Finance Investment Management

INVESTMENT MANAGEMENT
VI SEMESTER
CORE COURSE
BBA
(Specialization - Finance)
(2011 Admission)
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
Calicut university P.O, Malappuram Kerala, India 673 635.
318
School of Distance Education
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
STUDY MATERIAL
Core Course
BBA (Specialization - Finance)
VI Semester
INVESTMENT MANAGEMENT
Prepared by:
Chapter 1 & 4
Smt. Greeshma. V,
Asst. Professor,
P.G Dept. of Commerce,
Govt. College, Malappuram
Chapter 2, 3, & 5
Mr. Sanesh. C,
Asst. Professor,
Dept. of Commerce,
Sri Vyasa NSS College,
Wadakkanchery, Thrissur.
Scrutinized by:
Layout:
Dr. K. Venugopalan,
Associate Professor,
Department of Commerce,
Govt. College, Madappally.
Computer Section, SDE
Reserved
Investment Management
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Contents
Page No.
CHAPTER 1
INVESTMENT AN OVERVIEW
CHAPTER 2
MONEY MARKET
27
CHAPTER 3
CAPITAL MARKET
38
CHAPTER 4
MUTUAL FUNDS
57
CHAPTER 5
DERIVATIVES
66
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Page 4
CHAPTER 1
INVESTMENT AN OVERVIEW
The income that a person receives may be used for purchasing goods and services
that he currently requires or it may be saved for purchasing goods and services that he
may require in the future .In other words, income can be what is spent for current
consumption. savings are generated when a person or organization abstain from present
consumption for a future use .The person saving a part of his income tries to find a
temporary repository for his savings until they are required to finance his future
expenditure .this result in investment.
Meaning of investment
Investment is an activity that is engaged in by people who have savings, i.e.
investments are made from savings, or in other words, people invest their savings .But all
savers are not investors .investment is an activity which is different from saving. Let us
see what is meant by investment.
It may mean many things to many persons. If one person has advanced some
money to another, he may consider his loan as an investment. He expect to get back the
money along with interest at a future date .another person may have purchased on
kilogram of gold for the purpose of price appreciation and may consider it as an
investment.
In all these cases it can be seen that investment involves employment of funds with
the main aim of achieving additional income or growth in the values. The essential quality
of an investment is that it involves something for reward. Investment involves the
commitment of resources which have been saved in the hope that some benefits will
accrue in future.
Thus investment may be defined as a commitment of funds made in the
expectation of some positive rate of return since the return is expected to realize in
future, there is a possibility that the return actually realized is lower than the return
expected to be realized. This possibility of variation in the actual return is known as
investment risk. Thus every investment involves return and risk.
F. Amling defines investment as purchase of financial assets that produces a yield
that is proportionate to the risk assumed over some future investment period.
According to sharpe, investment is sacrifice of certain present value for some
uncertain future values.
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Speculation
Speculation is the practice of engaging in risky financial transactions in an attempt
to profit from short or medium term fluctuations in the market value of a tradable good
such as a financial instrument, rather than attempting to profit from the underlying
financial attributes embodied in the instrument such as capital gains, interest, or
dividends. Many speculators pay little attention to the fundamental value of a security
and instead focus purely on price movements. Speculation can in principle involve any
tradable good or financial instrument. Speculators are particularly common in the markets
for stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and
derivatives.
Difference between Investment and Speculation

1.
Investment is all about value creation (e.g. manufacturing products and providing
services) while speculation is concerned about price movement. In the latter, you
profit purely from price differences. The price movement is mostly influenced by the
psychology of the market.
2.
Investment is has lower risk but need more capital to generate more value while
speculation is challenging, has higher risk but requires less capital. This explains why
most people are speculating because its entry requirement (capital) is lower.
3.
Investment is about getting what market offers you while speculation is about trying
to get more by doing more in believing that you can beat the market.
4.
Investment is about doing least since you let the companies or industries work for you
by owning a piece of their businesses while speculation is about doing the most
(unconsciously) and it is more involving because you keep chasing the price
movement. You need to keep buying and selling to generate profit.
5.
Investment is over long term while speculation is of shorter term. For the former, the
success rate is highest by maximizing the holding period of a position while for the
latter; the success rate will peak if the position is kept open for the shortest time
possible. This also explains why people like to speculate because it provides
shortcuts to wealth.
6.
Investment is about simplicity while speculation is about complexity (timing market,

predicting market direction, stock picking). Thats why most people fail when
speculating. It gives a false sense of simplicity.
7.
Investment = growing system (like a living organic creature) while speculation = zerosum game (one persons gain is another persons loss). The former will grow over time
while the latter remains constant or shrinking over time.
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Investment objectives
Investment is made because it serves some objective for an investor. Depending on
the life stage and risk appetite of the investor, there are three main objectives of
investment: safety, growth and income. Every investor invests with a specific objective in
mind, and each investment has its own unique set of benefits and risks. Let us understand
these objectives in detail.
Safety
While no investment option is completely safe, there are products that are
preferred by investors who are risk averse. Some individuals invest with an objective of
keeping their money safe, irrespective of the rate of return they receive on their capital.
Such near-safe products include fixed deposits, savings accounts, government bonds, etc.
Growth
While safety is an important objective for many investors, a majority of them invest
to receive capital gains, which means that they want the invested amount to grow.There
are several options in the market that offer this benefit. These include stocks, mutual
funds, gold, property, commodities, etc. It is important to note that capital gains attract
taxes, the percentage of which varies according to the number of years of investment.
Income
Some individuals invest with the objective of generating a second source of income.
Consequently, they invest in products that offer returns regularly like bank fixed deposits,
corporate and government bonds, etc.
Other objectives
While the aforementioned objectives are the most common ones among investors today,
some other objectives include:
Tax exemptions
some people invest their money in various financial products solely for reducing
their tax liability. Some products offer tax exemptions while many offer tax benefits
on long-term profits.
Liquidity
Many investment options are not liquid. This means they cannot be sold and
converted into cash instantly. However, some people prefer investing in options
that can be used during emergencies. Such liquid instruments include stock, money
market instruments and exchange-traded funds, to name a few.
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Investment decision process

Investing has been an activity confined to the rich and business class in the past.
But today, we find that investment has become a house hold word and is very popular
with people from all walks of life .India appears to be slowly but surely closing in some of
the top savers among countries in the global peaking order. savings in Indians touched a
new high of 31percent of the GDP during2011-2012.chain leads the pack of savers with the
saving figure at close to 49 percent of GDP followed by other emerging market economies
like Bangladesh 36 percent, Bhutan 48 percent of their GDP. The escalating cost due to
,inflation are decreasing the value of saved money with each passing year .consider the
cost buying a home ,of getting admitted in a hospital or paying for the higher education
of a child. Ones lifes savings could vanish in a blink. Knowledgeable investing requires
the investing to be aware of his needs the amount of money he can invest and the
investment options available to him .These will relate to the investment decision process.
A typical investment decision goes through a five step procedure which is known as
investment process these steps are:
1. Defining the investment objective
2. Analyzing securities
3. Construct a portfolio
4. Evaluate the performance of portfolio
5. Review the portfolio
1. Defining the investment objective
Investment objective may vary from person to person .it should be stated in terms
of both risk and return .In other words ,the objective of an investor is to make money
accepting the fact of risks that likely to happen .The typical objectives of investor include
the current income ,capital appreciation, and safety of principal. More over constrains
arising due to liquidity, the time horizon, tax and other special circumstances, if any must
also be considered this steps of investment process also identifies the potential financial
assets that may be included in the portfolio based on the investment objectives.
2. Analyzing securities
The second steps of analyzing securities enable the investor to distinguish between
underpriced and overpriced stock. Return can be maximized by investing in stocks which
are currently underpriced but have the potential to increase .it might be useful to
remember the golden principle of investment; buy low sell high. There are two
approaches used for analyzing securities ;technical analysis and fundamental analysis.
3. Construct a portfolio
The actual construction of portfolio, which can be divided into three sub parts.
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a) How to allocate the portfolio across different asset classes such as equities, fixed income
securities and real assets
b) The assets selection decision, this is the step where the stocks make up the equity
component, the bonds that make up the fixed income component.
c) The final component is execution, where the portfolio is actually put together, where
investors have to trade off transaction cost against transaction speed.
4. Evaluate the performance of portfolio
The performance evaluation of the portfolio done on the in terms of risk and return.
Evaluation measures are to be developed .CAGR(compounded annual growth rate) may
be one criteria. Hindustan unilever gave a CAGR of 21 percent in returns to the
shareholders for the last 13 years.
5. Review the portfolio
It involves the periodic repetition of the above steps. The investment objective of an
investor may change overtime and the current portfolio may no longer be optimal for him.
so the investor may form a new portfolio by selling certain securities and purchasing
others that are not held in the current portfolio.
Types of Investments
Nonnegotiable securities
Deposits earn fixed rate of return. Even though bank deposits resemble fixed income
securities they are not negotiable instruments. Some of the deposits are dealt
subsequently.
a) Bank deposits
It is the simplest investment avenue open for the investors. He has to open an
account and deposit the money. Traditionally the banks offered current account, Saving
account and fixed deposits account. Current account does not offer any interest rate. The
drawback of having large amount in saving accounts is that the return is just 4 percent.
The saving account is more liquid and convenient to handle. The fixed account carries
high interest rate and the money is locked up for a fixed period. With increasing
competition among the banks, the banks have handled the plain saving account with the
fixed account to cater to the needs of the small savers.
b) Post office deposits
Post office also offers fixed deposit facility and monthly income scheme. monthly
income scheme is a popular scheme for the retired . an interest rate of 9 percent is paid
monthly .the term of the scheme is 6 years, at the end of which a bonus of 10 percent is
paid .the annualized yield to maturity works out to be 15.01 per annum. after three years,
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premature closure is allowed without any penalty .if the closure is one year, a penalty of 5
percent is charged.
NBFC deposits
In recent years there has been a significant increase in the importance of nonbanking financial companies in the process of financial intermediation. The NBFC come
under the purview of the RBI. The Act in January 1997, made registration compulsory for
the NBFCs
1) Period the period ranges from few months to five years.
2) Maximum limit the limit for acceptance of deposit has been on the credit rating of the
company.
3)Interest NBFCs have been debarred from offering an interest rate exceeding 16% per
annum and a brokerage fee over 2% on public deposit. The interest rate differs according
to maturity period.
Tax sheltered saving scheme
The important tax sheltered saving scheme is
a) public provident fund scheme(PPF)
PPF earn an interest rate of 8.5% per annum compounded annually which is exempted
from the income tax under sec80 C. The individuals and Hindu undivided families can
participate in this scheme. There is a lock in period of 15years.PPF is not indented for
those who are liquidity and short term returns. at the time of maturity no tax is to be
given.
b) National saving scheme(NSS)
This scheme helps in deferring the tax payment. Individuals and HUF are eligible
to open NSS account in the designated post office.
c) National saving certificate
This scheme is offered by the post office. These certificate come in the
denomination of Rs.500,1000,5000 and 10000.the contribution and the interest for the first
five years are covered by sec 88.the interest is cumulative at the rate of 8.5%per annum
and payable biannually is covered by sec 80 L.
Life insurance
Life insurance is a contract for payment of a sum of money to the person assured
on the happening of event insured against. Usually the contract provides for the payment
of an amount on the date of maturity or at a specified date or if unfortunate death occurs.
The major advantage of life insurance is given below;
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1) Protection saving through life insurance guarantees full protection against risk of death
of the saver. The full assured sum is paid, whereas in other schemes only the amount
saved is paid.
2) Easy payments for the salaried people the salary saving schemes are introduced.
Further there is an installment facility method of payment through monthly, quarterly,
half yearly or yearly mode.
3) Liquidity loans can be raised on the security of the policy
4) Tax relief tax relief in income tax and wealth tax is available for amounts paid by way
of premium for life insurance subject to the tax rates in force.
Type of life insurance policy
a) Endowment policy;
The objective of this policy is to provide an assured sum, both in the event of the policy
holders death or at the expiry of the policy.
b) Term policy:
In a term policy investor pays a small premium to insure his life for a comparatively
higher value. The objective behind the scheme is not to get any amount on the expiry
of the policy but simply to ensure the financial future of the investors dependents.
c) Whole life policy
It is a low cost insurance plan where the sum assured is payable on the death of the
life insured and premium are payable throughout life.
d) Money back policy
The insurance company pays the sum assured at periodical intervals to the policy
holder plus the entire sum assured to the beneficiaries in case of the policy holders demise
before maturity.
e) ULIPs:
Unit Linked Insurance Policies are a combination of mutual fund and life insurance.
Investments in ULIPs have two component-one part is used as a premium for life
insurance while the other part acts s the investment fund.
The investment component works exactly like mutual fund money is invested in stocks,
bonds; government securities etc., an investor receive money in return.
Mutual fund
Investing directly in equity shares, and debt instruments may be difficult task for a
large number of customers because they want to know more about the company,
promoter, prospects, competition for the product etc.in such a case, investor can go for
investing in financial assets indirectly through mutual fund. A mutual fund is a trust
that pools the savings of a number of investors who share a common financial goal.
Each scheme of a mutual fund can have different character and objectives.
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Types of return
Capital appreciation: an increase in the value of the units of the fund is known as
capital appreciation
Dividend distribution: the profit earned by the fund is distributed among unit
holders in the form of dividends.
Type of mutual funds
Open ended schemes:
In this scheme there is an uninterrupted entry and exist into the funds. The open
ended scheme has no maturity period and they are not listed in the stock
exchanges. The open ended fund provides liquidity to the investors since
repurchase available.
Closed ended funds:
The closed ended funds have a fixed maturity period. The first time investments
are made when the close ended scheme is kept open for a limited period. Once
closed, the units are listed on a stock exchange .investors can buy and sell their
units only through stock exchanges.
Other classification
Growth scheme: aims to provide capital appreciation over medium to long
term. Generally these funds invest their money in equities.
Income scheme: aims to provide a regular return to its unit holders. Mostly
these funds deploy their funds in fixed income securities.
Balanced scheme: a combination of steady return as well as reasonable growth.
The fund of this scheme is invested in equities and debt instruments.
Money market scheme: this type of fund invests its money to money market
instruments.
Tax saving scheme: this type of scheme offers tax rebates to investors.
Index scheme: Here investment is made on the equities of the Stock index.
Real estate
The real estate market offers a high return to the investors. The word real estate
means land and buildings. There is a normal notion that the price of the real estate has
increased by more than 12% over the past ten years. Real estate investments cannot be
enchased quickly. Liquidity is a problem. Real estate investment involves high transaction
cost. The asset must be managed, i.e. painting, repair, maintenance etc.
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Commodities
Commodities have emerged as an alternative investment option now a days and
investors make use of this option to hedge against spiraling inflation-commodities may be
broadly divided into three. Metals, petroleum products and agricultural commodities
.Metals can be divided in to precious metals and other metals. Gold and silver are the
most preferred once for beating inflation.
Gold
Off all the precious metals gold is the most popular as an investment. Investors
generally buy gold as a hedge against economic, political, social fiat currency crisis. Gold
prices are soaring to the new highs in recent years comparing to the previous decades
because whenever the signs of an economic crisis arises in the world markets may find
shelter in gold as safest asset class for investors all around the world.
Silver
Yellow metal is treated as safe haven .but silver is used abundantly for industrial
applications. Investment in silver has given investor, super returns than what gold has
given.
DEBENTURES/BONDS
A Bond is a loan given by the buyer to the issuer of the instrument. Companies,
financial institutions, or even the government can issue bonds. Over and above the
scheduled interest payments as and when applicable, the holder of a bond is entitled to
receive the par value of the instrument at the specified maturity date.
EQUITY SHARE
Equity, also called shares or scrips, is the basic building blocks of a company. A
companys ownership is determined on the basis of its shareholding. Shares are, by far,
the most glamorous financial instruments for investment for the simple reason that, over
the long term, they offer the highest returns. Predictably, theyre also the riskiest
investment option.
Concept of risk and return

Any rational investor, before investing his or her investable wealth in the stock,
analysis the risk associated with the particular stock. The actual return he receives from a
stock may vary from his expected return and is expressed in the variability of return.
Risk
The dictionary meaning of risk is the possibility of loss or injury; risk the possibility
of not getting the expected return. The difference between expected return and actual
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return is called the risk in investment. Investment situation may be high risk, medium and
low risk investment;
1.Buying government securities
low risk
2. Buying shares of an existing Profit making company
Medium risk
3. Buying shares of a new company
High risk
Types of risk
Systematic risk:
The systematic risk is caused by factors external to the particular company and
uncontrollable by the company. The systematic risk affects the market as a whole.
Unsystematic risk:
In case of unsystematic risk the factors are specific, unique and related to the particular
industry or company.
Sources of risk
Interest rate risk:

Interest rate risk is the variation in the single period rates of return caused by the
fluctuations in the market interest rate. Most commonly the interest rate risk affects
the debt securities like bond, debentures.
Market risk:
Jack clark francis has defined market risk as that portion of total variability of
return caused by the alternating forces of bull and bear market. This is a type of
systematic risk that affects share .market price of shares move up and down
consistently for some period of time.
Purchasing power risk
Another type of systematic risk is the purchasing power risk .it refers to the
variation in investor return caused by inflation.
Business risk: Every company operates with in a particular operating
environment, operating environment comprises both internal environment within
the firm and external environment outside the firm. Business risk is thus a function
of the operating conditions faced by a company and is the variability in operating
income caused by the operating conditions of the company.
Financial risk
It refers to the variability of the income to the equity capital due to the debt capital.
Financial risk in a company is associated with the capital structure of the company.
The debt in the capital structure creates fixed payments in the form of interest this
creates more variability in the earning per share available to equity share holders
.this variability of return is called financial risk and it is a type of unsystematic risk.
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Return
The major objective of an investment is to earn and maximize the return. Return on
investment may be because of income, capital appreciation or a positive hedge against
inflation .income is either interest on bonds or debenture, dividend on equity, etc
Rate of return: The rate of return on an investment for a period is calculated as
follows:
Rate of return =annual income + (ending price beginning price)
Beginning price
Ex: Ajay brought a share of a co. for Rs.140 from the market on 1/6/2012.the co. paid
dividend of Rs.8 per share .later ajay sold the share at Rs.160 on 1/6/2013.
The rate of return=
8+ (160-140)x100 = 20percent
140
Investment Analysis
Investment
analysis is
the
analysis
of
tradable financial
instruments called securities. These can be classified into debt securities, equities, or some
hybrid of the two. More broadly, futures contracts and tradable credit derivatives are
sometimes included. Security analysis is typically divided into fundamental analysis,
which relies upon the examination of fundamental business factors such as financial
statements, and technical analysis, which focuses upon price trends and momentum.
Another form of security analysis is technical analysis which uses graphs and diagrams
for price prediction securities. Simply the process of analyzing return and risks of
financial securities may term as investment analysis.
Fundamental analysis
Fundamental analysis is really a logical and systematic approach to estimating the
future dividends and share price it is based on the basic premise that share price is
determined by a number of fundamental factors relating to the economy, industry and
company. In other words fundamental analysis means a detailed analysis of the
fundamental factors affecting the performance of companies.
Each share is assumed to have an economic worth based on its present and future earning
capacity .this is called its intrinsic value or fundamental value. the purpose of
fundamental analysis is to evaluate the present and future earning capacity of a share
based on the economy, industry and company fundamentals and thereby assess the
intrinsic value of the share .the investor can compare the intrinsic value of the share with
the prevailing market price to arrive at an investment decision. if the market price of the
share is lower than its intrinsic value, the investor would decide to buy the share as it is
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underpriced. The price of such share is expected to move up in the future to match with
its intrinsic value.
On the contrary, when the market price of a share is higher than its intrinsic value, it is
perceived to be overpriced. The market price of such a share is expected to come down in
future and hence, the investor should decide to sell such a share. Fundamental analysis
thus provides an analytical framework for rational investment decision making. This
analytical framework is known as EIC framework, or economy industry company
analysis.
Fundamental analysis thus involves three steps:
1. Economic analysis
2. Industry analysis
3. Company analysis
Economy analysis
The performance of a company depends on the performance of the economy. Let us look
some of the key economic variables that an investor must monitor as part of his
fundamental analysis.
Growth rate of national income
The rate of growth of the national economy is an important variable to be
considered by an investor.GNP (gross national product), NNP (net national
product), GDP (gross domestic product)are the different measures of the total
income or total economic output as a whole.
The estimated growth rate of the economy would be a pointer towards the
prosperity of the economy. An economy typically passes through different stages
of prosperity known as economic or business cycle. The four stages of an economic
cycle are
1. Depression: is the worst of the four stages. During a depression, demand is
low and declining. Inflation is often high and so are interest rates.
2. Recovery stage: The economy begins to receive after a depression. Demand
picks up leading to more investments in the economy. Production, employment
and profits are on the increase.
3. Boom: The phase of the economic cycle is characterized by high demand.
Investments and production are maintained at a high level to satisfy the high
demand. Companies generally post higher profits.
4. Recession: The boom phase gradually slow down .the economy slowly begin to
experience a downturn in demand, production employment etc, the profits of
companies are also start to decline. This is the recession stage of the economy.
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Inflation
Inflation leads to erosion of purchasing power in the hands of consumers, this will
result in lower the demand of products Inflation prevailing in the economy has
considerable impact on the performance of companies. Higher rate of inflation will upset
business plans.
Interest rates
Interest rates determine the cost and availability of credit for companies operating
in an economy. a low interest rate stimulates investment by making credit available easily
and cheaply. On the contrary, higher interest rates result in higher cost of production
which may lead to lower profitability and lower demand.
Government revenue, expenditure and deficits
Government is the largest investor and spender of money, the trend in government
revenue and expenditure and deficit have a significant impact on the performance of
industries and companies expenditure by the government stimulates the economy by
creating jobs and generating demand. The nature of government spending is of greater
importance in determining the fortunes of many companies.
Exchange rates
The performance and profitability of industries and companies that are major
importers or exporters are considerably affected the exchange rates of the rupee against
major currencies of the world. a depreciation of the rupee improves the competitive
position of Indian products in the foreign markets ,thereby stimulating exports .but it
would also make import more expensive .a company more depending on imports may
find it devaluation of the rupee affecting its profitability adversely.
Infrastructure
The development of an economy depends very much on the infrastructure
available. The availability of infrastructure facilities such as power, transportation, and
communication systems affects the performance of companies bad infrastructure lead to
inefficiencies, lower productivity, wastage and delays.
Monsoon
The Indian economy is essentially an agrarian economy and agriculture forms a
very important sector of the Indian economy. The performance of agriculture to a very
extent depends on the monsoon; the adequacy of the monsoon determines the success or
failure of the agricultural activities in India.
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Economic and political stability

A stable political environment is necessary for steady and balanced growth. Stable
long term economic policies are what are needed for industrial growth, such stable
policies emanate only from stable political systems as economic and political factors are
interlinked.
Industry analysis
An industry ultimately invests his money in the securities of one or more specific
companies, each company can be characterized as belonging to an industry. the
performance of companies would therefore ,be influenced by the fortunes of the industry
to which it belongs. an industry as a group of firms producing reasonably similar
products which serve the same needs of common set of buyers.
Industry life cycle
The industry life cycle theory is generally attributed to Julius grodinsky. According to
the industry life cycle theory ,the life of an industry can be segregated into to the
pioneering stage the expansion stage, the stagnation stage, and the decay stage .this kind
of segregation is extremely useful to an investor because the profitability of an industry
depends upon its stage of growth.
Pioneering stage
This is the first stage in the industrial life cycle of a new industry where the
technology as well as the product are relatively new and have not reached a state of
perfection. Pioneering stage is characterized by rapid growth in demand for the
output of industry. As a result there is a greater opportunity for profit. Many firms
compete with each other vigorously. Weak firms are eliminated and a lesser
number of firms survive the pioneering stage. ex; leasing industry.
Expansion stage
Once an industry has established itself it enters the second stage of expansion or
growth. These companies continue to become stronger. Each company finds a
market for itself and develops its own strategies to sell and maintain its position in
the market. The competition among the surviving companies brings about
improved products at lower prices. Companies in the expansion stage of an
industry are quite attractive for investment purposes.
Stagnation stage
In this stage the growth of the industry stabilizes. The ability of the industry to
grow appears to have been lost. Sales may be increasing but at a slower rate than
that experienced by competitive industries or by the overall economy. The
transition of an industry from the expansion stages to stagnation stages is very
slow. Important reason for this transition is change in social habits and
development of improved technology.
Ex: the black and white television industry in India provides s a good example of
an industry which passed from the expansion stages to stagnation stage.
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Decay stage
Decay stage occurs when the products of the industry are no longer in demand.
new products and new technologies have come to the market. Customers have
changed their habits, style and liking. as a result ,the industry become obsolete and
gradually ceases to decay of an industry
Industry characteristics
In an industry analysis there are a number of key characteristics that should be
considered by the analyst.
Demand supply gap
The demand for the product usually trends to change at a steady rate, where as the
capacity to produce the product tends to change at irregular intervals, depending upon
the installation of additional production capacity. As result an industry is likely to
experience under supply and over supply of capacity at different times. Excess supply
reduces the profitability of the industry through a decline in the unit price realization.
On the contrary, insufficient supply tends to improve the profitability through higher
unit price realization.
Competitive conditions in the industry
The level of competition among various companies in an industry is determined by
certain competitive forces. These competitive forces are: barriers to entry, the threat of
substitution, bargaining power of the suppliers and the rivalry among competitors.
Permanence
Permanence is the phenomenon related to the products and the technology used by the
industry. if an analyst feels that the need for a particular industry will vanish in a short
period ,or that the rapid technological changes would render the products obsolete
within short period of time, it would be foolish to invest such industry.
Labour conditions
In our country the labour unions are very power full .if the labour in a particular
industry is rebellious and is inclined to resort to strikes frequently, the prospects of that
industry cannot become bright.
Attitude of government
The government may encourage certain industries and can assist such industries
through favorable legislation. On the contrary, the government may look with disfavor
on certain other industries .in India this has been the experience of alcoholic drinks and
cigarette industries. A prospective investor should consider the role of government is
likely to play in the industry.
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Supply of raw materials

This is also one of the important factor determine the profitability of an industry. Some
industry may have no difficulty in obtaining the major raw materials as they may be
indigenously available in plenty. Other industries may have to depend on a few
manufactures within the country or on imports from outside the country for their raw
material supply.
Cost structure
The cost structure that is the fixed and variable cost, affect the cost of production and
profitability of the firm. The higher the fixed cost component, higher is the sales volume
necessary to achieve breakeven point. conversely, the lower the proportion of fixed cost
relative to variable cost ,lower would be the breakeven point provides higher margin of
safety an analyst would consider favorably an industry that has a lower breakeven
point.
Company analysis
Company analysis is the final stage of fundamental analysis. The economy analysis
provides the investor a broad outline of the prospects of growth in the economy, the
industry analysis helps the investor to select the industry in which investment would
be rewarding. Now he has to decide the company in which he should invest his money.
Company analysis provides answer to this question.
In company analysis, the analyst tries to forecast the future earnings of the company
because there is a strong evidence that the earnings have a direct and powerful effect
upon share prices. The level, trend and stability of earnings of a company, however
depend upon a number of factors concerning the operations of the company.
Financial statements
The financial statements of a company help to assess the profitability and financial
health of the company. The two basic financial statements provided by a company are
the balance sheet and the profit and loss account. The balance sheet indicates the
financial position of the company on a particular date, namely the last day of the
accounting year.
The profit and loss account, also called income statement, reveals the revenue earned,
the cost incurred and the resulting profit and loss of the company for one accounting
year.
Analysis of financial statements
Financial ratios are most extensively used to evaluate the financial performance of the
company, it also help to assess the whether the financial performance and financial
strengths are improving or deteriorating, ratios can be used for comparative analysis
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either with other firms in the industry through a cross sectional analysis or a time series
analysis.
Other variables
The future prospects of the company would also depend upon the number of other factors
.some of which is given below:
1. Companys market share
2. Capacity utilization
3. Modernisation and expansion plans
4. Order book position
5. Availability of raw material
Technical analysis
A technical analysis believes that the share prices are determined by the demand
and supply forces operating in the market. a technical analysis concentrate on the
movement of share prices . He climes that by examining past share price movements
future share price can be accurately predicted.
The basic premise of technical analysis is that prices move in trends or waves
which may be upward or downward
A rational behind the technical analysis is that share price behavior repeat itself
over time and analyst attempt to drive methods to predict this repetition.
Technical Analysis can be dened as an art and science of forecasting future prices
based on an examination of the past price movements. Technical analysis is not astrology
for predicting prices. Technical analysis is based on analyzing current demand-supply of
commodities, stocks, indices, futures or any tradable instrument. Technical analysis
involve putting stock information like prices, volumes and open interest on a chart and
applying various patterns and indicators to it in order to assess the future price
movements. The time frame in which technical analysis is applied may range from
intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily,
weekly or monthly price data too many years.
There are essentially two methods of analyzing investment opportunities in the
security market viz fundamental analysis and technical analysis. You can use fundamental
information like nancial and non -nancial aspects of the company or technical
information which ignores fundamentals and focuses on actual price movements.
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The basis of Technical Analysis

What makes Technical Analysis an effective tool to analyze price behavior is explained by
following theories given by Charles Dow:
Price discounts everything

Price movements are not totally random
What is more important than why
Price discounts everything
Each price represents a momentary consensus of value of all market participants
large commercial interests and small speculators, fundamental researchers, technicians
and gamblers- at the moment of transaction Dr Alexander Elder
Technical analysts believe that the current price fully reects all the possible
material information which could affect the price. The market price reects the sum
knowledge of all participants, including traders, investors, portfolio managers, buy-side
analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and
many others. It would be folly to disagree with the price set by such an impressive array
of people with impeccable credentials. Technical analysis looks at the price and what it
has done in the past and assumes it will perform similarly in future under similar
circumstances. Technical analysis looks at the price and assumes that it will perform in the
same way as done in the past under similar circumstances in future.
Price movements are not totally random
Technical analysis is a trend following system. Most technicians acknowledge that
hundreds of years of price charts have shown us one basic truth prices move in trends. If
prices were always random, it would be extremely difficult to make money using
technical analysis. A technician believes that it is possible to identify a trend, invest or
trade based on the trend and make money as the trend unfolds. Because technical analysis
can be applied to many different time frames, it is possible to spot both short-term and
long-term trends.
What is more important than Why?
It is said that A technical analyst knows the price of everything, but the value of
nothing. Technical analysts are mainly concerned with two things:
1. The current price
2. The history of the price movement
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Technical analysis represents a direct approach. The price is the nal result of the
ght between the forces of supply and demand for any tradable instrument. The objective
of analysis is to forecast the direction of the future price. Fundamentalists are concerned
with why the price is what it is. For technicians, the why portion of the equation is too
broad and many times the fundamental reasons given are highly suspect. Technicians
believe it is best to concentrate on what and never mind why. Why did the price go up? It
is simple, more buyers (demand) than sellers (supply). The principles of technical analysis
are universally applicable. The principles of support, resistance, trend, trading range and
other aspects can be applied to any chart. Technical analysis can be used for any time
horizon; for any marketable instrument like stocks, futures and commodities, xedincome securities, forex, etc
Technical Analysis: The basic assumptions
The eld of technical analysis is based on three assumptions:
1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.
1. The market discounts everything
Technical analysis is criticized for considering only prices and ignoring the
fundamental analysis of the company, economy etc. Technical analysis assumes that, at
any given time, a stocks price reects everything that has or could affect the company including fundamental factors. The market is driven by mass psychology and pulses with
the ow of human emotion s. Emotions may respond rapidly to extreme events, but
normally change gradually over time. It is believed that the companys fundamentals,
along with broader economic factors and market psychology, are all priced into the stock,
removing the need to actually consider these factors separately. This only leaves the
analysis of price movement, which technical theory views as a product of the supply and
demand for a particular stock in the market.
2. Price moves in trends
Trade with the trend is the basic logic behind technical analysis. Once a trend has
been established, the future price movement is more likely to be in the same direction as
the trend than to be against it. Technical analysts frame strategies based on this
assumption only.
3. History tends to repeat itself
People have been using charts and patterns for several decades to demonstrate
patterns in price movements that often repeat themselves. The repetitive nature of price
movements is attributed to market psychology; in other words, market participants tend
to provide a consistent reaction to similar market stimuli over time. Technical analysis
uses chart patterns to analyze market movements and understand trends.
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Strengths of Technical Analysis

Not Just for stocks
Technical analysis has universal applicability. It can be applied to any nancial
instrument - stocks, futures and commodities, xed-income securities, forex, etc
Focus on price
Fundamental developments are followed by price movements. By focusing only on
price action, technicians focus on the future. The price pattern is considered as a leading
indicator and generally leads the economy by 6 to 9 months. To track the market, it makes
sense to look directly at the price movements. More often than not, change is a subtle
beast. Even though the market is prone to sudden unexpected reactions, hints usually
develop before signicant movements. You should refer to periods of accumulation as
evidence of an impending advance and periods of distribution as evidence of an
impending decline.
Supply, demand, and price action
Technicians make use of high, low and closing prices to analyze the price action of
a stock. A good analysis can be made only when all the above information is present
Separately, these will not be able to tell much. However, taken together, the open, high,
low and close reect forces of supply and demand.
Support and resistance
Charting is a technique used in analysis of support and resistance level. These are
trading range in which the prices move for an extended period of time, saying that forces
of demand and supply are deadlocked. When prices move out of the trading range, it
signals that either supply or demand has started to get the upper hand. If prices move
above the upper band of the trading range, then demand is winning. If prices move below
the lower band, then supply is winning.
Pictorial price history
A price chart offers most valuable information that facilitates reading historical
account of a securitys price movement over a period of time. Charts are much easier to
read than a table of numbers. On most stock charts, volume bars are displayed at the
bottom. With this historical picture, it is easy to identify the following:
Market reactions before and after important events
Past and present volatility
Historical volume or trading levels
Relative strength of the stock versus the index.
Page 24
Assist with entry point

Technical analysis helps in tracking a proper entry point. Fundamental analysis is
used to decide what to buy and technical analysis is used to decide when to buy. Timings
in this context play a very important role in performance. Technical analysis can help spot
demand (support) and supply (resistance) levels as well as breakouts. Checking out for a
breakout above resistance or buying near support levels can improve returns. First of all
you should analyze stocks price history. If a stock selected by you was great for the last
three years has traded at for those three years, it would appear that market has a
different opinion. If a stock has already advanced signicantly, it may be prudent to wait
for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest
and a trend reversal.
Weaknesses of Technical Analysis
Analyst bias
Technical analysis is not hard core science. It is subjective in nature and your
personal biases can be reected in the analysis. It is important to be aware of these biases
when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will
overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal bear,
then the analysis will probably have a bearish tilt.
Open to interpretation
Technical analysis is a combination of science and art and is always open to
interpretation. Even though there are standards, many times two technicians will look at
the same chart and paint two different scenarios or see different patterns. Both will be able
to come up with logical support and resistance levels as well as key breaks to justify their
position. Is the cup half-empty or half-full? It is in the eye of the beholder.
Too late
You can criticize the technical analysis for being too late. By the time the trend is
identied, a substantial move has already taken place. After such a large move, the
reward to risk ratio is not great. Lateness is a particular criticism of Dow Theory.
Always another level
Technical analysts always wait for another new level. Even after a new trend has been
identied, there is always another important level close at hand. Technicians have been
accused of sitting on the fence and never taking an unqualied stance. Even if they are
bullish, there is always some indicator or some level that will qualify their opinion.
Portfolio analysis
Portfolio is a group of financial assets such as shares, stocks, bonds, debt
instruments, mutual funds, cash equivalents, etc. A portfolio is planned to stabilize the
Page 25
risk of non-performance of various pools of investment. Portfolio Management guides the

investor in a method of selecting the best available securities that will provide the
expected rate of return for any given degree of risk and also to mitigate (reduce) the risks.
It is a strategic decision which is addressed by the top-level managers.
Modern Portfolio Theory

Modern portfolio theory (MPT) is a theory of finance that attempts to maximize
portfolio expected return for a given amount of portfolio risk, or equivalently minimize
risk for a given level of expected return, by carefully choosing the proportions of various
assets. MPT is a mathematical formulation of the concept of diversification in investing,
with the aim of selecting a collection of investment assets that has collectively lower risk
than any individual asset. This is possible, intuitively speaking, because different types of
assets often change in value in opposite ways. For example, to the extent prices in the
stock market move differently from prices in the bond market, a collection of both types of
assets can in theory face lower overall risk than either individually. But diversification
lowers risk even if assets' returns are not negatively correlatedindeed, even if they are
positively correlated.
More technically, MPT models an asset's return as a normally distributed function
(or more generally as an elliptically distributed random variable), defines risk as the
standard deviation of return, and models a portfolio as a weighted combination of assets,
so that the return of a portfolio is the weighted combination of the assets' returns. By
combining different assets whose returns are not perfectly positively correlated, MPT
seeks to reduce the total variance of the portfolio return. MPT also assumes that investors
are rational and markets are efficient.
MPT was developed in the 1950s through the early 1970s and was considered an
important advance in the mathematical modeling of finance. Since then, some theoretical
and practical criticisms have been leveled against it. These include evidence that financial
returns do not follow a Gaussian distribution or indeed any symmetric distribution, and
that correlations between asset classes are not fixed but can vary depending on external
events (especially in crises). Further, there remains evidence that investors are not rational
and markets may not be efficient. Finally, the low volatility anomaly conflicts with
CAPM's trade-off assumption of higher risk for higher return. It states that a portfolio
consisting of low volatility equities (like blue chip stocks) reaps higher risk-adjusted
returns than a portfolio with high volatility equities (like illiquid penny stocks). A study
conducted by Myron Scholes, Michael Jenson, and Fischer Black in 1972 suggests that the
relationship between return and beta might be flat or even negatively correlated
Page 26
CHAPTER2
MONEY MARKET
The development of trade, commerce and industry depends upon a wellorganized money market. The industrial progress of a country is determined by the
availability of adequate finance. The introduction of division of labour is very
advantageous for industries, and as Adam Smith pointed out, the progress of division of
labour in industries is limited by the amount of capital available. The present industrial
position of England, America and other Western countries has been achieved to a very
great extent by the development of well-organized money and capital markets. Modern
industrial .structure and organization have become very complex and necessitate highly developed money markets. They have been facilitated by and in turn have facilitated the
growth of highly- organized money markets.
Credit plays a very fundamental part in the scheme of industrial production.
Businesses cannot be carried on a cash basis alone and credit has become highly
indispensable. A highly developed and organized credit system is possible only in a well developed money market.
Money market, therefore, means all the operations which centre around the
commodity money. Thus it refers to those institutions which deal in the borrowing and
lending of money. Such institutions are banks of various kinds, discount houses and
individuals who deal in the operations connected with money.
The main function of the money market is to supply the producers with the
necessary amount of cash and credit for transacting business. There are people who save
money, but they cannot use it in business. There are others who possess the necessary
business acumen, skill and talent but lack in money. Both these classes of persons are
brought into touch with one another by the help of a well-organized money market. It
attracts capital from those persons or institutions which save it and puts it into the hands
of those who are able to make a good use of it. In Western countries which are industrially
well-developed, another function of the money market is the. supply of efficient currency
so as to secure the relative stability in the purchasing power of money or in the level of
prices. This latter function is not clearly grasped by people and. by those in charge of the
credit policy of a country. This lack of understanding of a proper regulation of efficient
currency has been the main cause of the currency disturbances which modern society
knows to its cost. There can be no greater service rendered to the cause of economic
stability than to understand and explain the forces governing the supply of an efficient
system of currency and credit in a country. By a wrong credit and currency policy the
whole mechanism of the money market is disorganized and the result is a very great setback to business and production.
Page 27
Credit plays a very important part in money markets. The most important
elements of credit are confidence, amount and time. Credit system implies the transfer of
goods from one person to another, the payment for which may be post- poned to be made
in future, and it also indicates the loan of money for a certain period of time. The most
important media of credit are bank notes, Government promissory notes, bills of
exchange, cheques, promissory notes of individuals,, Hundis, etc. A study of the money
market of a country involves the study of all the operations connected with the creation
and supply of such credit instruments.
The main functions of credit are to save the use of metallic money, to finance the
producer who is engaged in the production of goods in anticipation of demand, to permit
the collection of a multitude of small amounts into banks and to minimize price
fluctuations. All these operations are essentially connected with the organization of
money markets.
A well- developed credit system and money market are complementary. "A fully
coordinated system of credit possessing different types of complementary institutions can
never exist without its indispensable concomitant, a well-developed and reasonably
planned money market. The development of the one leads to the perfection of the other
and vice versa. The money market is the groundwork of the country's national finance
whose main flexibility depends on a fine division of labour and capacity for adjustment to
changing conditions of society
Meaning of money market

A money market is a market for borrowing and lending of short-term funds. It deals
in funds and financial instruments having a maturity period of one day to one year. It is a
mechanism through which short-term funds are loaned or borrowed and through which a
large part of financial transactions of a particular country or of the world are cleared.
It is different from stock market. It is not a single market but a collection of markets
for several instruments like call money market, Commercial bill market etc. The Reserve
Bank of India is the most important constituent of Indian money market. Thus RBI
describes money market as the centre for dealings, mainly of a short-term character, in
monetary assets, it meets the short-term requirements of borrowers and provides liquidity
or cash to lenders.
FUNCTIONS OF MONEY MARKET
1) It caters to the short-term financial needs of the economy.
2) It helps the RBI in effective implementation of monetary policy.
3) It provides mechanism to achieve equilibrium between demand and supply of shortterm funds.
4) It helps in allocation of short term funds through inter-bank transactions and money
market Instruments.
Page 28
5) It also provides funds in non-inflationary way to the government to meet its deficits.
6) It facilitates economic development.
PLAYERS OF MONEY MARKET
In money market transactions of large amount and high volume take place. It is
dominated by small number of large players. In money market the players are :Government, RBI, DFHI (Discount and finance House of India) Banks, Mutual Funds,
Corporate Investors, Provident Funds, PSUs (Public Sector Undertakings), NBFCs (NonBanking Finance Companies) etc.
Structure of Indian money market

The Money market in India is the money market for short-term and long-term
funds with maturity ranging from overnight to one year in India including financial
instruments that are deemed to be close substitutes of money. Similar to developed
economies the Indian money market is diversified and has evolved through many stages,
from the conventional platform of treasury bills and call money to commercial
paper, certificates of deposit, repos, forward rate agreements and most recently interest
rate swaps
The Indian money market consists of diverse sub-markets, each dealing in a
particular type of short-term credit. The money market fulfills the borrowing and
investment requirements of providers and users of short-term funds, and balances the
demand for and supply of short-term funds by providing an equilibrium mechanism. It
also serves as a focal point for the central bank's intervention in the market.
STRUCTURE OF INDIAN MONEY MARKET
Organized Sector
Unorganized Sector
Call and Notice Money Market Indigenous Bankers

Treasury Bill Market
Lenders
Commercial Bills
Money
NBFI
Certificate of Deposits
Commercial Papers
Money Market Mutual Funds
The REPO Market
DFHI
Page 29
Organized Sector Of Money Market

Organized Money Market is not a single market, it consist of number of markets. The
most important feature of money market instrument is that it is liquid. It is characterized
by high degree of safety of principal. Following are the instruments which are traded in
money market
1)
Call and Notice Money Market
The market for extremely short-period is referred as call money market. Under call
money market, funds are transacted on overnight basis. The participants are mostly
banks. Therefore it is also called Inter-Bank Money Market. Under notice money market
funds are transacted for 2 days and 14 days period. The lender issues a notice to the
borrower 2 to 3 days before the funds are to be paid. On receipt of notice, borrower have
to repay the funds.
In this market the rate at which funds are borrowed and lent is called the call money
rate. The call money rate is determined by demand and supply of short term funds. In call
money market the main participants are commercial banks, co-operative banks and
primary dealers. They participate as borrowers and lenders. Discount and Finance House
of India (DFHI), Non-banking financial institutions like LIC, GIC, UTI, NABARD etc. are
allowed to participate in call money market as lenders.
Call money markets are located in big commercial centres like Mumbai, Kolkata,
Chennai, Delhi etc. Call money market is the indicator of liquidity position of money
market. RBI intervenes in call money market as there is close link between the call money
market and other segments of money market.
2)
Treasury Bill Market (T - Bills)
This market deals in Treasury Bills of short term duration issued by RBI on behalf of
Government of India. At present three types of treasury bills are issued through auctions,
namely 91 day, 182 day and364day treasury bills. State government does not issue any
treasury bills. Interest is determined by market forces. Treasury bills are available for a
minimum amount of Rs. 25,000 and in multiples of Rs. 25,000. Periodic auctions are held
for their Issue.
T-bills are highly liquid, readily available; there is absence of risk of default. In India
T-bills have narrow market and are undeveloped. Commercial Banks, Primary Dealers,
Mutual Funds, Corporates, Financial Institutions, Provident or Pension Funds and
Insurance Companies can participate in T-bills market.
3)
Commercial Bills
Commercial bills are short term, negotiable and self liquidating money market
instruments with low risk. A bill of exchange is drawn by a seller on the buyer to make
payment within a certain period of time. Generally, the maturity period is of three
Page 30
months. Commercial bill can be resold a number of times during the usance period of bill.
The commercial bills are purchased and discounted by commercial banks and are
rediscounted by financial institutions like EXIM banks, SIDBI, IDBI etc.
In India, the commercial bill market is very much underdeveloped. RBI is trying to
develop the bill market in our country. RBI have introduced an innovative instrument
known as Derivative .Usance Promissory Notes, with a view to eliminate movement of
papers and to facilitate multiple rediscounting.
4)
Certificate of Deposits (CDs)
CDs are issued by Commercial banks and development financial institutions. CDs are
unsecured, negotiable promissory notes issued at a discount to the face value. The scheme
of CDs was introduced in 1989 by RBI. The main purpose was to enable the commercial
banks to raise funds from market. At present, the maturity period of CDs ranges from 3
months to 1 year. They are issued in multiples of Rs. 25 lakh subject to a minimum size of
Rs. 1 crore. CDs can be issued at discount to face value. They are freely transferable but
only after the lock-in-period of 45 days after the date of issue.
In India the size of CDs market is quite small.
In 1992, RBI allowed four financial institutions ICICI, IDBI, IFCI and IRBI to issue
CDs with a maturity period of. One year to three years.
5)
Commercial Papers (CP)
Commercial Papers were introduced in January 1990. The Commercial Papers can be
issued by listed company which has working capital of not less than Rs. 5 crores. They
could be issued in multiple of Rs. 25 lakhs. The minimum size of issue being Rs. 1 crore.
At present the maturity period of CPs ranges between 7 days to 1 year. CPs are issued at a
discount to its face value and redeemed at its face value.
6)
Money Market Mutual Funds (MMMFs)
A Scheme of MMMFs was introduced by RBI in 1992. The goal was to provide an
additional short-term avenue to individual investors. In November 1995 RBI made the
scheme more flexible. The existing guidelines allow banks, public financial institutions
and also private sector institutions to set up MMMFs. The ceiling of Rs. 50 crores on the
size of MMMFs stipulated earlier, has been withdrawn. MMMFs are allowed to issue
units to corporate enterprises and others on par with other mutual funds. Resources
mobilized by MMMFs are now required to be invested in call money, CD, CPs,
Commercial Bills arising out of genuine trade transactions, treasury bills and government
dated securities having an unexpired maturity up to one year. Since March 7, 2000
MMMFs have been brought under the purview of SEBI regulations. At present there are 3
MMMFs in operation.
Page 31
7)
The Repo Market
Repo was introduced in December 1992. Repo is a repurchase agreement. It means

selling a security under an agreement to repurchase it at a predetermined date and rate.
Repo transactions are affected between banks and financial institutions and among bank
themselves, RBI also undertake Repo.
In November 1996, RBI introduced Reverse Repo. It means buying a security on a
spot basis with a commitment to resell on a forward basis. Reverse Repo transactions are
affected with scheduled commercial banks and primary dealers.
In March 2003, to broaden the Repo market, RBI allowed NBFCs, Mutual Funds,
Housing Finance and Companies and Insurance Companies to undertake REPO
transactions.
8)
Discount and Finance House of India (DFHI)
In 1988, DFHI was set up by RBI. It is jointly owned by RBI, public sector banks and
all India financial institutions which have contributed to its paid up capital. It is playing
an important role in developing an active secondary market in Money Market
Instruments. In February 1996, it was accredited as a Primary Dealer (PD). The DFHI deals
in treasury bills, commercial bills, CDs, CPs, short term deposits, call money market and
government securities.
Unorganized Sector Of Money Market:The economy on one hand performs through organized sector and on other hand in
rural areas there is continuance of unorganized, informal and indigenous sector. The
unorganized money market mostly finances short-term financial needs of farmers and
small businessmen. The main constituents of unorganized money market are
1)
Indigenous Bankers (IBs)
Indigenous bankers are individuals or private firms who receive deposits and give
loans and thereby operate as banks. IBs accept deposits as well as lend money. They
mostly operate in urban areas, especially in western and southern regions of the country.
The volume of their credit operations is however not known. Further their lending
operations are completely unsupervised and unregulated. Over the years, the significance
of IBs has declined due to growing organized banking sector.
2)
Money Lenders (MLs)
They are those whose primary business is money lending. Money lending in India is
very popular both in urban and rural areas. Interest rates are generally high. Large
amount of loans are given for unproductive purposes. The operations of money lenders
are prompt, informal and flexible. The borrowers are mostly poor farmers, artisans, petty
traders and manual workers. Over the years the role of money lenders has declined due to
the growing importance of organized banking sector.
Page 32
3)
Non - Banking Financial Companies (NBFCs)

They consist of
1.
Chit Funds
Chit funds are savings institutions. It has regular members who make periodic
subscriptions to the fund. The beneficiary may be selected by drawing of lots. Chit fund is
more popular in Kerala and Tamilnadu. RBI has no control over the lending activities of
chit funds.
2.
Nidhis
Nidhis operate as a kind of mutual benefit for their members only. The loans are
given to members at a reasonable rate of interest. Nidhis operate particularly in South
India.
3.
Loan or Finance Companies
Loan companies are found in all parts of the country. Their total capital consists of
borrowings, deposits and owned funds. They give loans to retailers, wholesalers, artisans
and self employed persons. They offer a high rate of interest along with other incentives to
attract deposits. They charge high rate of interest varying from 36% to 48% p.a.
4.
Finance Brokers
They are found in all major urban markets especially in cloth, grain and commodity
markets. They act as middlemen between lenders and borrowers. They charge
commission for their services.
Money Market Instruments
Investment in money market is done through money market instruments. Money
market instrument meets short term requirements of the borrowers and provides liquidity
to the lenders. Common Money Market Instruments are as follows:
Treasury Bills (T-Bills):
Treasury Bills, one of the safest money market instruments, are short term
borrowing instruments of the Central Government of the Country issued through the
Central Bank (RBI in India). They are zero risk instruments, and hence the returns are not
so attractive. It is available both in primary market as well as secondary market. It is a
promise to pay a said sum after a specified period. T-bills are short-term securities that
mature in one year or less from their issue date. They are issued with three-month, sixmonth and one-year maturity periods. The Central Government issues T- Bills at a price
less than their face value (par value). They are issued with a promise to pay full face value
on maturity. So, when the T-Bills mature, the government pays the holder its face value.
The difference between the purchase price and the maturity value is the interest income
earned by the purchaser of the instrument. T-Bills are issued through a bidding process at
Page 33
auctions. The bid can be prepared either competitively or non-competitively. In the

second type of bidding, return required is not specified and the one determined at the
auction is received on maturity. Whereas, in case of competitive bidding, the return
required on maturity is specified in the bid. In case the return specified is too high then
the T-Bill might not be issued to the bidder. At present, the Government of India issues
three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There
are no treasury bills issued by State Governments. Treasury bills are available for a
minimum amount of Rs.25K and in its multiples. While 91-day T-bills are auctioned every
week on Wednesdays, 182-day and 364- day T-bills are auctioned every alternate week on
Wednesdays. The Reserve Bank of India issues a quarterly calendar of T-bill auctions
which is available at the Banks website. It also announces the exact dates of auction, the
amount to be auctioned and payment dates by issuing press releases prior to every
auction. Payment by allottees at the auction is required to be made by debit to their/
custodians current account. T-bills auctions are held on the Negotiated Dealing System
(NDS) and the members electronically submit their bids on the system. NDS is an
electronic platform for facilitating dealing in Government Securities and Money Market
Instruments. RBI issues these instruments to absorb liquidity from the market by
contracting the money supply. In banking terms, this is called Reverse Repurchase
(Reverse Repo). On the other hand, when RBI purchases back these instruments at a
specified date mentioned at the time of transaction, liquidity is infused in the market. This
is called Repo (Repurchase) transaction.
Repurchase Agreements
Repurchase transactions, called Repo or Reverse Repo are transactions or short term
loans in which two parties agree to sell and repurchase the same security. They are
usually used for overnight borrowing. Repo/Reverse Repo transactions can be done only
between the parties approved by RBI and in RBI approved securities viz. GOI and State
Govt Securities, T-Bills, PSU Bonds, FI Bonds, Corporate Bonds etc. Under repurchase
agreement the seller sells specified securities with an agreement to repurchase the same at
a mutually decided future date and price. Similarly, the buyer purchases the securities
with an agreement to resell the same to the seller on an agreed date at a predetermined
price. Such a transaction is called a Repo when viewed from the perspective of the seller
of the securities and Reverse Repo when viewed from the perspective of the buyer of the
securities. Thus, whether a given agreement is termed as a Repo or Reverse Repo depends
on which party initiated the transaction. The lender or buyer in a Repo is entitled to
receive compensation for use of funds provided to the counterparty. Effectively the seller
of the security borrows money for a period of time (Repo period) at a particular rate of
interest mutually agreed with the buyer of the security who has lent the funds to the
seller. The rate of interest agreed upon is called the Repo rate. The Repo rate is negotiated
by the counterparties independently of the coupon rate or rates of the underlying
securities and is influenced by overall money market conditions.
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Commercial Papers
Commercial paper is a low-cost alternative to bank loans. It is a short term
unsecured promissory note issued by corporates and financial institutions at a discounted
value on face value. They are usually issued with fixed maturity between one to 270 days
and for financing of accounts receivables, inventories and meeting short term liabilities.
Say, for example, a company has receivables of Rs 1 lacs with credit period 6 months. It
will not be able to liquidate its receivables before 6 months. The company is in need of
funds. It can issue commercial papers in form of unsecured promissory notes at discount
of 10% on face value of Rs 1 lacs to be matured after 6 months. The company has strong
credit rating and finds buyers easily. The company is able to liquidate its receivables
immediately and the buyer is able to earn interest of Rs 10K over a period of 6 months.
They yield higher returns as compared to T-Bills as they are less secure in comparison to
these bills; however chances of default are almost negligible but are not zero risk
instruments. Commercial paper being an instrument not backed by any collateral, only
firms with high quality credit ratings will find buyers easily without offering any
substantial discounts. They are issued by corporates to impart flexibility in raising
working capital resources at market determined rates. Commercial Papers are actively
traded in the secondary market since they are issued in the form of promissory notes and
are freely transferable in demat form.
Certificate of Deposit
It is a short term borrowing more like a bank term deposit account. It is a
promissory note issued by a bank in form of a certificate entitling the bearer to receive
interest. The certificate bears the maturity date, the fixed rate of interest and the value. It
can be issued in any denomination. They are stamped and transferred by endorsement. Its
term generally ranges from three months to five years and restricts the holders to
withdraw funds on demand. However, on payment of certain penalty the money can be
withdrawn on demand also. The returns on certificate of deposits are higher than T-Bills
because it assumes higher level of risk. While buying Certificate of Deposit, return method
should be seen. Returns can be based on Annual Percentage Yield (APY) or Annual
Percentage Rate (APR). In APY, interest earned is based on compounded interest
calculation. However, in APR method, simple interest calculation is done to generate the
return. Accordingly, if the interest is paid annually, equal return is generated by both APY
and APR methods. However, if interest is paid more than once in a year, it is beneficial to
opt APY over APR.
Bankers Acceptance
It is a short term credit investment created by a non financial firm and guaranteed
by a bank to make payment. It is simply a bill of exchange drawn by a person and
accepted by a bank. It is a buyers promise to pay to the seller a certain specified amount
at certain date. The same is guaranteed by the banker of the buyer in exchange for a claim
on the goods as collateral. The person drawing the bill must have a good credit rating
otherwise the Bankers Acceptance will not be tradable. The most common term for these
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instruments is 90 days. However, they can vary from 30 days to180 days. For
corporations, it acts as a negotiable time draft for financing imports, exports and other
transactions in goods and is highly useful when the credit worthiness of the foreign trade
party is unknown. The seller need not hold it until maturity and can sell off the same in
secondary market at discount from the face value to liquidate its receivables
Deficiencies of Indian money market

Indian money market is relatively underdeveloped when compared with advanced
markets like New York and London Money Markets. Its' main features / defects are as
follows
1. Dichotomy
A major feature of Indian Money Market is the existence of dichotomy i.e. existence
of two markets: -Organized Money Market and Unorganized Money Market. Organized
Sector consist of RBI, Commercial Banks, Financial Institutions etc. The Unorganized
Sector consist of IBs, MLs, Chit Funds, Nidhis etc. It is difficult for RBI to integrate the
Organized and Unorganized Money Markets. Several segments are loosely connected
with each other. Thus there is dichotomy in Indian Money Market.
2. Lack of Co-ordination and Integration
It is difficult for RBI to integrate the organized and unorganized sector of money
market. RBT is fully effective in organized sector but unorganized market is out of RBIs
control. Thus there is lack of integration between various sub-markets as well as various
institutions and agencies. There is less co-ordination between co-operative and
commercial banks as well as State and Foreign banks. The indigenous bankers have their
own ways of doing business.
3. Diversity in Interest Rates
There are different rates of interest existing in different segments of money market. In
rural unorganized sectors the rate of interest are high and they differ with the purpose
and borrower. There are differences in the interest rates within the organized sector also.
Although wide differences have been narrowed down, yet the existing differences do
hamper the efficiency of money market.
4. Seasonality of Money Market
Indian agriculture is busy during the period November to June resulting in heavy
demand for funds. During this period money market suffers from Monetary Shortage
resulting in high rate of interest. During slack season rate of interest falls &s there are
plenty of funds available. RBI has taken steps to reduce the seasonal fluctuations, but still
the variations exist.
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5. Shortage of Funds
In Indian Money Market demand for funds exceeds the supply. There is shortage of
funds in Indian Money Market an account of various factors like inadequate banking
facilities, low savings, lack of banking habits, existence of parallel economy etc. There is
also vast amount of black money in the country which has caused shortage of funds.
However, in recent years development of banking has improved the mobilization of funds
to some extent.
6. Absence of Organized Bill Market
A bill market refers to a mechanism where bills of exchange are purchased and
discounted by banks in India. A bill market provides short term funds to businessmen.
The bill market in India is not popular due to overdependence of cash transactions, high
discounting rates, problem of dishonour of bills etc.
7. Inadequate Banking Facilities
Though the commercial banks, have been opened on a large scale, yet banking
facilities are inadequate in our country. The rural areas are not covered due to poverty.
Their savings are very small and mobilization of small savings is difficult. The
involvement of banking system in different scams and the failure of RBI to prevent these
abuses of banking system shows that Indian banking system is not yet a well organized
sector.
8. Inefficient and Corrupt Management
One of the major problems of Indian Money Market is its inefficient and corrupt
management. Inefficiency is due to faulty selection, lack of training, poor performance
appraisal, faulty promotions etc. For the growth and success of money market, there is
need for well trained and dedicated workforce in banks. However, in India some of the
bank officials are inefficient and corrupt.
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CHAPTER 3
CAPITAL MARKET
Introduction to capital Market
Capital is a crucial factor in the development of an economy. The pace of economic
development is conditioned, among other things, by the rate of capital formation. And
capital formation is conditioned by the mobilisation and channelization of investible
funds. The role of the financial system is to channel funds from surplus sectors to deficit
sectors. Facilitating such flows on a national level increases the level of investment and
effective demand and thus accelerates economic development. Capital market
development has been closely related to an economy's overall development. At low levels
of development, commercial banks tend to dominate the financial system. As an economy
develops, the indirect lending by savers to investors tend to become more efficient. As
economy grows further, specialialised financial intermediaries and securities markets
develop. As securities markets mature, investors, especially individual investors, can
invest their funds directly in financial assets issued by firms.
Meaning of capital market

Capital markets are the financial markets in which corporate equity and long term
debt are issued and traded. Capital market works as a conduit for demand and supply of
long term debt and equity capital. Capital Markets are the means through which small
and scattered savings of the investors are directed into productive activities of corporate
entities. Capital markets are financial markets for the buying and selling of longterm debt- or equity-backed securities. These markets channel the wealth of savers to
those who can put it to long-term productive use, such as companies or governments
making long-term investments.
Capital markets typically involve issuing instruments such as stocks and bonds for
the medium-term and long-term. In this respect, capital markets are distinct from money
markets, which refer to markets for financial instruments with maturities not exceeding
one year.
Capital markets have numerous participants including individual investors,
institutional investors such as pension funds and mutual funds, municipalities and
governments, companies and organizations and banks and financial institutions.
Suppliers of capital generally want the maximum possible return at the lowest possible
risk, while users of capital want to raise capital at the minimum possible cost.
The size of a nations capital markets is directly proportional to the size of its
economy. The United States, the worlds largest economy, has the biggest and deepest
capital markets. Capital markets are increasingly interconnected in a globalized economy,
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which means that ripples in one corner can cause major waves elsewhere. The drawback
of this interconnection is best illustrated by the global credit crisis of 2007-09, which was
triggered by the collapse in U.S. mortgage-backed securities. The effects of this meltdown
were globally transmitted by capital markets since banks and institutions in Europe and
Asia held trillions of dollars of these securities.
Capital market structure in India

Capital market in India structured in following ways
Capital market
Gild Edged
Market
a)
Industrial
Securities
Market
Development
Financial
Institutions (DFIs)
Financial
intermediaries
Gilt - Edged Market:Gilt - Edged market refers to the market for government and semi-government
securities, which carry fixed rates of interest. RBI plays an important role in this market.
b)
Industrial Securities Market:It deals with equities and debentures in which shares and debentures of existing
companies are traded and shares and debentures of new companies are bought and
sold.
c)
Development Financial Institutions:Development financial institutions were set up to meet the medium and long-term
requirements of industry, trade and agriculture. These are IFCI, ICICI, IDBI, SIDBI,
IRBI, UTI, LIC, GIC etc. All These institutions have been called Public Sector Financial
Institutions.
d)
Financial Intermediaries:Financial Intermediaries include merchant banks, Mutual Fund, Leasing companies etc.
they help in mobilizing savings and supplying funds to capital market.
Functions of capital market in India.

Capital market has a crucial significance to capital formation. For a speedy economic
development adequate capital formation is necessary. The significance of capital market in
economic development is explained below:Investment Management
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1.
Mobilization Of Savings And Acceleration Of Capital Formation
In developing countries like India the importance of capital market is self evident.
In this market, various types of securities help to mobilize savings from various sectors of
population. The twin features of reasonable return and liquidity in stock exchange are
definite incentives to the people to invest in securities. This accelerates the capital
formation in the country.
2. Raising Long - Term Capital
The existence of a stock exchange enables companies to raise permanent capital.
The investors cannot commit their funds for a permanent period but companies require
funds permanently. The stock exchange resolves this dash of interests by offering an
opportunity to investors to buy or sell their securities, while permanent capital with the
company remains unaffected.
3.
Promotion Of Industrial Growth
The stock exchange is a central market through which resources are transferred to
the industrial sector of the economy. The existence of such an institution encourages
people to invest in productive channels. Thus it stimulates industrial growth and
economic development of the country by mobilizing funds for investment in the corporate
securities.
4.
Ready And Continuous Market
The stock exchange provides a central convenient place where buyers and sellers
can easily purchase and sell securities. Easy marketability makes investment in securities
more liquid as compared to other assets.
5.
Technical Assistance
An important shortage faced by entrepreneurs in developing countries is technical

assistance. By offering advisory services relating to preparation of feasibility reports,
identifying growth potential and training entrepreneurs in project management, the
financial intermediaries in capital market play an important role.
6.
Reliable Guide To Performance
The capital market serves as a reliable guide to the performance and financial
position of corporates, and thereby promotes efficiency.
7.
Proper Channelization Of Funds
The prevailing market price of a security and relative yield are the guiding factors
for the people to channelize their funds in a particular company. This ensures effective
utilisation of funds in the public interest.
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8.
Provision Of Variety Of Services
The financial institutions functioning in the capital market provide a variety of

services such as grant of long term and medium term loans to entrepreneurs, provision of
underwriting facilities, assistance in promotion of companies, participation in equity
capital, giving expert advice etc.
9.
Development Of Backward Areas
Capital Markets provide funds for projects in backward areas. This facilitates
economic development of backward areas. Long term funds are also provided for
development projects in backward and rural areas.
10.
Foreign Capital
Capital markets makes possible to generate foreign capital. Indian firms are able to
generate capital funds from overseas markets by way of bonds and other securities.
Government has liberalised Foreign Direct Investment (FDI) in the country. This not only
brings in foreign capital but also foreign technology which is important for economic
development of the country.
11.
Easy Liquidity
With the help of secondary market investors can sell off their holdings and convert
them into liquid cash. Commercial banks also allow investors to withdraw their deposits,
as and when they are in need of funds.
12.
Revival Of Sick Units
The Commercial and Financial Institutions provide timely financial assistance to

viable sick units to overcome their industrial sickness. To help the weak units to overcome
their financial industrial sickness banks and FIs may write off a part of their loan.
Segments of Securities Market

The securities market has two interdependent segments: the primary (new issues)
market and the secondary market. The primary market provides the channel for sale of
new securities while the secondary market deals in securities previously issued.
Primary Market
The primary market provides the channel for sale of new securities. Primary
market provides opportunity to issuers of securities; Government as well as corporates, to
raise resources to meet their requirements of investment and/or discharge some
obligation. They may issue the securities at face value, or at a discount/premium and
these securities may take a variety of forms such as equity, debt etc. They may issue the
securities in domestic market and/or international market.
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Secondary market
Secondary market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange. Majority
of the trading is done in the secondary market. Secondary market comprises of equity
markets and the debt markets. For the general investor, the secondary market provides an
efficient platform for trading of his securities. For the management of the company,
Secondary equity markets serve as a monitoring and control activityby facilitating
value-enhancing control activities, enabling implementation of incentive-based
management contracts, and aggregating information (via price discovery) that guides
management decisions.
Different kinds of issues

Primarily, issues can be classified as a Public, Rights or Preferential issues (also
known as private placements). While public and rights issues involve a detailed
procedure, private placements or preferential issues are relatively simpler. The
classification of issues is illustrated below:
Initial Public Offering (IPO)
When an unlisted company makes either a fresh issue of securities or an offer for
sale of its existing securities or both for the first time to the public. This paves way for
listing and trading of the issuers securities.
A follow on public offer
When an already listed company makes either a fresh issue of securities to the
public or an offer for sale to the public, through an offer document.
Rights Issue
It is when a listed company which proposes to issue fresh securities to its existing
shareholders as on a record date. The rights are normally offered in a particular ratio to
the number of securities held prior to the issue. This route is best suited for companies
who would like to raise capital without diluting stake of its existing shareholders.
A Preferential issue
It is an issue of shares or of convertible securities by listed companies to a select
group of persons under Section 81 of the Companies Act, 1956 which is neither a rights
issue nor a public issue. This is a faster way for a company to raise equity capital.
Initial Public Offer (IPO)
An Initial Public Offer (IPO) is the selling of securities to the public in the primary
market. It is when an unlisted company makes either a fresh issue of securities or an offer
for sale of its existing securities or both for the first time to the public. This paves way for
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listing and trading of the issuers securities. The sale of securities can be either through
book building or through normal public issue.
Difference between money market and capital market

Money Market
Capital Market
Definition
Is a component of the financial markets

where short-term borrowing takes place
Is a component of financial
markets where long-term
borrowing takes place
Maturity
Period
Lasts anywhere from 1 hour to 90 days.
Lasts for more than one year

and can also include lifetime of a company.
Credit
Instruments
Certificate of deposit, Repurchase

agreements, Commercial paper, Eurodollar
deposit, Federal funds, Municipal notes,
Treasury bills, Money funds, Foreign
Exchange Swaps, short-lived mortgage and
asset-backed securities.
Stocks, Shares, Debentures,

bonds, Securities of the
Government.
Nature of
Credit
Instruments
Homogenous. A lot of variety causes

problems for investors.
Heterogeneous. A lot of
varieties are required.
Purpose of
Loan
Short-term credit required for small

investments.
Long-term credit required to

establish business, expand
business or purchase fixed
assets.
Basic Role
Liquidity adjustment
Putting capital to work
Institutions
Central banks, Commercial banks,

Acceptance houses, Nonbank financial
institutions, Bill brokers, etc.
Stock exchanges,
Commercial banks and
Nonbank institutions, such
as Insurance Companies,
Mortgage Banks, Building
Societies, etc.
Risk
Risk is small
Risk is greater
Market
Commercial banks are closely regulated to
Institutions are regulated to
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Regulation
prevent occurrence of a liquidity crisis.
keep them from defrauding

customers.
Relation with
Central Bank
Closely related to the central banks of the

country.
Indirectly related with

central banks and feels
fluctuations depending on
the policies of central banks.
Instruments in the Secondary Markets

Following are the main financial products/instruments dealt in the Secondary
market which may be divided broadly into Shares and Bonds:
Shares
Equity Shares
An equity share, commonly referred to as ordinary share, represents the form of
fractional ownership in a business venture.
Rights Issue/ Rights Shares
The issue of new securities to existing shareholders at a ratio to those already held,
at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle a shareholder to receive 2
shares for every 3 shares held at a price of Rs. 125 per share.
Bonus Shares
Shares issued by the companies to their shareholders free of cost based on the
number of shares the shareholder owns.
Preference shares
Owners of these kinds of shares are entitled to a fixed dividend or dividend
calculated at a fixed rate to be paid regularly before dividend can be paid in respect of
equity share. They also enjoy priority over the equity shareholders in payment of surplus.
But in the event of liquidation, their claims rank below the claims of the companys
creditors, bondholders/debenture holders.
Bond
It is a negotiable certificate evidencing indebtedness. It is normally unsecured. A
debt security is generally issued by a company, municipality or government agency. A
bond investor lends money to the issuer and in exchange, the issuer promises to repay the
loan amount on a specified maturity date. The issuer usually pays the bond holder
periodic interest payments over the life of the loan. The various types of Bonds are as
follows:
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Zero Coupon Bond:

Bond issued at a discount and repaid at a face value. No periodic interest is paid.
The difference between the issue price and redemption price represents the return to the
holder. The buyer of these bonds receives only one payment, at the maturity of the bond.
Convertible Bond
A bond giving the investor the option to convert the bond into equity at a fixed
conversion price.
Debenture
A debenture is a document that either creates a debt or acknowledges it, and it is a
debt without collateral. In corporate finance, the term is used for a medium- to long-term
debt instrument used by large companies to borrow money. In some countries the term is
used interchangeably with bond, loan stock or note. A debenture is thus like a certificate
of loan or a loan bond evidencing the fact that the company is liable to pay a specified
amount with interest and although the money raised by the debentures becomes a part of
the company's capital structure, it does not become share.
Debentures are generally freely transferable by the debenture holder. Debenture
holders have no rights to vote in the company's general meetings of shareholders, but they
may have separate meetings or votes e.g. on changes to the rights attached to the
debentures. The interest paid to them is a charge against profit in the company's financial
statements.
There are two types of debentures:
1. Convertible debentures, which are convertible bonds or bonds that can be
converted into equity shares of the issuing company after a predetermined period
of time. "Convertibility" is a feature that corporations may add to the bonds they
issue to make them more attractive to buyers. In other words, it is a special feature
that a corporate bond may carry. As a result of the advantage a buyer gets from the
ability to convert, convertible bonds typically have lower interest rates than nonconvertible corporate bonds.
2. Non-convertible debentures, which are simply regular debentures, cannot be
converted into equity shares of the liable company. They are debentures without
the convertibility feature attached to them. As a result, they usually carry higher
interest rates than their convertible counterparts.
Stock Exchange
A stock exchange is a form of exchange which provides services for stock
brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also
provide facilities for issue and redemption of securities and other financial instruments,
and capital events including the payment of income and dividends. Securities traded on a
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stock exchange include stock issued by companies, unit trusts, derivatives, pooled
investment products and bonds.
To be able to trade a security on a certain stock exchange, it must be listed there.
Usually, there is a central location at least for record keeping, but trade is increasingly less
linked to such a physical place, as modern markets are electronic networks, which gives
them advantages of increased speed and reduced 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 are driven by various factors that, 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.
Role and functions of stock exchange

1. Providing a ready market
The organization of stock exchange provides a ready market to speculators and
investors in industrial enterprises. It thus, enables the public to buy and sell securities
already in issue.
2. Providing a quoting market prices
It makes possible the determination of supply and demand on price. The very
sensitive pricing mechanism and the constant quoting of market price allow
investors to always be aware of values. This enables the production of various
indexes which indicate trends
etc.
3. Providing facilities for working
It provides opportunities to Jobbers and other members to perform their activities
with all their resources in the stock exchange.
4. Safeguarding activities for investors
The stock exchange renders safeguarding activities for investors which enables
them to make a fair judgment of a securities. Therefore directors have to disclose all
material facts to their respective shareholders. Thus innocent investors may be
safeguard from the clever brokers.
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5. Operating a compensation fund

It also operate a compensation fund which is always available to investors suffering
loss due due the speculating dealings in the stock exchange.
6. Creating the discipline
Its members controlled under rigid set of rules designed to protect the general
public and its members. Thus this tendency creates the discipline among its
members in social life also.
[[
7. Checking functions
New securities checked before being approved and admitted to listing. Thus stock
exchange exercises rigid control over the activities of its members.
8. Adjustment of equilibrium
The investors in the stock exchange promote the adjustment of equilibrium of
demand and supply of a particular stock and thus prevent the tendency of
fluctuation in the prices of shares.
9. Maintenance of liquidity
The bank and insurance companies purchase large number of securities from the
stock exchange. These securities are marketable and can be turned into cash at any
time. Therefore banks prefer to keep securities instead of cash in their reserve. Thus
it facilitates the banking system to maintain liquidity by procuring the
marketable securities.
10. Promotion of the habit of saving
Stock exchange provides a place for saving to general public. Thus it creates the
habit of thrift and investment among the public. This habit leads to investment of
funds incorporate or government securities. The funds placed at the disposal of
companies are used by them for productive purposes.
11. Refining and advancing the industry
Stock exchange advances the trade, commerce and industry in the country. It
provides opportunity to capital to flow into the most productive channels. Thus the
flow of capital from unproductive field to productive field helps to refine the large
scale enterprises.
12. Promotion of capital formation
It plays an important part in capital formation in the country. its publicity
regarding various industrial securities makes even disinterested people feel
interested in investment.
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13. Increasing Govt. Funds

The govt. can undertake projects of national importance and social value by raising
funds through sale of its securities on stock exchange.
According to MARSHAL "Stock exchange are not merely the chief theaters of
business transaction, they are also barometers which indicate the general
conditions of the atmosphere of business."
National Stock Exchange of India

National Stock Exchange (NSE) is stock exchange located in Mumbai, India. National
Stock Exchange (NSE) was established in the mid 1990s as a demutualised electronic
exchange. NSE provides a modern, fully automated screen-based trading system, with
over two lakh trading terminals, through which investors in every nook and corner
of India can trade. NSE has played a critical role in reforming the Indian securities market
and in bringing unparalleled transparency, efficiency and market integrity.
The National Stock Exchange of India was incorporated in 1992 and recognized as a
stock exchange in 1993, at a time when PV Narasimha Rao was the Prime Minister of
India and Dr. Manmohan Singh was the finance minister. It was set up to bring in
transparency in the markets. Promoted by leading financial institutions essentially led
by IDBI at the behest of the Government of India, it was incorporated in November 1992
as a tax-paying company. In April 1993, it 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. The Capital market (Equities) segment of the
NSE commenced operations in November 1994, while operations in the
Derivatives segment commenced in June 2000
NSE has a market capitalization of more than US$989 billion and 1,635 companies
listed as on July 2013. Though a number of other exchanges exist, NSE and the Bombay
Stock Exchange are the two most significant stock exchanges in India, and between them
are responsible for the vast majority of share transactions. NSE's flagship index, the CNX
NIFTY 50, is used extensively by investors in India and around the world to take
exposure to the Indian equities market.
NSE was started by a clutch of leading Indian financial institutions. It offers
trading, clearing and settlement services in equity, debt and equity derivatives. It is India's
largest exchange, globally in cash market trades, in currency trading and index options.
NSE has diversified shareholding. There are many domestic and global institutions and
companies that hold stake in the exchange. Some of the domestic investors include LIC,
GIC, State Bank of India and IDFC Ltd. Foreign investors include MS Strategic (Mauritius)
Limited, Citigroup Strategic Holdings Mauritius Limited, Tiger Global Five Holdings and
Norwest Venture Partners X FII-Mauritius, who have a stake in NSE. As on June 2013,
NSE has 1673 VSAT terminals and 2720 leaselines, spread over more than 2000 cities
across India.
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The National Stock Exchange (NSE) changed the way the Indian markets
functioned, in the early nineties, by replacing floor based trading with nationwide screen
based electronic trading, which took trading to the doorstep of the investor. The exchange
was mainly set up to bring in transparency in the markets. Instead of trading membership
being confined to a group of brokers, NSE ensured that anyone who was qualified,
experienced and met minimum financial requirements was allowed to trade. In this
context, NSE was far ahead of its times, when it separated ownership and management in
the exchange under SEBI's supervision. The price information which could earlier be
accessed only by a handful of people could now be seen by a client in a remote location
with the same ease. The paper based settlement was replaced by electronic depository
based accounts and settlement of trades was always done on time. One of the most critical
changes was that a robust risk management system was set in place, so that settlement
guarantees could protect investors against broker defaults.
OTC Exchange of India

OTC Exchange of India (OTCEI) also known as Over-the-Counter Exchange of
India based in Mumbai, Maharashtra. It is the first exchange for small companies. It is the
first screen based nationwide stock exchange in India. It was set up to access hightechnology enterprising promoters in raising finance for new product development in a
cost effective manner and to provide transparent and efficient trading system to the
investors. OTCEI is promoted by the Unit Trust of India, the Industrial Credit and
Investment Corporation of India, the Industrial Development Bank of India, the Industrial
Finance Corporation of India and others and is a recognized stock exchange under the
SCR Act. OTC Exchange Of India was founded in 1990 under the Companies Act 1956 and
got recognized by the Securities Contracts Regulation Act, 1956 as a stock exchange.
Trading Mechanism of stock exchange

Trading System provides a fully automated trading environment for screen-based,
floor-less trading on a nationwide basis and an online monitoring and surveillance
mechanism. The system supports an order driven market and provides complete
transparency of trading operations.
Orders, as and when they are received, are first time stamped and then
immediately processed for potential match. If a match is not found, then the orders are
stored in different 'books'. Orders are stored in price-time priority in various books in the
following sequence:
Best Price
Within Price, by time priority.
Order Matching Rules

The best buy order will match with the best sell order. An order may match
partially with another order resulting in multiple trades. For order matching, the best buy
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order is the one with highest price and the best sell order is the one with lowest price. This
is because the computer views all buy orders available from the point of view of a seller
and all sell orders from the point of view of the buyers in the market. So, of all buy orders
available in the market at any point of time, a seller would obviously like to sell at the
highest possible buy price that is offered. Hence, the best buy order is the order with
highest price and vice-versa.
Members can pro actively enter orders in the system which will be displayed in the
system till the full quantity is matched by one or more of counter-orders and result into
trade(s). Alternatively members may be reactive and put in orders that match with
existing orders in the system. Orders lying unmatched in the system are 'passive' orders
and orders that come in to match the existing orders are called 'active' orders. Orders are
always matched at the passive order price. This ensures that the earlier orders get priority
over the orders that come in later.
Order Conditions
A Trading Member can enter various types of orders depending upon his/her
requirements. These conditions are broadly classified into 2 categories: time related
conditions and price-related conditions.
Time Conditions
DAY - A Day order, as the name suggests, is an order which is valid for the day on which
it is entered. If the order is not matched during the day, the order gets cancelled
automatically at the end of the trading day.
IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a
security as soon as the order is released into the market, failing which the order will be
removed from the market. Partial match is possible for the order, and the unmatched
portion of the order is cancelled immediately.
Price Conditions
Limit Price/Order - An order that allows the price to be specified while entering the order
into the system.
Market Price/Order - An order to buy or sell securities at the best price obtainable at the
time of entering the order.
Stop Loss (SL) Price/Order - The one that allows the Trading Member to place an order
which gets activated only when the market price of the relevant security reaches or
crosses a threshold price. Until then the order does not enter the market.
A sell order in the Stop Loss book gets triggered when the last traded price in the
normal market reaches or falls below the trigger price of the order. A buy order in the
Stop Loss book gets triggered when the last traded price in the normal market reaches or
exceeds the trigger price of the order.
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E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the market
(last traded) price is 90.00, then this order is released into the system once the market price
reaches or exceeds 93.00. This order is added to the regular lot book with time of
triggering as the time stamp, as a limit order of 95.00
Settlement Process
There are basically three tasks that are performed in the process of buying and selling of
securities. They are:
Trading
Clearing
Settlement
Trading basically deals with putting an order and its execution. Clearing deals
with determination of obligations, in terms of funds and securities. Settlement means that
the trade will be completed and NSCCL acts as a counter party and takes an obligation for
the same. It has created a faith in the investors that all the trades would be settled and in
no case any investor will have to face any problem of insufficient funds and securities.
NSCCL acts as a buyer to every seller and a seller to every buyer. This principle is called
novation. In case of default by any party, the NSCCL takes action against the defaulter.
National Securities Clearing Corporation Limited (NSCCL)
The NSCCL, a wholly owned subsidiary of NSE, was incorporated in August 1995.NSCCL
commenced clearing operations in April 1996. It was set up for the following purposes:
To bring and sustain confidence in clearing and settlement of securities;
To promote and maintain, short and consistent settlement cycles;
To provide counter-party risk guarantee, and
To operate a tight risk containment system.
Dematerialized settlement [rolling settlement]

NSCCL follows a T+2 rolling settlement cycle. For all trades executed on the T day,
NSCCL determines the cumulative obligations of each member on the T+1 day and
electronically transfers the data to Clearing Members (CMs). All trades concluded during
a particular trading date are settled on a designated settlement day i.e. T+2 day. In case of
short deliveries on the T+2 day in the normal segment, NSCCL conducts a buy in auction
on the T+2 day itself and the settlement for the same is completed on the T+3 day,
whereas in case of W segment there is a direct close out. For arriving at the settlement day
all intervening holidays, which include bank holidays, NSE holidays, Saturdays and
Sundays are excluded.
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Online trading
Trading with the help of computer having internet connection and online trading
account is called Online Stock Trading. Basically people use online stock trading who
want to trade themselves.
Essentials of online trading
Online trading account - You have to open an online trading account with any of the
bank or financial trading system like ICICIdirect.com, 5paisa.com, Stockkhan.com etc.
There will be nominal annual charges. These charges vary from bank to bank but should
not
be
more
than
Rs.1000.
A computer with internet connection or can do trading in internet cafe.
After successfully opening the online account you will receive the username and
password with the help of which you can login in online trading system and trade
yourself.
The trading system executive (with whom you opened trading account) will help you
initially about how to use the online trading system.
Once you get familiar with the system then you can trade yourself at your home or in
the internet cafe.
Nowadays you can get internet enabled on your cell (which is called GPRS) whose
speed will be sufficient to do trading and also the charges of GPRS are very nominal.
Advantages of Online Trading
No need to depend on any broker or anybody else to place the order or to square off the
order. In short you are the boss of yourself to do trading of stocks.
Its reliable, convenient and you can take your own decisions yourself by actual selling or
analyzing the market on the computer screen instead of calling broker all the time and
getting news about the market.
Its not possible or practical for a broker to update you about each and every news about
the market or any news which will influence or affect the stock market. Because he may be
having many other customers like you and even if he updates you by that time the news
have been affected the concerned sector or stock. So if you are doing online trading
yourself, then you may save yourself from big disaster. You will get news and updates on
various websites and also on your online trading system and most of the information will
be free of cost.
By doing online trading yourself, you can see and judge where market (or your stock) is
heading by seeing different graphs online yourself, which is not possible if youre trading
through broker. Some online trading systems have graphs integrated in their system, so
your job is to just add those graphs and check the status of current market (or stock)
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(graphs will be discussed later). And depending on your analysis you can take steps
towards your successfully trading. (How to analyze graphs will be mentioned later).
All your transactions and related documents can be seen online and can also be
downloaded to your PC without depending on your broker. You can also check the status
of your amount on daily basis through you online trading system.
Disadvantages of Online Trading
In online trading system you may face problem of disconnection to internet due to
which you will not be able to login to your online trading system and hence you cant do
trading yourself. At such critical times you have to call trading system executive and do
trading
or
square
off
your
transactions.
If may face other problems such as electricity cut-off, PC problem etc during online
trading then immediately you have to contact your trading system executive and place
orders or do trading.
Scripless trading
Scripless trading is a term used to describe a procedure of trading in shares, where
actual share certificates are not traded but shares are traded in electronic forms, the share
traded being adjusted by accounting by an organization known as depository. In India
scripless trading first started with the emergence of OTCEI. But it was very limited. The
advent of online automated trading in India brought with it several associated benefits
such as transparency in trading and equal opportunity for market players all over the
country but the problems related to settlement of trades such as high instances of bad
deliveries and long settlement cycles continued. As an answer to these settlement
problems and in order to provide a safe and efficient system of trading and settlement,
Depositories Act, 1996 was enacted. SEBI notified Regulations in order to provide the
regulatory framework for the depositories. Depositories gave a new dimension and a new
scope for conducting transactions in capital market primary as well as secondary, in a
more efficient and effective manner, in a paperless form on an electronic book entry basis.
It provided electronic solution to the aforementioned problems of bad deliveries and long
settlement cycles. Only after the scripless trading our capital market has come up to
international level.
DEPOSITORY SYSTEM
A vibrant and efficient capital market, which ensures an orderly development and
contains measures for protection of the investors interest, is the most important
parameter for evaluating health of any economy. The practice of physical trading
imposed limits on trading volumes and hence the speed with which new information was
incorporated into prices system.
Dematerialization is the processes by which a client can get physical certificates
converted into electronic balances maintained in its account with the participant in the
depository system securities held in dematerialization form are fungible, i.e., they do not
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bear any distinguishing features. The financial market exists to facilitate sale and
purchase of financial instruments and comprises of two major markets namely the capital
Market and the money market. The capital market mainly deals in medium and long
term investments (maturity more than a year) while the money market deals in shortterm investments (maturity up to a year).
A major problem however continued to plague the market. The Indian markets
were literally weighed down by the need to deal with shares in the paper form. There
were problems galore with handling documents-fake and stolen shares, fake signatures
and signatures mismatch, duplication and mutilation of shares, and transfer problems etc.
so the institutions and the stock exchanges experiences that the paper certificates are the
main cause of investor disputes and arbitration cases.
Thus, the Government of India decided to setup a fully automated and high
technology based model exchanges, which could offer screen, based trading and
depositories as the ultimate answer to all such reforms. Therefore, the government of
India promulgated the Depository Ordinance in 1995. However, both houses of
Parliament passed the Depositories Act in 1996. the unparalleled success of the
introduction of the depository concept in Indian capital markets is reflected in the ongoing successful reaction in the period between trading and settlement.
MEANING OF DEPOSITORY
A Depository is a file or a set of files in which data is stored for the purpose of safe
keeping or identity authentication, defined by Germany Depository.
In India, the Depositories Act, 1996 defines a depository to mean A Company
formed and registered under the Companies Act, 1956 and which has been granted a
certificate of registration under sub-section (1A) of section 12 of the Securities and
Exchanges Board of India Act, 1992.
As per The Bank for International settlements (BIS), depository is a facility for
holding securities which enables securities transactions to e processed by book entry,
physical securities may be immobilized by the depository or securities may be
dematerialized (so that they exist only as electronic records).
Depository Participant (DP)

A DP is an agent of the depository through which it interfaces with the investor and
provides depository services. Public financial institutions, scheduled commercial banks,
foreign banks operating in India with the approval of the Reserve Bank of India, state
financial corporations, custodians, stock-brokers, clearing corporations / clearing houses,
NBFCs and registrar to an issue or share transfer agent complying with the requirements
prescribed by SEBI can be registered as DP.
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Dematerialisation (demat)
Dematerialization is the process by which physical certificates of an investor are
converted to an equivalent number of securities in electronic form.
Services provided by a Depository

Opening a demat account;
Dematerialization, i.e. converting physical securities into electronic form;

Rematerialisation, i.e. converting electronic securities into physical form;
Maintaining record of securities held by the beneficial owners in the electronic form;
Settlement of trades by delivery or receipt of securities from / in BO accounts;
Settlement of off-market transactions between BOs;
Receiving electronic credit in respect of securities allotted by issuers under IPO or
otherwise on behalf of demat account holders;
*Receiving non cash corporate benefits such as allotment of bonus and rights shares or
any other non cash corporate benefits given by the issuers in electronic form on behalf of
its demat account holders;
Pledging of dematerialized securities & facilitating loans against shares;
Freezing of the demat account for debits, credits, or both
Benefits of availing depository services

A safe and convenient way to hold securities;
Immediate transfer of securities;
No stamp duty on transfer of securities;
Elimination of risks associated with physical certificates such as bad delivery, fake
securities, delays, thefts etc.
Reduction in paperwork involved in transfer of securities;
Reduction in transaction cost;
No odd lot problem, even one share can be traded;
Nomination facility;
Change in address recorded with DP gets registered with all companies in which
investor holds securities electronically eliminating the need to correspond with each of
them separately;
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Transmission of securities is done by DP eliminating correspondence with companies;

Automatic credit into demat
bonus/split/consolidation/merger etc;
account
of
shares,
arising
out
of
Holding investments in equity and debt instruments in a single account.
SEBI-Role and Functions
The securities and exchange board of India [SEBI] was constituted as a regulatory
authority over various constituents of the capital market in the year 1988.though legally
SEBI came into existence in 1988; it was made operational and effective from1992 when it
was empowered to secure an autonomous position.
Functions of SEBI
1. To protect the interest of investors in securities and to promote the development of and
to regulate the securities market by such measures it thinks fit.
2. Regulating the business in stock exchanges and any other securities markets.
3. Registering and regulating the working of stock brokers, sub brokers, share transfer
agents, bankers to issue, trustees of trust deed, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisors, and other such intermediaries
who may be associated with securities market in any manner.
4. Registering and regulating the working of collective investment schemes including
mutual funds.
5. Promoting and regulating self regulatory organizations.
6. Prohibiting fraudulent and unfair trade practices relating to securities markets.
7. Promoting investor education and training of intermediaries of security market.
8. Prohibiting insider trading in securities.
9. Regulating substantial acquisition of shares and takeover of companies.
10. Calling for information form, undertaking inspection, conducting injuries and audits
of the stock exchanges and intermediaries, and regulatory organization in security market.
11. Levying fees or other charges for carrying out the purposes of this section.
12. Conducting research for the above purposes.
13. Performing other such functions as may be prescribed.
14. Promoting fair practices and code of conduct for all SROs.
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CHAPTER 4
MUTUAL FUNDS
There are various investment avenues available to an investor such as real estate,
bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one
more type of investment avenue available to investors. There are many reasons why
investors prefer mutual funds. Buying shares directly from the market is one way of
investing. But this requires spending time to find out the performance of the company
whose share is being purchased, understanding the future business prospects of the
company, finding out the track record of the promoters and the dividend, bonus issue
history of the company etc. An informed investor needs to do research before investing.
However, many investors find it cumbersome and time consuming to pore over so much
of information, get access to so much of details before investing in the shares. Investors
therefore prefer the mutual fund route. They invest in a mutual fund scheme which in
turn takes the responsibility of investing in stocks and shares after due analysis and
research. The investor need not bother with researching hundreds of stocks. It leaves it to
the mutual fund and its professional fund management team. Another reason why
investors prefer mutual funds is because mutual funds offer diversification. An investors
money is invested by the mutual fund in a variety of shares, bonds and other securities
thus diversifying the investors portfolio across different companies and sectors. This
diversification helps in reducing the overall risk of the portfolio. It is also less expensive to
invest in a mutual fund since the minimum investment amount in mutual fund units is
fairly low (Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks
and not get the desired diversification. These are some of the reasons why mutual funds
have gained in popularity over the years.
A mutual fund is a professionally managed type of collective investment scheme
that pools money from many investors and invests it in stocks, bonds, short-term money
market instruments and other securities. Mutual funds have a fund manager who invests
the money on behalf of the investors by buying / selling stocks, bonds etc.
Definition of Mutual Fund

An investment vehicle that is made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market
instruments and similar assets. Mutual funds are operated by money managers, who
invest the fund's capital and attempt to produce capital gains and income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match the investment
objectives stated in its prospectus.
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HISTORY OF MUTUAL FUNDS

The origin of pooled investing concept dates back to the late 1700s in Europe, when
"a Dutch merchant and broker invited subscriptions from investors to form a trust to
provide an opportunity to diversify for small investors with limited means." The
emergence of "investment pooling" in England in the 1800s brought the concept closer to
the US shores.
The enactment of two British laws, the Joint Stock Companies Acts of 1862 and
1867, permitted investors to share in the profits of an investment enterprise and limited
investor liability to the amount of investment capital devoted to the enterprise. Shortly
thereafter, in 1868, the Foreign and Colonial Government Trust was formed in London.
It resembled the US fund model in basic structure, providing "the investor of
moderate means the same advantages as the large capitalists by spreading the investment
over a number of different stocks." More importantly, the British fund model established a
direct link with the US securities markets, helping finance the development of the postCivil War US economy.
The Scottish American Investment Trust, formed in February 1873, by fund pioneer
Robert Fleming, invested in the economic potential of the US, chiefly through American
railroad bonds. Many other trusts followed them, who not only targeted investment in
America, but led to the introduction of the fund investing concept on the US shores in the
late 1800s and the early 1900s. The first mutual or 'open-ended' fund was introduced in
Boston in March 1924. The Massachusetts Investors Trust, which was formed as a
common law trust, introduced important innovations to the investment company concept
by establishing a simplified capital structure, continuous offering of shares, and the ability
to redeem shares rather than holding them until dissolution of the fund and a set of clear
investment restrictions as well as policies.
The stock market crash of 1929 and the Great Depression that followed greatly
hampered the growth of pooled investments until a succession of landmark securities
laws, beginning with the Securities Act, 1933 and concluded with the Investment
Company Act, 1940, reinvigorated investor confidence. Renewed investor confidence and
many innovations led to relatively steady growth in industry assets and number of
accounts.
THE MUTUAL FUND INDUSTRY IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India (UTI) at the initiative of the Reserve Bank of India (RBI) and the Government of
India. The objective then was to attract small investors and introduce them to market
investments. Since then, the history of mutual funds in India can be broadly divided into
six distinct phases.
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Phase I (1964-87): Growth Of UTI

In 1963, UTI was established by an Act of Parliament. As it was the only entity
offering mutual funds in India, it had a monopoly. Operationally, UTI was set up by the
Reserve Bank of India (RBI), but was later delinked from the RBI. The first scheme, and for
long one of the largest launched by UTI, was Unit Scheme 1964.
Later in the 1970s and 80s, UTI started innovating and offering different schemes to
suit the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was
launched in 1971. The first Indian offshore fund, India Fund was launched in August 1986.
In absolute terms, the investible funds corpus of UTI was about Rs 600 crores in 1984. By
1987-88, the assets under management (AUM) of UTI had grown 10 times to Rs 6,700
crores.
Phase II (1987-93): Entry of Public Sector Funds
The year 1987 marked the entry of other public sector mutual funds. With the
opening up of the economy, many public sector banks and institutions were allowed to
establish mutual funds. The State Bank of India established the first non-UTI Mutual
Fund, SBI Mutual Fund in November 1987. This was followed by Canbank Mutual Fund,
LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual
Fund and PNB Mutual Fund. From 1987-88 to 1992-93, the AUM increased from Rs 6,700
crores to Rs 47,004 crores, nearly seven times. During this period, investors showed a
marked interest in mutual funds, allocating a larger part of their savings to investments in
the funds.
Phase III (1993-96): Emergence of Private Funds
A new era in the mutual fund industry began in 1993 with the permission granted
for the entry of private sector funds. This gave the Indian investors a broader choice of
'fund families' and increasing competition to the existing public sector funds. Quite
significantly foreign fund management companies were also allowed to operate mutual
funds, most of them coming into India through their joint ventures with Indian
promoters.
The private funds have brought in with them latest product innovations,
investment management techniques and investor-servicing technologies. During the year
1993-94, five private sector fund houses launched their schemes followed by six others in
1994-95.
Phase IV (1996-99): Growth And SEBI Regulation
Since 1996, the mutual fund industry scaled newer heights in terms of mobilization
of funds and number of players. Deregulation and liberalization of the Indian economy
had introduced competition and provided impetus to the growth of the industry.
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A comprehensive set of regulations for all mutual funds operating in India was
introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform
standards for all funds. Erstwhile UTI voluntarily adopted SEBI guidelines for its new
schemes. Similarly, the budget of the Union government in 1999 took a big step in
exempting all mutual fund dividends from income tax in the hands of the investors.
During this phase, both SEBI and Association of Mutual Funds of India (AMFI) launched
Investor Awareness Programme aimed at educating the investors about investing through
MFs.
Phase V (1999-2004): Emergence of a Large and Uniform Industry
The year 1999 marked the beginning of a new phase in the history of the mutual
fund industry in India, a phase of significant growth in terms of both amount mobilized
from investors and assets under management. In February 2003, the UTI Act was
repealed. UTI no longer has a special legal status as a trust established by an act of
Parliament. Instead it has adopted the same structure as any other fund in India - a trust
and an AMC.
UTI Mutual Fund is the present name of the erstwhile Unit Trust of India (UTI).
While UTI functioned under a separate law of the Indian Parliament earlier, UTI Mutual
Fund is now under the SEBI's (Mutual Funds) Regulations, 1996 like all other mutual
funds in India.
The emergence of a uniform industry with the same structure, operations and
regulations make it easier for distributors and investors to deal with any fund house.
Between 1999 and 2005 the size of the industry has doubled in terms of AUM which have
gone from above Rs 68,000 crores to over Rs 1,50,000 crores.
Phase VI (From 2004 Onwards): Consolidation and Growth
The industry has lately witnessed a spate of mergers and acquisitions, most recent
ones being the acquisition of schemes of Allianz Mutual Fund by Birla Sun Life, PNB
Mutual Fund by Principal, among others. At the same time, more international players
continue to enter India including Fidelity, one of the largest funds in the world.
ADVANTAGES OF MUTUAL FUNDS

Mutual fund investments in stocks, bonds and other instruments require
considerable expertise and constant supervision, to allow an investor to take the right
decisions. Small investors usually do not have the necessary expertise and time to
undertake any study that can facilitate informed decisions. While this is the predominant
reason for the popularity of mutual funds, there are many other benefits that make mutual
funds appealing.
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Diversification Benefits
Diversified investment improves the risk return profile of the portfolio. Optimal
diversification has limitations due to low liquidity among small investors. The large
corpus of a mutual fund as compared to individual investments makes optimal
diversification possible. Due to the pooling of capital, individual investors can derive
benefits of diversification.
Low Transaction Costs:
Mutual fund transactions are generally very large. These large volumes attract
lower brokerage commissions and other costs as compared to smaller volumes of the
transactions that individual investors enter into. The brokers quote a lower rate of
commission due to two reasons. The first is competition for the institutional investors
business. The second reason is that the overhead cost of executing a trade does not differ
much for large and small orders. Hence for a large order these costs spread over a large
volume enabling the broker to quote a lower commission rate.
Availability of Various Schemes
There are four basic types of mutual funds: equity, bond, hybrid and money
market. Equity funds concentrate their investments in stocks. Similarly bond funds
primarily invest in bonds and other securities. Equity, bond and hybrid funds are called
long-term funds. Money market funds are referred to as short-term funds because they
invest in securities that generally mature in about one year or less. Mutual funds generally
offer a number of schemes to suit the requirement of the investors.
Professional Management
Management of a portfolio involves continuous monitoring of various securities
and innumerable economic variables that may affect a portfolio's performance. This
requires a lot of time and effort on part of the investors along with in-depth knowledge of
the functioning of the financial markets. Mutual funds are managed by fund managers
generally with knowledge and experience whose time is solely devoted to tracking and
updating the portfolio. Thus investment in a mutual fund not only saves time and effort
for the investor but is also likely to produce better results.
Liquidity
Liquidating a portfolio is not always easy. There may not be a liquid market for all
securities held. In case only a part of the portfolio is required to be liquidated, it may not
be possible to see all the securities forming a part of the portfolio in the same proportion
as they are represented in the portfolio; investing in mutual funds can solve these
problems. A fund house generally stands ready to buy and sell its units on a regular basis.
Thus it is easier to liquidate holdings in a Mutual Fund as compared to direct investment
in securities.
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Returns
In India dividend received by investors is tax-free. This enhances the yield on
mutual funds marginally as compared to income from other investment options. Also in
case of long-term capital gains, the investor benefits from indexation and lower capital
gain tax.
Flexibility
Features of a MF scheme such as regular investment plan, regular withdrawal
plans and dividend reinvestment plan allows investors to systematically invest or
withdraw funds according to the needs and convenience.
Well Regulated
All mutual funds are registered with SEBI and they function within the provisions
of strict regulations designed to protect the interest of investors. The SEBI regularly
monitors the operations of an AMC.
Disadvantages of Mutual funds

1. No Insurance: Mutual funds, although regulated by the government, are not insured
against losses. That means that despite the risk-reducing diversification benefits
provided by mutual funds, losses can occur, and it is possible (although extremely
unlikely) that you could even lose your entire investment.
2. Dilution: Although diversification reduces the amount of risk involved in investing in
mutual funds, it can also be a disadvantage due to dilution. For example, if a single
security held by a mutual fund doubles in value, the mutual fund itself would not
double in value because that security is only one small part of the funds holdings. By
holding a large number of different investments, mutual funds tend to do neither
exceptionally well nor exceptionally poorly.
3. Fees and Expenses: Most mutual funds charge management and operating fees that
pay for the funds management expenses (usually around 1.0% to 1.5% per year for
actively managed funds). In addition, some mutual funds charge high sales
commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares
so often that the transaction costs add up significantly. Some of these expenses are
charged on an ongoing basis, unlike stock investments, for which a commission is paid
only when you buy and sell .
4. Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on
average, around 75% of all mutual funds fail to beat the major market indexes, like the
S&P 500, and a growing number of critics now question whether or not professional
money managers have better stock-picking capabilities than the average investor.
5. Loss of Control: The managers of mutual funds make all of the decisions about which
securities to buy and sell and when to do so. This can make it difficult for you when
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trying to manage your portfolio. For example, the tax consequences of a decision by
the manager to buy or sell an asset at a certain time might not be optimal for you. You
also should remember that you are trusting someone else with your money when you
invest in a mutual fund.
6. Trading Limitations: Although mutual funds are highly liquid in general, most
mutual funds (called open-ended funds) cannot be bought or sold in the middle of the
trading day. You can only buy and sell them at the end of the day, after theyve
calculated the current value of their holdings.
7. Size: Some mutual funds are too big to find enough good investments. This is
especially true of funds that focus on small companies, given that there are strict rules
about how much of a single company a fund may own. If a mutual fund has $5 billion
to invest and is only able to invest an average of $50 million in each, then it needs to
find at least 100 such companies to invest in; as a result, the fund might be forced to
lower its standards when selecting companies to invest in.
8. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as
protection against a large number of simultaneous withdrawals. Although this
provides investors with liquidity, it means that some of the funds money is invested
in cash instead of assets, which tends to lower the investors potential return.
9. Too Many Choices: The advantages and disadvantages listed above apply to mutual
funds in general. However, there are over 10,000 mutual funds in operation, and these
funds vary greatly according to investment objective, size, strategy, and style. Mutual
funds are available for virtually every investment strategy (e.g. value, growth), every
sector (e.g. biotech, internet), and every country or region of the world. So even the
process of selecting a fund can be tedious.
Classification of Mutual Funds

Open-End Mutual Fund
An Open-ended Mutual funds are those funds in which the company can issue
always more outstanding shares. It can help to add on the net assets of the company.
These types of funds do not have a fixed maturity period. Investors can buy and sell units
of these funds at Net Asset Value (NAV) related prices which are published on a daily
basis. Open-end schemes are more liquid in nature.
Close-End Mutual Fund
Close Ended mutual fund or generally termed as traded mutual fund is the one
that can be bought and sold like a normal share. In it, the number of shares always stays
fixed. These funds also have commission which brokers get since the shares of these funds
are traded over the counter, like the shares are traded. Close-ended funds has a stipulated
maturity period like 5-7 years. It is open for subscription only during the time of launch.
Investors can invest in the close ended mutual funds at the time of the initial public issue
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and thereafter can be brought or sold units of the scheme on the exchanges where the
units are listed. Close-ended funds give an option for the investor of selling back the units
to the mutual fund through periodic repurchase at NAV related prices. But the
commissions will incur for this selling and buying.
Growth Funds
These type funds are those which invest in the stocks of well-established, blue chip
companies. Dividends and steady income are not only goal of these types of funds. But,
they are focussed on increasing in capital gains.
Growth and Income funds
These type of mutual funds are focussed on increased capital gains and steady
income. Less volatile than Aggressive Growth funds.
Equity Funds
These funds allow an investor to own a portion of the company that they have
invested in, its like having shares of a certain company. Stocks that have proven
historically to bethe best investment. Also which have already outperformed all other
types of investments in long term, but the risk is high. These funds produce a greater level
of current income by investing in equity securities of companies with solid reputation and
have a good record of paying dividends.
Balanced Funds
Balanced mutual funds have a portfolio mix of bonds, preferred stocks and
common stocks. Balanced mutual funds aim to conserve investors initial investment, to
pay an income and to aid in the long-term growth of both the principle and the income.
Fixed-Income Funds
Fixed-income mutual funds are safer than equity funds, but as always, do not yield
as high returns as the latter do. These types of mutual funds are geared towards the
investor who is approaching old age and doesnt have many earning years left. Many
investors hope to draw a steady income from these types of mutual funds. Bond funds fall
into the category of fixed-income funds.
Money-Market Funds
These are generally the safest and most secure of mutual fund investments. They
invest in the largest, most stable securities, including Treasury bills. The chances of your
capital being eroded are very minimal. Money-market funds are risk-free. If you invest a
thousand rupees, you will get that money back. It is simply a matter of when you get it
back. When investing in a money-market fund, you should pay attention to the interest
rate that is being offered, along with the rules regarding check-writing. Money-markets
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have allowed investors to reap high yields on their deposits, and have made the entire
investment process more accessible to people.
The interest rates on money-market funds are changing nearly day to day. In times
of inflation, these funds have had high yields.
Index Funds
They invest in the portfolio of a index such as BSE Sensitive index (SENSEX) , S&P
NSE 50 index (Nifty), etc. The investment is done in the securities in the same weightage
comprising of an index. You can see that the NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index. It may not be exactly by the same percentage
due to tracking errors.
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CHAPTER 5
DERIVATIVES
The term Derivative stands for a contract whose price is derived from or is
dependent upon an underlying asset. The underlying asset could be a financial asset such
as currency, stock and market index, an interest bearing security or a physical commodity.
Today, around the world, derivative contracts are traded on electricity, weather,
temperature and even volatility. According to the Securities Contract Regulation Act,
(1956) the term derivative includes:
(i) A security derived from a debt instrument, share, loan, whether secured or unsecured,
risk instrument or contract for differences or any other form of security;
(ii) A contract which derives its value from the prices, or index of prices, of underlying
securities.
Types of Derivative Contracts
Derivatives comprise four basic contracts namely Forwards, Futures, Options and
Swaps. Over the past couple of decades several exotic contracts have also emerged but
these are largely the variants of these basic contracts. Let us briefly define some of the
contracts
Forward Contracts
These are promises to deliver an asset at a predetermined date in future at a
predetermined price. Forwards are highly popular on currencies and interest rates. The
contracts are traded over the counter (i.e. outside the stock exchanges, directly between
the two parties) and are customized according to the needs of the parties. Since these
contracts do not fall under the purview of rules and regulations of an exchange, they
generally suffer from counterparty risk i.e. the risk that one of the parties to the contract
may not fulfill his or her obligation. A forward contract is an agreement to buy or sell an
asset on a specified date for a specified price. One of the parties to the contract assumes a
long position and agrees to buy the underlying asset on a certain specified future date for
a certain specified price. The other party assumes a short position and agrees to sell the
asset on the same date for the same price. Other contract details like delivery date, price
and quantity are negotiated bilaterally by the parties to the contract. The forward
contracts are normally traded outside the exchanges.
Features of forward contracts
They are bilateral contracts and hence exposed to counter-party risk.
Each contract is custom designed, and hence is unique in terms of contract size,
expiration date and the asset type and quality.
The contract price is generally not available in public domain.
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On the expiration date, the contract has to be settled by delivery of the asset.
If the party wishes to reverse the contract, it has to compulsorily go to the same
counterparty, which often results in high prices being charged.
Limitations of forward markets
Forward markets world-wide are posed by several problems:
Lack of centralization of trading,
Illiquidity
Counterparty risk
In the first two of these, the basic problem is that of too much flexibility and
generality. The forward market is like a real estate market, in which any two consenting
adults can form contracts against each other. This often makes them design the terms of
the deal which are convenient in that specific situation, but makes the contracts nontradable. Counterparty risk arises from the possibility of default by any one party to the
transaction. When one of the two sides to the transaction declares bankruptcy, the other
suffers. When forward markets trade standardized contracts, though it avoids the
problem of illiquidity, still the counterparty risk remains a very serious issue.
Futures Contracts:
A futures contract is an agreement between two parties to buy or sell an asset at a
certain time in future at a certain price. These are basically exchange traded, standardized
contracts. The exchange stands guarantee to all transactions and counterparty risk is
largely eliminated. The buyers of futures contracts are considered having a long position
whereas the sellers are considered to be having a short position. It should be noted that
this is similar to any asset market where anybody who buys is long and the one who sells
in short. Futures contracts are available on variety of commodities, currencies, interest
rates, stocks and other tradable assets. They are highly popular on stock indices, interest
rates and foreign exchange. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be
delivered, (or which can be used for reference purposes in settlement) and a standard
timing of such settlement. A futures contract may be offset prior to maturity by entering
into an equal and opposite transaction. The standardized items in a futures contract are:
Quantity of the underlying
Quality of the underlying
The date and the month of delivery
The units of price quotation and minimum price change
Location of settlement
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Distinction between Futures and Forwards

Futures
Forwards
Trade on an organized exchange
OTC in nature
Standardized contract terms
Customized contract terms
More liquid
Less liquid
Requires margin payments
No margin payment
Follows daily settlement
Settlement happens at end of period
Futures Terminology
Spot price: The price at which an underlying asset trades in the spot market.
Futures price: The price that is agreed upon at the time of the contract for the delivery
of an asset at a specific future date.
Contract cycle: It is the period over which a contract trades. The index futures contracts
on the NSE have one-month, two-month and three-month expiry cycles which expire on
the last Thursday of the month. Thus a January expiration contract expires on the last
Thursday of January and a February expiration contract ceases trading on the last
Thursday of February. On the Friday following the last Thursday, a new contract having a
threemonth expiry is introduced for trading.
Expiry date: is the date on which the final settlement of the contract takes place.
Contract size: The amount of asset that has to be delivered under one contract. This is
also called as the lot size.
Basis: Basis is defined as the futures price minus the spot price. There will be a different
basis for each delivery month for each contract. In a normal market, basis will be positive.
This reflects that futures prices normally exceed spot prices.
Cost of carry: Measures the storage cost plus the interest that is paid to finance the asset
less the income earned on the asset.
Initial margin: The amount that must be deposited in the margin account at the time a
futures contract is first entered into is known as initial margin.
Marking-to-market: In the futures market, at the end of each trading day, the margin
account is adjusted to reflect the investors gain or loss depending upon the futures
closing price. This is called marking-to-market.
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Options Contracts
Options give the buyer (holder) a right but not an obligation to buy or sell an asset
in future. Options are of two types - calls and puts. Calls give the buyer the right but not
the obligation to buy a given quantity of the underlying asset, at a given price on or before
a given future date. Puts give the buyer the right, but not the obligation to sell a given
quantity of the underlying asset at a given price on or before a given date. One can buy
and sell each of the contracts. When one buys an option he is said to be having a long
position and when one sells he is said to be having a short position. It should be noted
that, in the first two types of derivative contracts (forwards and futures) both the parties
(buyer and seller) have an obligation; i.e. the buyer needs to pay for the asset to the seller
and the seller needs to deliver the asset to the buyer on the settlement date. In case of
options only the seller (also called option writer) is under an obligation and not the buyer
(also called option purchaser). The buyer has a right to buy (call options) or sell (put
options) the asset from / to the seller of the option but he may or may not exercise this
right. In case the buyer of the option does exercise his right, the seller of the option must
fulfill whatever is his obligation (for a call option the seller has to deliver the asset to the
buyer of the option and for a put option the seller has to receive the asset from the buyer
of the option). An option can be exercised at the expiry of the contract period (which is
known as European option contract) or anytime up to the expiry of the contract period
(termed as American option contract).
Option Terminology
Index options: Have the index as the underlying. They can be European or American.
They are also cash settled.
Stock options: They are options on individual stocks and give the holder the right to
buy or sell shares at the specified price. They can be European or American.
Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/ writer.
Writer of an option: The writer of a call/put option is the one who receives the option
premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.
There are two basic types of options, call options and put options.
Call option: It gives the holder the right but not the obligation to buy an asset by a
certain date for a certain price.
Put option: A It gives the holder the right but not the obligation to sell an asset by a
certain date for a certain price.
Option price/premium: It is the price which the option buyer pays to the option seller. It
is also referred to as the option premium.
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Expiration date: The date specified in the options contract is known as the expiration date,
the exercise date, the strike date or the maturity.
Strike price: The price specified in the options contract is known as the strike price or
the exercise price.
American options: These can be exercised at any time up to the expiration date.
European options: These can be exercised only on the expiration date itself. European
options are easier to analyze than American options and properties of an American option
are frequently deduced from those of its European counterpart.
In-the-money option: An in-the-money (ITM) option would lead to a positive cash flow
to the holder if it were exercised immediately. A call option on the index is said to be inthe money when the current index stands at a level higher than the strike price (i.e. spot
price > strike price). If the index is much higher than the strike price, the call is said to be
deep ITM. In the case of a put, the put is ITM if the index is below the strike price.
At-the-money option: An at-the-money (ATM) option would lead to zero cash flow if it
were exercised immediately. An option on the index is at-the-money when the current
index equals the strike price (i.e. spot price = strike price).
Out-of-the-money option: An out-of-the-money (OTM) option would lead to a negative
cash flow if it were exercised immediately. A call option on the index is out-of-the-money
when the current index stands at a level which is less than the strike price (i.e. spot price <
strike price). If the index is much lower than the strike price, the call is said to be deep
OTM. In the case of a put, the put is OTM if the index is above the strike price.
Intrinsic value of an option: The option premium has two components - intrinsic value
and time value. Intrinsic value of an option at a given time is the amount the holder of the
option will get if he exercises the option at that time.
Time value of an option: The time value of an option is the difference between its
premium and its intrinsic value. Both calls and puts have time value. The longer the time
to expiration, the greater is an options time value, all else equal. At expiration, an option
should have no time value.
Swaps
Swaps are private agreements between two parties to exchange cash flows in the future
according to a prearranged formula. They can be regarded as portfolios of forward
contracts.
The two commonly used swaps are:
Interest rate swaps: These entail swapping only the interest related cash flows between
the Parties in the same currency.
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Currency swaps: These entail swapping both principal and interest between the parties,
with the cash flows in one direction being in a different currency than those in the
opposite direction
Participants in a Derivative Market
The derivatives market is similar to any other financial market and has following
three broad Categories of participants:
Hedgers
These are investors with a present or anticipated exposure to the underlying asset
which is subject to price risks. Hedgers use the derivatives markets primarily for price risk
management of assets and portfolios.
Speculators
These are individuals who take a view on the future direction of the markets. They
take a view whether prices would rise or fall in future and accordingly buy or sell futures
and options to try and make a profit from the future price movements of the underlying
asset.
Arbitrageurs
They take positions in financial markets to earn riskless profits. The arbitrageurs
take short and long positions in the same or different contracts at the same time to create a
position which can generate a riskless profit.
History of Derivatives Markets in India
Derivatives markets in India have been in existence in one form or the other for a
long time. In the area of commodities, the Bombay Cotton Trade Association started
futures trading way back in 1875. In 1952, the Government of India banned cash
settlement and options trading. Derivatives trading shifted to informal forwards markets.
In recent years, government policy has shifted in favour of an increased role of marketbased pricing and less suspicious derivatives trading. The first step towards introduction
of financial derivatives trading in India was the promulgation of the Securities Laws
(Amendment) Ordinance, 1995. It provided for withdrawal of prohibition on options in
securities. The last decade, beginning the year 2000, saw lifting of ban on futures trading
in many commodities. Around the same period, national electronic commodity exchanges
were also set up. Derivatives trading commenced in India in June 2000 after SEBI granted
the final approval to this effect in May 2001 on the recommendation of L. C Gupta
committee. Securities and Exchange Board of India (SEBI) permitted the derivative
segments of two stock exchanges, NSE and BSE, and their clearing house/corporation to
commence trading and settlement in approved derivatives contracts. Initially, SEBI
approved trading in index futures contracts based on various stock market indices such
as, S&P CNX, Nifty and Sensex. Subsequently, index-based trading was permitted in
options as well as individual securities.The trading in BSE Sensex options commenced on
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June 4, 2001 and the trading in options on individual securities commenced in July 2001.
Futures contracts on individual stocks were launched in November 2001. The derivatives
trading on NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The
trading in index options commenced on June 4, 2001 and trading in options on individual
securities commenced on July 2, 2001. Single stock futures were launched on November 9,
2001. The index futures and options contract on NSE are based on S&P CNX. In June
2003, NSE introduced Interest Rate Futures which were subsequently banned due to
pricing issue.
Stock index futures and options

A futures or options contract based on a set of underlying securities is called a
`Stock Index Futures or Options Contract'. When trading takes place in stock index
futures, it means that the participants are taking a view on the way the index will move.
By trading in index-based futures and options, you buy or sell the 'entire stock market' as
a single entity.
S&P CNX Nifty is a scientifically developed index of which top 50 bluechip
companies form a part. The index covers more than 25 industry sectors and is
professionally managed by India Index and Services Ltd. IISL has a licensing and cobranding arrangement with Standard & Poor's (S&P), the world's leading provider of
investible equity indices, for co-branding IISL's equity indices. Daily derivatives trading
based on S&P 500 index is over $50 billions. S&P CNX Nifty can be used for the purpose
of speculation, hedging as well as an arbitrage tool.
Currency future
A currency future, also FX future or foreign exchange future, is a futures contract to
exchange one currency for another at a specified date in the future at a price (exchange
rate) that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of
the currencies is the US dollar. The price of a future is then in terms of US dollars per unit
of other currency. This can be different from the standard way of quoting in the spot
foreign exchange markets. The trade unit of each contract is then a certain amount of other
currency, for instance 125,000. Most contracts have physical delivery, so for those held at
the end of the last trading day, actual payments are made in each currency. However,
most contracts are closed out before that. Investors can close out the contract at any time
prior to the contract's delivery date.
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INVESTMENT MANAGEMENT

School of Distance Education

School of Distance Education

School of Distance Education

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Difference between Investment and Speculation

Investment is about simplicity while speculation is about complexity (timing market,

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School of Distance Education

Investment decision process

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School of Distance Education

School of Distance Education

School of Distance Education

School of Distance Education

Concept of risk and return

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2. Buying shares of an existing Profit making company

3. Buying shares of a new company

Interest rate risk:

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School of Distance Education

Economic and political stability

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Supply of raw materials

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The basis of Technical Analysis

Price discounts everything

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Strengths of Technical Analysis

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Assist with entry point

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risk of non-performance of various pools of investment. Portfolio Management guides the

Modern Portfolio Theory

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Meaning of money market

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Structure of Indian money market

Call and Notice Money Market Indigenous Bankers

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Organized Sector Of Money Market

Call and Notice Money Market

Treasury Bill Market (T - Bills)

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Certificate of Deposits (CDs)

Commercial Papers (CP)

Money Market Mutual Funds (MMMFs)

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The Repo Market

Repo was introduced in December 1992. Repo is a repurchase agreement. It means

Discount and Finance House of India (DFHI)