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Submitted To: Punjab Technical University, Jalandhar. In partial fullfilment of the degree in aster of !usiness "dministration # !"$.

Project submitted to: Pooja . %ohli )udhiana stoc* e'change )se code no: ",-0 (Session 2009-2010) &'ecutive director

Submitted !y: Shelly jumba !" (rd semester +oll no,-.(/00(1233

CT institute of m n !ement n" te#$no%o!&' J % n"$ (


It is hereby certified that the project report on 4CAPITAL MARKET5, being submitted by Shelly jumba student of the degree of Institute of aster of !usiness "dministration #(rd Sem$ of 6T anagement and Information Technology, Jalandhar 7hich affiliated to Punjab

Technical University, Jalandhar is an original 7or* carried out successfully under my guidance and supervision and that no part of this project has been submitted for any other degree8 diploma. The sincerely efforts put in during the course of investigation is hereby ac*no7ledged.

Project guide iss Shivani jagneja )ect. 6TI 9 IT


This project entitled &mpirical Study on 46"PIT")

"+%&T5 is submitted in partial

fulfilment of the re:uirement for the a7ard of degree of master of business administration of Punjab technical university, Jalandhar.This research 7or* is done by S;&))< JU !", .This research 7or* has been done only for !" only and none of this research 7or* has been submitted for any other degree.The assistance and help during the e'ecution of the project has been fully ac*no7ledged.

S-ELL. J*M/A M/A 0(" SEM ROLL NO-91022203411


=e ta*e this opportunity to e'press my deep sense of gratitude to all our friends and seniors 7ho helped and guide me to complete this project successfully. I am highly grateful and indebted to our project guide )ect. iss Shivani jagneja, r. %uber *ansal #guide 9 co,ordinator$ and r "tul chi*ersal #guide 9 co,ordinator$ for their e'cellent and e'pert guidance in helping us in completion of project report.

Shelly jumba


The successful completion of this project 7as a uni:ue e'perience for us because by visiting many place and interacting various person, I achieved a better *no7ledge about this project. The e'perience 7hich I gained by doing this project 7as essential at this turning point of my carrier this project is being submitted 7hich content detailed analysis of the research under ta*en by me. The research provides an opportunity to the student to devote her s*ills *no7ledge and competencies re:uired during the technical session. The research is on the topic 46apital mar*et5.

In"e7 P (ti#u% (s P !e No6 +ole of capital 0 mar*et in India ( @actors affecting . capital mar*et in India 2 India stoc* e'change 1 overvie7

Se(i % No6 3

6apital mar*et

/ 6apital mar*et efficiency > utual funds as a part of capital mar*et 3? 6oncepts of mutual funds 33 6ategories of mutual funds

Investment strategies for mutual funds

thodology +e sea rch Aata analysis me and interpretation


The capital mar*et is the mar*et for securities, 7here 6ompanies and governments can raise long, term funds. It is a mar*et in 7hich money is lent for periods longer than a year. " nationBs capital mar*et includes such financial institutions as ban*s, insurance companies, and stoc* e'changes that channel long,term investment funds to commercial and industrial borro7ers. Unli*e the money mar*et, on 7hich lending is ordinarily short term, the capital mar*et typically finances fi'ed investments li*e those in buildings and machinery. Cature and 6onstituents: The capital mar*et consists of number of individuals and institutions #including the government$ that canaliDe the supply and demand for long,term capital and claims on capital. The stoc* e'change, commercial ban*s, co,operative ban*s, saving ban*s, development ban*s, insurance companies, investment trust or companies, etc., are important constituents of the capital mar*ets. The capital mar*et, li*e the money mar*et, has three important 6omponents, namely the suppliers of loanable funds, the borro7ers and the Intermediaries 7ho deal 7ith the leaders on the one hand and the !orro7ers on the other. The demand for capital comes mostly from agriculture, industry, trade The government. The predominant form of industrial organiDation developed 6apital claims on capital, !ut also 7ith dealing in e'isting claims. ar*et becomes a necessary infrastructure for fast industrialiDation. 6apital mar*et not concerned solely 7ith the issue of ne7

+e8t o( /on" m (9et The bond mar*et #also *no7n as the debt, credit, or fi'ed income mar*et$ is a financial mar*et 7here participants buy and sell debt securities, usually in the form of bonds. "s of 0??-, the siDe of the 7orld7ide bond mar*et #total debt outstanding$ is an estimated E>0.0 trillion F3G, of 7hich the siDe of the outstanding U.S. bond mar*et debt 7as E(3.0 trillion according to !IS #or alternatively E(..( trillion according to SI@ "$. Cearly all of the E>00 billion average daily trading volume in the U.S. bond mar*et ta*es place bet7een bro*er,dealers and large institutions in a decentraliDed, over,the,counter #HT6$ mar*et. ;o7ever, a small number of bonds, primarily corporate, are listed on e'changes. +eferences to the Ibond mar*etI usually refer to the government bond mar*et, because of its siDe, li:uidity, lac* of credit ris* and, therefore, sensitivity to interest rates. !ecause of the inverse relationship bet7een bond valuation and interest rates, the bond mar*et is often used to indicate changes in interest rates or the shape of the yield curve.

Contents J 3 ar*et structure

J 0 Types of bond mar*ets J ( !ond mar*et participants J . !ond mar*et siDe J 2 !ond mar*et volatility J 1 !ond mar*et influence J / !ond investments J > !ond indices

M (9et st(u#tu(e !ond mar*ets in most countries remain decentraliDed and lac* common e'changes li*e stoc*, future and commodity mar*ets. This has occurred, in part, because no t7o bond issues are e'actly ali*e, and the variety of bond securities outstanding greatly e'ceeds that of stoc*s. ;o7ever, the Ce7 <or* Stoc* &'change #C<S&$ is the largest centraliDed bond mar*et, representing mostly corporate bonds. The C<S& migrated from the "utomated !ond System #"!S$ to the C<S& !onds trading system in "pril 0??/ and e'pects the number of traded issues to increase from 3??? to 1???. !esides other causes, the decentraliDed mar*et structure of the corporate and municipal bond mar*ets, as distinguished from the stoc* mar*et structure, results in higher transaction costs and less li:uidity. " study performed by Profs ;arris and Pi7o7ar in 0??., Secondary Trading 6osts in the unicipal !ond ar*et, reached the follo7ing conclusions: #3$ I unicipal bond trades are also substantially more e'pensive than similar siDed e:uity trades. =e attribute these results to the lac* of price transparency in the bond mar*ets. "dditional cross,sectional analyses sho7 that bond trading costs decrease 7ith credit :uality and increase 7ith instrument comple'ity, time to maturity, and time since issuance.I #0$ IHur results sho7 that municipal bond trades are significantly more e'pensive than e:uivalent siDed e:uity trades. &ffective spreads in municipal

bonds average about t7o percent of price for retail siDe trades of 0?,??? dollars and about one percent for institutional trade siDe trades of 0??,??? dollars.I T&:es of 8on" m (9ets The Securities Industry and @inancial mar*et into five specific bond mar*ets. J 6orporate J Kovernment 9 agency J J unicipal ortgage bac*ed, asset bac*ed, and collateraliDed debt obligation ar*ets "ssociation #SI@ "$ classifies the broader bond

J @unding /on" m (9et : (ti#i: nts !ond mar*et participants are similar to participants in most financial mar*ets and are essentially either buyers #debt issuer$ of funds or sellers #institution$ of funds and often both. P (ti#i: nts in#%u"e; J Institutional investors J Kovernments J Traders J Individuals !ecause of the specificity of individual bond issues, and the lac* of li:uidity in many smaller issues, the majority of outstanding bonds are held by institutions li*e pension funds, ban*s and mutual funds. In the United States, appro'imately 3?L of the mar*et is currently held by private individuals.

/on" m (9et si<e "mounts outstanding on the global bond mar*et increased 3?L in 0??- to a record E-3 trillion. Aomestic bonds accounted for /?L of the total and international bonds for the remainder. The US 7as the largest mar*et 7ith (-L of the total follo7ed by Japan #3>L$. ortgage,bac*ed bonds accounted for around a :uarter of outstanding bonds in the US in 0??- or some E-.0 trillion. The sub,prime portion of this mar*et is variously estimated at bet7een E2??bn and E3.. trillion. Treasury bonds and corporate bonds each accounted for a fifth of US domestic bonds. In &urope, public sector debt is substantial in Italy #-(L of KAP$, !elgium #1(L$ and @rance #1(L$. 6oncerns about the ability of some countries to continue to finance their debt came to the forefront in late 0??-. This 7as partly a result of large debt ta*en on by some governments to reverse the economic do7nturn and finance ban* bailouts. The outstanding value of international bonds increased by 3(L in 0??- to E0/ trillion. The E0.( trillion issued during the year 7as do7n .L on the 0??> total, 7ith activity declining in the second half of the year. /on" m (9et =o% ti%it& @or mar*et participants 7ho o7n a bond, collect the coupon and hold it to maturity, mar*et volatility is irrelevantM principal and interest are received according to a pre,determined schedule. !ut participants 7ho buy and sell bonds before maturity are e'posed to many ris*s, most importantly changes in interest rates. =hen interest rates increase, the value of e'isting bonds fall, since ne7 issues pay a higher yield. )i*e7ise, 7hen interest rates decrease, the value of e'isting bonds rise, since ne7 issues pay a lo7er yield. This is the fundamental concept of bond mar*et volatility: changes in bond prices are inverse to changes in interest rates. @luctuating interest rates are part of a countryBs monetary policy and bond mar*et volatility is a response to e'pected monetary policy and economic changes. &conomistsB vie7s of economic indicators versus actual released data contribute to mar*et volatility. " tight consensus is generally reflected in bond prices and there is little price movement in the mar*et after the release of Iin,lineI data. If the economic release differs from the consensus vie7 the mar*et usually undergoes rapid price movement as participants interpret the data. Uncertainty #as measured by a 7ide consensus$ generally brings more volatility before

and after an economic release. &conomic releases vary in importance and impact depending on 7here the economy is in the business cycle. /on" m (9et inf%uen#e !ond mar*ets determine the price in terms of yield that a borro7er must pay in able to receive funding. In one notable instance, 7hen President 6linton attempted to increase the US budget deficit in the 3--?s, it led to such a sell,off #decreasing pricesM increasing yields$ that he 7as forced to abandon the strategy and instead balance the budget. 4 I used to thin* that if there 7as reincarnation, I 7anted to come bac* as the the pope or as a ..?? baseball hitter. !ut no7 I 7ould li*e to come bac* as the bond mar*et. <ou can intimidate everybody. N James 6arville, political advisor to President 6linton, !loomberg /on" in=estments Investment companies allo7 individual investors the ability to participate in the bond mar*ets through bond funds, closed,end funds and unit,investment trusts. In 0??1 total bond fund net inflo7s increased -/L from E(?.> billion in 0??2 to E1?.> billion in 0??1.&'change, traded funds #&T@s$ are another alternative to trading or investing directly in a bond issue. These 5 secu rities allo 7 indiv idual inve stors the abilit y to over com e large initia l and incre ment al tradi ng

president or


.STOCK OR E>*IT. MARKET " sto#9 m (9et or e?uit& m (9et is a public mar*et #a loose net7or* of economic transactions, not a physical facility or discrete entity$ for the trading of company stoc* and derivatives at an agreed priceM these are securities listed on a stoc* e'change as 7ell as those only traded privately.

The stoc*s are listed and traded on stoc* e'changes 7hich are entities of a corporation or mutual organiDation specialiDed in the business of bringing buyers and sellers of the organiDations to a listing of stoc*s and securities together. The largest stoc* mar*et in the United States, by mar*et cap is the Ce7 <or* Stoc* &'change, C<S&, 7hile in 6anada, it is the Toronto Stoc* &'change. ajor &uropean e'amples of stoc* e'changes include the )ondon Stoc* &'change, Paris !ourse, and the Aeutsche !Orse. "sian e'amples include the To*yo Stoc* &'change, the ;ong %ong Stoc* &'change, the Shanghai Stoc* &'change, and the !ombay Stoc* &'change. In )atin "merica, there are such e'changes as the ! 9@ !ovespa and the ! P.

Contents J 3 Trading J 0 ar*et participants J ( ;istory J . Importance of stoc* mar*et o o o ..3 @unction and purpose ..0 +elation of the stoc* mar*et to the modern financial system ..( The stoc* mar*et, individual investors, and financial ris*

T( "in! Participants in the stoc* mar*et range from small individual stoc* investors to large hedge fund traders, 7ho can be based any7here. Their orders usually end up 7ith a professional at a stoc* e'change, 7ho e'ecutes the order. Some e'changes are physical locations 7here transactions are carried out on a trading floor, by a method *no7n as open outcry. This type of auction is used in stoc* e'changes and commodity e'changes 7here traders may enter IverbalI bids and offers simultaneously. The other type of stoc* e'change is a virtual *ind, composed of a net7or* of computers 7here trades are made electronically via traders. "ctual trades are based on an auction mar*et model 7here a potential buyer bids a specific price for a stoc* and a potential seller asks a specific price for the stoc*. #!uying or selling at market means you 7ill accept any as* price or bid price for the stoc*, respectively.$ =hen the bid and as* prices match, a sale ta*es place, on a first,come,first,served basis if there are multiple bidders or as*ers at a given price. The purpose of a stoc* e'change is to facilitate the e'change of securities bet7een buyers and sellers, thus providing a mar*etplace #virtual or real$. The e'changes provide real,time trading information on the listed securities, facilitating price discovery.

The Ce7 <or* Stoc* &'change is a physical e'change, also referred to as a listed e'change N only stoc*s listed 7ith the e'change may be traded. Hrders enter by 7ay of e'change members and flo7 do7n to a floor bro*er, 7ho goes to the floor trading post specialist for that stoc* to trade the order. The specialistBs job is to match buy and sell orders using open outcry. If a spread e'ists, no trade immediately ta*es place,,in this case the specialist should use his8her o7n resources #money or stoc*$ to close the difference after his8her judged time. Hnce a trade has been made the details are reported on the ItapeI and sent bac* to the bro*erage firm, 7hich then notifies the investor 7ho placed the order. "lthough there is a significant amount of human contact in this process, computers play an important role, especially for so,called Iprogram tradingI. The C"SA"Q is a virtual listed e'change, 7here all of the trading is done over a computer net7or*. The process is similar to the Ce7 <or* Stoc* &'change. ;o7ever, buyers and sellers are electronically matched. Hne or more C"SA"Q mar*et ma*ers 7ill al7ays provide a bid and as* price at 7hich they 7ill al7ays purchase or sell BtheirB stoc*. @rom time to time, active trading #especially in large bloc*s of securities$ have moved a7ay from the BactiveB e'changes. Securities firms, led by U!S "K, Koldman Sachs Kroup Inc. and 6redit Suisse Kroup, already steer 30 percent of U.S. security trades a7ay from the e'changes to their internal systems. That share probably 7ill increase to 3> percent by 0?3? as more investment ban*s bypass the C<S& and C"SA"Q and pair buyers and sellers of securities themselves, according to data compiled by !oston,based "ite Kroup ))6, a bro*erage,industry consultant. M (9et : (ti#i: nts " fe7 decades ago, 7orld7ide, buyers and sellers 7ere individual investors, such as 7ealthy businessmen, 7ith long family histories #and emotional ties$ to particular corporations. Hver time, mar*ets have become more IinstitutionaliDedIM buyers and sellers are largely institutions #e.g., pension funds, insurance companies, mutual funds, inde' funds, e'change,traded funds, hedge funds, investor groups, ban*s and various other financial institutions$. The rise of the institutional investor has brought 7ith it some improvements in mar*et operations. Thus, the government 7as responsible for Ifi'edI #and e'orbitant$ fees being mar*edly reduced for the BsmallB investor, but only after the large institutions had managed to brea* the bro*ersB solid front

on fees. #They then 7ent to BnegotiatedB fees, but only for large institutions. ;o7ever, corporate governance #at least in the =est$ has been very much adversely affected by the rise of #largely BabsenteeB$ institutional Bo7nersB.

-isto(& &stablished in 3>/2, the !ombay Stoc* &'change is "siaBs first stoc* e'change. In 30th century @rance the courratiers de change 7ere concerned 7ith managing and regulating the debts of agricultural communities on behalf of the ban*s. !ecause these men also traded 7ith debts, they could be called the first bro*ers. " common misbelief is that in late 3(th century !ruges commodity traders gathered inside the house of a man called Van der Beurze, and in 3(?- they became the I!rugse !eurseI, institutionaliDing 7hat had been, until then, an informal meeting, but actually, the family Pan der !eurDe had a building in "nt7erp 7here those gatherings occurredM the Pan der !eurDe had "nt7erp, as most of the merchants of that period, as their primary place for trading. The idea :uic*ly spread around @landers and neighboring counties and I!eurDenI soon opened in Khent and "msterdam. In the middle of the 3(th century, Penetian ban*ers began to trade in government securities. In 3(23 the Penetian government outla7ed spreading rumors intended to lo7er the price of government funds. !an*ers in Pisa, Perona, Kenoa and @lorence also began trading in government securities during the century. This 7as only possible because these 7ere independent city states not ruled by a du*e but a council of influential citiDens. The Autch later started joint stoc* companies, 7hich let shareholders invest in business ventures and get a share of their profits , or losses. In 31?0, the Autch &ast India 6ompany issued the first share on the "msterdam Stoc* &'change. It 7as the first company to issue stoc*s and bonds. The "msterdam Stoc* &'change #or "msterdam !eurs$ is also said to have been the first stoc* e'change to introduce continuous trade in the early 3/th century. The Autch Ipioneered short selling, option trading, debt,e:uity s7aps, merchant ban*ing, unit trusts and other speculative instruments, much as 7e *no7 themI There are no7 stoc* mar*ets in virtually every developed and most developing economies, 7ith the 7orldBs biggest mar*ets being in the United States, United %ingdom, Japan, India, 6hina, 6anada, Kermany, @rance, South %orea and the Cetherlands.


,un#tion n" :u(:ose The main trading room of the To*yo Stoc* &'change, 7here trading is currently completed through computers. The sto#9 m (9et is one of the most important sources for companies to raise money. This allo7s businesses to be publicly traded, or raise additional capital for e'pansion by selling shares of o7nership of the company in a public mar*et. The li:uidity that an e'change provides affords investors the ability to :uic*ly and easily sell securities. This is an attractive feature of investing in stoc*s, compared to other less li:uid investments such as real estate. ;istory has sho7n that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. "n economy 7here the stoc* mar*et is on the rise is considered to be an up,and,coming economy. In fact, the stoc* mar*et is often considered the primary indicator of a countryBs economic strength and development. +ising share prices, for instance, tend to be associated 7ith increased business investment and vice versa. Share prices also affect the 7ealth of households and their consumption. Therefore, central ban*s tend to *eep an eye on the control and behavior of the stoc* mar*et and, in general, on the smooth operation of financial system functions. @inancial stability is the raison dBRtre of central ban*s. &'changes also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the ris* to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic gro7th in that lo7er costs and enterprise ris*s promote the production of goods and services as 7ell as employment. In this 7ay the financial system contributes to increased prosperity. "n important aspect of modern financial mar*ets, ho7ever, including the stoc* mar*ets, is absolute discretion. @or e'ample, "merican stoc* mar*ets see more unrestrained acceptance of any firm than in smaller mar*ets. @or e'ample, 6hinese firms that possess little or no perceived value to "merican society profit "merican ban*ers on =all Street, as they reap large commissions from the placement, as 7ell as the 6hinese company 7hich yields funds to invest in 6hina. ;o7ever, these companies accrue

no intrinsic value to the long,term stability of the "merican economy, but rather only short,term profits to "merican business men and the 6hineseM although, 7hen the foreign company has a presence in the ne7 mar*et, this can benefit the mar*etBs citiDens. 6onversely, there are very fe7 large foreign corporations listed on the Toronto Stoc* &'change TSS, 6anadaBs largest stoc* e'change. This discretion has insulated 6anada to some degree to 7orld7ide financial conditions. In order for the stoc* mar*ets to truly facilitate economic gro7th via lo7er costs and better employment, great attention must be given to the foreign participants being allo7ed in. Re% tion of t$e sto#9 m (9et to t$e mo"e(n fin n#i % s&stem The financial systems in most 7estern countries has undergone a remar*able transformation. Hne feature of this development is disintermediation. " portion of the funds involved in saving and financing, flo7s directly to the financial mar*ets instead of being routed via the traditional ban* lending and deposit operations. The general publicBs heightened interest in investing in the stoc* mar*et, either directly or through mutual funds, has been an important component of this process. Statistics sho7 that in recent decades shares have made up an increasingly large proportion of householdsB financial assets in many countries. In the 3-/?s, in S7eden, deposit accounts and other very li:uid assets 7ith little ris* made up almost 1? percent of householdsB financial 7ealth, compared to less than 0? percent in the 0???s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal no7 ta*es the form of various *inds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend to7ards forms of saving 7ith a higher ris* has been accentuated by ne7 rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialiDed countries. In all developed economic systems, such as the &uropean Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved a7ay from traditional #government insured$ ban* deposits to more ris*y securities of one sort or another.

T$e sto#9 m (9et' in"i=i"u % in=esto(s' n" fin n#i % (is9 +is*ier long,term saving re:uires that an individual possess the ability to manage the associated increased ris*s. Stoc* prices fluctuate 7idely, in mar*ed contrast to the stability of #government insured$ ban* deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The follo7ing deals 7ith some of the ris*s of the financial sector in general and the stoc* mar*et in particular. This is certainly more important no7 that so many ne7comers have entered the stoc* mar*et, or have ac:uired other Bris*yB investments #such as BinvestmentB property, i.e., real estate and collectables$. With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtaking each other to get investors' attention. t the same time, individual investors, immersed in chat rooms and message boards, are e!changing "uestionable and often misleading tips. #et, despite all this available information, investors find it increasingly difficult to profit. $tock prices skyrocket with little reason, then plummet %ust as "uickly, and people who have turned to investing for their children's education and their own retirement become frightened. $ometimes there appears to be no rhyme or reason to the market, only folly. This is a :uote from the preface to a published biography about the long,term value,oriented stoc* investor =arren !uffett.F-G !uffett began his career 7ith E3??, and E3??,??? from seven limited partners consisting of !uffettBs family and friends. Hver the years he has built himself a multi,billion,dollar fortune. The :uote illustrates some of 7hat has been happening in the stoc* mar*et during the end of the 0?th century and the beginning of the 03st century.

P(im (& M (9et , also called the ne7 issue mar*et, is the mar*et for issuing ne7 securities. any companies,

especially small and medium scale, enter the primary mar*et to raise money from the public to e'pand their businesses. They sell their securities to the public through an initial public offering. The securities can be directly bought from the shareholders, 7hich is not the case for the secondary mar*et. The primary mar*et is a mar*et for ne7 capitals that 7ill be traded over a longer period. In the primary mar*et, securities are issued on an e'change basis. The under7riters, that is, the investment ban*s, play an important role in this mar*et: they set the initial price range for a particular share and then supervise the selling of that share.

Investors can obtain ne7s of upcoming shares only on the primary mar*et. The issuing firm collects money, 7hich is then used to finance its operations or e'pand business, by selling its shares. !efore selling a security on the primary mar*et, the firm must fulfill all the re:uirements

regarding the e'change.

"fter trading in the primary mar*et the security 7ill then enter the secondary mar*et, 7here numerous trades happen every day. The primary mar*et accelerates the process of capital formation in a countryBs economy. The primary mar*et categorically e'cludes several other ne7 long,term finance sources, such as loans from financial institutions. any companies have entered the primary mar*et to earn profit by converting its capital, 7hich is basically a private capital, into a public one, releasing securities to the public. This phenomena is *no7n as Ipublic issueI or Igoing public.I There are three methods though 7hich securities can be issued on the primary mar*et: rights issue, Initial Public Hffer #IPH$, and preferential issue. " companyBs ne7 offering is placed on the primary mar*et through an initial public offer.

,un#tionin! of P(im (& M (9et

J P(im (& Mo(t! !e M (9et J P(im (& T (!et M (9et J T( ns #tion Costs In P(im (& M (9et J PL in P(im (& M (9et J Re=i= % Of In"i n P(im (& M (9et J :(im (& Se#u(ities M (9et

J P(o8%ems Of In"i n P(im (& M (9et J In=estment In P(im (& M (9et J P(im (& Mone& m (9et J Inte(n tion % P(im (& M (9et Asso#i tion J IPO P(im (& M (9et J P(im (& C :it % M (9et

Se#on" (& M (9et

is the mar*et 7here, unli*e the primary mar*et, an investor can buy a security directly from another investor in lieu of the issuer. It is also referred as Iafter mar*etI. The securities initially are issued in the primary mar*et, and then they enter into the secondary mar*et. "ll the securities are first created in the primary mar*et and then, they enter into the secondary mar*et. In the Ce7 <or* Stoc* &'change, all the stoc*s belong to the secondary mar*et.

In other 7ords, secondary mar*et is a place 7here any type of used goods is available. In the secondary mar*et shares are maneuvered from one investor to other, that is, one investor buys an asset from another investor instead of an issuing corporation. So, the secondary mar*et should be li:uid. E7 m:%e of Se#on" (& m (9et; In the Ce7 <or* Stoc* &'change, in the United States of "merica, all the securities belong to the secondary mar*et.

Im:o(t n#e of Se#on" (& M (9et; Se#on" (& M (9et has an important role to play behind the developments of an efficient capital mar*et. Secondary mar*et connects investorsB favoritism for li:uidity 7ith the capital usersB 7ish of using their capital for a longer period. @or e'ample, in a traditional partnership, a partner can not access the other partnerBs investment but only his or her investment in that partnership, even on an emergency basis. Then if he or she may brea*s the o7nership of e:uity into parts and sell his or her respective proportion to another investor. This *ind of trading is facilitated only by the secondary mar*et


The primary role of the capital mar*et is to raise long,term funds for governments, ban*s, and corporations 7hile providing a platform for the trading of securities. This fundraising is regulated by the performance of the stoc* and bond mar*ets 7ithin the capital mar*et. The member organiDations of the capital mar*et may issue stoc*s and bonds in order to raise funds. Investors can then invest in the capital mar*et by purchasing those stoc*s and bonds. The capital mar*et, ho7ever, is not 7ithout ris*. It is important for investors to understand mar*et trends before fully investing in the capital mar*et. To that end, there are various mar*et indices available to investors that reflect the present performance of the mar*et. Re!u% tion of t$e C :it % M (9et &very capital mar*et in the 7orld is monitored by financial regulators and their respective governance organiDation. The purpose of such regulation is to protect investors from fraud and deception. @inancial regulatory bodies are also charged 7ith minimiDing financial losses, issuing licenses to financial service providers, and enforcing applicable la7s. T$e C :it % M (9et@s Inf%uen#e on Inte(n tion % T( "e 6apital mar*et investment is no longer confined to the boundaries of a single nation. TodayTs corporations and individuals are able, under some regulation, to invest in the capital mar*et of any country in the 7orld. Investment in foreign capital mar*ets has caused substantial enhancement to the business of international trade. T$e P(im (& n" Se#on" (& M (9ets The capital mar*et is also dependent on t7o sub,mar*ets U the primary mar*et and the secondary mar*et. The primary mar*et deals 7ith ne7ly issued securities and is responsible for generating ne7 long,term capital. The secondary mar*et handles the trading of previously,issued securities, and must remain highly li:uid in nature because most of the securities are sold by investors. "

capital mar*et 7ith high li:uidity and high transparency is predicated upon a secondary mar*et 7ith the same :ualities.

ROLE O, CAPITAL MARKET IN IN+IA: IndiaTs gro7th story has important implications for the capital mar*et, 7hich has gro7n sharply 7ith respect to several parameters N amounts raised number of stoc* e'changes and other intermediaries, listed stoc*s, mar*et capitaliDation, trading volumes and turnover, mar*et instruments, investor population, issuer and intermediary profiles. The capital mar*et consists primarily of the debt and e:uity mar*ets. ;istorically, it contributed significantly to mobiliDing funds to meet public and private companiesT financing re:uirements. The introduction of e'change,traded derivative instruments such as options and futures has enabled investors to better hedge their positions and reduce ris*s. IndiaTs debt and e:uity mar*ets rose from /2 per cent in 3--2 to 3(? per cent of KAP in 0??2. !ut the gro7th relative to the US, alaysia and South %orea remains lo7 and largely s*e7ed, indicating immense latent potential. IndiaTs debt mar*ets comprise government bonds and the corporate bond mar*et #comprising PSUs, corporates, financial institutions and ban*s$. India compares 7ell 7ith other emerging economies in terms of sophisticated mar*et design of e:uity spot and derivatives mar*et, 7idespread retail participation and resilient li:uidity. S&!ITs measures such as submission of :uarterly compliance reports, and company valuation on the lines of the Sarbanes,H'ley "ct have enhanced corporate governance. !ut enforcement continues to be a problem because of limited trained staff and companies not being subjected to substantial fines or legal sanctions. Kiven the booming economy, large s*illed labour force, reliable business community, continued reforms and greater global integration vindicated by the investment,grade ratings of oodyTs

and @itch, the net cumulative portfolio flo7s from 0??(,?1 #bonds and e:uities$ amounted to E(2 billion. The number of foreign institutional investors registered 7ith S&!I rose from none in 3--0,-( to 20> in 0???,?3, to about 3,??? in 0??1,?/. IndiaTs stoc* mar*et rose five,fold since mid,0??( and outperformed 7orld indices 7ith returns far outstripping other emerging mar*ets, such as e'ico #20 per cent$, !raDil #.( per cent$ or K66 economies such as %u7ait #01 per cent$ in @<,?1. In 0??1, Indian companies raised more than E1 billion on the !S&, CS& and other regional stoc* e'changes. !uoyed by internal economic factors and foreign capital flo7s, Indian mar*ets are globally competitive, even in terms of pricing, efficiency and li:uidity.

*S su8 :(ime #(isis: The financial crisis facing the =all Street is the 7orst since the Kreat Aepression and 7ill have a major impact on the US and global economy. The ongoing global financial crisis 7ill have a VdominoT effect and spill over all aspects of the economy. Aue to the =estern 7orldTs messianic faith in the mar*et forces and deregulation, the mar*et friendly governments have no choice but to step in. The top five investment ban*s in the US have ceased to e'ist in their previous forms. !ears Stearns 7as ta*en over some time ago. @annie ae and @reddie ac are nationalised to prevent their collapse. @annie and @reddie together under7rite half of the home loans in the United States, and the sum involved is of E ( trillionNabout double the entire annual output of the !ritish economy. This is the biggest rescue operation since the credit crunch began. )ehman !rothers, an investment ban* 7ith a 32> year,old history, 7as declared ban*ruptM "mericaM and Koldman Sachs and errill )ynch, another =all Street icon, chose to pre,empt a similar fate by deciding to sell to the !an* of organ Stanley have decided to transform themselves into ordinary deposit ban*s. "IK, the 7orldTs largest insurance company, has survived through the injection of funds 7orth E >2 billion from the US Kovernment.

T$e ?uestion (ises; A$& $ s t$is $ ::ene"B !esides the cyclical crisis of capitalism, there are some recent factors 7hich have contributed to7ards this crisis. Under the so,called 4innovative5 approach, financial institutions systematically underestimated ris*s during the boom in property prices, 7hich ma*es such boom more prolonged. This relates to the shortsightedness of speculators and their unrestrained greed, and they, during the asset price boom, believed that it 7ould stay forever. This resulted in *eeping the ris* aspects at a minimum and thus resorting to more and more ris* ta*ing financial activities. )oans 7ere made on the basis of collateral 7hose value 7as inflated by a bubble. "nd the collateral is no7 7orth less than the loan. 6redit 7as available up to full value of the property 7hich 7as assessed at inflated mar*et prices. 6redits 7ere given in anticipation that rising property prices 7ill continue. Under looming recession and uncertainty, to pay bac* their mortgage many of those 7ho engaged in such an e'ercise are forced to sell their houses, at a time 7hen the ban*s are reluctant to lend and buyers 7ould li*e to 7ait in the hope that property prices 7ill further come do7n. "ll these factors 7ould lead to a further decline in property

prices. Ro%e of # :it % m (9et "u(in! t$e :(esent #(isis; In addition to resource allocation, capital mar*ets also provided a medium for ris* management by allo7ing the diversification of ris* in the economy. The 7ell,functioning capital mar*et improved information :uality as it played a major role in encouraging the adoption of stronger corporate governance principles, thus supporting a trading environment, 7hich is founded on integrity. li:uid mar*ets ma*e it possible to obtain financing for capital,intensive projects 7ith long gestation periods.. @or a long time, the Indian mar*et 7as considered too small to 7arrant much attention. ;o7ever, this vie7 has changed rapidly as vast amounts of international investment have poured into our mar*ets over the last decade. The Indian mar*et is no longer vie7ed as a static universe but as a constantly evolving mar*et providing attractive opportunities to the global investing community. Co7 during the present financial crisis, 7e sa7 ho7 capital mar*et stood still as the symbol of better ris* management practices adopted by the Indians. Though 7e observed a huge fall in the sense' and other stoc* mar*et indicators but that 7as all due to lo7 confidence among the investors. !ecause balance sheet of most of the Indian companies listed in the sense' 7ere reflecting profit even then people *ept on 7ithdra7ing money. =hile there 7as a panic in the capital mar*et due to 7ithdra7al by the @IIs, 7e sa7 Indian institutional investors li*e insurance and mutual funds coming for the rescue under S&!I guidelines so that the confidence of the investors doesnTt go lo7. S&!I also came up 7ith various norms including more liberal policies regarding participatory notes, restricting the e'it from close ended mutual funds etc. to boost the investment. =hile tal*ing about currency crisis, the rupee *ept on depreciating against the dollar mainly due to the 7ithdra7als by @IIs. So , the capital mar*et tried to attract @IIs once again. S&!I came up 7ith many revolutionary reforms to attract the foreign investors so that the depreciation of rupee could be put to hault.





The capital mar*et is affected by a range of factors . Some of the factors 7hich influence capital mar*et are as follo7s:, A)Pe(fo(m n#e of "omesti# #om: nies;The performance of the companies or rather corporate earnings is one of the factors 7hich has direct impact or effect on capital mar*et in a country. =ea* corporate earnings indicate that the demand for goods and services in the economy is less due to slo7 gro7th in per capita income of people . !ecause of slo7 gro7th in demand there is slo7 gro7th in employment 7hich means slo7 gro7th in demand in the near future. Thus 7ea* corporate earnings indicate average or not so good prospects for the economy as a 7hole in the near term. In such a scenario the investors # both domestic as 7ell as foreign $ 7ould be 7ary to invest in the capital mar*et and thus there is bear mar*et li*e situation. The opposite case of it 7ould be robust corporate earnings and itTs positive impact on the capital mar*et. /) En=i(onment % , #to(s ;&nvironmental @actor in IndiaTs conte't primarily means, onsoon . In India around 1? L of

agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon. The major chun* of agricultural production comes from the states of Punjab , ;aryana 9 Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country 7ould directly affect the agricultural output in the country. "part from monsoon other natural calamities li*e @loods, tsunami, drought, earth:ua*e, etc. also have an impact on the capital mar*et of a country. C) M #(o E#onomi# Num8e(s ;The macro economic numbers also influence the capital mar*et. It includes Inde' of Industrial Production #IIP$ 7hich is released every month, annual Inflation number indicated by =holesale Price Inde' #=PI$ 7hich is released every 7ee*, &'port U Import numbers 7hich are declared every month, 6ore Industries gro7th rate # It includes Si' 6ore infrastructure industries U 6oal, 6rude oil, refining, po7er, cement and finished steel$ 7hich comes out every month, etc. This macro Ueconomic indicators indicate the state of the economy and the direction in 7hich the economy is headed and therefore impacts the capital mar*et in India.

+) )%o8 % Cues ;In this 7orld of globaliDation various economies are interdependent and interconnected. "n event in one part of the 7orld is bound to affect other parts of the 7orld ,ho7ever the magnitude and intensity of impact 7ould vary. Thus capital mar*et in India is also affected by developments in other parts of the 7orld i.e. U.S. , &urope, Japan , etc. Klobal cues includes corporate earnings of outloo* given by C6Ts, consumer confidence inde' in developed countries, jobless claims in developed countries global gro7th various agencies li*e I @, economic gro7th of major economies, price of oodyTs, S 9 P, etc. crude Uoil, credit rating ofvarious economies given by E) Po%iti# % st 8i%it& n" !o=e(nment :o%i#ies;@or any economy to achieve and sustain gro7th it has to have political stability and pro, gro7th Kovernment policies. This is because 7hen there is political stability there is stability and consistency in governmentTs attitude 7hich is communicated through various government policies. The vice, versa is the case 7hen there is no political stability .So capital mar*et also reacts to the nature of government, attitude of government, and various policies of the government. The above statement can be substantiated by the fact the 7hen the mandate came in UP" governmentTs favor # =ithout the baggage of left party$ on onday , 3>th ay 31 0??-, the stoc* mar*ets on ay had a bullish rally 7ith Sense' closing >?? point higher over the previous

dayTs close. The reason 7as political stability. "lso 7ithout the baggage of left party government can go ahead 7ith reforms. ,) )(oAt$ :(os:e#tus of n e#onom&;=hen the national income of the country increases and per capita income of people increases it is said that the economy is gro7ing. ;igher income also means higher e'penditure and higher savings. This augurs 7ell for the economy as higher e'penditure means higher demand and higher savings means higher investment. Thus 7hen an economy is gro7ing at a good pace capital mar*et of the country attracts more money from investors, both from 7ithin and outside the country and vice ,versa. So 7e can say that gro7th prospects of an economy do have an impact on capital mar*ets.

)) In=esto( Sentiment n" (is9 ::etite ;"nother factor 7hich influences capital mar*et is investor sentiment and their ris* appetite .&ven if the investors have the money to invest but if they are not confident about the returns from their investment , they may stay a7ay from investment for some time."t the same time if the investors have lo7 ris* appetite , 7hich they 7ere having in global and Indian capital mar*et some four to five months bac* due to global financial meltdo7n and recessionary situation in U.S. 9 some parts of &urope , they may stay a7ay from investment and 7ait for the right time to come.

IN+IAN STOCK MARKET AN OCERCIE5 E=o%ution Indian Stoc* ar*ets are one of the oldest in "sia. Its history dates bac* to nearly 0?? years ago.

The earliest records of security dealings in India are meagre and obscure. The &ast India 6ompany 7as the dominant institution in those days and business in its loan securities used to be transacted to7ards the close of the eighteenth century. !y 3>(?Bs business on corporate stoc*s and shares in !an* and 6otton presses too* place in !ombay. Though the trading list 7as broader in 3>(-, there 7ere only half a doDen bro*ers recogniDed by ban*s and merchants during 3>.? and 3>2?. The 3>2?Bs 7itnessed a rapid development of commercial enterprise and bro*erage business attracted many men into the field and by 3>1? the number of bro*ers increased into 1?. In 3>1?,13 the "merican 6ivil =ar bro*e out and cotton supply from United States of &urope 7as stoppedM thus, the BShare aniaB in India begun. The number of bro*ers increased to about 0?? to 02?. ;o7ever, at the end of the "merican 6ivil =ar, in 3>12, a disastrous slump began #for e'ample, !an* of !ombay Share 7hich had touched +s 0>2? could only be sold at +s. >/$. "t the end of the "merican 6ivil =ar, the bro*ers 7ho thrived out of 6ivil =ar in 3>/., found a place in a street #no7 appropriately called as Aalal Street$ 7here they 7ould conveniently assemble and transact business. In 3>>/, they formally established in !ombay, the ICative Share and Stoc* !ro*ersB "ssociationI #7hich is alternatively *no7n as I The Stoc* &'change I$. In 3>-2, the Stoc* &'change ac:uired a premise in the same street and it 7as inaugurated in 3>--. Thus, the Stoc* &'change at !ombay 7as consolidated. Ot$e( %e "in! #ities in sto#9 m (9et o:e( tions "hmedabad gained importance ne't to !ombay 7ith respect to cotton te'tile industry. "fter 3>>?, many mills originated from "hmedabad and rapidly forged ahead. "s ne7 mills 7ere

floated, the need for a Stoc* &'change at "hmedabad 7as realiDed and in 3>-. the bro*ers formed IThe "hmedabad Share and Stoc* !ro*ersB "ssociationI. =hat the cotton te'tile industry 7as to !ombay and "hmedabad, the jute industry 7as to 6alcutta. "lso tea and coal industries 7ere the other major industrial groups in 6alcutta. "fter the Share ania in 3>13,12, in the 3>/?Bs there 7as a sharp boom in jute shares, 7hich 7as follo7ed by a boom in tea shares in the 3>>?Bs and 3>-?BsM and a coal boom bet7een 3-?. and 3-?>. Hn June 3-?>, some leading bro*ers formed IThe 6alcutta Stoc* &'change "ssociationI. In the beginning of the t7entieth century, the industrial revolution 7as on the 7ay in India 7ith the S7adeshi ovementM and 7ith the inauguration of the Tata Iron and Steel 6ompany )imited in 3-?/, an important stage in industrial advancement under Indian enterprise 7as reached. Indian cotton and jute te'tiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the @irst =orld =ar. In 3-0?, the then demure city of adras had the maiden thrill of a stoc* e'change functioning in adras Stoc* &'changeI 7ith 3?? members.

its midst, under the name and style of IThe so it 7ent out of e'istence.

;o7ever, 7hen boom faded, the number of members stood reduced from 3?? to (, by 3-0(, and

In 3-(2, the stoc* mar*et activity improved, especially in South India 7here there 7as a rapid increase in the number of te'tile mills and many plantation companies 7ere floated. In 3-(/, a stoc* e'change 7as once again organiDed in )imited. #In 3-2/ the name 7as changed to adras , adras Stoc* &'change "ssociation #Pvt$ adras Stoc* &'change )imited$.

)ahore Stoc* &'change 7as formed in 3-(. and it had a brief life. It 7as merged 7ith the Punjab Stoc* &'change )imited, 7hich 7as incorporated in 3-(1. In"i n Sto#9 E7#$ n!es - An *m8(e%% )(oAt$ The Second =orld =ar bro*e out in 3-(-. It gave a sharp boom 7hich 7as follo7ed by a slump. !ut, in 3-.(, the situation changed radically, 7hen India 7as fully mobiliDed as a supply base.

Hn account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stoc* mar*et as the only outlet for their activities. They 7ere an'ious to join the trade and their number 7as s7elled by numerous others. 7ere floated. The Uttar Pradesh Stoc* &'change )imited #3-.?$, Cagpur Stoc* &'change )imited #3-.?$ and ;yderabad Stoc* &'change )imited #3-..$ 7ere incorporated. In Aelhi t7o stoc* e'changes , Aelhi Stoc* and Share !ro*ersB "ssociation )imited and the Aelhi Stoc*s and Shares &'change )imited , 7ere floated and later in June 3-./, amalgamated into the Aelhi Stoc* &'change "ssociation )imited. Post-in"e:en"en#e S#en (io ost of the e'changes suffered almost a total eclipse during depression. )ahore &'change 7as closed during partition of the country and later migrated to Aelhi and merged 7ith Aelhi Stoc* &'change. !angalore Stoc* &'change )imited 7as registered in 3-2/ and recogniDed in 3-1(. ost of the other e'changes languished till 3-2/ 7hen they applied to the 6entral Kovernment for recognition under the Securities 6ontracts #+egulation$ "ct, 3-21. Hnly !ombay, 6alcutta, adras, "hmedabad, Aelhi, ;yderabad and Indore, the 7ell,established e'changes, 7ere recogniDed under the "ct. Some of the members of the other "ssociations 7ere re:uired to be admitted by the recogniDed stoc* e'changes on a concessional basis, but acting on the principle of unitary control, all these pseudo stoc* e'changes 7ere refused recognition by the Kovernment of India and they thereupon ceased to function. Thus, during early si'ties there 7ere eight recogniDed stoc* e'changes in India #mentioned above$. The number virtually remained unchanged, for nearly t7o decades. Auring eighties, ho7ever, many stoc* e'changes 7ere established: 6ochin Stoc* &'change #3->?$, Uttar Pradesh Stoc* &'change "ssociation )imited #at %anpur, 3->0$, and Pune Stoc* &'change )imited any ne7 associations 7ere constituted for the purpose and Stoc* &'changes in all parts of the country

#3->0$, )udhiana Stoc* &'change "ssociation )imited #3->($, Kauhati Stoc* &'change )imited #3->.$, %anara Stoc* &'change )imited #at angalore, 3->2$, agadh Stoc* &'change "ssociation #at Patna, 3->1$, Jaipur Stoc* &'change )imited #3->-$, !hubanes7ar Stoc* &'change "ssociation )imited #3->-$, Saurashtra %utch Stoc* &'change )imited #at +aj*ot, 3->-$, Padodara Stoc* &'change )imited #at !aroda, 3--?$ and recently established e'changes , 6oimbatore and eerut. Thus, at present, there are totally t7enty one recogniDed stoc* e'changes in India e'cluding the Hver The 6ounter &'change of India )imited #HT6&I$ and the Cational Stoc* &'change of India )imited #CS&I)$. The Table given belo7 portrays the overall gro7th pattern of Indian stoc* mar*ets since independence. It is :uite evident from the Table that Indian stoc* mar*ets have not only gro7n just in number of e'changes, but also in number of listed companies and in capital of listed companies. The remar*able gro7th after 3->2 can be clearly seen from the Table, and this 7as due to the favoring government policies to7ards security mar*et industry.

)(oAt$ P tte(n of t$e In"i n Sto#9 M (9et "s on (3st Sl. Aecember Co. Co. of 3 Stoc* &'changes Co. of 0 )isted 6os. Co. of Stoc* ( Issues of )isted 6os. 6apital of )isted . 6os. #6r. +s.$ ar*et value of 2 6apital of )isted 6os. #6r. +s.$ 6apital per 1 )isted 6os. #.80$ #)a*h +s.$ ar*et Palue of 6apital per )isted / 6os. #)a*h +s.$ #280$ "ppreciated value (2> 3/? 3.> 301 3/? 01? > of 6apital per )isted 6os. #)a* +s.$ (.. >?( >1 3?/ 31/ 033 0-> 2>0 3//? 221. 0. 1( 33( 31> 3/2 00. 23. 1-( -/3 30-0 01/2 (0/( 1/2? 02(?0 33?0/- ./>303 0/? /2( 3>30 013. (-/( -/0( (0?.3 2-2>( 32?1 0333 0>(> (0(? (1-/ 13/. >-1/ 33/>. 3302 30?( 32-- 3220 0012 .(.. 100>2-( / / > > 3. 0? 00 3-.1 3-13 3-/3 3-/2 3->? 3->2 3--3 3--2

T( "in! P tte(n of t$e In"i n Sto#9 M (9et

Trading in Indian stoc* e'changes are limited to listed securities of public limited companies. They are broadly divided into t7o categories, namely, specified securities #for7ard list$ and non, specified securities #cash list$. &:uity shares of dividend paying, gro7th,oriented companies 7ith a paid,up capital of at least +s.2? million and a mar*et capitaliDation of at least +s.3?? million and having more than 0?,??? shareholders are, normally, put in the specified group and the balance in non,specified group. T7o types of transactions can be carried out on the Indian stoc* e'changes: #a$ spot delivery transactions Ifor delivery and payment 7ithin the time or on the date stipulated 7hen entering into the contract 7hich shall not be more than 3. days follo7ing the date of the contractI : and #b$ for7ard transactions Idelivery and payment can be e'tended by further period of 3. days each so that the overall period does not e'ceed -? days from the date of the contractI. The latter is permitted only in the case of specified shares. The bro*ers 7ho carry over the outstanding pay carry over charges #cantango or bac*7ardation$ 7hich are usually determined by the rates of interest prevailing. " member bro*er in an Indian stoc* e'change can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his o7n account and ris*, in contrast 7ith the practice prevailing on Ce7 <or* and )ondon Stoc* &'changes, 7here a member can act as a jobber or a bro*er only. The nature of trading on Indian Stoc* &'changes are that of age old conventional style of face, to,face trading 7ith bids and offers being made by open outcry. ;o7ever, there is a great amount of effort to moderniDe the Indian stoc* e'changes in the very recent times. O=e( T$e Counte( E7#$ n!e of In"i (OTCEI) The traditional trading mechanism prevailed in the Indian stoc* mar*ets gave 7ay to many functional inefficiencies, such as, absence of li:uidity, lac* of transparency, unduly long settlement periods and benami transactions, 7hich affected the small investors to a great e'tent. To provide improved services to investors, the countryBs first ringless, scripless, electronic stoc* e'change , HT6&I , 7as created in 3--0 by countryBs premier financial institutions , Unit Trust of India, Industrial 6redit and Investment 6orporation of India, Industrial Aevelopment !an* of

India, S!I 6apital

ar*ets, Industrial @inance 6orporation of India, Keneral Insurance

6orporation and its subsidiaries and 6an!an* @inancial Services. Trading at HT6&I is done over the centers spread across the country. Securities traded on the HT6&I are classified into: J )isted Securities , The shares and debentures of the companies listed on the HT6 can be bought or sold at any HT6 counter all over the country and they should not be listed any7here else J Permitted Securities , 6ertain shares and debentures listed on other e'changes and units of mutual funds are allo7ed to be traded J Initiated debentures , "ny e:uity holding at least one la*h debentures of a particular scrip can offer them for trading on the HT6. HT6 has a uni:ue feature of trading compared to other traditional e'changes. That is, certificates of listed securities and initiated debentures are not traded at HT6. The original certificate 7ill be safely 7ith the custodian. !ut, a counter receipt is generated out at the counter 7hich substitutes the share certificate and is used for all transactions. In the case of permitted securities, the system is similar to a traditional stoc* e'change. The difference is that the delivery and payment procedure 7ill be completed 7ithin 3. days. 6ompared to the traditional &'changes, HT6 &'change net7or* has the follo7ing advantages: J HT6&I has 7idely dispersed trading mechanism across the country 7hich provides greater li:uidity and lesser ris* of intermediary charges. J Kreater transparency and accuracy of prices is obtained due to the screen,based scripless trading. J Since the e'act price of the transaction is sho7n on the computer screen, the investor gets to *no7 the e'act price at 7hich s8he is trading.

J @aster settlement and transfer process compared to other e'changes. J In the case of an HT6 issue #ne7 issue$, the allotment procedure is completed in a month and trading commences after a month of the issue closure, 7hereas it ta*es a longer period for the same 7ith respect to other e'changes. Thus, 7ith the superior trading mechanism coupled 7ith information transparency investors are gradually becoming a7are of the manifold advantages of the HT6&I. N tion % Sto#9 E7#$ n!e (NSE) =ith the liberaliDation of the Indian economy, it 7as found inevitable to lift the Indian stoc* mar*et trading system on par 7ith the international standards. Hn the basis of the recommendations of high po7ered Pher7ani 6ommittee, the Cational Stoc* &'change 7as incorporated in 3--0 by Industrial Aevelopment !an* of India, Industrial 6redit and Investment 6orporation of India, Industrial @inance 6orporation of India, all Insurance 6orporations, selected commercial ban*s and others. Trading at CS& can be classified under t7o broad categories: #a$ =holesale debt mar*et and #b$ 6apital mar*et. =holesale debt mar*et operations are similar to money mar*et operations , institutions and corporate bodies enter into high value transactions in financial instruments such as government securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc.

There are t7o *inds of players in CS&: #a$ trading members and #b$ participants.

CS& has several advantages over the traditional trading e'changes. They are as follo7s: J CS& brings an integrated stoc* mar*et trading net7or* across the nation. J Investors can trade at the same price from any7here in the country since inter,mar*et operations are streamlined coupled 7ith the country7ide access to the securities. J Aelays in communication, late payments and the malpracticeTs prevailing in the traditional trading mechanism can be done a7ay 7ith greater operational efficiency and informational transparency in the stoc* mar*et operations, 7ith the support of total computeriDed net7or*. Unless stoc* mar*ets provide professionaliDed service, small investors and foreign investors 7ill not be interested in capital mar*et operations. "nd capital mar*et being one of the major source of long,term finance for industrial projects, India cannot afford to damage the capital mar*et path. In this regard CS& gains vital importance in the Indian capital mar*et system.



"n effi#ient # :it % m (9et is a mar*et 7here the share prices reflect ne7 information accurately and in real time. 6apital mar*et efficiency is judged by its success in incorporating and inducting information, generally about the basic value of securities, into the price of securities. This basic or fundamental value of securities is the present value of the cash flo7s e'pected in the future by the person o7ning the securities. The fluctuation in the value of stoc*s encourage traders to trade in a competitive manner 7ith the objective of ma'imum profit. This results in price movements to7ards the current value of the cash flo7s in the future. The information is very easily available at cheap rates because of the presence of organiDed mar*ets and various technological innovations. "n efficient capital mar*et incorporates information :uic*ly and accurately into the prices of securities. In the strong,form efficient mar*et, under no circumstances can investors earn e'cess profits because all of the information is incorporated into the security prices. The funds that are flo7ing in capital mar*ets, from savers to the firms 7ith the aim of financing projects, must flo7 into the best and top valued projects and, therefore, informational efficiency is of supreme importance. Stoc*s must be efficiently priced, because if the securities are priced accurately, then those investors 7ho do not have time for mar*et analysis 7ould feel confident about ma*ing investments in the capital mar*et. &ugene @ama 7as one of the earliest to theoriDe capital mar*et efficiency, but empirical tests of capital mar*et efficiency had begun even before that.

Effi#ient-m (9et $&:ot$esis In finance, the effi#ient-m (9et $&:ot$esis #EM-$ asserts that financial mar*ets are Iinformationally efficientI. That is, one cannot consistently achieve returns in e'cess of average mar*et returns on a ris*,adjusted basis, given the information publicly available at the time the investment is made. There are three major versions of the hypothesis: I7ea*I, Isemi,strongI, and IstrongI. =ea* & ; claims that prices on traded assets #e.g., stoc*s, bonds, or property$ already reflect all past publicly available information. Semi,strong & ; claims both that prices reflect all publicly available information and that prices instantly change to reflect ne7 public information. Strong & ; additionally claims that prices instantly reflect even hidden or IinsiderI information. There is evidence for and against the 7ea* and semi,strong & ;s, 7hile there is po7erful evidence against strong & ;. The validity of the hypothesis has been :uestioned by critics 7ho blame the belief in rational mar*ets for much of the financial crisis of 0??/U0?3?. Aefenders of the & ; caution that conflating mar*et stability 7ith the & ; is un7arrantedM 7hen publicly available information is unstable, the mar*et can be just as unstable. -isto(i# % 8 #9!(oun" The efficient,mar*et hypothesis 7as first e'pressed by )ouis !achelier, a @rench mathematician, in his 3-?? dissertation, IThe Theory of SpeculationI. ;is 7or* 7as largely ignored until the 3-2?sM ho7ever beginning in the (?s scattered, independent 7or* corroborated his thesis. " small number of studies indicated that US stoc* prices and related financial series follo7ed a random 7al* model.F2G +esearch by "lfred 6o7les in the T(?s and T.?s suggested that professional investors 7ere in general unable to outperform the mar*et. The efficient,mar*et hypothesis 7as developed by Professor &ugene @ama at the University of 6hicago !ooth School of !usiness as an academic concept of study through his published Ph.A. thesis in the early 3-1?s at the same school. It 7as 7idely accepted up until the 3--?s, 7hen behavioral finance economists, 7ho 7ere a fringe element, became mainstream. &mpirical

analyses have consistently found problems 7ith the efficient,mar*et hypothesis, the most consistent being that stoc*s 7ith lo7 price to earnings #and similarly, lo7 price to cash,flo7 or boo* value$ outperform other stoc*s. "lternative theories have proposed that cognitive biases cause these inefficiencies, leading investors to purchase overpriced gro7th stoc*s rather than value stoc*s. "lthough the efficient,mar*et hypothesis has become controversial because substantial and lasting inefficiencies are observed, !eechey et al. #0???$ consider that it remains a 7orth7hile starting point. The efficient,mar*et hypothesis emerged as a prominent theory in the mid,3-1?s. Paul Samuelson had begun to circulate !achelierBs 7or* among economists. In 3-1. !achelierBs dissertation along 7ith the empirical studies mentioned above 7ere published in an anthology edited by Paul 6ootner. In 3-12 &ugene @ama published his dissertation arguing for the random 7al* hypothesis, and Samuelson published a proof for a version of the efficient,mar*et hypothesis. In 3-/? @ama published a revie7 of both the theory and the evidence for the hypothesis. The paper e'tended and refined the theory, included the definitions for three forms of financial mar*et efficiency: 7ea*, semi,strong and strong #see belo7$. @urther to this evidence that the U% stoc* mar*et is 7ea*,form efficient, other studies of capital mar*ets have pointed to7ard their being semi,strong,form efficient. " study by %han of the grain futures mar*et indicated semi,strong form efficiency follo7ing the release of large trader position information #%han, 3->1$. Studies by @irth #3-/1, 3-/-, and 3->?$ in the United %ingdom have compared the share prices e'isting after a ta*eover announcement 7ith the bid offer. @irth found that the share prices 7ere fully and instantaneously adjusted to their correct levels, thus concluding that the U% stoc* mar*et 7as semi,strong,form efficient. ;o7ever, the mar*etBs ability to efficiently respond to a short term, 7idely publiciDed event such as a ta*eover announcement does not necessarily prove mar*et efficiency related to other more long term, amorphous factors. Aavid Areman has criticiDed the evidence provided by this instant IefficientI response, pointing out that an immediate response is not necessarily efficient, and that the long, term performance of the stoc* in response to certain movements is better indications. " study on stoc*s response to dividend cuts or increases over three years found that after an announcement of a dividend cut, stoc*s underperformed the mar*et by 32.(L for the three,year period, 7hile stoc*s outperformed 0..>L for the three years after7ard after a dividend increase announcement.

T$eo(eti# % 8 #9!(oun" !eyond the normal utility ma'imiDing agents, the efficient,mar*et hypothesis re:uires that agents have rational e'pectationsM that on average the population is correct #even if no one person is$ and 7henever ne7 relevant information appears, the agents update their e'pectations appropriately. Cote that it is not re:uired that the agents be rational. & ; allo7s that 7hen faced 7ith ne7 information, some investors may overreact and some may underreact. "ll that is re:uired by the & ; is that investorsB reactions be random and follo7 a normal distribution pattern so that the net effect on mar*et prices cannot be reliably e'ploited to ma*e an abnormal profit, especially 7hen considering transaction costs #including commissions and spreads$. Thus, any one person can be 7rong about the mar*etNindeed, everyone can beNbut the mar*et as a 7hole is al7ays right. There are three common forms in 7hich the efficient,mar*et hypothesis is commonly statedNAe 9-fo(m effi#ien#&, semi-st(on!-fo(m effi#ien#& and st(on!-fo(m effi#ien#&, each of 7hich has different implications for ho7 mar*ets 7or*. In Ae 9-fo(m effi#ien#&, future prices cannot be predicted by analyDing price from the past. &'cess returns cannot be earned in the long run by using investment strategies based on historical share prices or other historical data. Technical analysis techni:ues 7ill not be able to consistently produce e'cess returns, though some forms of fundamental analysis may still provide e'cess returns. Share prices e'hibit no serial dependencies, meaning that there are no IpatternsI to asset prices. This implies that future price movements are determined entirely by information not contained in the price series. ;ence, prices must follo7 a random 7al*. This BsoftB & ; does not re:uire that prices remain at or near e:uilibrium, but only that mar*et participants not be able to systematically profit from mar*et BinefficienciesB. ;o7ever, 7hile & ; predicts that all price movement #in the absence of change in fundamental information$ is random #i.e., non,trending$, many studies have sho7n a mar*ed tendency for the stoc* mar*ets to trend over time periods of 7ee*s or longer and that, moreover, there is a positive correlation bet7een degree of trending and length of time period studied #but note that over long time periods, the trending is sinusoidal in appearance$. Parious e'planations for such large and apparently non,random price movements have been promulgated. !ut the best e'planation seems to be that the distribution of stoc* mar*et prices is non,Kaussian #in 7hich case & ;, in any of its current forms, 7ould not be strictly applicable$.

The problem of algorithmically constructing prices 7hich reflect all available information has been studied e'tensively in the field of computer science. @or e'ample, the comple'ity of finding the arbitrage opportunities in pair betting mar*ets has been sho7n to be CP,hard. In semi-st(on!-fo(m effi#ien#&, it is implied that share prices adjust to publicly available ne7 information very rapidly and in an unbiased fashion, such that no e'cess returns can be earned by trading on that information. Semi,strong,form efficiency implies that neither fundamental analysis nor technical analysis techni:ues 7ill be able to reliably produce e'cess returns. To test for semi,strong,form efficiency, the adjustments to previously un*no7n ne7s must be of a reasonable siDe and must be instantaneous. To test for this, consistent up7ard or do7n7ard adjustments after the initial change must be loo*ed for. If there are any such adjustments it 7ould suggest that investors had interpreted the information in a biased fashion and hence in an inefficient manner. In st(on!-fo(m effi#ien#&, share prices reflect all information, public and private, and no one can earn e'cess returns. If there are legal barriers to private information becoming public, as 7ith insider trading la7s, strong,form efficiency is impossible, e'cept in the case 7here the la7s are universally ignored. To test for strong,form efficiency, a mar*et needs to e'ist 7here investors cannot consistently earn e'cess returns over a long period of time. &ven if some money managers are consistently observed to beat the mar*et, no refutation even of strong,form efficiency follo7s: 7ith hundreds of thousands of fund managers 7orld7ide, even a normal distribution of returns #as efficiency predicts$ should be e'pected to produce a fe7 doDen IstarI performers.





utual fund is a trust that pools the savings of a number of investors 7ho share a common financial goal. This pool of money is invested in accordance 7ith a stated objective. The joint o7nership of the fund is thus 4 utual5, i.e. the fund belongs to all investors. The money thus collected is then invested in capital mar*et instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realiDed are shared by its unit holders in proportion the number of units o7ned by them. Thus a a diversified, professionally managed bas*et of securities at a relatively lo7 cost. " utual @und is the most suitable investment for the common man as it offers an opportunity to invest in utual @und is an investment tool that allo7s small investors access to a 7ell,diversified portfolio of e:uities, bonds and other securities. &ach shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fundTs Cet "sset value #C"P$ is determined each day. Investments in securities are spread across a 7ide cross,section of industries and sectors and thus the ris* is reduced. Aiversification reduces the ris* because all stoc*s may not move in the same direction in the same proportion at the same time. utual fund issues units to the investors in accordance 7ith :uantum of money invested by them. Investors of mutual funds are *no7n as



J Portfolio Aiversification J Professional management J +eduction Aiversification of +is* J )i:uidity J @le'ibility 6onvenience unit holders. J +eduction in Transaction cost J Safety of regulated environment J 6hoice of schemes J Transparency +ISA+CANTA)E O, M*T*AL ,*N+ 9 8

J Co control over 6ost in the ;ands of an Investor J Co tailor,made Portfolios J anaging a Portfolio @unds

J Aifficulty in selecting a Suitable @und Scheme

-ISTOR. O, T-E IN+IAN M*T*AL ,*N+ IN+*STR. The mutual fund industry in India started in 3-1( 7ith the formation of Unit Trust of India, at the initiative of the Kovernment of India and +eserve !an*. Though the gro7th 7as slo7, but it accelerated from the year 3->/ 7hen non,UTI players entered the Industry. ,i(st P$ se D 1931-E2 Unit Trust of India #UTI$ 7as established on 3-1( by an "ct of Parliament by the +eserve !an* of India and functioned under the +egulatory and administrative control of the +eserve !an* of India. In 3-/> UTI 7as de,lin*ed from the +!I and the Industrial Aevelopment !an* of India #IA!I$ too* over the regulatory and administrative control in place of +!I. The first scheme launched by UTI 7as Unit Scheme 3-1.. "t the end of 3->> UTI had +s.1,/?? crores of assets under management. Se#on" P$ se D 19E2-1990 (Ent(& of Pu8%i# Se#to( ,un"s) 3->/ mar*ed the entry of non, UTI, public sector mutual funds set up by public sector ban*s and )ife Insurance 6orporation of India #)I6$ and Keneral Insurance 6orporation of India #KI6$. S!I utual @und 7as the first non, UTI utual @und

established in June 3->/ follo7ed by 6anban* Cational !an*

utual @und #Aec >/$, Punjab utual @und #Cov >-$, !an*

utual @und #"ug >-$, Indian !an*

of India #Jun -?$, !an* of !aroda

utual @und #Hct -0$. )I6 established its

mutual fund in June 3->- 7hile KI6 had set up its mutual fund in Aecember

3--?."t the end of 3--(, the mutual fund industry had assets under management of +s../,??. crores. T$i(" P$ se D 1990-2000 (Ent(& of P(i= te Se#to( ,un"s) 3--( 7as the year in 7hich the first utual @und +egulations came into being,

under 7hich all mutual funds, e'cept UTI 7ere to be registered and governed. The erst7hile %othari Pioneer #no7 merged 7ith @ran*lin Templeton$ 7as the first private sector mutual fund registered in July 3--(. The 3--( S&!I # utual @und$ +egulations 7ere substituted by a more

comprehensive and revised

utual @und +egulations in 3--1. The industry no7 functions under

the S&!I # utual @und$ +egulations 3--1. "s at the end of January 0??(, there 7ere (( mutual funds 7ith total assets of +s. 3,03,>?2 crores. ,ou(t$ P$ se D sin#e ,e8(u (& 2000 In @ebruary 0??(, follo7ing the repeal of the Unit Trust of India "ct 3-1( UTI 7as bifurcated into t7o separate entities. Hne is the Specified Underta*ing of the Unit Trust of India 7ith assets under management of +s.0-,>(2 crores as at the end of January 0??(, representing broadly, the assets of US 1. scheme, assured return and certain other schemes


utual funds can be classified as follo7 :

/ se" on t$ei( st(u#tu(e; Hpen,ended funds: Investors can buy and sell the units from the fund, at

any point of time.

6lose,ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stoc*s e'change the units can be traded li*e stoc*s / se" on t$ei( in=estment o8Fe#ti=e;

E?uit& fun"s: These funds invest in e:uities and e:uity related instruments. =ith fluctuating share prices, such funds sho7 volatile performance, even losses. ;o7ever, short term fluctuations in the mar*et, generally smoothens out in the long term, thereby offering higher returns at relatively lo7er volatility. "t the same time, such funds can yield great capital appreciation as, historically, e:uities have outperformed all asset classes in the long term. ;ence, investment in e:uity funds should be considered for a period of at least (,2 years. It can be further classified as: i) In"e7 fun"s, In this case a *ey stoc* mar*et inde', li*e !S& Sense' or Cifty is trac*ed. Their portfolio mirrors the benchmar* inde' both in terms of composition and individual stoc* 7eightages. ii) E?uit& "i=e(sifie" fun"s- 3??L of the capital is invested in e:uities spreading across different sectors and stoc*s.

iiiG) +i=i"en" &ie%" fun"s- it is similar to the e:uity diversified funds e'cept that they invest in companies offering high dividend yields. i=) T$em ti# fun"s- Invest 3??L of the assets in sectors 7hich are related through some theme. e.g. ,"n infrastructure fund invests in po7er, construction, cements sectors etc. =) Se#to( fun"s- Invest 3??L of the capital in a specific sector. e.g. , " ban*ing sector fund 7ill invest in ban*ing stoc*s.

=i) ELSS, &:uity )in*ed Saving Scheme provides ta' benefit to the investors.

/ % n#e" fun"; Their investment portfolio includes both debt and e:uity. "s a result, on the ris*,return ladder, they fall bet7een e:uity and debt funds. !alanced funds are the ideal mutual funds vehicle for investors 7ho prefer spreading their ris* across various instruments. @ollo7ing are balanced funds classes: i) +e8t-o(iente" fun"s -Investment belo7 12L in e:uities. ii) E?uit&-o(iente" fun"s -Invest at least 12L in e:uities, remaining in debt.

+e8t fun"; They invest only in debt instruments, and are a good option for investors averse to idea of ta*ing ris* associated 7ith e:uities. Therefore, they invest e'clusively in fi'ed,income instruments li*e bonds, debentures, Kovernment of India securitiesM and money mar*et instruments such as

certificates of deposit #6A$, commercial paper #6P$ and call money. Put your money into any of these debt funds depending on your investment horiDon and needs. i) Li?ui" fun"s- These funds invest 3??L in money mar*et instruments, a large portion being invested in call money mar*et. ii) )i%t fun"s ST- They invest 3??L of their portfolio in government securities of and T,bills. iii) ,%o tin! ( te fun"s - Invest in short,term debt papers. @loaters invest in debt instruments 7hich have variable coupon rate. i=) A(8it( !e fun"- They generate income through arbitrage opportunities due to mis,pricing bet7een cash mar*et and derivatives mar*et. @unds are allocated to e:uities, derivatives and money mar*ets. ;igher proportion #around /2L$ is put in money mar*ets, in the absence of arbitrage opportunities. =) )i%t fun"s LT- They invest 3??L of their portfolio in long,term government securities. =i)In#ome fun"s LT- Typically, such funds invest a major portion of the portfolio in long,term debt papers. =ii) MIPsonthly Income Plans have an e'posure of /?L,-?L to debt and an

e'posure of 3?L,(?L to e:uities.

=iii) ,MPs- fi'ed monthly plans invest in debt papers 7hose maturity is in line 7ith that of the fund.

INCESTMENT STRATE)IES 16 S&stem ti# In=estment P% n; under this a fi'ed sum is invested each month on a fi'ed date of a month. Payment is made through post dated che:ues or direct debit facilities. The investor gets fe7er units 7hen the C"P is high and more units 7hen the C"P is lo7. This is called as the benefit of +upee 6ost "veraging #+6"$ 26 S&stem ti# T( nsfe( P% n; under this an investor invest in debt oriented fund and give instructions to transfer a fi'ed sum, at a fi'ed interval, to an e:uity scheme of the same mutual fund. 06 S&stem ti# 5it$"( A % P% n; if someone 7ishes to 7ithdra7 from a mutual fund then he can 7ithdra7 a fi'ed amount each month.






This report is based on primary as 7ell secondary data, ho7ever primary data collection 7as given more importance since it is overhearing factor in attitude studies. Hne of the most important users of research methodology is that it helps in identifying the problem, collecting, analyDing the re:uired information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is re:uired by the top management to assist them for the better decision ma*ing both day to day decision and critical ones. + t sou(#es; +esearch is totally based on primary data. Secondary data can be used only for the reference. +esearch has been done by primary data collection, and primary data has been collected by interacting 7ith various people. The secondary data has been collected through various journals and 7ebsites. +u( tion of Stu"&; The study 7as carried out for a period of t7o months, from 3st July to 3(th July 0?3?. S m:%in!;

S m:%in! :(o#e"u(e;

The sample 7as selected of them 7ho are the customers8visitors of State !an* if India, !oring 6anal +oad !ranch, irrespective of them being investors or not or availing the services or not. It 7as also collected through personal visits to persons, by formal and informal tal*s and through filling up the :uestionnaire prepared. The data has been analyDed by using mathematical8Statistical tool.

S m:%e si<e;

The sample siDe of my project is limited to 0?? people only. Hut of 7hich only 30? people had invested in utual @und. utual @und. Hther 1? people did not have invested in

S m:%e "esi!n;

Aata has been presented 7ith the help of bar graph, pie charts, line graphs etc.

Limit tion; Some of the persons 7ere not so responsive. Possibility of error in data collection because many of investors may have not given actual ans7ers of my :uestionnaire Sample siDe is limited to 0?? visitors of reliance mutual funds !ranch, )udhiana out of these only 30? had invested in sample. SiDe may not ade:uately represent the 7hole mar*et. Some respondents 7ere reluctant to divulge personal information 7hich can affect the validity of all responses. The research is confined to a certain part of )udhiana. utual @und. The

A"T" "C")<SIS 9 ICT&+P+&T"TIHC


16 (A) A!e "ist(i8ution of t$e In=esto(s of Lu"$i n 6

WX (? "ge Kroup





Y2? 3 3 ( 0 0?31 Co. of? . 0> Investors

0 4 0 0 2 0 4 0 1 2 E 01 12 4 1 0 4 0

2 2 1 0 1 3

JK00 01-04 0310 11-14 1340 L40 A!e !(ou: of t$e In=esto (s Inte(:(e t tion; "ccordi ng this chart out 30? utual @und investor s of )udhian of to

a the most are in the age group of (1,.? yrs. i.e. 02L, the second most investors are in the age group of .3, .2yrs i.e. 0?L and the least investors are in the age group of belo7 (? yrs. (8)6 E"u# tion % of of

>u %ifi# tion in=esto(s Lu"$i n 6

E"u# tion % >u %if i# tio n Num8 e( of In=est o(s >> Kraduate 8 Post Kraduate In=esto(s in=este" in Mutu % ,un"

02 / 30?

Under Kraduate Hthers Total

Inte(:(et tion;Hut of 30?

utual @und investors /3L of the investors

in )udhiana are Kraduate8Post Kraduate, 0(L are Under Kraduate and 1L are others #under ;S6$. #)6 O##u: tion of t$e in=esto(s of Lu"$i n 6 O##u: tion Kovt. Service Pvt. Service !usiness "griculture Hthers . No6 of In=esto(s (? .2 (2 . 1

Inte(:(et tion; In Hccupation group out of 30? investors, (>L are Pvt. &mployees, 02L are !usinessman, 0-L are Kovt. &mployees, (L are in "griculture and 2L are in others. (")6 Mont$%& , mi%& In#ome of t$e In=esto(s of Lu"$i n 6

In#ome )(ou: WX3?,??? 3?,??3,32,??? 32,??3,0?,??? 0?,??3,(?,??? Y(?,???

Inte(:(et tion;

No6 of In=esto(s 2

30 0> .( (0

In the Income Kroup of the investors of )udhiana, out of 30? investors, (1L investors that is the ma'imum investors are in the monthly income group +s. 0?,??3 to +s. (?,???, Second one i.e. 0/L investors are in the monthly income group of more than +s. (?,??? and the minimum investors i.e. .L are in the monthly income group of belo7 +s. 3?,??? (2) In=esto(s in=este" in "iffe(ent 9in" of in=estments6 Co. of +espondents 3-2 3.> 320 30? /2 2? (? 12

%ind of Investments Saving "86 @i'ed deposits Insurance utual @und Post office #CS6$ Shares8Aebentures Kold8Silver +eal &state

Inte(:(et tion; @rom the above graph it can be inferred that out of 0?? people, -/.2L people have invested in Saving "8c, /1L in Insurance, /.L in @i'ed Aeposits, 1?L in utual @und, (/.2L in Post Hffice, 02L in Shares or

Aebentures, 32L in Kold8Silver and (0.2L in +eal &state.

06 P(efe(en#e of f #to(s A$i%e in=estin! @actors #a$ )i:uidity #b$ )o7 +is* #c$ ;igh +eturn #d$ Trust

Co. of +espondents





Inte(:(et tion;

Hut People, invest there


0?? (0L 7here

People prefer to is ;igh

+eturn, (?L prefer to invest 7here there is )o7 +is*, 0?L prefer easy )i:uidity and 3>L prefer Trust 16 AA (eness 8out Mutu % ,un" n" its O:e( tions

+esponse Co. of +espondents In te (: (e t tio n;

<es 3(2



@rom the above chart it is inferred that 1/L People are a7are of its operations and ((L are not a7are of

utual @und and

utual @und and its operations.

46 Sou(#e of info(m tion fo( #ustome(s 8out Mutu % ,un" No6 of Res:on"ents 3> 02 (? 10

Sou(#e of info(m tion "dvertisement Peer Kroup !an* @inancial "dvisors

Inte(:(et tion;

@rom the above chart it can be inferred that the @inancial "dvisor is the most

important source of information about .1L *no7 about

utual @und. Hut of 3(2 +espondents,

utual fund Through @inancial "dvisor, 00L through !an*,

3-L through Peer Kroup and 3(L through "dvertisement.

1. In=esto(s in=este" in Mutu % ,un" No6 of Res:on"ents 30? >? 0??

Res:onse <&S CH Total

Inte(:(et tion;

Hut of 0?? People, 1?L have invested in invested in utual @und.

utual @und and .?L do not have


Re son fo( not in=este" in Mutu % ,un" No6 of Res:on"ents 34 4 10

Re son Cot "7are ;igher +is* Cot any Specific +eason

Inte(:(et tion;

Hut of >? people, 7ho have not invested in

utual @und, >3L are not a7are of

utual @und, 3(L said there is li*ely to be higher ris* and 1L do not have any

specific reason.

E6 In=esto(s in=este" in "iffe(ent Assets

M n !ement Co6 (AMC) No6 of In=esto(s 22 /2 (? /2 21 .2 /?

N me of AMC S!I @ UTI ;A@6 +eliance I6I6I Prudential %ota* Hthers

Inte(:(et tion;

In )udhiana most of the Investors preferred UTI and +eliance

utual @und. Hut

of 30? Investors 10.2L have invested in each of them, only .1L have invested in S!I @, ./L in I6I6I Prudential, (/.2L in %ota* and 02L in ;A@6.

96 P(efe(en#e of In=esto(s fo(

futu(e in=estment in Mutu % ,un" No6 of In=esto(s /1 .2 (2 >0 >? 1? /2

N me of AMC S!I @ UTI ;A@6 +eliance I6I6I Prudential %ota* Hthers

Inte(:(et tion; Hut of 30? investors, 1>L prefer to invest in +eliance, 1/L in I6I6I Prudential, 1(L in S!I @, 10.2L in Hthers, 2?L in %ota*, (/.2L in UTI and 0-L in ;A@6 utual @und.

106 C$ nne% P(efe((e" 8& In=esto(s fo( Mutu % ,un" In=estment @inancial "dvisor /0 !an* 3> " 6 (? t$e

6hannel Co. of +espondents

Inte(:(et tion;

Hut of 30? Investors 1?L preferred to invest through @inancial "dvisors, 02L through " 6 and 32L through !an*.


Mo"e of In=estment P(efe((e" 8& t$e In=esto(s Hne time Investment /> Systematic Investment Plan #SIP$ .0

ode of Investment Co. of +espondents

Inte(:(et tion;

Hut of 30? Investors 12L preferred Hne time Investment and (2 L Preferred

through Systematic Investment Plan.

126 P(efe((e" Po(tfo%ios 8& t$e In=esto(s

No6 of In=esto(s 21 0? .. @rom graph preferred Portfolio, preferred and 3/L preferred Aebt portfolio Po(tfo%io &:uity Aebt !alanced the above .1L &:uity (/L !alance

106 O:tion fo( !ettin! Retu(n P(efe((e" 8& t$e In=esto(s

Inte(:(et tion;

Kro7th >2



above graph /3L preferred Kro7th Hption, 03L Hption Co. of +espondents Aividend Payout 02 Aividend +einvestment 3? preferred Aividend Payout and >L preferred Aividend +einvestment Hption.

116 P(efe(en#e of In=esto(s A$et$e( in=est Se#to(i % ,un"s No6 of Res:onse Res:on"ents Inte(:(et tion; to in

24 94 Hut of 30? investors, /-L investors do not prefer to invest in Sectorial @und .es No because there is ma'imum ris* and 03L prefer to invest in Sectorial @und.


In )udhiana in the "ge Kroup of (1, .? years 7ere more in numbers. The second most Investors 7ere in the age group

Inte(:(et tion;

of .3,.2 years and the least 7ere in the age group of belo7 (? years. In )udhiana most of the Investors 7ere Kraduate or Post Kraduate and belo7 ;S6 there 7ere very fe7 in numbers. In Hccupation group most of the Investors 7ere Kovt. employees, the second most Investors 7ere Private employees and the least 7ere associated 7ith "griculture. In family Income group, bet7een +s. 0?,??3, (?,??? 7ere more in numbers, the second most 7ere in the Income group of more than +s.(?,??? and the least 7ere in the group of belo7 +s. 3?,???. "bout all the +espondents had a Saving "8c in !an*, /1L Invested in @i'ed Aeposits, Hnly 1?L +espondents invested in utual fund.

ostly +espondents preferred ;igh +eturn 7hile investment, the second most preferred )o7 +is* then li:uidity and the least preferred Trust. Hnly 1/L +espondents 7ere a7are about and its operations and ((L 7ere not. utual fund

"mong 0?? +espondents only 1?L had invested in utual @und and .?L did not have invested in utual fund. utual

Hut of >? +espondents >3L 7ere not a7are of

@und, 3(L told there is not any specific reason for not invested in higher ris* in utual @und and 1L told there is li*ely to be utual @und.

1?L Investors preferred to Invest through @inancial "dvisors, 02L through " 6 #means Airect Investment$ and 32L through !an*. The most preferred Portfolio 7as &:uity, the second most 7as !alance #mi'ture of both e:uity and debt$, and the least preferred Portfolio 7as Aebt portfolio. ost of the Investors did not 7ant to invest in Sectoral @und, only 03L 7anted to invest in Sectoral @und.


+unning a successful peculiarities of the Indian Stoc*

utual @und re:uires complete understanding of the ar*et and also the psyche of the small investors. This utual @und investors

study has made an attempt to understand the financial behavior of that many of people have fear of

in connection 7ith the preferences of !rand #" 6$, Products, 6hannels etc. I observed utual @und. They thin* their money 7ill not be secure


utual @und. They need the *no7ledge of

utual @und and its related terms.

any of

people do not have invested in mutual fund due to lac* of a7areness although they have money to invest. "s the a7areness and income is gro7ing the number of mutual fund investors are also gro7ing. 4!rand5 plays important role for the investment. People invest in those 6ompanies 7here they have faith or they are 7ell *no7n 7ith them. There are many " 6s in Punjab but only some are performing 7ell due to !rand a7areness. Some " 6s are not performing 7ell although some of the schemes of them are giving good return because of not a7areness about !rand. Aistribution channels are also important for the investment in mutual fund. @inancial "dvisors are the most preferred channel for the investment in mutual fund. They can change investorsT mind from one investment option to others. any of investors directly invest their money through " 6 because they do not have to pay entry load. Hnly those people invest directly 7ho *no7 7ell about mutual fund and its operations and those have time.

Su!!estions n" Re#ommen" tions The most vital problem spotted is of ignorance. Investors should be made a7are of the benefits. Cobody 7ill invest until and unless he is fully convinced. Investors should be made to realiDe that ignorance is no longer bliss and 7hat they are losing by not investing. utual funds offer a lot of benefit 7hich no other single option could offer. !ut most of the people are not even a7are of 7hat actually a mutual fund isZ They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. <oung investors as 7ell as persons at the height of their career 7ould li*e to go for advisors due to lac* of e'pertise and time.

utual @und 6ompany needs to give the training of the Individual @inancial "dvisors about the @und8Scheme and its objective, because they are the main source to influence the investors.

!efore ma*ing any investment @inancial "dvisors should first en:uire about the ris* tolerance of the investors8customers, their need and time #ho7 long they 7ant to invest$. !y considering these three things they can ta*e the customers into consideration. <ounger people aged under (2 7ill be a *ey ne7 customer group into the future, so ma*ing greater efforts 7ith younger customers 7ho sho7 some interest in investing should pay off. 6ustomers 7ith graduate level education are easier to sell to and there is a large untapped mar*et there. To succeed ho7ever, advisors must provide sound advice and high :uality. Systematic Investment Plan #SIP$ is one the innovative products launched by "ssets anagement companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in & I. Though most of the prospects and potential investors are not a7are about the SIP. There is a large scope for the companies to tap the salaried persons.




>*ESTIONNAIRE A stu"& of :(efe(en#es of t$e in=esto(s fo( in=estment in mutu % fun"s6 16 Pe(son % +et i%s;

#a$. Came:, #b$. "dd: , #c$. "ge:, #d$. Qualification:, Kraduation8PK Under Kraduate Hthers Phone:,

#e$. Hccupation. Pl tic* #[$ Kovt. Ser Pvt. Ser !usiness "griculture Hthers

#g$. =hat is your monthly+s. family income appro'imatel yZ Pl tic* #[$. Up to (?,??3

+s. 3?,??3 to +s. 32,??3 to +s. 0?,??3 to +s.3 32??0?,? (?,? and above ?,?? ? ?? ?? ?

26 =hat *ind of investments you have made so farZ Pl tic* #[$. "ll applicable. b. c. ost a. @i'e Insurance S Hffic d g. Kold8 a depo e, vi sits Silver n CS6, f. g etc Shar ac es8A c eben o tures u nt e. P



h. +eal&state

applic able.

06 =hile investing your money, 7hich factor 7ill you preferZ #b$ )o7#c$ ;igh +eturn #d$ #a +is* Trust $ ) i: ui di ty

16 "re you a7are about utual @unds and their operationsZ Pl tic* #[$. <es Co

46 If yes, ho7 did you *no7 about utual @undZ d. @inancial a. "dvisors "dvertisement b. Peer Kroup c. !an*s

36 ;ave you ever invested in utual @undZ Pl tic* #[$. <es Co

26 If not invested in 7hyZ

utual @und then

#a$ Cot a7are of @ #b$ ;igher ris* #c$ Cot any specific reason

E. If yes' in 7hich

utual @und you

have investedZ Pl. tic* #[$. "ll

a. S!I @

b. UTI c. ;A@6

d. +eliance e. %ota*

f. Hther. specify

9. =hen you plan to invest your money in asset management co. 7hich " 6 7ill you preferZ "ssets anagement 6o.

a. S!I @ b. UTI c. +eliance d. ;A@6 e. %ota* f. I6I6I

10. =hich 6hannel 7ill you prefer 7hile investing in utual @undB #b$ !an* #c$ " 6 #a$ @in an cia l "d vis or

116 =hen you invest in utual @unds 7hich mode of investment 7ill you preferZ Pl. tic* #[$. b. Systematic a. HneInvestment Plan #SIP$ Time Invest ment

126 =hen you 7ant to invest 7hich type of funds 7ould you chooseZ b. ;avingc. Hnly e:uity a. debt 9portfolio. ; e:uity a portfolio. vi n g o nl y d e bt p or tf ol io

106 ;o7 7ould you li*e to receive the returns every yearZ Pl. tic* #[$. b. c. Kro7th in a. Aividend C"P Ai re, vid en d pa yo ut


116 Instead of general Please tic* #[$.

utual @unds, 7ould you li*e to invest in sectorial fundsZ <es Co

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