share market basics simplified

8/12/2019 Share Market basics simplified

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(IMT) INSTITUTE OF MANAGEMENT TECHNOLOGY

Centre for Distance Learning (Recognized by Distance Education Council)

SYNOPSIS

ON

SHARE MARKET AN OVERVIEW

Submitted B

H!"#im!"$ K!u"

E$"%&&me$t N%' *+*,--

T%

(IMT) INSTITUTE OF MANAGEMENT TECHNOLOGY

Centre for Distance Learning (Recognized by Distance Education Council)


2/83

PROFORMA FOR SYNOPSIS OF PRO.ECT WORK

N!me: Harsimran kaur

E$"%&&me$t N%.: 4!"!#$$

Add"e## /%" 0%""e#1%$de$0e: House no. $"% &'eetal artments% &ector * !4%Ro'ini%

Del'i+!!""$,.

M%bi&e $%.: -!!#-,

P2%$e N%' : "!!+/!,4!!

M!3%" A"e! %/ S1e0i!&i4!ti%$ : 0inance

5ue#ti%$$!i"e Att!02ed* yes

Re#ume %/ P"%3e0t Guide Att!02ed* 1es

C%$#e$t Lette" %/ P"%3e0t Guide* 1es

P2%$e $%' P"%3e0t Guide: -!!!,#

6!te %/ Submi##i%$ 7


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STATEMENT ABOUT THE PROBLEM

2'eob3ectie of t'e 1"%3e0tis to find t'e sales otential of Demat ccount

in Del'i and 5CR regions. 2'e researc' 6ill 'el 6'at t'e current trends are in

t'e market and t'e cometitors roduct offering are relates to s'are market and

recommendations to increase t'e market s'are. &ecifically% t'e researc'

ob3ectie is to:

2o study t'e 7utual funds industry in detail82'is 6ill done by managing

2'e 8arious client relations'i and educating t'em about t'e arious

benefits t'at 7utual fund offer as comared to bank 0D9s% 5ational

saing certificate etc. t'is also inoles studying in det' about t'e arious

sc'emes offered by R;5C;L 5< sset 7anagement Comany.

2o study about t'e inestment rocedure in 7utual funds

2o study t'e inestor9s reference in mutual funds by 6ay of =uestionnaire

nd ersonal isits to clients.

2o generate sales for t'e comany

6areness of t'e cometitor9s roduct among inestors.

Determine t'e tye of serices needed by t'e inestors.

>at'er and analyze t'e future asirations of t'e inestors 6it' resect to

t'e demat account.

Rank and ealuate t'e relatie imortance t'e &'are 7arket arameter

associated 6it' t'e Demat ccount.


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Comaratie analysis of arious mutual funds sc'emes of R;5C;L

6it' t'at ?f t'e ot'er on t'e bases of l'a% beta% stander Deiation%

&'ar ratio and 2enor ratio


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WHY IS THIS PARTICULAR TOPIC CHOSEN

2'e urose of t'e undergone study is to study t'e Demat ccount serices of

t'e different bank @ ot'er securities comanies @ ealuates t'e cometitie

osition of &tandard c'artered so as to suggest 6ay to increase its market s'are.

2'e main roblem faced by t'e comany 6as t'at it 'ad a ery less customer

base. 2'e comany9s o6n roduct 'ad ery less market as comare to it9s t'ird

arty selling. 2'e comany does a t'ird arty selling for all t'e inestment

roducts.

T2e #tud t2u# /%0u#e# %$ /%&&%9i$: dime$#i%$#7

*' 2o identify t'e critical factors t'at influences t'e buying be'aior of

;nestors.

' 2o kno6 t'e inestor accetance of t'e serices of &tandard c'artered

;' bank in Del'i @ 5CR regions.

' ccording to current scenario it is a ery releant 2oic.


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WHAT CONTRIBUTION WOUL6 THE PRO.ECT MAKE

0or t'e urose of t'e researc'it is absolutely imeratie for me to find out 6'at

t'e inestor 6ant from t'eir comany. ;t is also necessary to find out t'e

;nestor9s rofile i.e. 'isA'er age% mont'ly income% occuation and seB and also

t'e current comany 6it' 6'ic' 'eAs'e is inesting. 2'is 6ill re=uire me to get a

details =uestionnaire filled by t'e concern erson. ll t'e analysis in t'e reort

6ill be dra6n out of t'is =uestionnaire. 0or carrying out t'e cometitor analysis

0urt'er 'el 6ill be taken from comany 6ebsites and 3ournals.

2'is researc' 6ill roide &tandard c'artered bank 6it' information like current

7arket s'are of &ecurities Comany and also a detailed analysis of t'e serices

?ffered by stock @ securities broker and stock @ &ecurities Comany and 6'atare t'e most imortant criteria for selecting a articular securities comany. 2'e

comany can also get data on rosectie customer by designing its roduct

offering and marketing strategy in a 6ay so as to attract more clients in t'e near

future.


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OB.ECTIVE AN6 SCOPE OF THE STU6Y

2'e study is t'e art of academic curriculum of years 7


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managing t'e 8arious client relations'i and educating t'em about t'e

arious benefits t'at 7utual fund offer as comared to bank 0D9s% 5ational

saing certificate etc. t'is also inoles studying in det' about t'e arious

sc'emes offered by R;5C;L of &ecurities 7anagement Comany.

!. 2o study about t'e inestment rocedure in 7utual funds.

. 2o study t'e inestor9s reference in mutual funds by 6ay of

uestionnaire and ersonal isits to clients.


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METHO6OLOGY

Researc' is a systemic and ob3ectie rocess of gat'ering recording and

analyzing data for aid of making decision regarding a articular roblem.

*' RESEARCH 6ESIGN

2'e researc' design is a master lan secifying t'e met'ods and rocedures

for collecting and analyzing t'e needed information t'e researc' design of my

dissertation is

6ESCRIPTIVE RESEARCH

Descritie researc' includes sureys and facts findings in=uiries of differentkinds.

' 6ATA COLLECTION

PRIMARY DATArimary data is gat'ered t'roug' a surey 6it' t'e 'el of

=uestionnaire.

&EC?5DR1 D2 secondary data sources includes


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samling tec'ni=ue conenience and 3udgmental .

T1e %/ Re#e!"02

Researc' met'odology is a 6ay to systematic sole t'e researc' roblem. ;t is a

rocedure% 6'ic' is follo6ed ste by ste to sole a articular researc' roblem.

2'ere are basically four tyes of researc'es

EL?R2;8E RE&ERCH

DE&CR;2;8E RE&ERCH

D;>5?&2;C RE&ERCH

H1?2HE&;& 2E&2;5> RE&ERCH

H1%t2e#i# Te#ti$: Re#e!"02'

2o test a 'yot'esis of casual relations'i bet6een ariables.

2'e resent ro3ect is Descritie in nature. ;t is done to oetry accurately t'e

c'aracteristic of a articular indiidual situation or a grou. 2'e ma3or urose is

descritie researc' is t'e descrition of t'e state of t'e affairs as it eBits at

resents. 2'e main c'aracteristics of t'is met'od are t'at t'e researc'er 'as no

control oer t'e ariablesI 'e can only reort 6'at 'as 'aened or 6'at is

'aening.


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CHAPTERISATION SCHEME

*' I$t"%du0ti%$

' Lite"!tu"e Su11%"t

;' P"%0e##? Met2%d%&%: %/ Stud

' A$!i# !$d I$te"1"et!ti%$


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5UESTIONNAIRE

5ame: JJJJJJJJJJJ ?ccuation:JJJJJJJJJJ..

;nestment resently Held:+

lease list t'e alue t'e assets in your total inestments ortfolio (in Rs):

&tocks:KKKKKKKKK 7utual 0unds:KKKKKKKKKKKKKKK ot. &ecurities:KKKKKKKKKKKKK

?tions:KKKKKKKKKKKK e Hig' Lo6 7oderate


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-'W2!t i# %u" 1"e/e"e$0e i$ Mutu!& Fu$d# E=uity ;ncome

7oney 7arket 0unds EL&&

e Less t'an , ,+!" more t'an !"

**'W2i02 t1e %/ Mutu!& /u$d# d% %u 1"e/e" ?en ended sc'emes Closed ended sc'emes

*'6% %u :et i$/&ue$0ed b t2e $!me %/ C%m1!$ 1"%m%ti$: Mutu!&Fu$d# 1es 5?

*;'6% %u :et i$/&ue$0e b t2e $!me %/ "etu"$# :i=e$ b ! /u$d %" b t2e0u""e$t NAV %/ ! /u$d#


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TITLE OF THE PRO.ECT

SHARE MARKET AN OVERVIEW


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CONTENTS

*' I$t"%du0ti%$


;' P"%0e##? Met2%d%&%: %/ Stud

' 6!t! C%&&e0ti%$


16/83

LIST OF GRAPHS CHARTS

&l.5o.

>ra'no.

>ra' 2itle age no.

!.

.

.

4.!

4.

O$ 92i02 B!#i# %/ 02%%#e&%!$

O00u1!ti%$ %/ t2e 1e%1&e

#$

#-


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LIST OF TABLE

&l.5o.

2able no. >ra' 2itle age no.

!.

4.!

4.

4.

C%m1!$ #2!"e 1"i0e

O$ 92i02 B!#i# %/ 02%%#e&%!$

O00u1!ti%$ %/ t2e 1e%1&e

#/

#/

#$


18/83

PREFACE

2'e introduction and alication of t'e concet of customer serices entered in a

6elcoming 6ay in ;ndia only after indeendence. 2'e s'are market in ;ndia 'as

come a long 6ay during t'e last t6o centuries. ;ts gro6t' 6as faster and t'e

coerage 6ider since and ma3or osition of securities sector 6as entrusted to t'e

ublic sector. 2'is rocess continued and embraced fe6 riate banks in !-$".

2'e transfer of o6ners'i of banks from t'e ublic to riate 6as aimed

at entrusting t'e banks 6it' greater resonsibilities for t'e economic

deeloment of ;ndia by taking securities serices to t'e masses and taking

secial care of t'e 6eaker section of t'e society and t'e riority sector of t'e

economy. 2'oug' t'e number of securities comany magnitude and t'e ariety

of t'eir oerations 'as gro6n considerably during t'e eriod of near about t'ree

decades% but it aears t'at t'e securities sector 'as entered into serious among

customers.

For overcoming this problem, securities industry should seek introspection and adopt

refined management techniques. It has been endeavor of this study to analyze the present

state of various company keeping in view the primary data has been collected regarding

the present state of invest schemes in various company by using a questionnaire.


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ACKNOWLE6GMENT

eole must 'ae guidance in doing t'eir 6ork kno6 6'ere to turn

0or 'el guidance

;t is said t'at 5o learning is ossible 6it'out any roer guidance and no

researc' is ossible 6it'out any roer guidance % some contribution is

erformed by arious indiidual

2'is ro3ect 6ork% 6'ic' is my ste in t'e field of rofessinalisation% 'as been

successfully accomlis'ed only because of time suort of my 6ell+6is'er. ;

6ould like to ay my sincere and t'ank to t'ose% 6'o directed me at eery ste in

my ro3ect 6ork.

; eBress my gratitude to my esteemed guide% for t'eir aluable assistance and

encouragement% 6'ic' enable me to carry on t'e ro3ect successfully. 2'ey gae

me 6onderful oortunity to 6ork on t'e ro3ect. 2'ere time+to+time guidance

and incessant suort 'eled me to broaden my outlook on t'e ro3ect. ; am

'ig'ly obliged for t'eir suort t'roug'out t'e interns'i.

; also 'ad t'e riilege of meeting many comany officials including marketing

c'ief manager and discussing articular asect of arious inestment otions.

2'e ro3ect also inoled constant interaction 6it' my friends in t'e college.

ote of t'ank also goes to t'em. t last t'is ackno6ledgement can only be

comleted after being to my arent and A&mi:2t G%d'


20/83

6ECLARATION

; H!"#im"!$ K!u"Enrollment 5o: 4!"!#$$ of class 7


21/83

*' I$t"%du0ti%$


22/83

B!#i0# %/ I$di!$ S2!"e M!">et

S2!"e

&'are is not'ing but t'e ?6ners'i of t'e comany diided into small arts and

eac' art is called as &'are or &tock.

erson carrying a s'are of a comany 'olds t'at art of o6ners'i in t'at

comany.

erson 'olding maBimum s'ares 'as maBimum o6ners'i like directors%

c'airman etc.

S2!"e M!">et

&'are market is t'e lace 6'ere buying and selling of s'ares takes lace.

5o6 days due to internet and adanced tec'nology t'ere is no need to be

'ysical resent in eBc'anges like 5&E and


23/83

'o6 it 6orks.

N'en a erson 6ant to buyAsell s'ares in t'e s'are market t'en 'e 'as to first

lace t'e order 6it' a broker or can do t'emseles using online trading systems

(t'is 6ill be discussed later).

N'en you lace t'e buy order% t'e message is transferred to t'e eBc'ange

Oeit'er 5&E P5ational &tock EBc'angeQ or


24/83

serices like banks% brokers% financial institutions etc. D9s are like agents of

Deository.

T Deository is an organization resonsible to maintain inestorMs securities

(securities can be s'ares or any ot'er form of inestments) in t'e electronic form.

;n ;ndia t'ere are t6o suc' organizations called 5&DL (5ational &ecurities

Deository Ltd.)

and CD&L (Central Deository &erices ;ndia Ltd.)

T ;nestor9s 6is'ing to oen Demat account 'as to go D and oen t'e account.

T ?ening t'e Demat account is as simle as oening t'e bank account 6it' any

bank. s you need bank account to sae your money% make c'e=ue ayments

etc% like6ise you need to oen a demat account if you 6ant to buy and sell stocks

in s'are market.

T ll s'ares 6'at you ossess 6ill s'o6 in your demat account% so you donMt

'ae to ossess any 'ysical certificates. 2'ey are all 'eld electronically in your

demat account. s you buy and sell t'e s'ares accordingly your s'ares 6ill get

ad3usted in your demat account.

I# ! dem!t !00%u$t ! mu#t

1E&. 2'e market regulator% t'e &ecurities and EBc'ange


25/83

H%9 t% %1e$ ! 6em!t !00%u$t

1ou 'ae to aroac' a D to oen a Demat account.

7ost banks are D articiants so you may aroac' t'em or else you can

contact us.

2o 'ae latest list of registered D lease isit 6ebsites 666.nsdl.co.inand

666.cdslindia.com.

broker and a D are t6o different eole. broker is a member of t'e stock

eBc'ange% 6'o buys and sells s'ares on 'is be'alf and also on be'alf of 'is

customers.

F%&&%9i$: !"e t2e d%0ume$t# "eui"ed t% %1e$ 6em!t !00%u$t

N'en you aroac' any D% you 6ill be guided t'roug' t'e formalities for

oening a demat account.

2'e D 6ill ask to roide some documents as roof of your identity and

address.


26/83

H%9 mu02 it 0%#t t% %1e$ ! 6em!t !00%u$t

2'e c'arges for demat account oening% annual account maintenance fees and

transaction c'arges aries bet6een arious D9s.

2o 'ae latest c'arges lease isit 6ebsites of 666.nsdl.co.inand

666.cdslindia.com or else you need to contact t'e secific broker.

Fi$!&&

fter successfully oening t'e demat account you are ready to do buy and sell

s'ares in s'are market eBc'anges like


27/83

emergency.

Emergency like buying and selling of s'ares on immediate basis or in case of

any tec'nical or ot'er roblems at your side 6'ile

doing trading yourself.

I$=e#ti$: W2!tJ# t2!t

Fudging by t'e fact t'at youMe taken t'e trouble to naigate to t'is age my

guess is t'at you donMt need muc' conincing about t'e 9i#d%m %/ i$=e#ti$:.

Ho6eer% ; 'oe t'at your =uest for kno6ledgeAinformation about t'e artAscience

of inesting ends 'ere. Read on. Uno6ledge is o6er. ;t is common kno6ledge

t'at m%$e 2!# t% be i$=e#ted 9i#e&. ;f you are a noice at inesting% termssuc' as stocks% bonds% futures% otions% ?en interest% yield% AE ratio may sound

>reek and Latin. RelaB. ;t takes years to understand t'e !"t %/ i$=e#ti$:. 1ouMre

not alone in t'e =uest to crack t'e 3argon. 2o start 6it'% take your i$=e#tme$t

de0i#i%$#6it' as many facts as you can assimilate.


28/83

W2 #2%u&d %u i$=e#t

&imly ut% you s'ould inest so t'at your money gro6s and s'ields you against

rising inflation. 2'e rate of "etu"$ %$ i$=e#tme$t# s'ould be greater t'an t'e

rate of inflation% leaing you 6it' a nice surlus oer a eriod of time. N'et'er

your money is inested in stocks% bonds% mutual funds or certificates of deosit

(CD)% t'e end result is to create 6ealt' for retirement% marriage% college fees%

acations% better standard of liing or to 3ust ass on t'e money to t'e neBt

generation or maybe 'ae some fun in your life and do t'ings you 'ad al6ays

dreamed of doing 6it' a little eBtra cas' in your ocket. lso% itMs eBciting to

reie6 your inestment returns and to see 'o6 t'ey are accumulating at a fasterrate t'an your salary.

W2e$ t% I$=e#t

2'e sooner t'e better.


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gro6t' ia reinestment of returns earned on your saings. Comounding 'as a

sno6balling effect because you earn income not only on t'e original inestment

but also on t'e reinestment of diidendAinterest accumulated oer t'e years.

2'e o6er of comounding is one of t'e most comelling reasons for inesting

as soon as ossible. 2'e earlier you start inesting and continue to do so

consistently t'e more money you 6ill make. 2'e longer you leae your money

inested and t'e 'ig'er t'e interest rates% t'e faster your money 6ill gro6. 2'atMs

6'y stocks are t'e be#t &%$:8te"m i$=e#tme$t t%%&. 2'e general u6ard

momentum of t'e economy mitigates t'e stock market olatility and t'e risk of

losses. 2'at9s t'e reasoning be'ind inesting for long term rat'er t'an s'ortterm.

H%9 mu02 t% i$=e#t

2'ere is no statutory amount t'at an inestor needs to inest in order to generate

ade=uate returns from 'is saings. 2'e amount t'at you inest 6ill eentually

deend on factors suc' as:

! 1our risk rofile . 1our 2ime 'orizon . &aings made

Remember t'at no amount is too small to make a beginning. N'ateer amount

of money you can sare to begin 6it' is good enoug'. 1ou can kee increasing

t'e amount you inest oer a eriod of time as you kee gro6ing in confidence

and understanding of t'e inestment otions aailable and &o instead of 3ust

dreaming about t'ose 6ads of money do somet'ing concrete about it and start

inesting soon as you can 6it' 6'ateer amount of money you can sare.

I$=e#tme$tis a term 6it' seeral closely+related meanings in finance and

economics.

;t refers to t'e accumulation of some kind of asset in 'oes of getting a future

return from it.


30/83

ssets suc' as e=uity s'ares or bonds 'eld for t'eir financial return

(interest% diidends or caital areciation)% rat'er t'an for t'eir use in t'e

organization9s oerations.

Retu"$ %$ I$=e#tme$t#

2'e money you earn or lose on your inestment% eBressed as a ercentage

of your original inestment.

;n &imle 6ords% ;t is t'e amount receied as a result of inesting in articular

entures.

C%&&e0ti=e I$=e#tme$t# S02eme#

0unds 6'ic' manage money for a number of inestors and ool it toget'er. 2'is

enables inestors to benefit from a larger number of indiidual inestments and

cost efficiencies.

S2%"t8Te"m I$=e#tme$t#

&'ort+2erm ;nestments are generally inestments 6it' maturities of less t'an

one year.

C!1it!& I$=e#tme$t#

;nestments into t'e fiBed caital (caital assets)% including costs for t'e ne6

construction% eBansion% reconstruction and tec'nical ree=uiment of t'e

oerating enterrises% urc'ase of mac'inery% e=uiment% tools% accessories%

ro3ect and inestigation 6orks and ot'er costs and eBenditures.

2'ere are t6o 6ays for inestors to get s'ares from t'e 1"im!" !$d #e0%$d!"

m!">et#. ;n 1"im!" m!">et#% securities are boug't by 6ay of ublic issue

directly from t'e comany. ;n Se0%$d!" m!">ets'are are traded bet6een t6o

inestors.


31/83

;n finance a #2!"eis a unit of account for =!"i%u# /i$!$0i!& i$#t"ume$t#

including stocks% mutual funds% limited artners'is% and RE;2Ms. ;n 1"i0ereflects 6'at inestors t'ink about t'e stock% not

necessarily 6'at t'e comany is V6ort'.V 0or eBamle% comanies t'at are

gro6ing =uickly often trade at a 'ig'er rice t'an t'e comany mig't currently be

V6ort'.V &tock rices are also affected by all forms of comany and market ne6s.ublicly traded comanies are re=uired to reort =uarterly on t'eir financial

status and earnings. 7arket forces and general inestor oinions can also affect

s'are rice.

5ui0> F!0t# %$ St%0># !$d S2!"e#

?6ning a stock or a s'are means you are a artial o6ner of t'e comany%

and you get oting rig'ts in certain comany issues

?er t'e long run% stocks 'ae 'istorically aeraged about !" annual

returns Ho6eer% stocks offer no guarantee of any returns and can lose%

alue een in t'e long run

;nestments in stocks can generate returns t'roug' diidends% een if t'e


32/83

rice

H%9 d%e# %$e t"!de i$ #2!"e#

Eery transaction in t'e #t%0> e02!$:eis carried out t'roug' licensed

members called brokers.

2o trade in s'ares% you 'ae to aroac' a broker Ho6eer% since most #t%0>

e02!$:e b"%>e"#deal in ery 'ig' olumes% t'ey generally do not entertain

small inestors. 2'ese b"%>e"# 2!=e ! $et9%"> %/ #ub8b"%>e"# 6'o roide

t'em 6it' orders.

T2e general inestors s'ould identify a sub+broker for regular trading in s'aresand alce

'is order for urc'ase and sale t'roug' t'e sub+broker. 2'e subAbroker 6illtransmit t'e

order to 'is broker 6'o 6ill t'en eBecute it .

What are active Shares ?

S2!"e# in 6'ic' t'ere are fre=uent and day+to+day dealings% as distinguis'ed

from artly actie s'ares in 6'ic' dealings are not so fre=uent. 7ost #2!"e# %/

&e!di$: 0%m1!$ie#6ould be actie% articularly t'ose 6'ic' are sensitie to

economic and olitical eents and are% t'erefore% sub3ect to sudden rice

moements. &ome market analysts 6ould define active shares as those which

are bought and sold at least three times a week.

6em!t refers to a dem!te"i!&i#ed !00%u$t.

2'oug' t'e comany is under obligation to offer t'e securities in bot' 'ysical

and dem!t m%de% you 'ae t'e c'oice to receie t'e securities in eit'er mode.

;f you 6is' to 'ae securities in dem!t m%de% you need to indicate t'e name of

t'e deository and also of t'e de1%#it%" 1!"ti0i1!$t6it' 6'om you 'ae

deository account in your alication.

;t is% 'o6eer de#i"!b&e t'at you 'old securities in dem!t /%"m as 'ysical


33/83

securities carry t'e risk of being fake% forged or stolen.

Fust as you 'ae to oen an account 6it' a bank if you 6ant to sae your money%

make c'e=ue ayments etc% 5o6adays% you need to oen a dem!t !00%u$t i/

%u 9!$t t% bu %" #e&& #t%0>#.

&o it is 3ust like a bank account 6'ere actual money is relaced by #2!"e#. 1ou

'ae to aroac' t'e 6P#(remember% t'ey are like bank branc'es)% to oen

your dem!t !00%u$t. LetMs say your ortfolio of s'ares looks like t'is: !," of

;nfosys% ," of Niro% "" of HLL and !"" of CC. ll t'ese 6ill s'o6 in your

dem!t !00%u$t. &o you donMt 'ae to ossess any 'ysical certificates s'o6ing

t'at you o6n t'ese s'ares. T2e !"e !&& 2e&d e&e0t"%$i0!&& i$ %u" !00%u$t.

s you bu !$d #e&& t2e #2!"e#% t'ey are ad3usted in your account. Fust like a

b!$> 1!##b%%> %" #t!teme$t% t'e D 6ill roide you 6it' eriodic statements

of 'oldings and transactions.

I# ! dem!t !00%u$t ! mu#t 5o6adays% ractically all trades 'ae to be settled

in dematerialised form. lt'oug' t'e market regulator% t'e &ecurities and

EBc'ange e02!$:e%

6'o buys and sells s'ares on 'is be'alf and on be'alf of 'is clients.


34/83



35/83

#t%0> %1ti%$is a secific tye of otion 6it' a stock as t'e underlying

instrument (t'e security t'at t'e alue of t'e otion is based on). 2'us it is a

contract to buy (kno6n as a VcallV contract) or sell (kno6n as a VutV contract)

s'ares of stock% at a redetermined or calculable (from a formula in t'e contract)

rice.

;t is Haing t'e Rights to purchase a corporation's stock at a secified rice.;nfact 2'ere are t6o definitions of stock otions.

!. 2'e rig't to urc'ase or sell a #t%0>at a secified rice 6it'in a stated eriod.

O1ti%$#are a oular inestment medium% offering an oortunity to 'edge

ositions in ot'er securities% to seculate on stocks 6it' relatiely little

inestment% and to caitalize on c'anges in t'e market alue of otions contracts

t'emseles t'roug' a ariety of otions strategies.

. 6idely used form of emloyee incentie and comensation.;n some

Comanies% St%0> %1ti%$#constitute art of remuneration.

Em1&%ee #t%0> %1ti%$#are stock otions for t'e comanyMs o6n stock t'at are

often offered to uer+leel emloyees as art of t'e eBecutie comensation

ackage. n emloyee stock otion is identical to a call otion on t'e comanyMs

stock% 6it' some eBtra restrictions.

Pe"/%"m!$0e St%0> O1ti%$#are ?tions t'at est if re+determined

erformance measures are ac'ieed. 2'e erformance goal (reenue gro6t'%stock+rice increasesJ) must be reac'ed for t'e otions to be eBercisable or for

t'e esting to be accelerated


36/83

1ou can buy any stock and sell any stock and it doesn9t take muc' to get started.

ll you need is a b"%>e"!:e !00%u$t. broker t'at ; use is &cottrade

'tt:AA666.scottrade.comA and you can start an account 6it' t'em for W,"" and

t'eir commissions are only W/% so t'ey are not eBensie at all.

?nce you 'ae setu a brokerage account you t'en need to c'oose an

inestment met'od and t'en researc' different comanies and t'en buy stockin .t'e ones t'at you feel 6ill go u because t'ey are good sound comanies.

&o as you can see t'ere are seeral benefits to %$&i$e #t%0> t"!di$:but let9sreca.

Nit' o$&i$e #t%0> t"!di$:all you need is W,"" to oen a brokerage account% t'e

brokerage commissions are lo6 at &cottrade t'ey9re only W/ and you can buy

and sell your stocks from your 'ome comuter anytime t'at t'e stock market isoen.

Nell no6 t'at you kno6 t'at you can do %$&i$e #t%0> t"!di$:6it' a minimal

inestment you s'ould get started today and t'en start learning about t'e #t%0>

m!">et and c'oose t'e #t%0>#you 6ant to inest in.

W2!t i# NET ASSET VALUE

2'e 2erm Net A##et V!&ue (NAV)is used by inestment comanies to measure

$et !##et#. ;t is calculated by subtracting liabilities from t'e alue of a fundMs

securities and ot'er items of alue and diiding t'is by t'e number of outstanding

s'ares. Net !##et =!&ueis oularly used in ne6saer mutual fund tables todesignate t'e rice er s'are for t'e fund.

2'e alue of a collectie inestment fund based on t'e market rice of securities

'eld in its ortfolio. Gnits in oen ended funds are alued using t'is measure.

Closed ended inestment trusts 'ae a net asset alue but 'ae a searate

market alue. NAVer s'are is calculated by diiding t'is figure by t'e number

of ordinary s'ares. ;nestments trusts can trade at $et !##et =!&ueor t'eir rice

can be at a remium or discount to NAV.

8alue or urc'ase rice of a s'are of stock in a mutual fund. NAV is calculatedeac' day by taking t'e closing market alue of all securities o6ned lus all ot'er

.assets suc' as cas'% subtracting all liabilities% t'en diiding t'e result (total net

assets) by t'e total number of s'ares outstanding.


37/83

C!&0u&!ti$: NAV#+ Calculating mutual fund $et !##et =!&ue#is easy. &imly

take t'e current market alue of t'e fundMs net assets (securities 'eld by t'e fund

.minus any liabilities) and diide by t'e number of s'ares outstanding. &o if a .

fund 'ad net assets of Rs.," lak' and t'ere are one lak' s'ares of t'e fund% t'en

t'e rice er s'are (or NAV) is Rs.,"."".

2'ese days% you canMt retire 6it'out using t'e "etu"$# /"%m i$=e#tme$t#. 1ou

canMt count on your social security c'ecks to coer your eBenses 6'en you

retire. ;tMs barely enoug' for eole 6'o are receiing it no6 to 'ae food% s'elter

and utilities. 2'at doesnMt account for any care you may need or in t'e een t'at

you need to take adantage of suc' funds muc' earlier in life. ;t is imortant to

'ae your o6n financial lan. 2'ere are many >i$d# %/ i$=e#tme$t#you can

make t'at 6ill make your life muc' easier do6n t'e road.

2'e follo6ing are brief descritions for be:i$$i$: i$=e#t%"#to familiarizet'emseles 6it' different kinds of i$=e#tme$t %1ti%$#:

+*K P&!$#2'e easiest and most oular kind of i$=e#tme$tis a 4"!U lan. 2'is is due to

t'e fact t'at most 3obs offer t'is saings rogram 6'ere t'e money can be

automatically deducted from your ayroll c'eck and you neer realize it ismissing.

Li/e I$#u"!$0eLife ;nsurance olicies are anot'er kind of inestment t'at is fairly oular. ;t is a

6ay to ensure income for your family 6'en you die. ;t allo6s you a sense of

security and roides a aluable taB deduction.

St%0>#&tocks are a uni=ue kind of inestment because t'ey allo6 you to take artial

o6ners'i in a comany.


38/83

Mutu!& Fu$d#7utual funds are a kind of inestment t'at are based on t'e gains and losses of

a s'are'older.


39/83

;ndia


40/83

same terms% esecially regarding t'e 1"emium.

4.2'e roectus s'ould roide 3ustification for t'e roose remium. ?n t'e

ot'er 'and% eBisiting comanies can make a 1"emium i##ue 6it'out t'e aboe

restrictions.

comany9s aim is to "!i#e m%$eand simultaneously sere t'e e=uity caital.

s far as accounting is concerned% 1"emium i# 0"edited to reseres and surlus

and it does not increase t'e e=uity. 2'erefore% a comany 6'ic' raises Rs.!""

crores by 6ay of s'ares at say Rs.-" 1"emium 1e" #2!"eincreases its e=uity by

only Rs.!" crores% 6'ic' is easier to serice 6it' an inestment of Rs.!"" crores.

2'us t'e comanies seek to make1"emium i##ue#. s 6ell s'all see later% a

1"emium i##uecan increase t'e book alue 6it'out decreasing t'e E&. ;n a

buoyant stock market 6'en good s'ares trade at ery 'ig' rices% comanies

realize t'at it9s easy to command a 2i:2 1"emium.

7any eole confuse trading 6it' inesting. 2'ey are not t'e same.

2'e biggest difference bet6een t'em is t'e lengt' of time you 'old onto t'e

assets. n i$=e#t%r is more interested in t'e &%$:8te"m !11"e0i!ti%$of 'is

assets% counting on t'at 'istorical rise in m!">et euit.

He9s not generally concerned about #2%"t8te"m /&u0tu!ti%$#in rices% because

'e9ll ride t'em out oer t'e long 'aul.

n i$=e#t%"relies mostly on Fu$d!me$t!& A$!i#% 6'ic' is t'e analytical

met'od of redicting long+term rosects of a articular asset. 7ost inestors

adot a bu !$d 2%&d aroac' to assets% 6'ic' simly means t'ey buy

s'ares of some comany and 'old onto t'em for a long time. 2'is aroac' can

be d!$:e"%u# e=e$ de=!#t!ti$:% in an eBtremely olatile market suc' astoday9s


41/83

of around Rs.#," er s'are at t'e beginning of t'e year """. 26o years later%

t'ose s'ares are 6ort' Rs.!"" eac'. ;f t'at inestor 'ad sent Rs. #,%"""A+% 'is

net loss 6ould be Rs.,,"""A+ Z ; don9t kno6 about you% but losing 0ifty 0ie

2'ousand Ruees 6ould be a relatiely big loss for me.

7any inestors suffer suc' losses regularly% 'oing t'at in fie or ten or fifteen

years t'e market 6ill rebound% and t'ey9ll recou t'eir losses and ac'iee an

oerall gain.

N'at most i$=e#t%"#need to remember is t'is: inesting is not about 6eat'ering

storms 6it' your beloed comany * it9s about making money.

T"!de"#% on t'e ot'er 'and% are attemting to rofit on 3ust t'ose #2%"t8te"m1"i0e /&u0tu!ti%$#. 2'e amount of time an !0ti=e t"!de"'olds onto an asset is

ery s'ort: in many cases minutes% or sometimes seconds. ;f you can catc' 3ust

t6o indeB oints on an aerage day% you can make a comfortable liing as an

2rader.

2o 'el make t'eir decisions% 2raders rely on Te02$i0!& A$!i#% a form of

marketing analysis t'at attemts to redict s'ort+term rice fluctuations.

2'e #t%0> m!">et#are at all time 'ig's and 3ust like t'e last time around 6'en

t'e market 6as at its reious 'ig' eery one t'inks t'at not'ing can go 6rong

and t'ere is 3ust one 6ay 6'ere t'e market can go 6'ic' is G. 5ot'ing could be

fart'er from t'e trut' and t'is 6ill be clear from t'e 6ay t'e market be'aes in

t'e neBt fe6 mont's. Here are a /e9 ti1# t'at 6ould 'oefully sae you from

losing a lot of cas' in t'e current frenzy.

2ime and again i$=e#t%"# 'ae burnt t'eir fingers in t'e markets and 'ere are#%me ti1#to you so t'at you do not end u burning your fingers in t'is market.

2'e $umbe" %$e ti1at t'is oint 6ould be to sell if you 'ae stocks and not to


42/83

buy t'em if you 'ae cas'. 2'e golden rincile in t'e markets is and 2%t ti1#t'at your barber gae you.

2rue t'at t'e stock 'as triled in t'e last fifteen days but t'at 6as before eole

like your barber started buying t'e stock. C'ances are t'at t'e romoter of t'e

comany 'ae started buying into t'e stock and 'ae sread rumors likeac=uisition or a big eBort order to fool inestors and sell out to t'em at a later

date.

A$%t2e" ti1t'at 6ould sere useful is to alue a stock based on its future gro6t'

and not its ast erformance. 0or instance many i$=e#t%"#say t'at ; 6ill not buy

stocks of comany because it 'as doubled in t'e last year. Nell it may 'ae

doubled in t'e last year but t'at s'ould not be t'e t'ing you s'ould be telling

yourself. Rat'er you s'ould ask yourself 6'y 'as t'is doubled in t'e last year

and can it do so again[ 2'ere s'ould be a solid ans6er to your =uestion like t'elaunc' of a ne6 roduct or reduction in t'e rices of ra6 material. nd indeed if

t'e ans6er is in t'e ositie t'en by all means go a'ead and buy t'at stock

regardless of 6'at 'as 'aened in t'e last year.

A$%t2e" ti16ould be to remember 6'at you are buying. uite simly inestors

often forget t'at 6'en buying a stock t'ey are simly buying o6ners'i in t'e

comanies. 7ost of you 6ould kno6 t'at not'ing sectacular 6ould 'aen in

t'e comany t'at you 6ork for% in a mont'% t'ey are not going to double t'eirreenues and certainly not double your salary eery mont'. 2'en 6'y eBect

anyt'ing different from t'e comanies t'at you are inesting in. N'y eBect t'e

rices to double in a mont' or t6o. >ie time to your inestmentsI don9t reduce it


43/83

to a gamble. ?nly 6'en you inest in fundamentally sound comanies and t'en

gie t'e inestments sufficient time to gro6 6ill you see some 'ealt'y returns on

your inestments. ;deally a minimum 'orizon of one year is a good time.

Hoe t2e#e ti1#6ill roe 'elful and you 6ill make a lot more in t'e #t%0>

m!">et#t'an you 'ae already been making. Hay I$=e#ti$:Z

!. 1ou can tell if a St%0> i# 02e!1or eBensie by t'e P"i0e t% E!"$i$:# R!ti%.

0alse: PE "!ti%#are easy to calculate% t'at is 6'y t'ey are listed in ne6saers

etc. M!">et% you must assume Hig' Risks.

0alse: 2is to Lo6er your Risk:

\: Do not ut more t'an !" of your money into any one stock

\:Do not o6n more t'an + stocks in any industry


44/83

,.Y%u$: Pe%1&e 0!$ !//%"d t% t!>e Hi:2 Ri#>.

0alse: 2'e only t'ing true about t'is is t'at young eole 'ae time on t'eir side

if t'ey lose all t'eir money.


45/83

going bankrut (Enron% 7C;% t'e airlines% etc. etc.). Risk of interest rates rising%

and bond rices falling. Risks of your broker s6indled you% or coerced you

t'oug' 'is sales itc' to buy seculatie inestments. Risks of t'e economy.

Risks of a articular industry. Risk of losing your rincial. Risk of losing it all%

and t'en some (suc' as 6it' margin calls).

2rying to 6in in t'e stock market 6it'out a trading lan is like trying to build a

'ouse 6it'out bluerints + costly mistakes are ineitable.

W2 d% %u $eed ! T"!di$: P&!$[

! + During trading 'ours% emotions 6ill turn smart eole into idiots. 2'erefore%

you 'ae to aoid 'aing to make decisions during t'ose 'ours. 0or eery action

you take during trading 'ours% t'e reason s'ould not be greed or fear. 2'ereason s'ould be because it is in t'e lan. Nit' a good lan% your task becomes

one of atience and disciline.

+ Consistent results re=uire consistent actions + consistent actions can only be

ac'ieed t'roug' a detailed lan.

W2!t #2%u&d be i$ %u" t"!di$: 1&!$

! + 1our strategy to enter and eBit trades

1ou 'ae to describe t'e conditions t'at 'ae to be met before you enter a trade.1ou also 'ae to describe t'e conditions under 6'ic' you 6ill close a osition.

2'ese conditions may include tec'nical analysis% fundamental analysis% or a

combination of bot'. 2'ey may also include market conditions% ublic sentiment%

etc...

+ 1our 7oney management rules to kee losses small + t'e goal of money

management is to ensure your surial by aoiding risks t'at could take you out

of business. 1our money management rules s'ould include t'e follo6ing:

+ 7aBimum amount at risk for eac' trade.+ 7aBimum amount at risk for all your oened ositions.+ 7aBimum daily and 6eekly amount lost before you sto trading

+ 1our daily routine + after t'e market closes% before it oens% etc...

4 + ctiities you carry out during t'e 6eekend.


46/83

, + ; also like to include reminders t'at ; read eery day

; 6ill follo6 a trading lan to guide my trading + t'erefore my 3ob 6ill be one of

atience and disciline.

+ ; 6ill al6ays kee my trading lan simle.

+ ; 6ill take actions according to my trading lan% not because of greed% fear% or'oe.+ ; 6ill not deceie myself 6'en ; deiate from my trading lan. ;nstead ; 6ill

admit t'e error and correct it.

; 6ill 'ae a 6inning attitude.

+ 2ake resonsibility for all your actions * don9t blame t'e market or 6orld eents.+ 2rade to trade 6ell and for t'e loe of trading% not to trade often and not for t'e

money.+ Don9t be influenced by t'e oinions of ot'ers.+ 5eer t'ink t'at taking money from t'e market is easy.

+ Don9t try to guess t'e future * trading is a game of robabilities.+ Gse your 'ead and stay calm * don9t get eBcited or deressed.+ Handle trading as a serious intellectual ursuit.+ Don9t count 'o6 muc' money you 'ae made or lost 6'ile you are in a trade *

focus on trading 6ell.

trading lan 6ill not guarantee you success in t'e stock market but not 'aing

one 6ill retty muc' guarantee failure.

PRIMARYMARKET

7arket for ne6 issues of securities% as distinguis'ed from t'e Se0%$d!"

M!">et% 6'ere reiously issued securities are boug't and sold.

A market is primary if the proceeds of sales go to the issuer of thesecurities sold.

2'is is art of t'e financial market 6'ere enterrises issue t'eir ne6 s'ares and

bonds. ;t is c'aracterised by being t'e only moment 6'en t'e enterrise receies

money in eBc'ange for selling its financial assets.

SECON6ARY MARKET

2'e market 6'ere securities are traded after t'ey are initially offered in t'e


47/83

rimary market. 7ost trading is done in t'e secondary market.

2o eBlain furt'er% it is 2rading in reiously issued financial instruments. n

organized market for used securities. EBamles are t'e 5e6 1ork &tock

EBc'ange (51&E)% e"+ full+serice broker can roide a bunc' of serices

suc' as inestment researc' adice% taB lanning and retirement lanning.

. 6i#0%u$t B"%>e"* discount broker let9s you buy and sell stocks at a lo6rate but doesn9t roide any inestment adice.

. 6i"e0t8A00e## B"%>e"+ direct access broker lets you trade directly 6it' t'e

electronic communication net6orks (EC59s) so you can trade faster. ctie

traders suc' as day traders tend to use Direct ccess


48/83

;n order to understand 6'at stocks are and 2%9 #t%0> m!">et# 9%">% 6e need

to die into 'istory++secifically% t'e 'istory of 6'at 'as come to be kno6n as t'e

cororation% or sometimes t'e limited liability comany (LLC). Cororations in

one form or anot'er 'ae been around eer since one guy coninced a fe6

ot'ers to ool t'eir resources for mutual benefit.

2'e first cororate c'arters 6ere created in


49/83

&o a cororation creates some #2!"e#% and sells t'em to an inestor for an

agreed uon rice% t'e cororation no6 'as money. ;n return% t'e inestor 'as a

degree of o6ners'i in t'e cororation% and can eBercise some control oer it.

2'e cororation can continue to issue ne6 s'ares% as long as it can ersuade

eole to buy t'em. ;f t'e comany makes a rofit% it may decide to lo6 t'e

money back into t'e business or use some of it to ay diidends on t'e s'ares.

Pub&i0 M!">et#

Ho6 eac' stock market 6orks is deendent on its internal organization and

goernment regulation. 2'e NYSE (Ne9 Y%"> St%0> E02!$:e)is a non+rofit

cororation% 6'ile t'eNAS6A5 (N!ti%$!& A##%0i!ti%$ %/ Se0u"itie# 6e!&e"#

Aut%m!ted 5u%t!ti%$) and t'e 2&E (T%"%$t% St%0> E02!$:e)are for+rofitbusinesses% earning money by roiding trading serices.

7ost comanies t'at go 1ub&i0'ae been around for at least a little 6'ile. >oing

ublic gies t'e comany an oortunity for a otentially 'uge 0!1it!& i$/u#i%$%

since millions of inestors can no6 easily urc'ase s'ares. ;t also eBoses t'e

cororation to stricter regulatory control by goernment regulators.

N'en a cororation decides to go ublic% after filing t'e necessary aer6ork

6it' t'e goernment and 6it' t'e e02!$:e it 'as c'osen% it makes an initial

ublic offering (;?). 2'e comany 6ill decide 'o6 many s'ares to issue on t'eublic market and t'e rice it 6ants to sell t'em for. N'en all t'e s'ares in t'e

IPOare sold% t'e comany can use t'e roceeds to invest in the business.

2'ere are t6o classic market tyes used to c'aracterize t'e general direction of

t'e market. #)


50/83

are% on aerage% trending 'ig'er. 2'e bu&& m!">et tends to be associated 6it'

ri#i$: i$=e#t%" 0%$/ide$0eand eBectations of /u"t2e" 0!1it!& :!i$#.

market in 6'ic' rices are rising. market articiant 6'o beliees rices 6ill

moe 'ig'er is called abu&&. ne6s item is considered bu&&i#2if it is eBected

to result in 'ig'er rices.n adancing trend in stock rices t'at usually occurs

for a time eriod of mont's or years. Bu&& m!">et#are generally c'aracterized

by 2i:2 t"!di$: =%&ume.

&imly ut% bu&& m!">et#are moements in t'e stock market in 6'ic' rices are

rising and t'e consensus is t'at rices 6ill continue moing u6ard. During t'is

time% economic roduction is 'ig'% 3obs are lentiful and inflation is lo6. Be!"

m!">et#are t'e oosite++stock rices are falling% and t'e ie6 is t'at t'ey 6ill

continue falling. 2'e economy 6ill slo6 do6n% couled 6it' a rise in

unemloyment and inflation. key to #u00e##/u& i$=e#ti$:during a bu&& m!">etis to take adantage of t'e

rising rices. 0or most% t'is means bui$: #e0u"itie#early% 6atc'ing t'em rise

in alue and t'en selling t'em 6'en t'ey reac' a 'ig'. Ho6eer% as simle as it

sounds% t'is ractice inoles timing t'e market. &ince no one kno6s eBactly

6'en t'e market 6ill begin its climb or reac' its eak% irtually no one can time

t'e market erfectly. ;nestors often attemt to buy securities as t'ey

demonstrate a strong and steady rise and sell t'em as t'e market begins a

strong moe do6n6ard.

ortfolios 6it' larger ercentages of stocks can 6ork 6ell 6'en t'e market is

moing u6ard. ;nestors 6'o beliee in 6atc'ing t'e market 6ill buy and sell

accordingly to c'ange t'eir ortfolios.&eculators and risk+takers can fare

relatiely 6ell in bull markets. 2'ey beliee t'ey can make rofits from rising

rices% so t'ey buy stocks% otions% futures and currencies t'ey beliee 6ill gain

alue. >ro6t' is 6'at most bull inestors seek.

W2!t i# ! Be!" M!">et

2'e oosite of a bu&& m!">et i# ! be!" m!">et6'en rices are falling in a

financial market for a rolonged eriod of time. bear market tends to be

accomanied by 6idesread essimism. bear market is slang for 6'en stock


51/83

rices 'ae decreased for an eBtended eriod of time. ;f an inestor is Vbearis'V

t'ey are referred to as a bear because t'ey beliee a articular comany%

industry% sector% or market in general is going to go do6n.

Different i$=e#tme$t aenues are aailable to inestors. Mutu!& /u$d#also offer

good inestment oortunities to t'e inestors. Like all i$=e#tme$t#% Mutu!&

Fu$d#also carry certain risks. 2'e i$=e#t%"#s'ould comare t'e risks and

eBected yields after ad3ustment of taB on arious instruments 6'ile taking

Mutu!& Fu$d i$=e#tme$tdecisions. 2'e inestors may seek adice from

eBerts and consultants including agents and distributors of mutu!& /u$d#

#02eme#6'ile making inestment decisions.

7utual 0unds are ortfolio of stock market s'ares and ot'er financial instruments

built 6it' funds collected from (usually) small inestors 6'ose rimary concern issecurity of inestment. 2'ese funds are run by goernment trusts% banks% and

no6 riate financial institutions as 6ell. 2'ese funds can be P!" # $%"D!D

or &(!D # !"D!D.

2'ere are different kinds of mutual funds to cater to aried inestment ob3ecties:

>ro6t' 0unds% ;ncome 0unds%


52/83

t'eyMre issued% t'en t'e information belo6 mig't 3ust be 6'at youMe been looking

for.

6e/i$i$: t2e 6i=ide$d

6i=ide$d# !"e 1!me$t# m!de b 0%m1!$ie# t% t2ei" #t%0>2%&de"# i$ %"de"

t% #2!"e ! 1%"ti%$ %/ t2e 1"%/it#from a articular =uarter or year. 2'e amount

t'at any articular stock'older receies is deendent uon 'o6 many s'ares of

stock t'ey o6n and 'o6 muc' t'e total amount being diided u among t'e

stock'olders amounts to. 2'is means t'at after a articularly rofitable =uarter a

comany mig't set aside a lum sum to be diided u amongst all of t'eirstock'olders% t'oug' eac' indiidual s'are mig't be 6ort' only a ery small

amount otentially fractions of a cent% deending uon t'e total number of s'ares

issued and t'e total amount being diided. ;ndiiduals 6'o o6n large amounts of

stock receie muc' more from t'e diidends t'an t'ose 6'o o6n only a little% but

t'e total er+s'are amount is usually t'e same.

W2e$ 6i=ide$d# A"e P!id

Ho6 oftendi=ide$d#are aid can ary from one comany to t'e neBt% but in

general t'ey are aid 6'eneer t'e comany reorts a rofit. &ince most

comanies are re=uired to reort t'eir rofits or losses =uarterly% t'is means t'at

most of t'em 'ae t'e otential to ay diidends u to four times eac' year.

&ome comanies ay diidends more often t'an t'is% 'o6eer% and ot'ers may

ay only once er year. 2'e more time t'ere is bet6een diidend ayments can

indicate financial and rofit roblems 6it'in a comany% but if t'e comany

simly c'ooses to ay all of t'eir diidends at once it may also lead to 'ig'er er+s'are ayments on t'ose di=ide$d#.

W2 6i=ide$d# A"e P!id


53/83

6i=ide$d# are aid by comanies as a met'od of s'aring t'eir rofitable times

6it' t'e stock'olders t'at 'ae fait' in t'e comany% as 6ell as a 6ay of luring

ot'er inestors into urc'asing stock in t'e comany t'at is aying t'e diidends.

2'e more a articular comany ays in diidend ayments% t'e more likely it is to

sell additional common stockJ after all% if t'e comany is 6ell+kno6n for 'ig'

diidend ayments t'en more eole 6ill 6ant to get in on t'e action. 2'is can

actually lead to increases in stock rice and additional rofit for t'e comany

6'ic' can result in een more diidend ayments.

;n order to get t'e most out of t'e diidends t'at you receie on your

inestments% it is generally recommended t'at you reinest t'e diidends into t'ecomanies t'at ay t'em. N'ile t'is may seem as t'oug' youMre simly giing

t'em t'eir money back% youMre receiing additional s'ares of t'e comanyMs stock

in eBc'ange for t'e diidend. 2'is 6ill increase future diidend ayments (since

t'eyMre based uon 'o6 muc' stock t'at you o6n)% and can set you u to make a

lot more money t'an t'e!0tu!& di=ide$d 1!me$t 6as for since increases in

stock rices 6ill affect t'e ne6ly+urc'ased stock as 6ell.

INTRO!"TION A#O!T $!T!A% &!NS:

7utual fund is a trust t'at ools money from a grou of inestors (s'aringcommon financial goals) and inest t'e money t'us collected into asset t'atmatc' t'e stated inestment ob3ecties of t'e sc'eme. &ince t'e statedinestment ob3ecties of a mutual fund sc'eme generally forms t'e basis for aninestor9s decision to contribute money to t'e ool% a mutual fund can not deiatefrom its stated ob3ecties at any oint of time.

Eery 7utual 0und is managed by a fund manager% 6'o using 'isinestment management skills and necessary researc' 6orks ensures muc'


54/83

better return t'an 6'at an inestor can manage on 'is o6n. 2'e caitalareciation and ot'er incomes earned from t'ese inestments are assed ont'e inestors (also kno6n as unit 'olders) in roortion of t'e number of unitst'ey o6n.

C%$0e1t %/ Mutu!& Fu$d

M!$ i$=e#t%" 9it2 0%mm%$ /i$!$0i!& %b3e0ti=e# 1%%& t2ei" m%$e

]I$=e#t%"# %$ ! 1"%1%"ti%$!te b!#i# :et mutu!& /u$d u$it# /%" t2e #um

0%$t"ibuted t% t2e 1%%& ]T2e m%$e 0%&&e0ted /"%m i$=e#t%"# i# i$=e#ted i$t% #2!"e# debe$tu"e#

!$d %t2e" #e0u"itie# b t2e /u$d m!$:e" ]

T2e /u$d m!$!:e" "e!&i4e# :!i$# %" &%##e# !$d 0%&&e0t# di=ide$d %"i$te"e#t i$0%me

]A$ 0!1it!& :!i$# %" &%##e# /"%m #u02 i$=e#tme$t# !"e 1!##ed %$ t% t2ei$=e#t%"# 1"%1%"ti%$ %/ t2e $umbe" %/ u$it# 2e&d b t2em

N'en an inestor subscribes for t'e units of a mutual fund% 'e becomesart of t'e assets of t'e mutual fund in t'e same roortion as 'iscontribution amount ut u 6it' t'e corus (t'e total amount of t'e mutualfund). 7utual 0und inestor is also kno6n as a fund s'are'older or a unit'older.

ny c'ange in t'e alue of t'e inestments made into caitalmarket instruments (suc' as s'ares% debentures etc) is reflected in t'e

5et sset 8alue (58) of t'e sc'eme. 58 is defined as t'e market alueof t'e 7utual 0und sc'eme9s assets net of its liabilities. 58 of a sc'emeis calculated by diiding t'e market alue of sc'eme9s assets by t'e totalnumber of units issued to t'e inestors.


55/83

0or eBamle:

. ;f t'e market alue of t'e assets of a fund is Rs.!%""% """A+ro6t' 0unds% fund managersasire for maBimum caital areciation and inest in less researc'ed s'ares ofseculatie nature. ro6t' 0unds:+>ro6t' 0unds also inest for caital areciation (6it' time'orizon of e to , years) but t'ey are different from ggressie >ro6t' 0unds int'e sense t'at t'ey inest in comanies t'at are outerform t'e market in t'efuture. Nit'out entirely adoting seculatie strategies% >ro6t' 0unds inest int'ose comanies t'at are eBected to ost aboe aerage earnings in future.

SPECIALITY FUN678&eciality 0unds 'ae stated criteria for inestments and

t'eir ortfolio comrises of only t'ose comanies t'at meet t'eir criteria. Criteriafor some secialty funds could be to inestAnot to inest in articularregionAcomanies. &eciality funds are concentrated and t'us% are comaratielyriskier t'an diersified funds. 2'ere are follo6ing tyes of &eciality 0unds:


56/83

Se0t%" Fu$d#7 + E=uity 0unds t'at inest in a articularsectorAindustry of t'e market are kno6n as &ector 0unds.2'e eBosure of t'ese funds is limited to a articular sector(say ;nformation 2ec'nology% uto%


57/83

reduce sector+secific risk. Ho6eer% like all ot'er funds diersified e=uity fundstoo are eBosed to e=uity market risk. ?ne rominent tye of diersified e=uityfund in ;ndia is E=uity Linked &aings &c'eme (EL&&). s er t'e mandate% aminimum of -" of inestments by EL&& s'ould be in e=uities at all times. EL&&inestors are eligible to claim deduction from taBable income (u to Rs.! lak') at

t'e time of filling t'e income taB return. EL&& usually 'as a lock+in eriod and incase of any redemtion by t'e inestor before t'e eBiry of t'e lock+in eriodmakes 'im liable to ay income on suc' income(s) for 6'ic' 'e may 'aereceied any taB eBemtion(s) in t'e ast.

E=uity ;ndeB 0unds:+E=uity ;ndeB 0unds 'ae t'e ob3ectie to matc' t'eerformance of a secific stock market indeB. 2'e ortfolio of t'ese fundscomrises of t'e comanies t'at form t'e indeB and is constituted in t'e sameroortion as t'e indeB. E=uity indeB funds t'at follo6s broad indices (like & @ C5 5ifty% &enseB) are less risky t'an e=uity indeB funds t'at follo6 narro6

sectoral indices (like


58/83

&ale rice:+ &ale rice is t'e rice you ay 6'en you inest in a sc'eme. lsocalled ?ffer rice. ;t may include a sales load.

Reurc'ase rice:+ Reurc'ase rice is t'e rice at 6'ic' a close+ended

sc'eme reurc'ases its units and it may include a back+end load. 2'is is alsocalled


59/83

2'e 7utual 0und is constituted as a trust in accordance 6it' t'e roisions of t'e;ndian 2rust ct% !$$ by t'e &onsor. 2'e trust deed is registered under t'e;ndian Registration ct% !-"$.

2RG&2EE *

&&E2 75>E7E52 C?751 (7C):+

2'e 7C is aointed by t'e 2rustee as t'e ;nestment 7anager of t'e7utual 0und. 2'e 7C is re=uired to be aroed by t'e &ecurities andEBc'ange


60/83

?nly &E


61/83


62/83


63/83

EL?R2;8E RE&ERCH

DE&CR;2;8E RE&ERCH

D;>5?&2;C RE&ERCH

H1?2HE&;& 2E&2;5> RE&ERCH

E1&%"!ti=e Re#e!"02

2o gain familiarity 6it' t'e 'enomenon or to ac'iee an insig't into it.

6e#0"i1ti=e Re#e!"02

2o oetry accurately t'e c'aracteristic of t'e articular indiidual situation

or a grou.

6i!:$%#ti0 Re#e!"02

2o determine t'e fre=uency 6it' 6'ic' somet'ing occurs or 6it' 6'ic' it is

associate 6it' somet'ing else.

H1%t2e#i# Te#ti$: Re#e!"02'

2o test a 'yot'esis of casual relations'i bet6een ariables.

2'e resent ro3ect is Descritie in nature. ;t is done to oetry accurately t'e

c'aracteristic of a articular indiidual situation or a grou. 2'e ma3or urose is

descritie researc' is t'e descrition of t'e state of t'e affairs as it eBits at

resents. 2'e main c'aracteristics of t'is met'od are t'at t'e researc'er 'as no


64/83

control oer t'e ariablesI 'e can only reort 6'at 'as 'aened or 6'at is

'aening.

St!teme$t %/ "e#e!"02 1"%b&em

researc' roblem% refers to some difficulty 6'ic' a researc'er eBeriences in

t'e conteBt of eit'er a t'eoretical or ractical situation and 6ants to obtain a

solution for t'e same.

Here t'e researc' roblem is mutual funds (secial reference 6it' 5


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RESEARCH 6ESIGN AN6 METHO6OLOGY

Researc' is a systemic and ob3ectie rocess of gat'ering recording and

anayzing data for aid of making decision regarding a articular roblem.

RESEARCH 6ESIGN

2'e researc' design is a master lan secifying t'e met'ods and roceduresfor collecting and analyzing t'e needed information t'e researc' design of my

dissertation is

6ESCRIPTIVE RESEARCH

Descritie researc' includes sureys and facts findings in=uiries of differentkinds.

RESEARCH INSTRUMENTS

GE&2;?55;RE

SAMPLE 6ESIGN

target oulation eole of industries

samle size !"" eole

samling tec'ni=ue conenience and 3udgmental


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' 6ATA COLLECTION


67/83

6ATA COLLECTION

PRIMARY DATArimary data is gat'ered t'roug' a surey 6it' t'e 'el of=uestionnaire.

&EC?5DR1 D2 secondary data sources includes

77?5;5D !4$."" @'*;

F&&?C;2 !!$.-" @'+

C%m1!$ P"i0e C2

L2 !!,."8


68/83

Rate of interest 4

E7; ,

2otal mt. !

any ?t'er

2able no. 4.

+L

*+L

)+L

;+L

(+L

ra's no. 4.!

O00u1!ti%$ %/ t2e 1e%1&e

businessman 4,

traders

contracer !$

any ot'er !,

2able no.4.


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70/83


71/83

A$!i#is a met'od of ealuating future security rices and market directions

based on statistical analysis of ariables suc' as trading olume% rice c'anges%etc.% to identify atterns

stock market term + 2'e attemt to look for numerical trends in a random

function. 2'e #t%0> m!">etused to be filled 6it' te02$i0!& !$!t# deciding

6'at to buy and sell% until it 6as decided t'at t'eir success rate is no better t'an

c'ance. 5o6 tec'nical stock analysis is irtually non+eBistent. 2'e Readers

&ubmitted EBamles age 'as more on t'is toic.

Research and e)aminationof t'e m!">et !$d #e0u"itie# as it relates to t'eir

suly and demand in t'e marketlace. 2'e tec'nician uses c'arts and

comuter rograms to identify and ro3ect rice trends. 2'e !$!i#includes

studying rice moements and trading olumes to determine atterns suc' as

Head and &'oulder 0ormations and N 0ormations. ?t'er indicators include

suort and resistance leels% and moing aerages. ;n contrast to /u$d!me$t!&

!$!i#% tec'nical analysis does not consider a cororationMs financial data.

2ec'nical analysts study trading 'istories to identify rice trends in articular

#t%0># mutu!& /u$d# 0%mm%ditie# %" %1ti%$#in #1e0i/i0 m!">et #e0t%"#or

in t'e oerall /i$!$0i!& m!">et#. 2'ey use t'eir findings to redict robable%

often s'ort+term% trading atterns in t'e inestments t'at t'ey study. 2'e seed

(and adocates 6ould say t'e accuracy) 6it' 6'ic' t'e analysts do t'eir 6ork

deends on t'e deeloment of increasingly so'isticated comuter rograms.

Te02$i0!& A$!i#suoses markets 'ae memory.;f so% ast rices% or t'e

current rice momentum% can gie an idea of t'e future rice eolution.

Te02$i0!& A$!i#is a tool to detect if a trend (and t'us t'e inestorMs

be'aior) 6ill ersist or break. ;t gies some results but can be decetie as it


72/83

relies mostly on gra'ic signals t'at are often intert6ined% unclear or belated. ;t

mig't become a source of reresentieness 'euristic (sotting atterns 6'ere

t'ere are none)

Te02$i0!& !$!i#'as become increasingly oular oer t'e ast seeral

years% as more and more eole beliee t'at t'e 2i#t%"i0!& 1e"/%"m!$0e %/ !

#t%0>is a strong indication of future erformance. 2'e use of ast erformance

s'ould come as no surrise. eole using fundamental analysis 'ae al6ays

looked at t'e ast erformance of comanies by comaring fiscal data from

reious =uarters and years to determine future gro6t'. 2'e difference lies in t'e

te02$i0!& !$!tJ# belief t'at securities moe according to ery redictable

trends and atterns. 2'ese trends continue until somet'ing 'aens to c'ange

t'e trend% and until t'is c'ange occurs% rice leels are redictable.

2'ere are many instances of inestors successfully t"!di$: ! #e0u"itusing

only t'eir kno6ledge of t'e securityMs c'art% 6it'out een understanding 6'at t'e

comany does. Ho6eer% alt'oug' te02$i0!& !$!i# i# ! te""i/i0 t%%&% most

agree it is muc' more effectie 6'en used in 0%mbi$!ti%$ 9it2 /u$d!me$t!&

!$!i#.

Fu$d!me$t!& A$!i#

Fu$d!me$t!& !$!i#looks at a s'are9s market rice in lig't of t'e comany9s

underlying business roosition and financial situation. ;t inoles making bot'

=uantitatie and =ualitatie 3udgements about a comany. 0undamental analysis

can be contrasted 6it' Mtec'nical analysis9% 6'ic' seeks to make 3udgements

about t'e erformance of a s'are based solely on its 'istoric rice be'aior and

6it'out reference to t'e underlying business% t'e sector itMs in% or t'e economy as

a 6'ole. 2'is is done by tracking and c'arting t'e companies stock price'

volume of shares traded day to day' both on the company itself and also on

its competitors. ;n t'is 6ay inestors 'oe to build u a icture of future rice

moements.


73/83

MISTAKE ONE

L!0> %/ K$%9&ed:e !$d N% P&!$

;t amazes us t'at some eole eBect to trade t'e stock market successfully6it'out any effort. 1et if t'ey 6ant to take u golf% for eBamle% t'ey 6ill 'aily

take some lessons or at least read a book before 'eading out onto t'e course.

2'e stock market is not t'e lace for t'e ill informed. rail of tradingZ


74/83

Listening to ?t'ers

N'en traders first start out t'ey often feel like t'ey kno6 not'ing and t'at

eeryone else 'as t'e ans6ers. &o t'ey listen to all t'e ne6s reorts and so

called VeBertsV and get totally confused.

nd t'ey take VtisV from t'eir buddy% 6'o got it from some cab drierJ

Ne 6ill s'o6 you 'o6 you can get to kno6 eeryt'ing you need to kno6 and so

neer 'ae to listen to anyone else% eer againZ

MISTAKE FOUR

>etting in t'e Nay


75/83

MISTAKE SI

?nly 2rading 7arket in ?ne Direction

7ost ne6 traders only learn 'o6 to trade a rising market. nd ery fe6 traders

kno6 really good strategies for trading in a falling market.

;f you donMt learn to trade Vbot'V sides of t'e market% you are drastically limiting

t'e number of trades you can take. nd t'is limits t'e amount of money you can

make.

Ne can s'o6 you a simle strategy t'at allo6s you to rofit 6'en stocks fall.

MISTAKE SEVEN

?ertrading

7ost traders ne6 to trading feel t'ey 'ae to be in t'e market all t'e time to

make any real money. nd t'ey see trading oortunities 6'en t'eyMre not een

t'ere (6e9e been t'ere too).

Ne can s'o6 you simle tec'ni=ues t'at ensure you only Vull t'e triggerV 6'en

you s'ould. nd 'o6 trading less can actually make you moreZ


76/83

,' C%$0&u#i%$


77/83

fter going t'roug' my 6'ole study ; came to t'e conclusion t'at different

Comany of ;ndia eit'er riate or ublic bot' roides inestment sc'eme Nit'

t'e ob3ectie to generate income. 2'ey 'ae many financial sc'emes regarding

Commercial inestment 2'ere are many eole 6'o are satisfies 6it' t'e

&c'eme. 2'e rocedure of ;nesting from t'is comany is simle and easy

and also costumer friendly. ; also come to kno6 t'at many industrialist% traders%

and ne6 entrereneur 6ere a6are of t'ese sc'emes.

dantages of 7G2GL 0G5D&:+

ortfolio Diersification:+7utual 0unds inest in a 6ell+diersified ortfolio of

securities 6'ic' enables inestor to 'old a diersified inestment ortfolio

(6'et'er t'e amount of inestment is big or small).

rofessional 7anagement:+0und manager undergoes t'roug' arious

researc' 6orks and 'as better inestment management skills 6'ic' ensure

'ig'er returns to t'e inestor t'at 6'at 'e can manage 'is o6n.

Le## Ri#>78;nestors ac=uire a diersified ortfolio of securities een 6it' a

small inestment in a 7utual 0und. 2'e risk in a diersified ortfolio is lesser t'an

inesting in merely or securities.

Lo6 2ransaction Costs:+Due to t'e economies of scale (benefits of larger


78/83

olumes)% mutual funds ay lesser transaction costs. 2'ese benefits are assed

on to t'e inestors.

Li=uidity:+ n inestor may not be able to sell some of t'e s'ares 'eld by 'im

ery easily and =uickly% 6'ereas units of a mutual fund are far more li=uid.

C'oice of &c'eme:+ 7utual 0unds roide inestors 6it' arious sc'emes

6it' different inestment ob3ecties. ;nestors 'ae t'e otion of inesting in a

sc'eme 'aing a correlation bet6een its inestment ob3ecties and t'eir o6n

financial goals. 2'ese sc'emes furt'er 'ae different lansAotions.

2ransarency:+ 0unds roide inestors 6it' udated information ertaining

to t'e markets and t'e sc'emes. ll material facts are disclosed to inestors as

re=uired by t'e regulator.

0leBibility:+ ;nestors also benefit from t'e conenience and fleBibility offered

by 7utual 0unds. ;nestors can s6itc' t'eir 'oldings from a debt sc'eme to an

e=uity sc'eme and ice+ersa. ?tion of systematic (at regular interals)

inestment and 6it'dra6al is also offered to t'e inestors in most oen+end

sc'emes.

&afety:+7utual 0und industry is a art of a 6ell+regulated inestment 6'ere t'e

interests of t'e inestors are rotected by t'e regulator. ll funds are registered

6it' &E


79/83


80/83

@' Re0%mme$d!ti%$


81/83

&ecurities Comany needs to roide suc' tye of facilities as muc' as

ossible because t'ese students can be t'e future customers of t'e comany

for ot'er serices also. s for as branc'es are concern t'ey are not roiding

muc' attention on romoting t'ese facilities as comare to to management

of t'e comany so roer stes must be taken for t'at. 8isiting sc'ools and

colleges for romotion urose is only racticing in Del'i region it s'ould be

on

national basis.

;n case of any kind o delay in serice roer feed back system s'ould be

t'ere. 7ore efficient staff s'ould be aointed so t'at t'ey can easilyroides

all t'e cooeration re=uired by t'e customer.

Gnnecessary formalities s'ould be remoed and s'ould try to reduced t'e

large documentation rocess 6'ile sanctioned inesting.

;nterior sace s'ould be eBtended so t'at eole 6ill freely moe during rus'

'our. 5e6s aer and magazines s'ould ket for customers% so t'at t'ey feel

relaBed until t'eir transactions are oer.

roer 6ater and toilet s'ould be roided and t'at s'ould be 6ell noticed to

eerybody. s study reeals t'at securities comany sc'emes are t'e bestas

comare to t'ere sector it s'ould be caitalized as muc' as ossible.


82/83

-' A11e$di0e#

Bib&i%:"!12


83/83

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