INTRODUCTION

Personal finance discipline demands every individual to plan for expenditure and
savings against current income. While moving up in the hierarchy of needs, one
must simultaneously save money for future. As one goes on in life, the standard of
living rises, needs increases and the expenditure to meet those needs also
increases. Without proper financial planning the future can be a miserable struggle
to meet these demands.
Role of financial system is to enthuse economic development. As investors are
getting more educated, aware and prudent, they look for innovative investment
instruments so that they are able to reduce investment risk, minimize transaction
costs and maximize returns along with certain level of convenience. As a result
there has been advent of numerous innovative financial instruments such as
bonds, company deposits, insurance and mutual funds.
utual funds score over all other investment options in terms of safety, li!uidity,
and returns and are as transparent, convenient as it can get.
"
Introduction to capital market
#ndia currently has two ma$or stock exchanges% &he 'ombay (tock )xchange and
the *ational (tock )xchange. &here are important different in ownership
structure, geographic reach, internal control systems and institutionalized risk
management facilities between the 'ombay (tock )xchange and the *ational
(tock )xchange. &he purpose of this study is to examine if these significant
structural differences between these stock exchanges contribute to variations in
observed measures of !uality of markets. We use a paired comparison approach
and document significant differences in li!uidity and price volatility between the
two markets.
Provision of li!uidity is the ma$or function of stock exchange. )xtant
research has focused on various measures of li!uidity in order to !uality the
!uality of li!uidity services. ore recently, research attention has focused on
comparing the relative efficacy of various trading systems and stock exchanges.
&he ma$or intent of such studies is to highlight the difference in the !uality
markets and to determine the basis for the observed variation.
While there has been plethora of studies concerning the !uality of stock
exchanges of developed countries, there has been negligible research attention
devoted to the comparative study of stock markets in emerging countries. (uch
research serves two useful purpose. +irst, they help to identify potential
efficiencies of the different markets and facilitate additional investment in them.
(econdly, it helps discretionary investors to choose the market with the lowest
transaction costs. &echnology has played an important role in how the markets are
structured and how the stock markets can compete between themselves. &his
paper concerns itself with recent developments in #ndian stock themselves. We try
to provide empirical evidence on measures of !uality of these stock exchanges.
&here have been important structural changes in the #ndian financial
sector. ,ne of them is the stock market reforms. 'ombay stock )xchange -'().
used to be the premier exchange in #ndia until "//0. the *ational (tock )xchange
1
-*(). began its operations in "//0 and has dramatically transformed the #ndian
stock markets
+rom the inception *() started stealing a march over '() both in terms
of trading performance and in establishing itself as the foremost stock exchange in
the country.
&hey pioneered a completely transparent computerized trading network,
which covers the entire country.
*() has within a short period of time, won popular acclaim. 2owever, it
is an empirical issue to determine if in fact, *() provides a better !uality market
compared to '(). &he primary aim of this pro$ect is to provide a methodology
and empirical regarding this important issue.
An Overview of Indian Capital Market
&he term capital market refers to the institutional arrangements for facilitating the
borrowing and lending of long term funds. #n widest sense, it consists of a series
of channels through which savings the community are available for industrial and
commercial enterprises and public authorities.

&he ma$or functions performed by a capital market are%
". obilization of financial resources on a nation wide scale.
1. (ecuring the foreign capital and know how to fill up the deficit in the
re!uired resources for economic growth at a faster rate.
3. )ffective allocation of the mobilized financial resources, by directing
the same to pro$ects yielding highest yield or to the pro$ects needed to
promote balanced economic development.
In this Chapter we study the different investment instruments and tock
e!chan"e in india which are commonly known as Mutual #unds$ hares$
N%$&% etc
3
'() MUTUA* #UND
A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with the stated ob$ective. A
mutual fund uses the money collected from investors to buy those assets, which
are specifically permitted by its stated investment ob$ective.
A mutual fund is an entity that pools the money of many investors4its unit
holders4to invest in different securities. #nvestment may be in shares, debt
securities, money market securities or a combination of these.
A mutual fund is a trust that pools the savings of a number of investors who share
a common financial goal. Anybody with an investment decision buys units of a
particular mutual fund scheme that has a defined investment ob$ective and
strategy.
&he money thus collected is then invested by the fund manager in different types
of securities. &he income earned through these investments and the capital
appreciation realized by the scheme is shared by its unit holders in proportion to
the number of units owned by them.
utual funds are one of the best investments ever created because they are very
cost effective and very easy to invest in. 'y pooling money together in a mutual
fund, investors can
purchase stocks or bonds with much lower trading costs than if they tried to do it
on their own.
A mutual fund is the ideal investment vehicle for today5s complex and modern
financial scenario. arkets for e!uity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets have become mature and
information driven.
0
While the concept of individuals coming together to invest money collectively is
not new, the mutual fund in the present form is a 16
th
century phenomenon. &hus a
mutual fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost.
+ITOR, O# MUTUA* #UND
utual funds have come a long way in the #ndian capital market, since "/70. the
years and with each passing month, there is an increasing amount of choice for
investors. &he development of the #ndian capital market too has helped this. #t has
made investors realize that in many cases, it makes more sense to go through a
mutual fund rather than invest directly into different avenues.
2owever, it has been a tough time for the industry over the last decade as there
have been several hiccups on the way. A fall in the e!uity markets compounded
matters as e!uity funds as a class of investment went out of the public5s gaze. &he
comeback has been slow but steady. *ow with the e!uity markets in full bloom,
the e!uity 8oriented funds are merry while the debt funds are down in the dumps.
The mutual fund industry in India started in '-./ with the formation of Unit
Trust of India 0UTI)$ at the initiative of the 1overnment of India and Reserve
&ank of India 0R&I)(
The history of mutual funds in India can 2e 2roadly divided into
four distinct phases3
#irst 4hase 0'-.56'-78)
#n "/73, an Act of Parliament established 9nit &rust of #ndia. ,perationally 9nit
&rust of #ndia was set up by the Reserve 'ank of #ndia to serve as an investment
vehicle for small investors. #n "/70, 9nit &rust of #ndia was delinked from R'#
and launched its first scheme:the unit570scheme. At the end of "/;;, 9&# had Rs.
7<66 crores of assets under management.
=
econd phase 0'-786'--/)
- )ntry of Public (ector +unds.
"/;< marked the entry of non:9&#, public sector mutual funds set up by the
public sector banks and >ife #nsurance ?orporation of #ndia ->#?. and @eneral
#nsurance ?orporation of #ndia -@#?.. (tate 'ank of #ndia -('#. mutual fund was
the first non:9&# mutual fund established in Aune "/;<. +rom four players in "/;=
the number increased to eight in "//3.
>#? established its mutual funds in "/;/ while @#? had set up its mutual fund in
"//6. At the end of "//3, the mutual fund industry had assets under management
of Rs.0<66 crores.
Third 4hase 0'--/69::/)
-)ntry of Private (ector +unds.
A new era in mutual fund industry began with the permission granted for the entry
of private sector funds in"//3, giving the #ndian investors a broader choice of
funds and increasing competition for the existing public sector funds. Bothari
Pioneer was the first private sector fund set up in Auly "//3. Also, "//3 was the
year in which the first mutual fund Regulation came into being, under which all
mutual funds, except 9&# were to be registered and governed. &he "//3 ()'#
-utual +und. Regulations were substituted by a more comprehensive and
revised mutual fund Regulations in "//7.At the end of 1663, there were 33
mutual funds with total assets of Rs."1";6= crores.
T,4% O# MUTUA* #UND
'( ACCORDIN1 TO IN;%TM%NT O&<%CTI;%
utual funds come in all shapes and sizes there are three basic types of such
funds%
". @rowth +unds
1. #ncome +unds
3. 'alanced +unds
7
0a) 1rowth=%>uity oriented scheme3 6
&hese schemes seek to invest a ma$ority of their funds in e!uities and a
small portion in money market instruments. &hese funds seek to provide growth
of capital with secondary emphasis on dividend. (uch schemes have the potential
to deliver superior returns over the long term because the market boom and
depression phases get evaded out over a longer time span. 2owever, because they
invest in e!uities, these schemes are exposed to fluctuations in value especially in
the short:term. )!uity schemes are hence not suitable for investors seeking regular
income or needing to use their investments in the short:term. &hey are ideal for
investors who have a long:term investment horizon.
02)( Income=De2t Oriented cheme3 6
&he aim of the income fund is to provide regular and steady income to
investors. (uch schemes generally invest in fixed income securities such as bonds,
corporate, debentures, government securities and money market instruments.
(uch funds are less risky compared to e!uity schemes. &hese funds are not
affected because of fluctuation in e!uity markets. 2owever, opportunities of
capital appreciations are also limited in such funds. &he *AC of such funds are
affected because of change in interest rates in the country. #f the interest rates fall,
*AC of such funds are likely to increase in the short run and vice versa.
2owever, long:term investors may not bother about these fluctuations.
0c)( &alanced cheme3 6
&hese are also known, as 2ybrid (chemes. &hese balanced schemes
aim to provide both growth and regular income. (uch schemes periodically
distribute a part of their earning and invest both in shares and fixed income
securities in the proportion indicated in their offer documents.
#n a rising stock market, the *AC of these schemes may not normally keep pace,
or fall e!ually when the market falls.
<
9( Accordin" to structure
0a) Open6ended cheme
An open:ended fund or scheme is one that is available for subscription and
repurchase on a continuous basis. #nvestors can conveniently buy and sell units at
*et Asset Calue -*AC. Related prices, which are declared on a daily basis. (uch
schemes thus offer very high li!uidity to investors and are becoming increasingly
popular in #ndia. &hese schemes have unlimited capitalization, open:ended
schemes do not have a fixed maturity:i.e. there is no cap on the amount you can
buy from the fund and the unit capital can keep growing. &hese funds are not
generally listed on any exchange. ,pen:ended funds are bringing in a revival of
the mutual fund industry owing to increased li!uidity, transparency and
performance in the new open:ended funds promoted by the private sector and
foreign players.
02) Close?ended cheme
(chemes that have a stipulated maturity period e.g. =:< years, limited
capitalization and the units are listed on the stock exchange are called close 8
ended scheme. &he fund is open for subscription only during a specified period at
the time of launch of the scheme. #nvestors can invest in the scheme at the time of
the #nitial public issue and thereafter they can buy or sell the units of the scheme
on the stock exchanges where the units are listed.
;
C*A ACT
#n the mutual fund business (pecialization is the name of the game. >ike
in e!uities, where many special 8purpose funds have emerged, the debt market
has also seen the evolution of various types of funds designed to suit the interests
of different classes of investors. &he year 1660 saw a lot of attention given to
floating rate income funds. &he distention lies in the instruments these funds
invest in. there are various types of debt instruments like corporate bonds,
commercial paper and government debt short 8term or long 8term. &he difference
among these instruments is in the workings of the fund. &he issuer associated with
the instrument and its interest yield. &he universe of #ndian debt funds can be
broadly classified into the following categories%
' Cash and li>uid funds
&hese funds invest in the shot end of the debt market with the
average maturity of the portfolio being less than one year . &he entire
fund could be in the call money market in the event of interest rate being
volatile.
&hese funds are invested in various instruments like & bills, commercial
paper, certificate of deposits, call money ,bonds of +ls -financial
institutions. and P(9s -public sector units ., corporate debt, etc.
?ash funds arc targeted at big:ticket investors and ?orporate who
have surplus cash to park with these funds for a few days. &he returns
from these funds are better than a "=: or 36:day hank deposit. 'esides,
cash funds now offer daily, weekly fortnightly and monthly dividends.
Which is tax:free in the hands of #nvestorsD
/
9 hort6 term funds
&hese funds also invest at the sort:term end of the Eield curve but
only in government securities. &he average maturity of the portfolio in
short
:
term funds could vary between one to two years .Returns in short:
term funds are higher then those of cash funds especially in a falling
interest rate scenario. (hort8term funds have given an average return of
0." percent in the past one year as on Fecember 3, 1663
/ #loatin" rate income funds
A normal income fund invests in high !uality debt papers of
companies and the government. ost of these debt papers carry a fixed
coupon rate for paying interest. (o, the funds earn a fixed predetermined
interest over the tenure of the bonds. (o, if fund GAG had say, invested Rs
" lakh in ;H bonds, it would earn Rs ;,666 every year as interest till the
end of the tenure. (uch fixed:interest bearing papers show greater
vacillations in their prices than a floating:rate bearing paper, when
interest rates move up or down. Why is that soD &his is because in the
case of the former, there are no provisions for ad$usting future interest
rate payments.
&his would mean that if the interest rate for a similar rated
corporate paler rises to /H per annum, the company which issued debt
papers still continues paying interest at ;H per annum. &o reflect current
trends, the market price of the bond falls to effectively yield /H, per
annum for new debt investors. +loating: rate income funds, by contrast,
invest primarily in bonds whose coupon rates change over the tenure
wi t h the market rate. As a result, their coupon rates change during the
tenure. #n sync with market rates. &his, to a certain extent reduces the
interest rate risk of the debt portfolio
"6
5( Medium6term de2t funds
edium:term debt funds have emerged as the most popular
investment vehicle for investors after t h e collapse of the fixed deposit
market. While bank deposits, assured:return schemes and bonds offer a
number ofG advantages, they fail on the parameter of li!uidity.
,pen:end debt funds combine returns with tax concessions and
li!uidity of investment. Returns in medium:term debt funds are higher
than short:term gilt and cash funds. An investor call gets money back in
0; hours. Another sphere where income funds score over other fixed
income avenues is indexation. #ndexation gives you inflation:ad$usted
returns and hence, brings down your tax liability. Febt funds invest in
various debt instruments including corporate bonds and debentures,
government securities, floating rate bonds, commercial paper and debt
mobilisation through private placements. Febt funds are hampered by
li!uidity, credit and interest rate risks. (ince these funds normally put a
large portion of their investments in corporate debt, li!uidity could pose
a problem. &he problem of li!uidity increases as the credit !uality of the
paper deteriorates
@( *on"6term "ilt funds
As the name suggests, these funds Put a bulk of their money in
long:dated government securities. &he average maturity profile varies,
depending on the interest rate movement. &hese funds mark "66 per cent
of their investments to market, as gilts are the mast li!uid instruments in
the #ndian debt market. hence any interest rate movement will impact
these funds first. #f a medium or long:term gilt fund is caught unawares
due to a sudden rise in interest rates, their *AC will he the worst hit
among all debt funds &his is exactly what has happened in the last few
""
months. At the same time, the high li!uidity in gilts makes these funds
very agile.
2ere again, the medium:to:long term varies from fund to fund for
instance it could be <6 per cent of investments in gills with maturity ofG
over one year id the rest ill those with maturity of less than one year.
)ven the definition of maturity could vary if the fund specifies the
duration -cash flow:ad$usted maturely. and not average maturity. &here
are also gilt funds which also give
,
an exclusive option to provident fundG,
-P+s. and normally have the longest maturity profile since P+ investments
are long:term in nature.
@ill hinds give retail investors an opportunity to invest in
government securities where otherwise the minimum lot is Rs = crore.
2owever, so far, response to gilt hinds has been largely come from
corporates with retail investors confined to medium:term funds.debt
.( Monthly income plan with mar"inal e>uity allocation
A new category of open:end monthly income plans -#Ps. has
gained prominence with the launch of several such schemes by most of the
leading funds ill the market. #tGs a rave with lots of fund houses launching
#Ps schemes with ill increasing e!uity flavour. &hese #P take around
"=:1= per cent exposure to e!ualities, which acts as a kicker to returns,
with tile rest in debt instruments. &he popularity of this product is oil the
rise vis:a:vis a "66 per cent debt fund due to falling interest rates and poor
returns emanating from debt markets.
?losed:end #P with assured returns were in vogue in the past with 9&l
launching series of assured:return #Ps 'ut the subse!uent bearing its
return took led to the launch of #P fund by private sector funds without
any assurance of returns. #n 1663, the "PG fund #P,s floated by fund.
"1
&enefits of Mutual #unds3
&here are numerous benefits of investing in mutual funds and one of the key
reasons for its phenomenal success in the developed markets like 9&( and 9B is
the range of benefits they offer, which are unmatched by most other investment
avenues.
4rofessional Mana"ement3 6 #nstead of making decisions based on
gut:feel or what one has heard from others, when an investor buys into a
mutual fund, he simply leaves his investments in the expert hands of
Professional fund managers, who invest this money on the basis of minute
analysis and astute investment strategies. With their skill and experience at
work, one5s money ends up in the relevant assets.
Diversification3 6 #t is a well known fact that one way of ensuring safe
investments is to spread them out over various instruments, securities, and
locations and so on. utual funds, by virtue of their structure, offer
investors precisely this benefit of diversification. &his diversification
reduces the risk because seldom do all stocks decline at the same time and
in the same proportion.
Convenient Administration% : #nvesting in a mutual fund reduces
paperwork and helps you avoid many problems such as bad deliveries,
delayed payments and follow up with brokers and companies. utual fund
saves your time and makes investing easy and convenient.
Return 4otential3 6 Returns in the mutual funds are generally better
than any other option in any other avenue over a reasonable period of
time. People can pick their investment horizon and stay put in the chosen
fund for the duration. &hough they are affected by the interest rate risk in
general, the returns generated are more as they pick securities with
different duration that have different yields and so are able to increase the
overall returns from the portfolio.
"3
*ow Costs3 6 utual +unds offer a relatively less expensive way to
invest when compared to other avenues such as capital market operations.
&he fee in terms of brokerages, custodial fees and other management fees
are substantially lower than other options and are directly linked to the
performance of the scheme.
*i>uidity3 6 #nvestment in a mutual fund is very li!uid. An investor can
li!uidate the investment, by selling the units to the fund if open end, or
selling them in the market if the fund is closed end and collect funds at the
end of a period specified by the mutual fund or the stock market.
Transparency3 #nvestors get regular information about the value of his
investment in addition to disclosure on the specific investment made by a
scheme and the proportion invested in each class of assets and the fund
manager5s investment strategy and outlook.
#le!i2ility3 6 utual fund offering multiple schemes allows investors to
switch between various schemes. &his flexibility gives the investor a
convenient way to change the mix of his portfolio over time.
Afforda2ility3 6 #nvestors individually may lack sufficient funds to
invest in high:grade stocks. A mutual fund because of its large corpus
allows even a small investor to take the benefit of its investment.
Choice of chemes3 6 utual fund offers a tremendous variety of
schemes. &his variety is beneficial in two ways% #t offers different types of
schemes to investors with different needs and risk appetites.#t offers an
opportunity to an investor to invest sums across a variety of
schemes.
"0
Aell Re"ulated3 6 All utual +unds are registered with ()'#, and
()'# acts a watchdog, so the utual +unds are well regulated. (ecurities
)xchange 'oard of #ndia -()'#. has clearly defined rules, which govern
mutual funds. &hese rules relate to the formation, administration and
management of mutual funds .
RIB %M&%DD%D IN MUTUA* #UND
IN;%TM%NT
0a)The Risk Return Trade6Off
&he most important relationship to understand is the risk:return
trade:off. 2igher the risk greater the returnsIloss and lower the risk lesser the
returnsIloss.
2ence, it is up to the investor to decide how much risk he is willing to take. #n
order to do this one must first be aware of the different types of risks involved
with his investment decision.
02) 4olitical= "overnment 4olicy Risk
?hanges in government policy and political decision especially
with regard to the tax benefits may impact the business prospects of the
companies leading to an impact on the investments made by the fund.
&hey can create a favorable environment for investment or vice:versa. &herefore,
stable monetary and fiscal policies are crucial to sustain a propitious investment
environment.
0c) *i>uidity Risk
>i!uidity risk arises when it becomes difficult to sell the securities that
one has purchased. >i!uidity Risk can be partly mitigated by diversification,
"=
staggering of maturities as well as internal risk controls that lean towards
purchase of li!uid securities.
0d) %ffect of *oss of Bey 4rofessionals and Ina2ility to Adapt
An industriesG key asset is often the personnel who run the business i.e.
intellectual properties of the key employees of the respective companies. @iven
the ever:changing complexion of few industries and the high obsolescence levels,
availability of !ualified, trained and motivated personnel is very critical for the
success of industries in few sectors. #t is, therefore, necessary to attract key
personnel and also to retain them to meet the changing environment and
challenges the sector offers.
+ailure or inability to attractIretain such !ualified key personnel may impact the
prospects of the companies in the particular sector in which the fund invests.
0e) %!chan"e Risks
A number of companies generate revenues in foreign currencies
and may have investments or expenses also denominated in foreign currencies.
?hanges in exchange rates may, therefore, have a positive or negative impact on
companies which in turn would have an effect on the investment of the fund.
0f)Investment Risk
&he sectoral fund schemes, investments will be predominantly in
e!uities of select companies in the particular sectors. Accordingly, the *AC of the
schemes are linked to the e!uity performance of such companies and may be
more volatile than a more diversified portfolio of e!uities.
"7
0") Risk Tolerance
&ypically, risk is defined as short:term price variability. 'ut on a
long:term basis, risk is the possibility that one5s accumulated real capital will be
insufficient to meet his financial goals.
"<
CONTITU%NT O# MUTUA* #UND
Dia"ram /
'( ponsor36
What a promoter to a company, a sponsor is to a mutual fund. J(ponsorK is
defined under ()'# Regulations as any person who is acting alone or in
combination with another body corporate, establishes a mutual fund. &he sponsor
initiates the idea to set up a mutual fund. #t could be registered company,
scheduled bank or financial institution.
9( Trustees36
&rustees are like internal regulators in a mutual fund, and their $ob is to
protect the interest of the unit holders. &rustees are appointed by sponsors, and
can either be individuals or corporate bodies. #n order to ensure they are impartial
";

and fair, ()'# rules mandate that at least two third of the trustees be independent
i.e. not having any association with the sponsor.
&rustees float and market schemes and secure necessary approvals. &hey check if
the asset management company5s investments are within defined limits and
whether the fund5s assets are protected. &rustees can be held accountable for
financial irregularities in the mutual fund.
3. Asset Mana"ement Company 0AMC)36
An Asset anagement ?ompany is the entity formed by the sponsor to run
a mutual fund. #t5s the A? that employs fund managers and analysts, and other
personnel. #t5s the A? that handles all operational matters of a mutual fund:
from launching schemes to managing them to interacting with investors. #t also
exercises due diligence on investments, and submits !uarterly reports to the
trustees. &he people in the A? who should matter the most to you are those who
take investment decisions. &here is the head of the fund house, generally referred
to as ?hief )xecutive ,fficer -?),.. 9nder him comes the ?hief #nvestment
,fficer -?#,., who shapes the fund5s investment philosophy, and fund managers,
who manages its schemes. A team of analysts, who track market, sectors and
companies, assists them.
5( Custodian3
A custodian handles the investment back office of a mutual fund. #ts
responsibilities include receipt and delivery of securities, collecting income:
distributing dividends, segregating assets and settlement between schemes. &he
sponsor of a mutual fund cannot act as a custodian to the mutual fund. &his
condition, formulated in the interest of the investors, ensure that the assets of a
mutual fund are not in the hands of its sponsors.
"/
@( Re"istrar3
Registrar also known as &ransfer Agents handles all investor related
services. &his includes issuing and redeeming units, sending fact sheets and
annual reports. (ome fund houses handle such functions in house, others
outsource it to registrar. ost mutual funds, in addition to registrar, also have
investor service centers of their own in some cities.
1. +AR%
(hares are also known as e!uity. #ssue of shares is the most important source of
raising long term finance. (hares refer to a share in the share capital of a
company. #t is one of the units into which the share capital of company can be
divided. #t indicates the interest in the assets and profits of a company.
According to <ustice #arewell, a share is the interest of the shareholder in the
company measured by a sum of money for the purpose of liability and of
interest-dividend..
'( %>uity share
)!uity shares are those shares which do not carry special or preferential
rights in the payment of annual dividend or repayment of capital, rate of dividend
on such shares is not fixed.
9( 4reference shares
Preference shares are those shares which carry certain special or priority rights.
16
+irstly dividend at fixed rate is payable on these shares before any dividend is
paid on e!uity shares. (econdly at the time of winding up of the company capital
is repaid to preference shareholders prior to the return of e!uity capital.
/() T+% &OM&A, TOCB %CC+AN1%
The &om2ay tock %!chan"e *imited -formerly, &he (tock )xchange,
umbaiL popularly called &he 'ombay (tock )xchange, or '(). is the oldest
stock exchange in Asia. #t is located at Falal (treet, umbai, #ndia.
'ombay (tock )xchange was established in ";<=. &here are around 3,=66 #ndian
companies listed with the stock exchange, and has a significant trading volume.
As of Auly 166=, the market capitalization of the '() was about Rs. 16 trillion
-9( M 077 billion.. &he '() ()*()N -()*(itive ind)N., also called the '()
36, is a widely used market index in #ndia and Asia. As of 166=, it is among the =
biggest stock exchanges in the world in terms of transactions volume. Along with
the *(), the companies listed on the '() have a combined market capitalization
of 9(M "1=.= billion
1"
'ombay (tock )xchange >imited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as O'()O, it was established as O&he *ative (hare P
(tock 'rokers AssociationO in ";<=. #t is the first stock exchange in the country to
obtain permanent recognition in "/=7 from the @overnment of #ndia under the
(ecurities ?ontracts -Regulation. Act, "/=7.&he )xchangeGs pivotal and pre:
eminent role in the development of the #ndian capital market is widely recognized
and its index, ()*()N, is tracked worldwide. )arlier an Association of Persons
-A,P., the )xchange is now a demutualised and corporative sentity incorporated
under the provisions of the ?ompanies Act, "/=7, pursuant to the '()s
-?orporatisation and Femutualization. (cheme, 166= notified by the (ecurities
and )xchange 'oard of #ndia -()'#..
With demutualization, the trading rights and ownership rights have been de:linked
effectively addressing concerns regarding perceived and real conflicts of interest.
&he )xchange is professionally managed under the overall direction of the 'oard
of Firectors. &he 'oard comprises eminent professionals, representatives of
&rading embers and the anaging Firector of the )xchange. &he 'oard is
inclusive and is designed to benefit from the participation of market
intermediaries.
#n terms of organization structure, the 'oard formulates larger policy issues and
exercises over:all control. &he committees constituted by the 'oard are broad:
based. &he day:to:day operations of the )xchange are managed by the anaging
Firector and a management team of professionals.
&he )xchange has a nation:wide reach with a presence in 0"< cities and towns of
#ndia. &he systems and processes of the )xchange are designed to safeguard
market integrity and enhance transparency in operations. Furing the year 1660:
166=, the trading volumes on the )xchange showed robust growth.
11
&he )xchange provides an efficient and transparent market for trading in e!uity,
debt instruments and derivatives. &he '()Gs ,n >ine &rading (ystem -',>&. is a
proprietary system of the )xchange and is '( <<//:1:1661 certified. &he
surveillance and clearing P settlement functions of the )xchange are #(,
/66"%1666 certified.
+ITOR,3
An informal group of 11 stockbrokers began trading under a banyan tree opposite
the &own 2all of 'ombay from the mid:";=6s, each investing a -then. princely
amount of Rupee ". &his banyan tree still stands in the 2orniman ?ircle Park,
umbai. &he informal group of stockbrokers organized themselves as the &he
*ative (hare and (tockbrokers Association which, in ";<=, was formally
organized as the &om2ay tock %!chan"e 0&%).
#n Aanuary ";//, the stock exchange moved into the 'rokers5 2all after it was
inaugrated by Aames aclean. After the +irst World War, the '() was shifted
to an old building near the &own 2all. #n "/1;, the plot of land on which the '()
building now stands -at the intersection of Falal (treet, 'ombay (amachar arg
and 2ammam (treet in downtown umbai. was ac!uired, and a building was
constructed and occupied in "/36.
Premchand Roychand was a leading stockbroker of that time, and he assisted in
setting out traditions, conventions, and procedures for the trading of stocks at
'ombay (tock )xchange and they are still being followed.
(everal stock broking firms in umbai were family run enterprises, and were
named after the heads of the family. &he following is the list of some of the initial
members of the exchange, and who are still running their respective business.
F.(. Prabhudas P ?ompany -now known as F(P, and a $oint venture partner with
errill >ynch.
13
Aamnadas orar$ee -now known as A.
?hampaklal Fevidas -now called ?ifco +inance.
'ri$mohan >axminarayan
#n "/=7, the @overnment of #ndia recognized the 'ombay (tock )xchange as the
first stock exchange in the country under the (ecurities ?ontracts -Regulation.
Act.
&he '() moved into its current premises : the Phiroze Aee$eebhoy &owers : in
"/;6. &he 'ombay (tock )xchange followed the familiar outcry system for stock
trading up until "//=, when it was replaced by an electronic -e&rading. system
named ',>&, or the '() ,nline &rading system. #n 166=, the status of the
exchange changed from an Association of Persons -AoP. to a full fledged
corporation under the '() -?orporatization and Femutualization. (cheme, 166=
-and its name was changed to The &om2ay tock %!chan"e *imited
&% %N%C
&he '() ()*()N -also known as the '() 36. is a value:weighted index
composed of 36 scrips, with the base April "/</ Q "66. &he set of companies
which make up the index has been changed only a few times in the last 16 years.
&hese companies account for around one:fifth of the market capitalization of the
'().
'() : other #ndices
Apart from '() ()*()N, which is the most popular stock index in #ndia, '()
uses other stock indices as well%
=66"66
'() =66
10
'()P(9
'()#F?AP
'()(>?AP
'()'A*B)N
%N%C 6 T+% &AROM%T%R O# INDIAN CA4ITA*
MARB%T
+or the premier (tock )xchange that pioneered the stock broking activity in #ndia,
"1; years of experience seems to be a proud milestone. A lot has changed since
";<= when 3"; persons became members of what today is called O&he (tock
)xchange, umbaiO by paying a princely amount .
(ince then, the countryGs capital markets have passed through both good and bad
periods. &he $ourney in the 16th century has not been an easy one. &ill the decade
of eighties, there was no scale to measure the ups and downs in the #ndian stock
market. &he (tock )xchange, umbai -'(). in "/;7 came out with a stock index
that subse!uently became the barometer of the #ndian stock market.
()*()N is not only scientifically designed but also based on globally accepted
construction and review methodology. +irst compiled in "/;7, ()*()N is a
basket of 36 constituent stocks representing a sample of large, li!uid and
representative companies. &he base year of ()*()N is "/<;:</ and the base
value is "66. &he index is widely reported in both domestic and international
markets through print as well as electronic media.
&he #ndex was initially calculated based on the O+ull arket ?apitalizationO
methodology but was shifted to the free:float methodology with effect from
(eptember ", 1663. &he O+ree:float arket ?apitalizationO methodology of index
construction is regarded as an industry best practice globally. All ma$or index
1=
providers like (?#, +&(), (&,NN, (PP and Fow Aones use the +ree:float
methodology.
Fue to is wide acceptance amongst the #ndian investorsL ()*()N is regarded to
be the pulse of the #ndian stock market. As the oldest index in the country, it
provides the time series data over a fairly long period of time -+rom "/</
onwards.. (mall wonder, the ()*()N has over the years become one of the most
prominent brands in the country.
&he growth of e!uity markets in #ndia has been phenomenal in the decade gone
by. Right from early nineties the stock market witnessed heightened activity in
terms of various bull and bear runs. &he ()*()N captured all these events in the
most $udicial manner. ,ne can identify the booms and busts of the #ndian stock
market through ()*()N.
%N%C CA*CU*ATION M%T+ODO*O1,
()*()N is calculated using the O+ree:float arket ?apitalizationO methodology.
As per this methodology, the level of index at any point of time reflects the +ree:
float market value of 36 component stocks relative to a base period. &he market
capitalization of a company is determined by multiplying the price of its stock by
the number of shares issued by the company. &his market capitalization is further
multiplied by the free:float factor to determine the free:float market
capitalization.
&he base period of ()*()N is "/<;:</ and the base value is "66 index points.
&his is often indicated by the notation "/<;:</Q"66. &he calculation of ()*()N
involves dividing the +ree:float market capitalization of 36 companies in the
#ndex by a number called the #ndex Fivisor. &he Fivisor is the only link to the
original base period value of the ()*()N. #t keeps the #ndex comparable over
time and is the ad$ustment point for all #ndex ad$ustments arising out of corporate
actions, replacement of scrips etc. Furing market hours, prices of the index scrips,
17
at which latest trades are executed, are used by the trading system to calculate
()*()N every "= seconds and disseminated in real time.
5() NATIONA* TOCB %CC+AN1%
A2out N%
&he national (tock )xchange -*(). is #ndia5s leading stock exchange
covering various cities and towns across the country. *() was set up by leading
institutions to provide a modern, fully automated serene:based trading system
with national reach. &he exchange has brought about unparallel that transparency,
speed P efficiency, safety and market integrity. #t has set up facilities that serve as
a model for the securities industry in terms of system, practices and procedures.
*() has played a catalytic role in reforming the #ndian securities market
in terms of microstructure, market practices and trading volumes. &he market
today use stat:of:art information technology to provide an efficient an transparent
trading, clearing and settlement mechanism, and has witnessed several
innovations in products P services viz. demutualization of stock exchange
governance, screen based trading, compression of settlement cycles,
dematerialization and electronic transfer of securities, securities lending and
borrowing, professionalisation of trading members, fine:tuned risk management
system, emergence of clearing corporations to assume counterparty risk, market
of debt and derivative instruments and intensive use of information technology.
*() is the newcomer in the financial market scene in #ndia. &he impetus
for its establishment RhadS came from makers in the country. Who had in mind to
set up facilities Rthat wouldS serve as a model for the securities industry in term of
trading systems, practices and procedures.
&he exchange was founded as recently as "//0. the *() Wholesale Febt
market started its operations on Aune 36, "//0 while the *() ?apital arket
segment started on *ovember 3, "//0. in "//7, *() set up the settlement
@uarantee +und, and launched indices like *#+&E -*():=6 #ndex., *#+&E
Aunior -idcap:=6 #ndex. and F)+&E #ndex -Foller denominated *ifty #ndex..
1<
,ne important differentiation of *() from other exchanges in #ndia is that
in *(), the ownership and management of the exchanges is completely manages
the exchange. &he board reports to an )xecutive committee, which includes
representative from the &rading embers, the public and the management,
delegate5s decisions relating to market operations. +urthermore, the exchange
operates various committee to advise it on areas such as good market practices,
settlement procedures, risk containment system etc. industry professionals,
trading embers and exchange staff manages these committees. &he day:to:day
management of the exchange is delegated to the anaging Firector who is
supported by a team of professional staff.
&hese institutional features present a breath of fresh air to he general trend
in #ndian stock exchanges, whereby membership on an exchange also meant
ownership of the exchange. A separation of the above should prevent clash of
interests in the part of the memberImanagement, when safeguarding the investing
public5s welfare.
The or"aniDation of N%
&he *ational (tock )xchange of #ndia >imited has genesis in the report of the
2igh (tudy @roup on )stablishment of *ew (tock )xchanges, which
recommended promotion of a *ational stock )xchange by financial institutions
-+#s. to provide access to investors from all across the country on an e!ual
footing. 'ased on the recommendations, *() was promoted by leading +inancial
#nstitutions at the recommendations, *() was promoted by leading +inancial
#nstitutions at the behest of the government of #ndia and was incorporated in
country. *() was a new exchange owned by #F'#, 9&# and other public sector
institutions. *() is a securities exchange, which marks a radical break with the
past.
&he regime in which trading on *() operates is characterized by four key
innovations%
". &he physical floor was replaced by anonymous, computerized order
matching with strict price:time priority.
1;
1. &he limitations of being in 'ombay, and the limitations of #ndia5s public
telecom network, were avoided by using satellite communications. &oday,
*() is a network of 1666 satellite terminals at locations all over #ndia. ,n
a typical day, 3=66 traders login to the trading computer over this network.
&his is larger than the capacity of largest trading floors in the world.
3. &he conflicts of interest, and lack of focus associated with exchanges run
by brokers were eliminated using a new form of exchange organization.
*() is a limited liability company, and brokers are franchisees. 'rokers
do not own *(), hence *()5s staff is free of pressures from brokers and
is better able to perform regulatory and enforcement functions.
0. traditional practices, of unreliable fortnightly settlement cycle with the
escape clause of badla were replace by strict weekly settlement cycle
without badla.
,n its recognition as a stock exchange under the (ecurities ?ontracts
-Regulation. Act, "/=7 in April "//3, *() commenced operations in the
Wholesale Febt arket -WF. segment in Aune "//0. &he capital arket
-)!uities.segment commenced operations in *ovember "//0 and operations in
Ferivatives segment commenced in Aune 1666
&enefits of esta2lishin" N%
'( Transparency3 user could look at a price on a computer screen
before placing an order.
9( Anonymity3 )lectronic trading is completely transparent about price
and !uantities, and completely opa!ue about identities. &he trading
importance of cartels and market manipulation on #ndia5s e!uity market
greatly diminished owing to the completely anonymous trading
environments.
/( Competition in the 2rokera"e industry3 &he rise of *() led to
the entry of "666 new brokerage firms. &his eliminated the profits that had
been sustained at the '() by restricting entry into the brokerage fees.
1/
5( Operational efficiency3 Automation eliminated the vagaries of
manual trading.
@( 1ains outside &om2ay3 9ser outside 'ombay, who faced many
intermediaries on their $ourney to the '() floor, benefited even more than
users in 'ombay. *()5s satellite:based trading gave e!ual access to the
trading floor from all locations in #ndia, and was a ma$or impetus to
financial sector development in cities outside 'ombay.
36
R%;I%A *IT%RATUR%
Charls chwa26E 09:::) revealed very practical, authoritative and easy:to:follow
tips and suggestions for good investment in the stock market. According to him
growth is the heart of successful investment. 2e suggested that before investing,
one should be clear about the goal.. 2e opined that the biggest risk is not in
investing but in doing nothing and watching inflation eating away the savings. A
very useful suggestion of the author is not to draw upon the income from
investment but to reinvest it. A low risk approach will yield low return. (o the
author urged the investor to be aggressive, sub$ect to his personal limits.
CRII* Report on Risk Mana"ement59 09::') stated that the loss potential
from market risk will increase in the absence of strong risk management tools.
&he banks which adopt a pro:active approach to upgrading risk management
skills which are currently unsophisticated as compared to internationally best
practices, would have a competitive edge in future. &he report commented that in
the increasingly deregulated and competitive environment, the risk management
strategies of banks would hold the key to differentiation in their credit worthiness.
Ra"havan R(( 5/ 09::9) reviewed the need for a risk management system,
which should be a daily practice in banks. 2e opined that bank management
should take upon in serious terms, risk management systems, which should be a
daily practice in their operations. 2e is very much sure that the task is of very
high magnitude, the commitment to the exercise should be visible, failure may be
suicidal as we are exposed to market risks at international level, which is not
under our control as it was in the insulated economy till sometime back.
uresh(1(*alwani and Ravindra 1ersappa 5E09::/) emphasised the need for a
greater consciousness of the risks attached to a fixed income securities portfolio,
as the market in a situation of crunch can suddenly turn illi!uid. (ome concrete
steps to put in place a mechanism to evaluate and seek to control the market risk
3"
would be necessary. &hey opined that the pursuit of profits often leads to a degree
of recklessness that conveniently disregards the direct correlation between risk
and profits. &hey concluded that a risk management mechanism could be looked
as a tool to until discipline in any trading activity. #t is a surveillance tool for
constant monitoring of the market prices so as to forewarn against the
unacceptable levels of risk on positions maintained.
Report 2y the I(%58 0The Investi"ation %nforcement and urveillance)
Department of the %&I 09::5) states that in spite of some instances of high
volatility, the #ndian markets have remained stable and safe. #t is observed that the
#ndian securities market has been witnessing a downtrend and instances of
volatility. 'ut the downtrend and the fall in the sensex are in consonance with the
fall in the indices of the ma$or capital markets around the world. According to the
Report, the downtrend in the sensex could be attributed to:
#. Rise in the oil prices in the global markets leading to increase in oil pool
deficit.
1. Fownward pressure on the #ndian Rupee.
3. +ears of economic slowdown as indicated by the key economy indicators.
0. Revival of competitive economies such as alaysia and possibility of shifting
some foreign investments to these countries etc. &he report concluded that the risk
containment measures along with the proactive measures taken by the ()'# from
time to time has ensured that the level of safety remained ade!uate and there were
no constraints on the settlement process.
<ayanth M Thakur<E9::.) disclosed the implications of derivatives. &he use of
derivatives can be for safeguarding oneself against risks. #t is widely recognized
by all including the ()'# committee on derivatives that a substantial degree of
speculative activity in a market for derivatives is necessary and without this, a
good market in derivatives cannot function. 2e revealed that the basic purpose of
providing a system for trading in derivatives is to enable a person to protect
himself against the risk of fluctuations in the market prices. &his is known as
31
hedging. 'ut he argued that it might lead to the bankruptcy of the grantor of an
option to buy as he takes a huge risk since the price could go upward to an
unlimited extent and still he would have to deliver the shares .&his is one of the
important reasons that the derivatives are criticized. 2e concluded the article by
suggesting that the ob$ective of the Regulator would be to provide protection to
all concerned.
AFay <aiswal 09::8) evaluated the implications of G)!uity Risk PremiumG. 2e
opined that investors look for a certain level of return for assuming the Grisk of
e!uities volatile returnG. &his level can be measured through the e!uity risk
premium. )!uity risk premium is the sum of the dividend yield and earnings
growth less current bond annual yield. 2e observed that the risk premium rose
very sharply towards the end of the last decade. &he expectations of the earnings
growth had moved up dramatically since "//;. 'ut in the last year we saw a fall
of the long:term growth expectations. 2e opined that a downturn is associated
with a fall in the profitability of the corporate sector. 2e argued that the e!uity
investments are not for the weak hearted, as the e!uity holders cannot escape the
impact of the movements in the capital market. We are headed for a period of
lower returns to the investors. 2e concluded that the scaling down of the return
expectations would reduce the chances of wild swings. And this would be better
for the health of the bruised e!uity investors.
1ere'a((T( and &alsara(B(A(/G 09::7) reviewed the risk management system at
the 'ombay (tock )xchange. &hey reported that the '() has strengthened the
risk management measures to maintain the market integrity. &he introduction of
the modified carry forward system, coupled with the ',>& -'ombay ,nline
&rade. expansion to cities all over #ndia has led to a significant increase in the
li!uidity and volumes at the exchange. As a conse!uence, the risk management
function at the '() has assumed greater importance. #n order to maintain the
market integrity and to avert payment defaults by the members, the exchange has
strengthened its risk management system by taking the following measures%
33
". All members are re!uired to maintain the base minimum capital of Rs."6 lakh
with the exchange.
9( As a risk management measure the exchange places trading restrictions on the
members.
/( &he exchange has prescribed a ceiling on the gross exposure of the members.
0. &he exchange collects from the members, daily margin, additional volatility
margin, incremental carry forward margin, etc.
=. &he exchange has constituted a risk management committee to put in place a
long:term risk management policy.
Melwyn Reo @909::-) reviewed the various risks to which the #ndian corporates
are exposed to and also the corporate risk management policies. 2e opined that
the corporates need to focus on their primary business risks and hedge risks
arising from commodity price movements. An appropriate level of risk for a
corporate is dependent on how much business and financial risk it is exposed to. A
corporate with volatile cash flows and high operational risk may find it
appropriate to take on less market risks. A corporate which is exposed to a
relatively lower business risk may feel more comfortable in taking on more
unhedged financial risk. 9ltimately, the corporate may decide to fix the total risk
appropriate to it as some percentage of its capita" base or the expected earnings.
2e opined that the corporates, despite their unlimited life span have limited
tolerance to price volatility. &he commodity price exposure should be fully
hedged because corporates face enough business risk and cannot afford to add
further risks. (ince all corporates are exposed to commodity price risk, they
should maintain a 'oard approved policy and procedures that outline its risk
management strategy. 2e concluded the article by stating that the underlying
ob$ective in any risk management policy should meet the aspirations of the e!uity
holders.
The %conomic Times InvestorsG year &ook@H09O':)commented on the
OPaperless World and described what makes dematerialisation the preferred
30
choice and how it reduces risk. &he dematerialised trading was introduced in #ndia
in "//7 to reduce pains and risks in settlement through the loss of share
certificates in transit, bad deliveries, delays in transfer and forgedIfakeIsto#en
certificates. #t helps in doing away with the risk of loss in transit by directly
crediting the account with bonus shares and rights. &here is no risk of bad
delivery because the ownership status is clearly captured in the FepositoryGs
computers.
3=
R%%ARC+ M%T+ODO*O1,
TAT%M%NT O# T+% 4RO&*%M
&he investment practical of individuals are dynamic in nature. &hey change due to
changed in market conditions, expectations of return on investments, availability
of funds for investments and re!uired rate of return from the investment. &his
holds true for investments in mutual funds also. (o, it is exceedingly essential to
ascertain the current investment practices in order to place different products
before the client.
Research ethodology is a way to systematically solve the research problem. #n
it, step:by:step methods are followed to solve a particular problem. #t refers to a
search for knowledge. #t can also be defined as a scientific and systematic search
for pertinent information on a specific topic. #n fact, research is an art of
scientific investigation.
Redman P ory defines research as Jsystematized effort to gain new
knowledge.K
&he research was conducted so as to get a detail and through insight into the ?R
practices in a bank.
R%%ARC+ D%I1N
Research Fesign is the way in which the research is carried out. #t works as a blue
print. Research Fesign is the arrangement of conditions for the collection and
analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure.
37
T,4% O# R%%ARC+ D%I1N
'asically, there are three types of Research Fesigns. &hese are%
%C4*ORATOR, R%%ARC+ D%I1N3
#n it, a problem is formulated for precise investigation and working
hypothesis is developed.
D%CRI4TI;% I DIA1NOTIC R%%ARC+ D%I1N3
#n Descriptive Research Desi"n, those studies are taken which are
?oncerned with describing the characteristics of a particular individual or
a group.
#n Dia"nostic Research Desi"n, those fre!uency are determined with
which something occurs or its association with something else.
%C4%RIM%NTA* R%%ARC+ D%I1N3
#n it, casual relationships between the variables are tested. #t is also
known as 2ypothesis &esting Research Fesign. &he present pro$ect is
descriptive and exploratory in nature. &he ma$or purpose of descriptive
research is the description of state of affairs, as it exists at present. &he
main characteristic of this method is that the researcher has no control
over the variablesL he can only report what has happened or what is
happening.
AM4*% D%I1N
#t is not possible for any researcher to include each and every member of the
universe in his research process. (o, he selects small portion of the universe,
which is its true representative. &his group is known as sample and this process is
3<
%!perimental
Research
Descriptive I Dia"nostic
Research Desi"n
%!ploratory
called sampling. (ampling techni!ues can be categorized into two broad
categories namely%
Non64ro2a2ility amplin"
4ro2a2ility amplin"(
Non64ro2a2ility amplin"3 #n it, sample is selected deliberately by researcher,
by using his own $udgment. #n it, every item of universe does not have e!ual
chances of inclusion in the sample.
#t can be of following type%
Convenience amplin"
<ud"ment amplin"
Juota amplin"
4ro2a2ility amplin"3 #t is also known as TRandom (ampling5 or T?hance
(ampling5. #n it, each population element has e!ual chance of selection.
imple Random amplin"(
tratified amplin"(
Cluster amplin"(
#n the present pro$ect, non:probability sampling has been used because sample is
selected by researcher5s own view and every item of universe has not e!ual
chances of being selected. 9nder non:probability sampling, convenient sampling
has been used because sample has been selected according to own convenience.
Research tool3
&he Research tools used for the dissertation are Uuestionnaire and analyzing
company5s secondary data
ources of data3
Primary Fata
(econdary Fata
3;
&he study is based on both primary and secondary data.
4rimary Data3 Primary data are those data, which is originally collected through
direct personal interview and !uestionnaire.
#n this pro$ect, Uuestionnaire ethod has been used for gathering re!uired
information. 2owever, some assistance was provided to respondents in filling it.
econdary Data% (econdary Fata are those data which are already collected and
stored and which has been passed through statistical research.
Classification of data3
Uualitative
Uuantitative
&he data base gathered about the re!uired information with the help of
!uestionnaire can be stated in the terms of !uantity or can be classified as
!uantitative and the information gathered with the help of an interview can be
stated in the terms of !uality or can be classified or !ualitative..
#ield work3
&he field work was conducted for a period of = to 7 months.
3/
O&<%CTI;% O# R%%ARC+
As the pro$ect title suggests, the survey has a following ob$ective%
-a. &o gain an insight into the level of public awareness regarding mutual
fund and shares.
-b. &o understand the existing level of popularity of mutual funds and shares,
investments patterns of individual, their attitude towards and response to
different type of mutual fund offerings.
-c. &o know about the awareness of online trading.
-d. &o know about the best brokerage house among the people of Eamuna
nagar.
-e. &o know whether they are satisfied with their preferred broking house.
-f. &o know whether people prefers to invest in e!uity or mutual funds.
-g. &o study the impact of R)?)((#,* on investment behavior of new
investors.
06
DATA ANA*,I I INT%R4R%TATION
' Are you aware of mutual funds and e>uity sharesK

Interpretation
0"
No(of people 4ercenta"e
(hares 11H
utual funds <;H
&otal "66H
According to the data that we have collected we found that there are <;H people
who are aware of mutual funds and 11H e!uity shares.
9( Are you aware of online share tradin" K
Interpretation
01
No( of people 4ercenta"e
(hares /6H
utual funds "6H
&otal "66H
(urvey shows that /6H of the people those who are aware of shares and mutual
funds are aware about the online trading and rest "6H have no knowledge
regarding this.
/( In which securities do you investK
No( of people

4ercenta"e
)!uity 11H
mutual fund 17H
+ixeddeposit "3H
#nsurance 3"H
,thers ;H
&otal "66H
Interpretation
03
People like to invest more in insurance as compared to mutual funds and e!uity.
11H people invest in e!uity, 17H people likes to funds and 3"H prefer insurance
for investment. invest in mutual
5( Ahat is your preferred mode of tradin" securitiesK
No(of people 4ercenta"e
,nline 06H
,ffline 76H
&otal "66H
Interpretation
Above figure shows that still 06H are online and 76H are offline trading.
00
@( RespondentLs view a2out Risk in the Mutual #unds I %>uity
Market K
Risk 4ercenta"e
Cery high ;H
2igh ;H
#ntermediate 70H
>ow 16H
Cery low 6H
&otal "66H
0=
Interpretation
Above fig reveals that 70H of respondents view the risk in mutual funds and
e!uity market as intermediate.
.( If you trade throu"h a 2roker which 2rokin" house do you
prefer K
&rokin" house 4ercenta"e
(harekhan 16H
#ndian bulls 13H
#cici 17H
= Paisa /H
2dfc "0H
,thers ;H
&otal "66H
Interpretation
07
We can see that the best preferred broking house among the people of Eamuna
nagar is #?#?# direct with 1=H, followed by #ndiabulls, (harekhan, 2F+?
securities, = Paisa and others with 13H, 1"H, "0H, /H and ;H respectively.
8( %!pected returns on Mutual #unds K
Risk 4ercenta"e
Cery high 16H
2igh =7H
#ntermediate "7H
>ow 0H
Cery low 0H
&otal "66H
Interpretation
=7H people are of view that mutual funds gives high returns as compared to "7H
P 0H who think that it gives intermediate or low returns.
0<
7( Are you satisfied with your preferred 2rokin" house K
0;
No( of people 4ercenta"e
Ees <1H
*o 7H
9ncertain 11H
&otal "66H
Interpretation
<1H people are satisfied with there broking house where as 11H of the people are
not sure as they are first time investors and the remaining 7H are not satisfied
-( ,our Investment decisions are influenced 2y K
No(of Investment 4ercenta"e
(elf /H
'roker "/H
)conomic policies 1<H
+riends 0=H
&otal "66H
0/
Interpretation
0=H of the investment decisions of the people are influenced by the economic
policies of the government followed by friendsIrelatives, self brokers.
':( ,our preference for InvestmentK
No( of people 4ercenta"e
utual fund "7H
)!uity market 7"H
9ncertain 13H
&otal "66H
Interpretation
7"H people prefer investing in e!uity market whereas only "7H respondents like
investing in mutual funds and 13H people are uncertain.
=6
''( #or what Time period you prefer to invest K
Interpretation
+indings shows that ==H of people prefer investing for more than 3 yrs whereas
30H people prefer investing for less than " yr and only ""H people like to invest
for ":3 yrs.
*IMITATION
&hough the study is based on the data collected from various direct sources and
direct personal interviews, still it is not free from limitations like%
". >imited information access because of lack of informed investors.
1. (hort span of time.
3. 9nwillingness on the part of customers to spare time for the survey.
="
No( of people 4ercenta"e
>ess than "year 30H
":3 years ""H
ore than 3years ==H
&otal "66H
0. ?ost of collecting the data is very high.
=. >ack of financial resources made it difficult to collect data.
Reluctance to share information regarding, investments and future plans etc.
U1%TION
,n the basis of above findings following suggestions are given%
". People should made aware of returns generated by investing in mutual
funds and e!uity markets.
1. People should be encouraged to prefer online trading rather than
trading through brokers.
=1
3. &he awareness level of mutual fund not very high. 'ecause of high
risk associated with the investment in mutual fund. &herefore, a fund
house has to make more efforts to educate the investors.
0. #nvestors need more education because some of them were not aware
about the scheme of the companies.
=. &ransaction cost should be reduced by the share broking companies to
encourage people to invest more.
=3
CONC*UION
(urvey shows that out of "66 people of Eamuna nagar <; are aware of shares and
mutual funds and out of these <; peoples <6-/6H. are aware of online trading.
'ut $ust 11-1;.1H. people prefer to trade online and rest are dependent on there
respective broker. ,ur survey also shows that 1=H of these people-<;. prefer to
open there online trading account with #?#?# direct followed by #ndiabulls and
(harekhan. &he reason being for (harekhan at number three is that the people of
Ambala are not aware of its existence and its services due to the lack of its
promotional programs. Also 70H of the respondents are aware of the risk
involved in mutual funds and euity. &he above findings also reveals that =7H
people are of view that mutual funds gives higher returns.
Results also shows that <;H of people are satisfied with there broking
house, 0=H of the investment decisions of the people are influenced by the
economic policies of the government. )ventualy, 7"H people prefer investing in
e!uity market whereas only "7H respondents like investing in mutual funds.
=0
&I&*IO1RA4+,
&OOB R%#%R%D
utual +unds in #ndia% A (tudy of #nvestment anagement, Fr. Amitabh @upta
-1661., Anmol Publications.
+inancial #nstitutions and arkets: (tructure, @rowth and #nnovations: (econd
)dition, >.. 'hole, &ata c@raw 2ill.
'arkaat $ournal of finance P mgt year 16"6
Personal #nvestment : *.A.Easaswy
+inancial anagement +or anagers 8 #?+A#
'ennet , Fr. . (elvam, )va )benezer, C. Barpagam, (. Canitha . Col. ", #ssue 1,
-Aune 16"". #nvestors5 Attitude on (tock (election FecisionK
Walia *. and Bumar R. -166<. O,nline stock trading in #ndia% An empirical
investigationO
A%&IT%
www.google.com
www.valueresarchonline.com
www.myiris.com
www.amfiindia.com
www.sebiindia.com
==
www.indiainfoline.com
www.mutualfundindia.com
www.sharekhan.com
=7
JU%TIONNAIR%
I am the management student of (.F #nstitute of &echnology P anagement
(tudies, Eamuna nagar. # am making a pro$ect on utual +unds and e!uity
market, so i need your valuable co:operation in this regard. &his !uestionnaire
is solely for educated purpose and has been designed to gather information
regarding mutual fund investments and e!uity market. # assure you that
individual responses will be kept confidential(
Name:
,ccupation%
@ender%
Age%
". Are you aware of mutual funds and e!uity sharesD
a. Ees b. *o
1. Are you aware of online share tradingD
a. Ees b. *o
3. #n which securities do you investD
a. )!uity b. utual +unds c. +ixed Feposits

d. #nsurance e. Any other -please specify.VVVVVVV
=<
0. What is your preferred mode of trading securitiesD
a. ,nline b. 'roker-,ffline.
=. Respondent5s view about Risk in the utual +unds P )!uity arketD
a. Cery high b. 2igh c. #ntermediate
d. >ow e.Cery low
7. #f you trade through a broker which broking house do you preferD
a. (harekhan b. #ndiabulls c. #?#?# direct d = paisa
e. Botak (ecurities f. 2F+? securities.
<. )xpected returns on utual +undsD
a. Cery high b. 2igh c. #ntermediate
d. >ow e.Cery low
;. Are you satisfied with your preferred broking houseD
a. Ees b. *o c. 9ncertain
/. Eour investment decisions are influenced byD
a. 'rokers b. )conomic policies c. +riendsIRelatives
d. (elf
=;
"6. Eour preference for investmentD
a. )!uity b. utual +unds c. 9ncertain
"". +or what time period you prefer to investD
a. >ess than " yr b. ":3 yrs c. ore than 3 yrs
=/