mutual funds can be either or both of open ended and closed ended investment
companies depending on their fund management pattern. An open-end fund offers
to sell its shares (units) continuously to investors either in retail or in bulk without
a limit on the number as opposed to a closed-end fund. Closed end funds have
limited number of shares.

Mutual funds have diversified investments spread in calculated proportions

amongst securities of various economic sectors. Mutual funds get their earnings in
two ways. First is the most organic way, which is the dividend they get on the
securities they hold. Second is by the redemption of their shares by investors will
be at a discount to the current NAVs (net asset values).

Working of mutual funds

A mutual fund is set up by a sponsor. However, the sponsor cannot run the fund
directly. He has to set up two arms: a trust and Asset Management Company. The
trust is expected to assure fair business practice, while the AMC manages the
money. All mutual funds except UTI functions under Sebi (Mutual Fund)
regulations 1996.

The mutual fund collects money directly or through brokers from investors. The
money is invested in various instruments depending on the objective of the
scheme. The income generated by selling securities or capital appreciation of these
securities is passed on to the investors in proportion to their investment in the
scheme. The investments are divided into units and the value of the units will be
reflected in Net Asset Value or NAV of the unit. NAV is the market value of the
assets of the scheme minus its liabilities. The per unit NAV is the net asset value
of the scheme divided by the number of units outstanding on the valuation date.
Mutual fund companies provide daily net asset value of their schemes to their
investors. NAV is important, as it will determine the price at which you buy or
redeem the units of a scheme. Depending on the load structure of the scheme, you
have to pay entry or exit load.

44
Various Mutual Fund schemes and their implications

Mutual fund schemes are classified on the basis of its structure and investment
objective.

By Structure

Open-ended funds: Investors can buy and sell units of open-ended funds at NAV-
related price every day. Open-end funds do not have a fixed maturity and it is
available for subscription every day of the year. Open-end funds also offer
liquidity to investments, as one can sell units whenever there is a need for money.

Close-ended funds: These funds have a stipulated maturity period, which may
vary from three to 15 years. They are open for subscription only during a specified
period. Investors have the option of investing in the scheme during initial public
offer period or buy or sell units of the scheme on the stock exchanges. Some close-
ended funds repurchase the units at NAV-related prices periodically to provide an
exit route to the investors.

Interval Funds: These funds combine the features of both open and close-ended
funds. They are open for sale and repurchase at a predetermined period.

By Investment objective

Growth funds: They normally invest most of their corpus in equities, as their
objective is to provide capital appreciation over the medium-to-long term. Growth
schemes are ideal for investors with risk appetite.

Income funds: As the name suggests, the aim of these funds is to provide regular
and steady income to investors. They generally invest their corpus in fixed income
securities like bonds, corporate debentures, and government securities. Income
funds are ideal for those looking for capital stability and regular income.

Balanced funds: The objective of balanced funds is to provide growth along with
regular income. They invest their corpus in both equities and fixed income
securities as indicated in the offer documents. Balanced funds are ideal for those
looking for income and moderate growth.

Money market funds: These funds strive to provide easy liquidity, preservation of
capital and modest income. MMFs generally invest the corpus in safer short-term
instruments like treasury bills, certificates of deposit, commercial paper and inter-
bank call money. Returns on these schemes hinges on the interest rates prevailing
in the market. MMFs are ideal for corporate and individual investors looking to
park funds for short periods.

45
Other schemes

Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer
tax rebates to investors under section 88 of the Income Tax Act. They generally
have a lock-in period of three years. They are ideal for investors looking to exploit
tax rebates as well as growth in investments.

Special schemes: These schemes invest only in the industries specified in the offer
document. Examples are Infotech funds, FMCG funds, pharma funds, etc. These
schemes are meant for aggressive and well-informed investors.

Index funds: Index Funds invest their corpus on the specified index such as BSE
Sensex, NSE index, etc. as mentioned in the offer document. They try to mimic
the composition of the index in their portfolio. Not only the shares, even their
weightage is replicated. Index funds are a passive investment strategy and the fund
manager has a limited role to play here. The NAVs of these funds move along
with the index they are trying to mimic save for a few points here and there. This
difference is called tracking error.

Sector specific schemes: These funds invest only specified sectors like an industry
or a group of industries or various segments like ?A? Group shares or initial public
offerings.

Why invest through a Mutual Fund

Affordability: Mutual funds allow you to start with small investments. For
example, if you want to buy a portfolio of blue chips of modest size, you should at
least have a few lakhs of rupees. A mutual fund gives you the same portfolio for
meager investment of Rs 1,000-5,000. A mutual fund can do that because it
collects money from many people and it has a large corpus.

Professional management: The major advantage of investing in a mutual fund is

that you get a professional money manager for a small fee. You can leave the
investment decisions to him and only have to monitor the performance of the fund
at regular intervals.

Diversification: Considered the essential tool in risk management, mutual funds

makes it possible for even small investors to diversify their portfolio. A mutual
fund can effectively diversify its portfolio because of the large corpus. However, a
small investor cannot have a well-diversified portfolio because it calls for large
investment. For example, a modest portfolio of 10 blue-chip stocks calls for a few
a few thousands.

Convenience: Mutual funds offer tailor-made solutions like systematic investment

plans and systematic withdrawal plans to investors, which is very convenient to
investors. Investors also do not have to worry about the investment decisions or
they do not have to deal with their brokerage or depository, etc. for buying or
46
selling of securities. Mutual funds also offer specialized schemes like retirement
plan, children's plan, industry specific schemes, etc. to suit personal preference of
investors. These schemes also help small investors with asset allocation of their
corpus. It also saves a lot of paper work.

Cost effectiveness: A small investor will find that a mutual fund route is a cost
effective method. AMC fee is normally 2.5% and they also save a lot of
transaction costs as they get concession from brokerages. Also, they get the
service of a financial professional for a very small fee. If they were to seek a
financial advisor's help directly, they may end up pay more. Also, the size of the
corpus should be large to get the service of investment experts, who offer portfolio
management.

Liquidity: You can liquidate your investments anytime you want. Most mutual
funds dispatch checks for redemption proceeds within two or three working days.
You also do not have to pay any penal interest in most cases. However, some
schemes charge an exit load.

Tax breaks: You do not have to pay any taxes on dividends issued by mutual
funds. You also have the advantage of capital gains taxation. Tax-saving schemes
and pension schemes give you the added advantage of benefits under Section 88.
Investments up to Rs 10,000 in them qualify for tax rebate.

Transparency: Mutual funds offer daily NAVs of schemes, which help you to
monitor your investments on a regular basis. They also send quarterly newsletters,
which give details of the portfolio, performance of schemes against various
benchmarks, etc. They are also well regulated and Sebi monitors their actions
closely.

Selecting a Mutual Fund

Selection parameters

Your objective: The first point to note before investing in a fund is to find out
whether your objective matches with the scheme. It is necessary, as any conflict
would directly affect your prospective returns. For example, a scheme that invests
heavily in mid-cap stocks is not suited for a conservative equity investor. He
should be better off in a scheme, which invests mainly in blue chips. Similarly,
you should pick schemes that meet your specific needs. Examples: pension plans,
children's plans, sector-specific schemes, etc.

Your risk capacity and capability: this dictates the choice of schemes. Those with
no risk tolerance should go for debt schemes, as they are relatively safer.
Aggressive investors can go for equity investments. Investors that are even more
aggressive can try schemes that invest in specific industry or sectors.

47
Fund Manager's and scheme track record: Since you are giving your hard earned
money to someone to manage it, it is imperative that he manages it well. It is also
essential that the fund house you choose has excellent track record. It also should
be professional and maintain high transparency in operations. Look at the
performance of the scheme against relevant market benchmarks and its
competitors. Look at the performance of a longer period, as it will give you how
the scheme fared in different market conditions.

Cost factor: Though the AMC fee is regulated, you should look at the expense
ratio of the fund before investing. This is because the money is deducted from
your investments. A higher entry load or exit load also will eat into your returns. A
higher expense ratio can be justified only by superlative returns. It is very crucial
in a debt fund, as it will devour a few percentages from your modest returns.

Purchasing mutual funds

Purchasing during IPO: Like companies, even mutual funds offer initial public
offering. It is when they launch the scheme for the first time. You can buy units at
par on this occasion. However, it is not always advantageous to buy a mutual fund
during IPO. You can always wait and see the performance before investing in it.

Purchasing existing mutual fund units: You can buy units of an open-end scheme
anytime at NAV-related price. Most mutual funds charge an entry load of up to
2%. That means you have to pay an additional 2% of the NAV to get into the
scheme. You can buy the plan directly from the mutual fund or brokerage. You
can even buy them via the Internet.

Selling mutual funds

You can sell or redeem units very easily. As per Sebi guidelines, a mutual fund
unit holder has the right to receive redemption or repurchase proceeds within 10
days of the redemption or repurchase. Most funds do not charge an exit load these
days.

When should you sell a mutual fund unit is a crucial question. Ideally, you should
sell it when you have met your target profit. The other reason is that you need the
money or your profile has changed due to some changes in your life. Other than
this, you should sell the units if you find that the fund has been taken over by
another fund, which you do not approve of. Any major changes in the objective of
the fund or a sharp rise in expenses could also be valid reasons to redeem units.
Following a favorite fund manager is also a usual practice. However, it need not
be always rewarding.

Income from mutual funds: the options

Mutual funds distribute their income as dividend. An investor has the option of
receiving the dividend or opting for the dividend reinvestment. If an investor needs
48
the income, he can opt for dividend payout option. However, if you do not need
the money, he can opt for dividend reinvestment. Another choice before him is the
growth or cumulative option. Here the income generated from sale of securities or
capital appreciation is automatically reinvested.

Speedy investment, redemption and income receipts

Thanks to the Electronic Clearing Services (ECS), mutual fund investor now has
the option of automatic credit of dividends and redemptions into bank account.
This will save a lot of paperwork, for both you and the fund. You can also instruct
your bank to automatically withdraw a certain sum towards systematic investment
plan. Alternatively, you can also directly receive systematic withdrawal proceeds
in your bank account.

Tracking mutual funds? performance

Objective parameters

The NAV of the scheme will reflect the performance of the scheme. The fund will
also give you returns for various periods such as one month, three months, six
months, one year, three years, since inception, etc. This will give you an idea
about the performance of the fund. Funds also provide comparison with relevant
benchmarks. This should tell you whether the fund manager has performed better
than the benchmark. However, financial experts believe that these returns do not
give the complete picture. They believe that the return should be risk-adjusted.
Various publications and Internet sites provide such returns. The computation is
complicated and they use various formulas for this purpose.

Are Mutual Funds Risk Free and What are the Advantages?
One must not forget the fundamentals of investment that no investment is
insulated from risk. Then it becomes interesting to answer why mutual funds are
so popular. To begin with, we can say mutual funds are relatively risk free in the
way they invest and manage the funds. The investment from the pool is well
diversified across securities and shares from various sectors. The fundamental
understanding behind this is not all corporations and sectors fail to perform at a
time. And in the event of a security of a corporation or a whole sector doing badly
then the possible losses from that would be balanced.
This logic has seen the mutual funds to be perceived as risk free investments in
the market. Yes, this is not entirely untrue if one takes a look at performances of
various mutual funds. This relative freedom from risk is in addition to a couple of
advantages mutual funds carry with them. So, if you are a retail investor and
planning an investment in securities, you will certainly want to consider the
advantages of investing in mutual funds.
 Lowest per unit investment in almost all the cases

 Your investment will be diversified

49
  Your investment will be managed by professional money managers
Net asset value

The net asset value, or NAV, is the current market value of a fund's holdings, less
the fund's liabilities, usually expressed as a per-share amount. For most funds, the
NAV is determined daily, after the close of trading on some specified financial
exchange, but some funds update their NAV multiple times during the trading day.
The public offering price, or POP, is the NAV plus a sales charge. Open-end funds
sell shares at the POP and redeem shares at the NAV, and so process orders only
after the NAV is determined. Closed-end funds (the shares of which are traded by
investors) may trade at a higher or lower price than their NAV; this is known as a
premium or discount, respectively. If a fund is divided into multiple classes of
shares, each class will typically have its own NAV, reflecting differences in fees
and expenses paid by the different classes.
Some mutual funds own securities which are not regularly traded on any formal
exchange. These may be shares in very small or bankrupt companies; they may be
derivatives; or they may be private investments in unregistered financial
instruments (such as stock in a non-public company). In the absence of a public
market for these securities, it is the responsibility of the fund manager to form an
estimate of their value when computing the NAV. How much of a fund's assets
may be invested in such securities is stated in the fund's prospectus.

Management fees
The management fee for the fund is usually synonymous with the contractual
investment advisory fee charged for the management of a fund's investments.
However, as many fund companies include administrative fees in the advisory fee
component, when attempting to compare the total management expenses of
different funds, it is helpful to define management fee as equal to the contractual
advisory fee plus the contractual administrator fee. This "levels the playing field"
when comparing management fee components across multiple funds.
Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee
charged to the fund, regardless of the asset size of the fund. However, many funds
have contractual fees which include breakpoints so that as the value of a fund's
assets increases, the advisory fee paid decreases. Another way in which the
advisory fees remain competitive is by structuring the fee so that it is based on the
value of all of the assets of a group or a complex of funds rather than those of a
single fund.
Non-management expenses
Apart from the management fee, there are certain non-management expenses
which most funds must pay. Some of the more significant (in terms of amount)
non-management expenses are: transfer agent expenses (this is usually the person
you get on the other end of the phone line when you want to purchase/sell shares
of a fund), custodian expense (the fund's assets are kept in custody by a bank
which charges a custody fee), legal/audit expense, fund accounting expense,
registration expense (the SEC charges a registration fee when funds file
registration statements with it), board of directors/trustees expense (the members
50
of the board who oversee the fund are usually paid a fee for their time spent at
meetings), and printing and postage expense(incurred when printing and
delivering shareholder reports).

Brokerage commissions
An additional expense which does not pass through the statement of operations
and cannot be controlled by the investor is brokerage commissions. Brokerage
commissions are incorporated into the price of the fund and are reported usually 3
months after the fund's annual report in the statement of additional information.
Brokerage commissions are directly related to portfolio turnover (portfolio
turnover refers to the number of times the fund's assets are bought and sold over
the course of a year). Usually, higher rate of portfolio turnover returns in higher
brokerage commissions. The advisors of mutual fund companies are required to
achieve "best execution" through brokerage arrangements so that the commissions
charged to the fund will not be excessive.
Types of mutual funds
Open-end fund
The term mutual fund is the common name for what is classified as an open-end
investment company by the SEC. Being open-ended means that, at the end of
every day, the fund issues new shares to investors and buys back shares from
investors wishing to leave the fund.
Mutual funds must be structured as corporations or trusts, such as business trusts,
and any corporation or trust will be classified by the SEC as an investment
company if it issues securities and primarily invests in non-government securities.
An investment company will be classified by the SEC as an open-end investment
company if they do not issue undivided interests in specified securities (the
defining characteristic of unit investment trusts or UITs) and if they issue
redeemable securities. Registered investment companies that are not UITs or open-
end investment companies are closed-end funds. Neither UITs nor closed-end
funds are mutual funds (as that term is used in the US).
Exchange-traded funds
A relatively recent innovation, the exchange-traded fund or ETF, is often
structured as an open-end investment company. ETFs combine characteristics of
both mutual funds and closed-end funds. ETFs are traded throughout the day on a
stock exchange, just like closed-end funds, but at prices generally approximating
the ETF's net asset value. Most ETFs are index funds and track stock market
indexes. Shares are issued or redeemed by institutional investors in large blocks
(typically of 50,000). Most investors purchase and sell shares through brokers in
market transactions. Because the institutional investors normally purchase and
redeem in kind transactions, ETFs are more efficient than traditional mutual funds
(which are continuously issuing and redeeming securities and, to effect such
transactions, continually buying and selling securities and maintaining liquidity
positions) and therefore tend to have lower expenses.
Exchange-traded funds are also valuable for foreign investors who are often able
to buy and sell securities traded on a stock market, but who, for regulatory reasons,
are limited in their ability to participate in traditional mutual funds.
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Equity funds
Equity funds, which consist mainly of stock investments, are the most common
type of mutual fund. Equity funds hold of all amounts invested in mutual funds in
the United States. Often equity funds focus investments on particular strategies
and certain types of issuers.

Bond funds
Bond funds account for 18% of mutual fund assets. Types of bond funds include
term funds, which have a fixed set of time (short-, medium-, or long-term) before
they mature. Municipal bond funds generally have lower returns, but have tax
advantages and lower risk. High-yield bond funds invest in corporate bonds,
including high-yield or junk bonds. With the potential for high yield, these bonds
also come with greater risk.
Money market funds
Money market funds hold 26% of mutual fund assets in the United States. Money
market funds entail the least risk, as well as lower rates of return. Unlike
certificates of deposit (CDs), money market shares are liquid and redeemable at
any time.
Funds of funds
Funds of funds (FoF) are mutual funds which invest in other underlying mutual
funds (i.e., they are funds comprised of other funds). The funds at the underlying
level are typically funds which an investor can invest in individually. A fund of
funds will typically charge a management fee which is smaller than that of a
normal fund because it is considered a fee charged for asset allocation services.
The fees charged at the underlying fund level do not pass through the statement of
operations, but are usually disclosed in the fund's annual report, prospectus, or
statement of additional information. The fund should be evaluated on the
combination of the fund-level expenses and underlying fund expenses, as these
both reduce the return to the investor.
Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same
advisor), although some invest in funds managed by other (unaffiliated) advisors.
The cost associated with investing in an unaffiliated underlying fund is most often
higher than investing in an affiliated underlying because of the investment
management research involved in investing in fund advised by a different advisor.
Recently, FoFs have been classified into those that are actively managed (in which
the investment advisor reallocates frequently among the underlying funds in order
to adjust to changing market conditions) and those that are passively managed (the
investment advisor allocates assets on the basis of on an allocation model which is
rebalanced on a regular basis).
The design of FoFs is structured in such a way as to provide a ready mix of mutual
funds for investors who are unable to or unwilling to determine their own asset
allocation model.

Mutual funds vs. other investments

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Mutual funds offer several advantages over investing in individual stocks. For
example, the transaction costs are divided among all the mutual fund shareholders,
which allows for cost-effective diversification. Investors may also benefit by
having a third party (professional fund managers) apply expertise and dedicate
time to manage and research investment options, although there is dispute over
whether professional fund managers can, on average, outperform simple index
funds that mimic public indexes. Yet, the Wall Street Journal reported that
separately managed accounts performed better than mutual funds in 22 of 25
categories from 2006 to 2008. This included beating mutual funds performance in
2008, a tough year in which the global stock market lost in value In the story,
Morningstar, Inc said outperformed mutual funds in 25 of 36 stock and bond
market categories. Whether actively managed or passively indexed, mutual funds
are not immune to risks. They share the same risks associated with the investments
made. If the fund invests primarily in stocks, it is usually subject to the same ups
and downs and risks as the stock market.
Share classes
Many mutual funds offer more than one class of shares. For example, you may
have seen a fund that offers "Class A" and "Class B" shares. Each class will invest
in the same pool (or investment portfolio) of securities and will have the same
investment objectives and policies. But each class will have different shareholder
services and/or distribution arrangements with different fees and expenses. A
multi-class structure offers investors the ability to select a fee and expense
structure that is most appropriate for their investment goals (including the length
of time that they expect to remain invested in the fund).
Load and expenses
Mutual fund fees and expenses
A front-end load or sales charge is a commission paid to a broker by a mutual fund
when shares are purchased, taken as a percentage of funds invested. The value of
the investment is reduced by the amount of the load. Some funds have a deferred
sales charge or back-end load. In this type of fund an investor pays no sales charge
when purchasing shares, but will pay a commission out of the proceeds when
shares are redeemed depending on how long they are held. Another derivative
structure is a level-load fund, in which no sales charge is paid when buying the
fund, but a back-end load may be charged if the shares purchased are sold within a
year.
Load funds are sold through financial intermediaries such as brokers, financial
planners, and other types of registered representatives who charge a commission
for their services. Shares of front-end load funds are frequently breakpoints (i.e., a
reduction in the commission paid) based on a number of variables.

53
 Capital market
A capital market is a market for securities (debt or equity), where business
enterprises (companies) and governments can raise long-term funds. It is defined
as a market in which money is provided for periods longer than a year, as the
raising of short-term funds takes place on other markets (e.g., the money market).
The capital market includes the stock market (equity securities) and the bond
market (debt). Financial regulators, such as the Financial Services Authority or the
Securities and Exchange Commission, oversee the capital markets in their
designated jurisdictions to ensure that investors are protected against fraud, among
other duties.

Capital markets may be classified as primary markets and secondary markets. In

primary markets, new stock or bond issues are sold to investors via a mechanism
known as underwriting. In the secondary markets, existing securities are sold and
bought among investors or traders, usually on a securities exchange, over-the-
counter, or elsewhere. A security is a fungible, negotiable instrument representing
financial value. Securities are broadly categorized into debt securities (such as
banknotes, bonds and debentures); equity securities, e.g., common stocks; and
derivative contracts, such as forwards, futures, options and swaps. The company or
other entity issuing the security is called the issuer. A country's regulatory
structure determines what qualifies as a security. For example, private investment
pools may have some features of securities, but they may not be registered or
regulated as such if they meet various restrictions.

Securities may be represented by a certificate or, more typically, "non-

certificated", that is in electronic or "book entry" only form. Certificates may be
bearer, meaning they entitle the holder to rights under the security merely by
holding the security, or registered, meaning they entitle the holder to rights only if
he or she appears on a security register maintained by the issuer or an
intermediary. They include shares of corporate stock or mutual funds, bonds
issued by corporations or governmental agencies, stock options or other options,
limited partnership units, and various other formal investment instruments that are
negotiable and fungible. Commercial enterprises have traditionally used securities
as a means of raising new capital. Securities may be an attractive option relative to
bank loans depending on their pricing and market demand for particular
characteristics. Another disadvantage of bank loans as a source of financing is that
the bank may seek a measure of protection against default by the borrower via
extensive financial covenants. Through securities, capital is provided by investors
who purchase the securities upon their initial issuance. In a similar way, the
governments may raise capital through the issuance of securities (see government
debt).

54
Investment

The traditional economic function of the purchase of securities is investment, with

the view to receiving income and/or achieving capital gain. Debt securities
generally offer a higher rate of interest than bank deposits, and equities may offer
the prospect of capital growth. Equity investment may also offer control of the
business of the issuer. Debt holdings may also offer some measure of control to
the investor if the company is a fledgling start-up or an old giant undergoing
'restructuring'. In these cases, if interest payments are missed, the creditors may
take control of the company and liquidate it to recover some of their investment.

Debt and equity

Securities are traditionally divided into debt securities and equities (see also derivatives).

Debt

Debt securities may be called debentures, bonds, deposits, notes or commercial

paper depending on their maturity and certain other characteristics. The holder of a
debt security is typically entitled to the payment of principal and interest, together
with other contractual rights under the terms of the issue, such as the right to
receive certain information. Debt securities are generally issued for a fixed term
and redeemable by the issuer at the end of that term. Debt securities may be
protected by collateral or may be unsecured, and, if they are unsecured, may be
contractually "senior" to other unsecured debt meaning their holders would have a
priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".

Corporate bonds represent the debt of commercial or industrial entities. Debentures have
a long maturity, typically at least ten years, whereas notes have a shorter maturity.
Commercial paper is a simple form of debt security that essentially represents a post-
dated check with a maturity of not more than 270 days.

Money market instruments are short term debt instruments that may have characteristics
of deposit accounts, such as certificates of deposit, and certain bills of exchange. They are
highly liquid and are sometimes referred to as "near cash". Commercial paper is also

55
often highly liquid. Euro debt securities are securities issued internationally outside their
domestic market in a denomination different from that of the issuer's domicile. They
include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not
secured, and interest is paid gross.

Government bonds are medium or long term debt securities issued by sovereign
governments or their agencies. Typically they carry a lower rate of interest than corporate
bonds, and serve as a source of finance for governments. Indian federal government
bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries
are used to manage the money supply in the open market operations of central banks.
Sub-sovereign government bonds, known in the India as municipal bonds, represent the
debt of state, provincial, territorial, municipal or other governmental units other than
sovereign governments. Supranational bonds represent the debt of international
organizations such as the World Bank, the International Monetary Fund, regional
multilateral development banks and others.

Equity

An equity security is a share of equity interest in an entity such as the capital stock
of a company, trust or partnership. The most common form of equity interest is
common stock, although preferred equity is also a form of capital stock. The
holder of an equity is a shareholder, owning a share, or fractional part of the
issuer. Unlike debt securities, which typically require regular payments (interest)
to the holder, equity securities are not entitled to any payment. In bankruptcy, they
share only in the residual interest of the issuer after all obligations have been paid
out to creditors. However, equity generally entitles the holder to a pro rata portion
of control of the company, meaning that a holder of a majority of the equity is
usually entitled to control the issuer. Equity also enjoys the right to profits and
capital gain, whereas holders of debt securities receive only interest and repayment
of principal regardless of how well the issuer performs financially. Furthermore,
debt securities do not have voting rights outside of bankruptcy. In other words,
equity holders are entitled to the "upside" of the business and to control the
busines.

Preference shares form an intermediate class of security between equities and debt.
If the issuer is liquidated, they carry the right to receive interest and/or a return of
capital in priority to ordinary shareholders. However, from a legal perspective,
they are capital stock and therefore may entitle holders to some degree of control
depending on whether they contain voting rights.

Convertibles are bonds or preferred stock which can be converted, at the election
of the holder of the convertibles, into the common stock of the issuing company.
The convertibility, however, may be forced if the convertible is a callable bond,
and the issuer calls the bond. The bondholder has about 1 month to convert it, or
the company will call the bond by giving the holder the call price, which may be
less than the value of the converted stock. This is referred to as a forced
conversion.

56
Equity warrants are options issued by the company that allow the holder of the
warrant to purchase a specific number of shares at a specified price within a
specified time. They are often issued together with bonds or existing equities, and
are, sometimes, detachable from them and separately tradable. When the holder of
the warrant exercises it, he pays the money directly to the company, and the
company issues new shares to the holder.

Warrants, like other convertible securities, increases the number of shares

outstanding, and are always accounted for in financial reports as fully diluted
earnings per share, which assumes that all warrants and convertibles will be
exercised.

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 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 (usually one vote per share owned) 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. However,
shareholder's rights to a company's assets are subordinate to the rights of the
company's creditors.
Shareholders are considered by some to be a partial subset of stakeholders, which
may include anyone who has a direct or indirect equity interest in the business
entity or someone with even a non-pecuniary interest in a non-profit organization.
Thus it might be common to call volunteer contributors to an association
stakeholders, even though they are not shareholders.
Although directors and officers of a company are bound by fiduciary duties to act
in the best interest of the shareholders, the shareholders themselves normally do
not have such duties towards each other.
However, in a few unusual cases, some courts have been willing to imply such a
duty between shareholders. In majority shareholders of closely held corporations
have a duty to not destroy the value of the shares held by minority
shareholders.The largest shareholders (in terms of percentages of companies
owned) are often mutual funds, and, especially, passively managed exchange-
traded funds.

57
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. Corporations may, however,
issue different classes of shares, which may have different voting rights. Owning
the majority of the shares allows other shareholders to be out-voted - effective
control rests with the majority shareholder (or shareholders acting in concert). In
this way the original owners of the company often still have control of the
company.

Shareholder rights
Although ownership of 50% of shares does result in 50% ownership of a company,
it does not give the shareholder the right to use a company's building, equipment,
materials, or other property. This is because the company is considered a legal
person, thus it owns all its assets itself. This is important in areas such as
insurance, which must be in the name of the company and not the main
shareholder.
In most countries, including the United States, boards of directors and company
managers have a fiduciary responsibility to run the company in the interests of its
stockholders. Nonetheless, as Martin Whitman writes:
Even though the board of directors runs the company, the shareholder has some
impact on the company's policy, as the shareholders elect the board of directors.
Each shareholder typically has a percentage of votes equal to the percentage of
shares he or she owns. So as long as the shareholders agree that the management
(agent) are performing poorly they can elect a new board of directors which can
then hire a new management team. In practice, however, genuinely contested
board elections are rare. Board candidates are usually nominated by insiders or by
the board of the directors themselves, and a considerable amount of stock is held
and voted by insiders.
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Means of financing
Financing a company through the sale of stock in a company is known as equity
financing. Alternatively, debt financing (for example issuing bonds) can be done
to avoid giving up shares of ownership of the company. Unofficial financing
known as trade financing usually provides the major part of a company's working
capital (day-to-day operational needs).

Trading
A stock exchange is an organization that provides a marketplace for either
physical or virtual trading shares, bonds and warrants and other financial products
where investors (represented by stock brokers) may buy and sell shares of a wide
range of companies. A company will usually list its shares by meeting and
maintaining the listing requirements of a particular stock exchange. In the India,
through the inter-market quotation system, stocks listed on one exchange can also
be bought or sold on several other exchanges, including relatively new so-called
(Electronic Communication Networks like Archipelago or Instinet).
Many large companies choose to list on a. exchange as well as an exchange in
their home country in order to broaden their investor base. These companies have
then to ship a certain number of shares to a bank in the (a certain percentage of
their principal) and put it in the safe of the bank. Then the bank where they
deposited the shares can issue a certain number of so-called Indian Depositary
Shares, short (singular). If someone buys now a certain number of the bank where
the shares are deposited issues an for the buyer.Although it makes sense for some
companies to raise capital by offering stock on more than one exchange, a keen
investor with access to information about such discrepancies could invest in
expectation of their eventual convergence, known as an arbitrage trade. In today's
era of electronic trading, these discrepancies, if they exist, are both shorter-lived
and more quickly acted upon. As such, arbitrage opportunities disappear quickly
due to the efficient nature of the market.
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, such as the 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

59
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 there are two ways: purchasing
stock with money that is currently in the buyer's ownership, or by buying stock on
margin. Buying stock on margin means buying stock with money borrowed
against the stocks in the same account. These stocks, or collateral, guarantee that
the buyer can repay the loan; otherwise, the stockbroker has the right to sell the
stock (collateral) to repay the borrowed money. He can sell if the share price drops
below the margin requirement, at least 50% of the value of the stocks in the
account.

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.
Stock price fluctuations
Robert Shiller's plot of the Composite Real Price Index, Earnings, Dividends, and
Interest Rates, from Irrational Exuberance, In the preface to this edition, Shiller
warns that "the stock market has not come down to historical levels: the price-
earnings ratio as I define it in this book is still, at this writing in the far higher
than the historical average. People still place too much confidence in the markets
and have too strong a belief that paying attention to the gyrations in their
investments will someday make them rich, and so they do not make conservative
preparations for possible bad outcomes." Price-Earnings ratios as a predictor of
twenty-year returns based upon the plot by Robert Shiller The horizontal axis
shows the Index as computed in Irrational Exuberance (inflation adjusted price
divided by the prior ten-year mean of inflation-adjusted earnings). The vertical
60
axis shows the geometric average real annual return on investing in the Composite
Stock Price Index, reinvesting dividends, and selling twenty years later. Data from
different twenty year periods is color-coded as shown in the key. See also ten-year
returns. Shiller states that this plot "confirms that long-term investors—investors
who commit their money to an investment for ten full years—did do well when
prices were low relative to earnings at the beginning of the ten years. Long-term
investors would be well advised, individually, to lower their exposure to the stock
market when it is high, as it has been recently, and get into the market when it is
low.
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 directly
proportional to the demand. However, there are many factors on the basis of which
the demand for a particular stock may increase or decrease. These factors are
studied using methods of fundamental analysis and technical analysis to predict
the changes in the stock price. A recent study shows that customer satisfaction, as
measured by the Indian Customer Satisfaction Index, is significantly correlated to
the stock market value. Stock price is also changed based on the forecast for the
company and whether their profits are expected to increase or decrease.

Pricing

The underpricing of initial public offerings (IPO) has been well documented in
different markets. While Issuers always try to maximize their issue proceeds, the
underpricing of IPOs has constituted a serious anomaly in the literature of
financial economics. Many financial economists have developed different models
to explain the underpricing of IPOs. Some of the models explained it as a
consequences of deliberate underpricing by issuers or their agents. In general,
smaller issues are observed to be underpriced more than large issues. Historically,
IPOs both globally and in the United States have been underpriced. The effect of
"initial underpricing" an IPO is to generate additional interest in the stock when it
first becomes publicly traded. Through flipping, this can lead to significant gains
for investors who have been allocated shares of the IPO at the offering price.
However, underpricing an IPO results in "money left on the table"—lost capital
that could have been raised for the company had the stock been offered at a higher
price. One great example of all these factors at play was seen with the IPO which
helped fuel the IPO mania of the late internet era. Underwritten by Bear Stearns
on November 13, 1998 the stock had been priced at per share, and famously
jumped after large sell offs from institutions flipping the stock . Although the
company did raise about from the offering it is estimated that with the level of
demand for the offering and the volume of trading that took place the company
might have left upwards of on the table.

The danger of overpricing is also an important consideration. If a stock is offered

to the public at a higher price than the market will pay, the underwriters may have
trouble meeting their commitments to sell shares. Even if they sell all of the issued

61
shares, if the stock falls in value on the first day of trading, it may lose its
marketability and hence even more of its value.

Investment banks, therefore, take many factors into consideration when pricing an
IPO, and attempt to reach an offering price that is low enough to stimulate interest
in the stock, but high enough to raise an adequate amount of capital for the
company. The process of determining an optimal price usually involves the
underwriters ("syndicate") arranging share purchase commitments from leading
institutional investors.

Issue price

A company that is planning an IPO appoints lead managers to help it decide on an

appropriate price at which the shares should be issued. There are two ways in
which the price of an IPO can be determined: either the company, with the help of
its lead managers, fixes a price or the price is arrived at through the process of
book building.

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CHAPTER- 4

63
 CHAPTER – 4

OBJECTIVES OF THE STUDY

1. To analysis the market strategy of Religare Broking Houses.

2. To know about mostly which age group of client invest in share market.

3. To analysis the type of services provides by Religare Broking Houses.

4. To analysis how many client invest in share market through Religare Broking
Houses.

5. To establish and maintain cordial relations between employees and management.

6. Analyzing the role of dealer in stock broking house

7. Analyzing the role of broker in stock broking house.

8. Analyzing the investor objective of investment.

9. To analyze the brokerage of religare security ltd in compare to other broking house.

64
CHAPTER- 5

65
 CHAPTER – 5
Research methodology

5.1 Field of the study

Research reference to a search for knowledge, it can also be defined

research as a scientific systematic search for pertinent information on a
specific topic. In fact research is an art of scientific investigation. Redman
and Mory defined research as a systematized effort to gain new knowledge
some people consider research as a movement. A movement from the
known to unknown.

Research is an academic activity and as such the term

should be used in technical sense. According to Clifford woody research
comprises defining and redefining problems, formulating hypothesis or
suggested solutions, collecting, organizing and evaluating data, making
deductions and reaching conclusion, and at last carefully tasting he
conclusions to determine whether they fit the formulating hypothesis.

66
(5.2) SCOPE

1. To learn how Religare broking house is providing the

services..

2. To learn which type of Services provided by Religare broking

house.

3. To learn the services are providing from which person a

Dealer or any person who is working in the company.

4. Identifying that which type of investor are investing in the

stock market well educate or illiterate person also.

5. To learn from the effects of different type of selling strategies

of the Stock market.

6. Identifying that which age of person are investing in the stock

market.

7. Identifying that the investor are investing in which type of

Services more and more.

67
(5.3) SAMPLE SIZE

This refers to the number of items to be selected from the universal. The size of the
sample should be neither too large nor too small. It should be optimum. In this
research work size of the sample is 100

68
(5.4) LIMITATION OF THE STUDY

 Investor’s return is subjected to market risk.

 Time consuming process.

 Some customer not aware about invest plan.

 Lack of interest shown by people.

69
(5.5) PREPARATION OF QUESTIONNAIRE

Q.1 How much necessity of investment among customer?

Much needed Some needed not so

Q.2 How Much Better Religare broking house with other

Competitors?

Much better Some what Same worse

Q.3 What is the promotional strategy of Religare Broking House?

Better service Experience staff Brand name Offers

Q.4 After the investment in shares the Religare broking house is

Providing services Good or not?

Good Poor Excellent Very Good

Q.5 According to RSL, what is the investment objective?

High return Future safety

Q.6 How many investor are Satisfied with Services?

Average Satisfied Highly satisfied Dissatisfied

Highly dissatisfied .

Q.7 How Religare helped their customer to solve their problem?

Good Excellent Poor Fair .

70
(5.6) Statistical scale of measure in Research?

Scaling describes the procedures of assigning numbers to various degrees of

opinion,
Attitude and other concepts. This can be done in two ways –

1. Making a judgment about some characteristic of an individual & then

placing him directly on a scale that defined in terms of that characteristic.
2. Constructing questionnaires in such a way that the score of individual
responses assigns him a place on a scale.

Types of Numerical Scales:-

There are many types of scales used in research as followed.

1. Nominal Scales.
2. Ordinal Scales.
3. Interval Scales.
4. Ratio Scales.

Kinds of Opinion Scales:-

Many forms of opinion scales are used but the main them are the following –

1. Thurstone Scale.
2. Likert Scale.
.

Likert Scale: - In 1932, likert constructed a scale which differed from the one
by
Thurston. This scale aimed at discovering the attitude of various human
groups
Concerning imperialism, internationalism and Negroes.

1. To construct much statement related to the object or problem the attitudes

toward
Which are to be studied?

71
 2. To show these statement to the subject & to get them classified into the
Following groups – strongly approve, undecided, disapprove,
Strongly disapprove, approve.

3. To award points to the above classification in the following manner.

(5.7) SAMPLING METHOD

There are different methods of sample design based on two factors viz. the
representation basis and the element selection technique. On the
representation basis, the sample may be probability sampling on it may
non probability sampling. Probability sampling is based on the concept of
random selection, whereas non probability sampling is “non-random”
sampling. On element selection basis, the sample may be either
unrestricted or restricted. When each sample element is individually from
the population at large, and then the sample so drown known as
“unrestricted sample”, whereas all other forms of sampling are covered
under the term “restricted sampling”. Thus sample designs are basically of
two types’ viz. non-probability sampling and probability sampling.

1. NONPROBABILITY SAMPLING:

Non-probability sampling is also known by different names

such as deliberate sampling purposive sampling and judgments
sampling. In this sampling, items for the sample are selected
deliberately by researcher; his choice concerning the items remains
supreme. In other words, under non probability sampling the organizer
of the inquiry purposively choose the particular units of the universe
for constituting a sample on the basis that the small mass that they so
select out of a huge one will be typical or representative of the whole.

2. PROBABILITY SAMPLING:

Probability sampling is also known as “Random

Sampling”. Under this sampling design, every item of the universe has
an equal chance of conclusion in the sample. The result obtain from
72
probability or random sampling can assured in term of probability, that
is we can measure the errors of estimation on the significance of result
obtain from random sample.

CHAPTER - 6

73
SECONDARY DATA

The secondary data, on the other hand, are those which have already been
passed through the statistical process. When the researcher utilizes
secondary data then he has to look in to various sources from where he can
obtained them. Secondary data may either be published data are available
in.

Various publications of foreign government one of

international bodies and their subsidiary organization, Technical's
journals, Books, magazines and newspaper reports and publication of
various associations connected with business and industry, banks stock
exchange etc.
Reports prepared by research scholars, universities, economist etc in
different fields.
Public records and statistics, historical documents, and other sources of
published information.

74
CHAPTER - 7

75
 ANALYSIS OF INTERPRETATION

Q.1 How much necessity of investment among customer?

60 57

50

40 39

30
East
20

10
4
0
Much Some Not so
Needed what

INTERPRETATION

76
Out of 100 respondents 57 % of the customers are investors, and 39 %
customers are using it to some extent. Only 4% customers are thinking that
investment is not necessary for them.

Q.2 Pie chart showing Rating of Religare broking house with other
competitors.

Worse
Same 10%
10%
Much better
45%

Much better
some what
some what Same
35% Worse

INTERPRETATION

Out of 100 respondents 45 % of the customers feel that Religare is much

better than other products in this category. 35% customer feels that A
77
Religare is somewhat better than competitor products. Around 10% of the
customer feels that it has the same service as that of competitors. And 10%
of customer feels that it is worse than its competitors.

Q.3 What is the promotional strategy of Religare Broking House?

Brand
Experienc
Name
e staff
20%
30%
Offers
13%
Better
Service
37%

INTERPRETATION

78
Out of 100 respondents only 13% of the customers preferred Religare because of
offers. The highest 37 % of the customers preferred Religare because of the Better
service by Religare. The second most 30% of the customers have preferred
because of the Experience staff. It also shows the brand name also has some
implication before choosing Religare services. 20% of the customer has chosen
Religare because of the brand name ‗Religare.

Q.4 After investment customers rating of services?

poor
Excellent
15%
25%

Good
35% very good
25%

79
INTERPRETATION

Out of 100 respondents, 25% of the customer has rated the after investment
as excellent. Some 25% rated it as very good and 35% as good. But the
concern is that 15 % of the customer also feel that the after investment is
poor.

Q.5 According to RSL, what is the investment objective?

80%
70%
60%
50%
40% Series1
30%
20%
10%
0%
High Return Future safety

80
 INTERPRETATION

Out of 100 investors 69% of investors are saying RSL is FUTURE SAFETY
and 31% investors are saying that RSL is HIGH RETURN.

Q.6 Overall satisfaction level of Religare customers?

Highly
dissatisfied Highly dissatisfied
Highly Satisfied Dissatisfied
19% 7% Dissatisfied
11%
Average
Satisfied
Highly Satisfied

Average
19%
Satisfied
44%

INTERPRETATION

81
Out of 100 respondents, 19% of the customer is highly satisfied,. 44% of the
customer is satisfied. Around 7% of the customer is highly dissatisfied and
11% of customer is dissatisfied and average is 19% customer with the
overall service provided by Religare.

Q.7 How Religare helped their customer to solve their problem?

Excellent Poor
13% 7%
fair Poor
27% fair
Good
Excellent

Good
53%

82
INTERPRETATION

The interpretation is that 13 % of the customer feels that the investment in

Religare helped them to solve their related problem which exists in earlier.
Most of around 53 % felt that, it was good. 27% of the customer felt it was
fair. Only 7% of the customer felt it as poor solving their problem.

Hypothesis testing

CHI SQUARE TEST

S.NO. Oi Ei (Oi –Ei)2 (Oi -Ei)2/Ei

1 44 20 576 28.8
2 19 20 1 0.05
3 11 20 81 4.05
4 7 20 169 8.45
5 19 20 1 0.05
Total X2=41.4

Ei=100/5=20
X2=41.4
D.F= n-1
D.f =5-1=4
T.V= 9.488
T.V IS LESS THAN C.V OF DEGREE OF FREEDOM =3, LEVEL OF
SIGNIFICANCE 5% SO NULL HYPOTHESIS I S REJECTED.

83
CHAPTER - 8

84
 FINDINGS

1. According to Religare broking houses, mostly client’s objective is

future safety and security.

2. Kotak, Karvy, Religare, Apollo Sindhoori, India

Infoline and Arihant stock broking house in Bilaspur
city.

3. Generally 30-40 age group of client invest in share market.

4. Customers are satisfied.

5. Mostly Religare broking houses, follow better service

promotional strategy at Bilaspur market.

6. Religare Broking House provides both type of services online and

offline.

7. I have realized that services are provided properly and regularly.

85
CHAPTER - 9

86
 SUGGESTION / RECOMMENDATION

1. Broking house must consider investor invest and gain rather

then staff centralization.

2. Broker should provide all those service which is beneficial

for the investors.

3. Broking house should provide new schemes and offering to

their client in order to provide satisfaction.

4. Give clear and unambiguous intructions to your broker and

subbroker.

5. Keep a record of all instruction to the broker and sub-broker.

6. Trade within your predetermine limits and financial capacity.

7. Submit your detail and sign the broker client agreement with
your broker. This is mandatory.

8. The investors are carefully throughout and plan decision.

87
CHAPTER-10

88
 CONCLUSION

In this project an attempt to study the share market and to go for the
comparative analysis of Religare broking house. Here the comparative
analysis is done on the basis of primary and secondary data and thus
increasing the authencity is the result obtained.

According to the analysis done under this project, both primary

and secondary data analysis reflects that Religare security limited the most
promising broking house which provides maximum studied to their
customers by excellent service. And people who invest in general share
market through Religare security ltd are fully satisfied with the investment
and also getting good returns. This shows that portfolio managers in this
company are well skill, and highly aware about market conditions.

89
CHAPTER-11

BIBLIOGRAPHY

90
NEWS PAPERS :

1. THE ECONOMIC TIMES.

CONTENTS

91
CONTENTS PAGE NO.

Chapter – 1 company introduction 1-3

Chapter - 2 brief history of religare security ltd. 4 - 17
Chapter - 3 introduction of trading mechanism of stock market 18 - 58
Chapter - 4 Objective 59. -60
Chapter - 5 (5.1) methodology of study 61 - 62
(5.2) scope of the study 63
(5.3) sample size 64
(5.4) limitation 65
(5.5) preparation of questionnaire 66
(5.6) statistical scale of measure in research 67 – 72
(5.7) sampling method 73
Chapter - 6 secondary data 74 – 75
Chapter - 7 analysis of interpretation 76 - 77
Chapter - 8 Finding 78 - 79
Chapter – 9 suggestion 80 - 82
Chapter –10 conclusion 83 - 84
Chapter – 11 bibliograpy 85 - 86

CONTENTS PAGE NO.

92
Chapter – 1 company introduction 2-4
Chapter - 2 brief history of religare security ltd. 6 - 15
Chapter - 3 introduction of services provided by religare broking house 17- 62
Chapter - 4 Objective 64
Chapter - 5 (5.1) methodology of study 66
(5.2) scope of the study 67
(5.3) SAMPLE SIZE 68
(5.4) limitation 69
(5.5) preparation of questionnaire 70
(5.6) statistical scale of measure in research 71
(5.7) sampling method 72
Chapter - 6 secondary data 74
Chapter - 7 analysis of interpretation 76 - 83
Chapter - 8 Finding 85
Chapter – 9 suggestion 87
Chapter –10 conclusion 89
Chapter – 11 bibliograpy 91

FORMULATING THE RESEARCH PROBLEM:

93
 The first step of process is formulating the problem. In order to
identify the research problem three categories of systematic situations
namely over difficulties, and unnoticed opportunities should be studied.
Over difficulties are these which are quit apparent. Latent difficulties are
these which are not so apparent. Unnoticed opportunities indicate the
potential for growth in a certain area; such opportunities are not clearly
seen some effort is required to explore them. A researcher may recognize
two or more problems at a time.

RESEARCH DESIGN:

The formidable problem that follows the task of defining the research
problem is the preparation of the design of the research project, popularly
known as the ―research design‖. Decisions regarding what, where, when,
how much, by what means concerning an inquiry or a research study
constitute a research design. A research design is the arrangement of
conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economic procedure‖

SOURCES OF DATA

The task of data collection begins after a research problem

has been defined are research design chalked out. While deciding about he
method of data collection to be used for the study the researcher should
keep in mind two types of data that is primary and secondary.

Primary data:

The primary data are those which are collected a fresh and for the first time,
thus happened to be original in character. There are several methods of
collecting primary data, particularly in a surveys and descriptive researches
important ones are:

1. Observational method.

94
 2. Interview method.

Secondary data:

SAMPLE DESIGNS:

A sample design is a definite plan for obtaining a sample from

a given population. It refers to the technique or the procedure the researcher would
adopt in selecting items for the samples. Sample design may as well lay down the
number of item to be included in the sample that is a size of the sample. Sample
design is determined before data and collected.

TYPES OF SAMPLE DESIGNING:

There are different types of sample design based on two factors viz.
the representation basis and the element selection technique. On the representation
basis, the sample may be probability sampling on it may non probability sampling.
Probability sampling is based on the concept of random selection, whereas non
probability sampling is ―non-random‖ sampling. On element selection basis, the
sample may be either unrestricted or restricted. When each sample element is
individually from the population at large, and then the sample so drown known as
―unrestricted sample‖, whereas all other forms of sampling are covered under the
term ―restricted sampling‖. Thus sample designs are basically of two types‘ viz.
non-probability sampling and probability sampling.

95
9. NONPROBABILITY SAMPLING:

Non-probability sampling is also known by different names such as

deliberate sampling purposive sampling and judgments sampling. In this
sampling, items for the sample are selected deliberately by researcher; his
choice concerning the items remains supreme. In other words, under non
probability sampling the organizer of the inquiry purposively choose the
particular units of the universe for constituting a sample on the basis that the
small mass that they so select out of a huge one will be typical or
representative of the whole.
10. PROBABILITY SAMPLING:

Probability sampling is also known as ―Random Sampling‖.

Under this sampling design, every item of the universe has an equal chance of
conclusion in the sample. The result obtain from probability or random
sampling can assured in term of probability, that is we can measure the errors
of estimation on the significance of result obtain from random sample.

96
97
98
 CONTENTS PAGE NO.

Chapter – 1 Meaning and Definition of product 1

Chapter - 2 Characteristic of Product 2
Chapter - 3 Importance of Product 3
Chapter - 4 Classification of Product 4.
Chapter - 5 Meaning and Elements of Product planning 8
Chapter - 6 Importance of Product planning 9 – 11
Chapter - 7 Meaning of Product Development 12 – 15
Chapter - 8 Advantages of Product Development 16
Chapter – 9 Causes of Failure of new product 17 -18
Chapter –10 Importance of New Product Development 18
Chapter – 11 New product Development process 19 - 22
Chapter - 12 Product Life Cycle 23 – 30
Chapter - 13 Product Development Strategy 30 – 33
Chapter - 14 Meaning of Test Marketing 34 – 40

99
Chapter - 15 Conclusion 41

100
101