RESEARCH PROJECT

ON
INVESTORS PERCEPTION OF COMMODITY FUTURES
(Conducted for Pristine Angel Broking Ltd)

Submitted in partial fulfillment of the requirement for

MBA Degree of Sikkim Manipal University

Submitted by
Patel Hitesh H

Register Number
520782181

INSTITUTE OF BUSINESS MANAGAMENT & RESEARCH

8/182 , Sunrise park, Nr. Asia School, Drive-in-Road
AHMEDABAD - 380054

GUIDE CERTIFICATE

I hereby declare that the research work embodied

in
this
dissertation
entitled investors perception of commodity futures has been
undertaken and completed
by Patel Hitesh H under my guidance and
supervision.

I also certify that he has fulfilled all the requirements under the covenant
governing the submission of dissertation to
the SIKKIM MANIPAL UNIVERSITY
for the award of MBA Degree.

Place: Ahmedabad
Date:

Dr,Ramkumar baliyan
Internal guide,
IBMR

[2]

ACKNOWLEDGEMENT

I take this opportunity to extend my sincere gratitude to the respondents

who gave all the support and had been cooperative in providing all the
valuable required information without which I would not have completed
my report.

I would also like to thank Dr.Ramkumar baliyan

director, internal guide, institute of business management,
and
Mr. Paresh
patel( Angel broking) for the constant guidance, encouragement and
motivation they extended throughout the study.

I also thank my parents and friends for their co-operation,

and encouragement
extended throughout the study.

CONTANTS

SR.
NO

TOPIC
PAGE

NO.
1.

support

INTRODUCTION TO THE TOPIC

The Indian financial system.

Guidelines by the RBE pertaining to commodity future trading.

Security and exchange board of India.

SEBE guidelines for commodity futures trading.

6 -17

11
13

15
2.

RESEARCH DESIGN

Objective of the study.

Research methodology.

19
21
3.

18-21

COMMODITY FUTURES

The history of trading

Definition of commodity.

Definition of commodity future.

Growth of commodity futures in India.

Commodity trading affect the economy.

Investors choice.

The role of the exchange in future trading.

22-26

22
23
23
24
25
25

26
4.
RISK ASSCIATED WITH COMMODITY FUTURES TRADING.
27
5.

THE VARIOUS RISK MANAGEMENT TECHINQUES USED IN COMMODITY

FUTURES TRADING.28-29
[4]

SR.
NO

TOPIC

PAGE

NO.
6.

COMPANY PROFILE

Introduction.

Angel group membership.

Location.

Angel intensive research process.

30
31
32
33
7.

SWOT ANALYSIS

34
8.
DATA ANALYSIS

Angel Services.

Guideline for risk management.

30-33

Angel Product.

35-52

35
43
47
9.
FINDING AND INTRERPRETATION
53-73
10.
CONCLUSION
74-75
11.

APPENDIX

Questionnaire

76-80

12.

BIBLIOGRAPHY

81

[5]
INTRODUCTION TO THE TOPIC

THE INDIAN FINANCIAL SYSTEM

The Indian financial system consists of many institutions,

instruments and markets. Financial and cheques, to the more exotic futures
swaps of high finance.

The Indian financial system is broadly classified into 2 broad Groups:-

1. Organized Sector

2. Unorganized Sector

1. ORGANISED SECTOR:-

The organized sector consists of: -

i. Financial institutions:-

a) Regulatory:-

The regulatory institutions are the ones, which forms the regulation and
control the Indian financial system. The Reserve Bank of India is the
regulatory body, which regulates, guides controls and promotes the IFS.

[6]

b) Financial intermediaries:-

They are the intermediaries who intermediate between the saver and investors.
They lend money as well mobilizes savings; their liabilities are towards
ultimate savers, while their assets are from the investors or borrowers.

They can be further classified into:-

Banking: All banking institutions are intermediaries.

Non-Banking: Some Non-Banking institutions also act as intermediaries, and when they do so
they are known as Non-Banking Financial Intermediaries. UTI, LIC, GIC &
NABARD are some of the NBFCs in India.

c) Non intermediaries:-

Non-intermediaries institutions do the loan business but their resources are not
directly obtained from the saver.

ii. Financial Markets:-

Financial Markets are the centers or arrangements that provide facilities for
buying & selling of financial claims and services.

[7]

Financial markets can be classified into: -

Organized markets:These markets comprise of corporations, financial

institutions, individuals and governments who trade in these markets either

directly or indirectly through brokers on organized exchanges or offices.

Unorganized markets:-

The financial transactions, which take place outside the well-established exchanges
or without systematic and orderly structure or arrangements constitutes the
unorganized markets. They generally refer to the markets in the villages.

[8]

The financial syst

The Financial System

___________________________|__________________________
|
Organized sector

|
Unorganized

sector
|

Money lender

 Land lords
Pawn brokers
Traders
Indigenous
__________|______________________________________
|

Financial
market

Services

Institution

Instrument
|

|_____

Other
Non-intermediaries

Intermediaries
Regulatory

Organized
Secondary

Unorganized

__________|_____________
|
|

Capital market

Primary

__________|____________
|

Money market

Short

term

Medium term

Long term

iii. Financial instruments:-

Financial instruments constitute of securities, assets and claims. Financial

securities are classified as primary and secondary securities.

The primary securities are issued by the companies directly to the ultimate
savers as ordinary shares and debentures.

While the secondary securities are issued by the financial intermediaries to the
ultimate savers as bank deposits, insurance policies so and on.

iv. Financial services:-

The term financial service in a broad sense means Mobilizing and

allocating savings. Thus, it can also be offered as a process by which funds
are mobilized from a large number of savers and make them available to all those
who are in need of it, particularly to the corporate customers.

2. THE UNORGANIZED SECTOR:-

The unorganized financial system comprises of relatively less controlled money

lenders, indigenous bankers, lending pawn brokers, land lords, traders etc.
This part of the financial system is not directly controlled by RBI.
.

[10]
GUIDELINES BY THE RBI PERTAINING TO
COMMODITY FUTURE
TRADING

The guidelines are: These guidelines cover the Indian entities that are exposed to commodity price risk.

Name and address of the organization:

1. A brief description of the hedging strategy

proposed:

Description of business activity and nature of risk.

Instruments proposed to be used for hedging.

Exchanges and brokers through whom the risk is proposed to be hedged and
credit lines proposed to be available.

The name and address of the regulatory authority in the country concerned
may also be given.

Size/average tenure of exposure/total turnover in a year expected.

2. Copy of the risk management policy approved

by the Board of Directors covering:-

Risk identification

Risk measurements

Guidelines and procedures to be followed with

respect to revaluation/monitoring of positions.

Names and designations of the officials authorized

to undertake transactions and limits.

[11]

3. Any other relevant information:-

The authorized dealers will forward the application to Reserve Bank along
with copy of the Memorandum on the risk management policy placed before the
Board of Directors with specific reference to hedging of commodity price exposure. .

i All standard exchanges traded futures will be permitted

ii. Tenure of exposure shall be limited to 6 months. Tenure beyond 6 months

would require Reserve Banks specific
approval.

iii. Corporate who wish to hedge commodity price exposure shall have to
ensure that there are no restrictions on import/export of the commodity
hedged under the Exim policy in force.

After grant of approval by Reserve Bank, the corporate concerned should

negotiate with off-shore exchange broker subject, inter alia, to the following:-

Brokers must be clearing members of the exchanges, with good

financial track record.

Trading will only be in standard exchange- traded futures

contract/options .

[12]
SECURITIES AND EXCHANGE BOARD OF
INDIA

SEBI was setup in April 12,1988. To start with, SEBI was set up as a non-statutory
body.

It took 4 years for the government to bring about a separate legislation in the
name of securities and exchange board of India Act, 1992, conferring statutory
powers over practically all aspects of capital market operations.

Objectives of SEBI

To protect the interest of investors so that there is a steady flow of savings into
the capital market.

To regulate the securities market and ensure fair

practices by the issuers of securities, so that they can
raise resources at minimum cost.

To provide efficient services by brokers, merchant bankers and the

other intermediaries, so that they
become competitive and professional.

Functions of SEBI

Sec 11 of the SEBI act specifies the functions as follows:-

Regulation of the stock exchange and self-regulatory organizations.

[13]

Registration and regulation of stock brokers, sub-brokers, registrar to

all issue, merchant bankers,
underwriters, portfolio managers and

such other

intermediaries who are associated with securities

market.


Regulation and registration of the working of collective investment schemes
including Mutual funds.

Prohibition of fraudulent and unfair trade practices relating to security

market.

Prohibit insider trading in securities.

Regulation substantial acquisitions of shares and take over of companies.

[14]
SEBI GUIDELINES FOR
COMMODITY FUTURES TRADING

There are many regulatory authorities, which are monitoring

commodity futures trading, one of them is SEBI. The following Report is one of
the regulatory frameworks for the commodity futures trading.

The following were the recommendations:-

I)

Participation of Securities Brokers in Commodity Futures Market

The committee was of the unanimous view that participation of

intermediaries like securities brokers in the commodity futures market is
welcome as it could inter-alia increase the number of quality players infuse
healthy competition, boost trading volumes in commodities and in turn provide
impetus to the overall growth of the commodity market.

Since the commodity market falls under the regulatory purview of a

separate regulatory authority viz., Forward Market Commission, to ensure
effective regulatory oversight by the Forward Market Commission, and to avoid
any possible regulatory overlap, the pre-condition for such entry by intending
participating securities brokers in the commodity futures market would be
through as separate legal entity, either subsidiary or otherwise. Such entity
should conform from time to time to the regulatory prescription of Forward
Market Commission, with reference to capital adequacy, net worth, membership
fee, margins, etc.

The committee took note of the fact that the existing provisions of the
Securities Contract (Regulation)Rules 1957 forbid a person to be elected as a
member of a recognized stock exchange if he is engaged as principal on
employee in any business other than that of securities, except as a broker or
agent not involving any personal financial liability. The
Committee

recommended
(Regulations)
securities
brokers

that the above provisions in the Securities

Contract
Rules
be removed/amended suitably to facilitate
participation/engagement

in

commodity

futures.

An important felt need was the necessity to improve

market

awareness of

trading

and

contracts in

commodities. The committee there for recommendation

the forward

market commission

take appropriate

initiatives in training the market participants.

II) Risk containment measures

In the background of the Forward Market Commissions report on risk

containment measures currently obtaining in
commodity
markets
and
committees recommendation
to
permit
security
brokers
participation in commodities markets only through a
separate legal entity, the committee considers that
ensuring

strict

compliance

of

the

regulatory

prescriptions like net worth, capital adequacy, margins,

exposure norms, etc., by

the

respective market

regulators, and due oversight would be an adequate

safeguard to ensure that the risks are not transmitted
from one market to the other.
[16]
|||) Utilization of existing infrastructure of stock
exchanges

the


On the issue of convergence/integration the securities market and
commodities market, that is of allowing stock exchanges to trade in commodity
derivatives and vice versa, the committee was of the view that in the current
statutory and regulatory framework existence of two separate and established
regulators, the issue of integration of the two markets would require detailed
examination, particularly for the purpose of defining clearly the scope
of
regulatory
purview and responsibility. Also, given the concerns raised by a
section of members that such integration may lead to further fragmentation of
volumes and liquidity in the nascent commodity markets, the committee was of
the view that the issue of markets could be taken up for consideration at a
future date as the two markets mature further.

[17]
RESEARCH DESIGN

INTRODUCTION

In the present global economic scenario, due to various factors such as

inflation, political factors, natural factors, the variations in prices of all
commodities are a natural phenomenon. So, from the point of the
cultivators of the commodity (in case of agricultural products) or dealers in the
metals, there is a genuine need for them, an instrument with which they can
hedge their risks. Thus, a commodity future is one of the most important
derivative securities. With this they will be able to reduce risks.

Consequently, the speculators who play an important part, in determining the price
also come in the picture. Thus with the help of their speculative expertise, it can
also be a very
Lucrative investment opportunity. Through this, project, an attempt is made to
prove that commodity futures can be used effectively as a risk reduction
instrument and also as a very good investment opportunity.

[18]
OBJECTIVES OF THE STUDY

The objective of this study is mainly to prove that commodity futures can be used
as a risk reduction instrument and also as an investment opportunity. In order to do
so, the following are the sub-objectives.

1. To study the various analysis tools used to make price movement predictions.

2. To study the growth of commodity futures trading.

3. To study the perception of investors of commodity futures

(questionnaire).

OPERATIONAL DEFINITIONS

Short selling
Selling first is known better as shorting or short selling. In futures trading, since
one is taking a future delivery, its just as easy to sell first and then buy later.
To offset the obligation to deliver, all one needs to do is to buy back the Contract
prior to the expiration of the Contract.

Margin
A margin refers to a good faith deposit made by the person who wants to buy or
sell a Contract in a futures exchange. It is a small percentage of the value of
the underling commodity represented by the Contract, generally in the
neighborhood of 2 to 10%.

[19]

Leverage
Leverage is the ability to buy or sell $100,000 of a commodity with a
$5000 security deposit, so that small price changes can result in huge profits or
losses.

Maintenance margin
Maintenance margin is the amount which
account as long as the position is active.

must be maintained in ones

Margin call
If the equity balance in the account falls bellow the maintenance
margin
level,
due to adverse market movement, the account holder will be issued
a margin call.

Lot
A lot refers to the number of Contract that one wishes to buy or sell.

Tick
A tick refers to the minimum price fluctuation, is a function of how the prices are
quoted and set by the exchange.

Float
Float refers to the concept, when an investor who has taken a position, but does
not want to liquidate his position at close of the market.

Limit up/down
It refers to the maximum amount that the market can move above or below the
previous days close in a single trading session. If the price moves up it is known
an limit up, when the price moves down its is known as limit down.

[20]
RESEARCH METHODOLOGY

In this study primary analytical research method is used, which includes

questionnaire, tabulation analysis. This is one of the most important methods.

SOURCES OF DATA
The various sources of data are:
1. Primary Sources, which includes questionnaire, and a survey.

TOOLS FOR DATA COLLECTION

The questionnaire is the tool used for data collection.

ANALYSIS AND INTERPRETATION

The various tools for analysis used are graphs, charts, percentage growth,
secondary data.

[21]

COMMODITY FUTURES

THE HISTORY OF TRADING

Although the first recorded instance of future trading

Occurred with rice in 17th century Japan, there is some evidence that there
may also have been rice futures traded in China as long as 6000 years ago.

Futures trading are a natural outgrowth of the problems of maintaining a yearround supply of seasonal products like agricultural crops. In Japan, merchant
stored rice in wareh-ouses for future use. In order to raise cash, warehouse
holders sold receipts against the stored rice. These were known as rice tickets.
Eventually, such rice tickets became accepted as a kind of general commercial
currency. Rules
came into being to standardize the trading in rice tickets.

In the United States, futures trading started in the grain markets in the
middle of the 19th century. The Chicago Board of Trade was established
in1848. In the 1870s and 1880s the New York coffee, cotton and produce
exchanges were born. Today there are ten commodity exchanges in the United
States. The largest are the Chicago Board of Trade the Chicago Mercantile
Exchange, the New York Mercantile
Exchange, New York Commodity Exchange and the New York Coffee, Sugar and
Cocoa Exchange.

Worldwide there are major futures trading exchanges in over 20 countries including
Canada, England, France, Singapore, Japan, Australia and New Zealand. The
products traded range form agricultural staples like Corn and Wheat to Red Beans
and Rubber.
[22]

What is a commodity?

Corn

coffee

silver

soybean

Commodities are agreements to buy and sell virtually anything except, for
some reason, onions. The primary commodities that are traded are oil, gold
and agricultural products. Since no one really wants to transport all those heavy
materials, what is actually traded are commodities futures contracts or options.
These are agreements to buy or sell at an agreed upon price on a specific date.

What is a commodity future?

Commodities futures, or futures contracts, are an agreement to buy or sell a

commodity at a specific date in the future at a specific price. Just like the
price of bananas at the grocery store, the prices of commodities can change on
a weekly or even daily basis. If the price goes up, the buyer of the futures
contract makes money, because he gets the product at the lower, agreedupon price and can now sell it at the higher, market price. If the price goes down,
the seller makes money, because he can buy the commodity at the lower market
price, and sell it to the buyer at the higher, agreed-upon price.

Of course, if commodities traders had to actually deliver the product, very

few people would do it. Instead, they can fulfill the contract by delivering proof
that the product is at the warehouse by paying the cash difference or by providing
another contract at the market price.

Futures contracts perform two important functions : price discovery and

hedging of price risk in a commodity. In international bourses traders can
also use financial instruments like call and put options, not yet allowed in
India. Futures contracts are useful for the producer because he can
get an idea of the price likely to prevail and thereby help them quote a realistic
price and hedge risk.

Growth of commodity futures in India

Investment in India has traditionally meant property, gold and bank deposits.
The more risks taking investors choose equity trading. But commodity trading
never forms a part of conventional investment instruments. As a matter of
fact
Future trading in commodities was banned in India in mid
1960s due to excessive speculation.

India has three national level multi commodity exchanges with electronic trading
and settlement systems. The National Commodity and Derivative Exchange
(NCDEX). The Multi
Commodity Exchange of India (MCX) and the National Multi Commodity Exchange
of India (NMCE) the National Board of
[24]
Trading in Derivatives (NBOT), offers trading on a national level, but is not
completely online.

Commodity trading affect the economy

Commodity trading impacts the economy by making public the analysts forecasts
of future prices of the most important market goods. For example, one of the most
widely watched commodities is oil. The price of oil changes daily, which has an
impact on every good and service produced in the U.S economy. As traders
take into account all information regarding oil supply and demand, as well as

geopolitical considerations, this affects oil prices. It is these assumptions behind oil
prices that affect the economy so significantly.

Investors choice

The futures market in commodities offers both cash and delivery- based
settlement. Investors can choose between the two. If the buyer chooses to
take delivery of the commodity, a transferable receipt from the warehouse where
goods are stored is issued in favour of the buyer. On producing this
receipt, the buyer can claim the commodity from the warehouse. All open
contracts not intended for delivery are cash settled. While speculators and
arbitrageurs generally prefer cash settlement, commodity stock list and
wholesalers go for delivery. The options to square of the deal or to take
delivery can be changed before the last date of contract expiry. In the case of
delivery- based trades, the margin rises to 20-25% of the contract value and the
seller is required to pay sales tax on the transaction.

[25]

The Role of the exchange in futures Trading.

1) Risk Transfer:In a futures transaction , risk is inherent part of doing

business. The exchange provides a setting where risk can be transferred from the
hedgers to the speculators.

2) Liquidity:-

If risk is to be transferred efficiently, there must be a large group of individuals

ready to buy or sell. When a hedger wants to sell futures contracts to protect
his business position, he needs to know whether he can effect the
transaction quickly. The futures exchange brings together a large number of
speculators, thus making quick transaction possible.

3) Standardization:The exchange writes the specifications for each contract, setting standards of
grading, measurement methods of transfer, and times of delivery. By
standardizing the contracts in this manner, the exchange opens the futures
market to almost anyone willing to hedge risk. In the pits, then, the auction
process is facilitated because only the price must be negotiated.

[26]

RISK ASSOCIATED WITH COMMODITY

FUTURES TRADING

The different types of risks in Commodity Futures

Operational risk:The risk that, errors (or fraud) may occur in carrying out operations, in
placing orders, making
payments or accounting for them.

Liquidity risk:Although commodity futures markets are liquid mostly, in few adverse situations, a
person who has a position in the
market, may not be able to liquidate his position.

Market risk:It is the risk of adverse changes in the market price of a commodity future.

[27]

The various risk management techniques

used in Commodity Futures Trading

Considering the risks discussed previously, various risk management techniques are
used in order to
minimize the losses.

There are mainly 3 techniques, they are

1. Averaging
2. Switching
3. Locking

Averaging:Averaging is a technique used when there is an existing position, and the

price moves adversely. And then at that particular price, enter into a similar
new position. Then take the average of these 2 prices. And when the price moves
to that price liquidate the position.

Switching:Switching is yet another risk management technique, when, there is an existing

position, and the prices move adversely and gives all indication that it will go in the
same direction for still some while. Then we have to liquidate the first position and
enter a new and opposite position at the same price.

Locking:Locking is yet another risk management technique, where, when there is an

existing position, and the prices move adversely and give an indication that
it will move in that

[28]
direction, but it will come back to its original position. Here two processes are
involved locking and unlocking.

It is the process where there is an existing position, and the price moves
adversely, we lock by entering into a new opposite position. And then when
the second price reaches a point where it will bounce back, we unlock by
liquidating the second position and book profits, and then finally when the price

reaches somewhere near the first position, liquidate the position, whereby we
can minimize the loss.

[29]

COMPANY PROFILE

INTRODUCTION

Angel broking trust with excellence in customer relation

began more than 20 year ago. Today Angel broking has emerged as premium
investment sub-broker and wealth management house with an absolute focus on
real business and commitment to provides real value for money to all its clients.

Promoted by MR.DINESH THAKKAR ,Angel started in 1987

As sub broker is a present across the country provide equity investment solution
to individual clients through multiple channel retail, phone , trade and internet
platform.

The commitment to provides world - class broking service to the Indian investor
and a customer centric work culture has led to several innovation in the areas of the
technical, quality management , HR process giving Angel unique work culture and
edge over the players in the industry. Clients value Angel of its strong
research led investment ideas superior clients service track record and exceptional
execution skill.
[30]

ANGEL GROUP MEMBERSHIPS

BSE

NSE

NCDEX AND MCX COMMOITIES.

Angel has the largest NO of NSE registered Sub brokers.

We have the third largest volume on BSE.

ANGEL WAS AWARED THE CONVETED

MAJOR VOLUME DRIVES.

TROPHY FOR 3 CONSECUTIVE YEAR.

2004 2005
2005 2006
2006 2007

[31]

LOCATION

In a span of less than 20 year. Angel has emerged as a leading retail broking group
with a nation side presence through its:

15 Regional Hubs and 82 branches.

3800 + intermediaries.

Direct team strength of 3000 +.

3.8 lac + customers.

Angel Research team:-

( A ) Angel broking limited is the first broking house in the

county To have initiated retail focused research since
the year 2000.

( B ) 50 + member team doing fundamental , technical ,

Commodities analysis.

( C ) One of the largest research teams in the industry for

small And mid-cap.

[32]

ANGEL INTENSIVE RESEARCH PROCESS

Industry wise specialized teams:-

( A ) Top down approach:-

Identifying promising sectors and then companies with

Good valuations.

( B ) Bottom-up approach:-

Identifying under-valued stocks with sound

management.

Company visits and interaction with top and second line of managers.

Through analysis of company financial data and industry trends.

estimates for future year earnings based on industry trends and Company
business plans.

[33]

SWOT ANALYSIS

The SWOT analysis is an extremely useful tool for understanding and

decision-making for all sorts of situations in business and organizations. SWOT is
an acronym for Strengths, Weaknesses, Opportunities, Threats.

ANGEL BROKING SWOT ANALYSIS:-

STRENGHTS

Financial resources.

Product skill.

Angel broking team is experienced in the trading.

WEAKNESSES

Angel broking staff is exceptional.

OPPORTUNITIES

Several additional client groups.

Faster market growth.

Entry into new market.

THREATS

Other trading company.

[34]

DATA ANALYSIS

SERVICES

PROTFOLIO MANAGEMENT SERVICES:-

Successful investing in Capital Markets demands ever more time and

expertise. Investment Management is an art and a science in itself. Professional
Investment Management Services are no longer the privilege
of
only
large

institutional investors. Portfolio Management Services (PMS) is one such service

that is fast gaining eminence as an investment avenue of choice for
High Net worth Investors like you. PMS is a sophisticated investment vehicle
that offers a range of specialized
investment
strategies
to capitalize on
opportunities in the market. The
Portfolio
Management
Service
combined with competent fund management, dedicated research and
technology, ensures a rewarding experience for its clients.

Angel PMS brings with it years of experience, expertise, research and the
backing of India's leading stock broking house. At Angel, experienced portfolio
management is the
[35]
difference. You will enjoy a relationship with a portfolio manager equipped
to design and implement a portfolio around your unique needs. We will advise
you on a suitable product based on factors such as your investment horizon
return expectations and risk tolerance. By entrusting the management of your
Portfolios to Angel, you can enjoy convenience without compromising on quality.

PRIVATE CLIENT GROUP:-

Angel offers personalized advisory services to affluent HNI investors and actively
assists them in managing their portfolio. PCG can seek guidance on specific
stocks in their portfolio and can get active advice for timely exit and fresh
investments. Here we also design customized products and services for our
clients based on there risk profile, returns need and time horizon. Our
experienced research team in-depth analysis and customized value added
products and services give us an immense advantage in assisting you to generate
wealth on a longer and consistent basis.

INVESTMENT ADVISORY:-

To derive optimum returns from equity as an asset class requires professional

guidance and advice. Professional assistance will always be beneficial in

wealth creation. Investment decisions without expert advice would be like

treating ailment without the help of a doctor.

Strong research has always been our forte. Our investment advisory department
is backed by an experience research team. This team comprises of 12 sector
special analysts
[36]
and a Research Head. Their vast experience and expertise in spotting great
investments opportunities has always been beneficial for our clients.

( A ) Expert Advice:Our expert investment advisors are based at various branches across
India to provide assistance in designing and monitoring portfolios.

( B ) Timely Entry & Exit:Our advisors will regularly monitor your investments and will guide you to book
timely profits. They will also guide you in adopting switching techniques from one
stock to another during various market conditions.

( C ) De-Risking Portfolio:A diversified portfolio of stocks is always better than concentration in a

single stock. Based on our research, we diversify the portfolio in growth oriented
sectors and stocks to minimize the risk and optimize the returns.
[37]

DEPOSITORY SERVICES:-

You must be aware that Angel Broking Ltd has started its depository services
by registering with CDSL. There are various benefits of holding your demat
account with us but the biggest advantage is that you shall be ensured of a risk
free, prompt and efficient depository process.

DIFFERENCE BETWEEN ANGLE DEPOSITORY SERVICES & OTHER DEPOSITORY

SERVICES.

Since our association is slated for a long time, we are in a much better position
to know your requirement regarding your holding and transfer of securities.

No physical instructions are required for your sell obligations. We also offer to our
clients the automated pay in facility for trade done through Angel Broking Ltd /
Angel Capital and Dept Market Ltd.

The transaction charges that are being levied by us are the lowest in the
industry as we believe in providing quality services at the most affordable costs.

[38]

You have an option of choosing the products offered by CDSL:-

( A ) Easy facility :-

You can view, download and print the updated holding of your demat account
along with valuation of holding.

( B ) Easiest facility :-

You can, by using this facility, submit your own delivery instructions on the
internet without the intervention of your DP. This is in addition to all the facilities
provided under the 'Easy' facility.
We would like you to know that the state of art technology being arranged for
you is the best in the industry and all this is done so that you have
convenience of accessing information from any desired location.
[39]

MUTUAL FUND:-

The Angel Mutual Fund distribution and advisory division offers you the
opportunity to diversify your investment portfolio. By offering a choice of
investment schemes from all major mutual fund providers we have taken our 100%
retail-focused philosophy a step further.

Angel Mutual Fund offers options catering to investors with varying risk-return
profiles. We also help investors to choose the best mutual fund, based on their
investment needs.

EMOTIONS

( A ) SELF DISCIPLINE:-

The greatest cause of loss in trading commodities is lack of self-discipline

lack of self-discipline to follow your
[40]
game plan; lack of self-discipline to be patient; lack of self-discipline to take a
loss or profit, lack of discipline to follow money management concepts. "Luck might
play a part in the short-run, but in the end, only those players who play the
game better will triumph. Acting in a disciplined manner is essential for success.
"

( B ) TAKE PROFITS:Tremendous amounts of money can and are being made in the
commodities markets. Profits are there for the making, but the real key to
trading commodities is not making money; it is keeping it. It is not basking in
the elation of success; it is taking your profits and looking over your shoulder.

( C ) BALANCE:Trading commodities is a game of psychology. It is a game of balance.

Emotional extremes create an imbalance. In your elation at being successful, you
will make mistakes of greed. In your reluctance to take a loss, you will make
mistakes of fear. The tremendous emotional release one feels after closing out
a big losing position is amazing.
Fighting the market, yet knowing it was going to go against us, but wanting it to
go in our direction - pushing it, hoping for it, worrying about it. After a few days or
a few weeks of that, it felt as though the weight of the world was taken off our
shoulders when we finally take the loss.
[41]
( D ) PROFIT & LOSS CYCLES:Most often, meeting a margin call will only increase your loss. A margin
call means you are wrong in the market and your position should be closed out.
Margin calls are met because people do not want to admit being wrong and take a
loss; because they hope the market will eventually go in their direction. Avoid
meeting margin calls.

( E ) FEAR & GREED:With the tremendous leverage commodities offer, you as a commodity
trader, are frequently exposed to the basic emotions of fear and greed. At certain
times in your trading career these emotions can make you completely and
absolutely irrational, oblivious to what is really happening. It can make you rely
on hope; hope that the market will do what you want it to do because it must!
Otherwise, you will lose all of your risk capital and sometimes much more. Not
surprisingly, that doesn't matter to the markets.

[42]
GUIDELINE FOR RISK MANAGEMENT

" Risk control is an essential part of trading successfully. Effective risk

management requires not only the careful monitoring of risk exposure, but a
strategy to minimize losses as well. Understanding how to control risk exposure
allows the trader, beginner or veteran, to continue trading even when the
inevitable losses occur. While every trade involves a degree of risk, some
general principles of risk management, if applied, reduce the potential for loss. A
few of the generally accepted market axioms for controlling risk are noted below
and are applicable to anyone who has ever traded or ever considered trading.

Trade with the trend:-

You will be less likely to incur a loss if you are following the market trend. The
direction of the market does not matter as long as you are positioned for the
trend that occurs. If you are not well positioned, then systematically reduce your
risk exposure.

Diversify:-

Portfolio risk is reduced through diversification. Don't bet everything on one

trade. Diversify your risk exposure by trading no more than 1% to 5% of your
capital on any one position. (Contracts on different maturities of the same
commodity count as one position.) To be effective diversification must
involve commodities that are not highly correlated (that is, that do not move in the
same direction at the same time). High positive correlation reduces the
benefits of diversification. Predetermined stop orders limit your risk exposure
and will cut your losses in fast moving markets. Adopt a rigid stop-loss rule (for
example, get out of a trade quickly if it loses 5-7%)

Don't overtrade:-

Reduce your risk exposure by cutting down on the number of trades you make
and keeping your bets small. Be selective about the risks you take. Restrict your
trades to the ones that are the most attractive. This forces you to do your
homework and reduces impulsive and emotional trades. Because there will be
fewer trades, you will have to be much more patient.

Risk management basically involves four essential steps:-

- Fully understanding the risks of the trade.

- Eliminating unnecessary risks where possible.
- Being selective about which risks to take.
- Acting quickly to reduce risk exposure if the market moves
against you.

[44]

Common mistakes made by traders:-

( A ) Lack of a Game Plan:One of the most important moves a futures trader can make is to develop a
game plan consisting of basic guidelines.

( B ) Meeting Margin Calls:Most often, meeting a margin call will only increase your loss. A margin call
means you are wrong in the market and your position should be closed out.
Margin calls are met because people do not want to admit being wrong and take
a loss; because they hope the market will eventually go in their direction. Avoid
meeting margin calls.

( C ) Lack of Money Management:-

Good money management means you know your profit objective and the
odds of being right or wrong, and control your risk with stops. You are better off
with a trade where you might lose 1000 if you are wrong, or make 1000 if you are
right, that would work six times out of ten, than to take a trade where you would
make 1500 if you are right and lose only 500 if you are wrong, but works only
one time out of three.
[45]

( D ) Increasing Your Commitment With Success:One of the most dangerous mistakes you can make in trading commodities
is to increase your exposure, as you become more successful. Just by being
successful you will risk more per trade because you have more money. But,
because you have more money (and confidence) when successful, you are
also likely to take larger percentage risks. Not surprisingly, this ruins more
futures traders than a series of small losses. You can overcome this mistake by not
allowing your percentage commitment to increase as you realize profits and by
maintaining your stop/loss discipline.

[46]

PRODUCT

ANGEL OUTSTER FUND:-

The objective of the scheme is wealth generation by delivering

returns over long term through investments in equities.

Investment strategy:-

( A ) To generate wealth on consistent basic rather out

performed by taking higher risk.

( B ) logic work well and thus will be given weightage along

with financials.

( C ) early identification of stocks to ride through the entire

investment cycle.

( D) Timing of investment is important to generate superior

returns.

[47]
PERAMETER DRIVING INVESTMENT DECISION:-

superior

( A ) Blend of growth and value stocks.

( B )Investments in companies regardless of

market capitalization.

( C )Keen selection of stocks based on potential for value

based on key events.

( D )Focus on companies which display:- Scalable business potential.

- Large market opportunity.
- Beneficiary of favorable economic cycle.
- Valuation at steep discount to asset value.

[48]

unlocking

ANGEL BLUE CHIP:-

The objective of the scheme is to generate capital appreciation in the

medium to long term through investments in equities and equity related
instruments comprising predominantly large cap companies.

Investment strategy:-

( A ) overweight on large cap stocks. However Quality mid cap stocks may also be
considered for investment.
( B ) the portfolio will however be overweight on large cap companies.
( C ) combination of top down and bottom up approaches. Portfolio. To comprise
of a combination of growth and value stocks.
( D ) the portfolio strivers to insulate an investor from cyclical
investing in sector offering secular growth outlook.

themes by

[49]

Parameters Driving Investment Decision:-

( A ) The portfolio strives at all times to achieve an 70% allocation to large cap
companies.

( B ) The portfolio strives to limit the exposure to any sector to less than 25% of the
portfolio size.

( C ) The portfolio strives to limit the exposure to any sector to less than 10% of the
portfolio size.

[50]
ANGEL GROWTH FUND:-

The objective of the scheme is to generate capital appreciation in the

medium to long term through investments in equities and equity related
instruments comprising of predominantly Mid-Cap and Small-Cap companies.

Investment strategy:-

( A ) focus on

growth themes such as Infrastructure,

services, manufacturing and domestic Consumption.

( B ) overweigh on mid cap and small cap stocks. However

Quality large cap stock may also be considered for
Investment depending on market condition.

( C ) Combination of top down and bottom up approaches.

Portfolio to comprise of a combination of growth and
Value stocks.

[51]

Parameter driving investment decision:-

( A ) The portfolio strives to limit the exposure to any sector

To less then 25% of the portfolio size.

( B ) The portfolio strives to limit the exposure to any Stock

To less then 10% of the portfolio size.

EQUITIES AND DERIVATIVES:-

( A ) To generate moderate returns by deployment into Equity assets and

partially hedging the portfolio using options and futures & achieving this with a
margin of safety.
( B ) Additionally the funds lying idle would be deployed in arbitrage between
cash and future and /or place in low maturity debt funds and low risk F&O
Strategies.

[52]
FINDINGS & INTERPRETATION

OBJECTIVE

To study the perception of investors towards commodity futures:-

In this section the data obtained through the questionnaire from the investors
in commodity futures is analyzed.

[53]
SECTION :- A
SEX PROFILE :-

SEX

NO. OF RESPONDENTS
80%

PERCERTENGE

Male

20

Female

80
5

20

BAR CHART SHOWING THE SEX PROFILE OF

THE RESPONDENTS

Findings

From the above table and chart, it can be seen that 80% of the respondents
were male, and 20% were female.

Interpretation
It can be concluded that mainly males invest in commodity futures.

[54]
AGE PROFILE :-

AGE GROUP

NO.OF RESPONDENTE

20 -30

13

52%

30 - 40

24%

40 - 50

20%

50 Above

4%

PERCENTAGE

BAR CHART SHOWING THE AGE PROFILE OF

THE RESPONDENTS
Findings
From the above table and chart, it can be seen that 52% of the respondents
were in the age group of 20-30 years, 24% were in the age group of 30-40
years, and 20% were in the age group of 40-50 years and 4% in the age group of 50
years and above.

Interpretation
It can be concluded that mainly the young people have invested commodity
futures.

[55]

EDUCATION PROFILE:-

EDUCATION QUALIFICATION
Higher secondary

No. respondents
0%

Percentage

P.U.C

Graduate

4%
15

Post Graduate

60%
9

36%

BAR CHART SHOWING THR EDUCATION

PROFILE OF THE RESPONDENTS

Findings
From the above table and chart, it can be seen that 60% of the respondents
were in the Graduate group, 36% were in the post graduate group, 4% were
in the P.U.C group and 0 % in the higher secondary group invested in commodity
futures.

Interpretation
It can be concluded that mainly the young graduates have invested commodity
futures.

[57]
SECTION:- B

[1] Have you invested in commodity futures?

particular

No. of

Respondents
Yes
No

Percentage

23

92%

8%

BAR CHART SHOWING THE PERCENTAGE OF

RESPONDENTS WHO HAVE INVESTED
IN COMMODITY FUTURES

Findings
From the above table and chart, it can be seen that 92% of the respondents have
invested in commodity futures, and 8% have not invested in commodity futures.

Interpretation

It can be concluded that most of the respondents have invested in commodity

futures.

[58]

[3] Which are the investment you have made ( excluding

commodity futures)?

particular

No. of Respondents

Shares

16

Mutual funds
Bonds

percentage

35%
9

20%

6%

Bank Deposits

Real estate

Jewellery

Insurance

10%

15%

9%

5%

[60]
BAR CHART SHOWING THE VARIOUS
INVESTMENTS MADE BY RESPONDENTS

Findings
It can be seen that, out of the respondents who have invested in other
securities, 35% of them have invested
in shares, 20% Mutual funds, 6% in Bonds, 10% have invested in bank
deposits. 15% in real estate, 9% have invested in jewellery and the rest 9%
have invested in insurance.

Interpretation
It can be concluded that other than commodity futures, most of the respondents
have invested in shares.

[61]

[5] How often do you trade in commodity future?

particular

No. of Respondents

Everyday

24%

Once a week

12%

Only when there is a good price

percentage

16

64%

BAR CHARE SHOWING THE INVEST FREQUENCE

OF TREDING IN COMMODITY FUTUERS.

Findings
It can be seen that out of the investors in commodity futures, 24% of them trade
everyday, 12% of them traded once a week and 64% traded only when there is
good price.

Interpretation

It can be concluded that most of the investors trade in commodity futures

only when there is a good price.

[63]

6) What is your objective when trading in commodity

futures?

particular

No. of Respondents

Less risky investment

Diversification of portfolio

Very good returns

24

other

percentage
32
36

BAR CHART SHOWING THE OBJECTIVE OF THE

INVESTOR TO INVEST IN COMMODITIES FUTURES

Findings
It can be seen that out of the investors in commodity futures, 32% of them have
invested with the objective a less risky investment, 36% of them invested with
the objective of diversifying hid portfolio and 24% of them due to the
expectation of very good returns and 4% have invested due to other reasons.
Interpretation

It can be concluded that most of the investors in commodity futures, have invested
with the objective of diversifying their portfolio.
[64]
7) What is the amount you have invested in commodity
futures?
particular

No. of Respondents

2 Lakh

2-3 Lakh

percentage

24

12

48

3-5 Lakh
6

24

5-10 Lakh

10 Lakh more

4
0

BAR CHART SHOWING THE AMOUNT INVESTED

IN COMMODITIY FUTURES

Findings
It can be seen that out of the investors, 24% of them had invested Rs. 2 lakhs,
48% of them had invested between Rs. 2-3 lakhs, 24% had invested between Rs.
3-5 lakhs and 4% had invested between Rs. 5-10 lakhs.

Interpretation
It can be concluded that most of the investors had invested between Rs. 2-3 lakhs
in commodity futures.
8) Which commodities have you traded in the most?

particular

No. of Respondents

wheat

cotton

9
7

percentage

coffee

corn

BAR CHART SHOWING THE MOSTLY TRADED

COMMODITIES BY THE INVESTORS

Findings
It can be seen that out of the investors in commodity futures, 9% investor invest
in wheat, 5% investor invest in cotton,
9% investor invest in coffee, and 7% investor invest in corn.

Interpretation
It can be concluded that the mostly traded commodity is wheat and coffee.
[66]
9) What percentage of savings have you invested in
commodity futures?

particular
0-10%

No. of Respondents
2

10-20%

32

20-30%

11

44

30-50%
1
50% above

4
3

12

percentage

BAR CHART SHOWING THE PERCENTAGE OF

SAVING THE INVESTOR HAS MADE IN
COMMODITY FUTURES

Findings
It can be seen that, 44% of the investors have invested between 20-30% of their
savings in commodity futures, 32% of them have invested between 10-20% of
their savings, 12% of them have invested above 50% of their savings, 8% of
them have invested between 0-10% of their savings and 4% of them have
invested between 30-50% of their savings.

Interpretation
It can be concluded that most of the investors have invested between 20-30% of
their savings in commodity futures. [67]
10) How did you get to know about commodity futures
trading?

particular

No. of Respondents

Friends
Media

15
4

60

16

Self- research
other

percentage

24

BAR CHART SHOWING THE MAENS THROUGHT

WHICH INVESTORS GOT TO KNOW ABOUT
COMMODITY FUTURES

Findings
It can be seen that, 60% of the investors got to know about commodity futures
through their friends/family,16% got to know through media and 24% of the
investors got to know through self-research.

Interpretations
It can be concluded that most of the investors got to know about commodity
futures through friends/family.

[68]

12) What do think about the felicitation fee charged by

your company?

particular

No. of Respondents

Very high
High

1
5

Reasonable
Low

20
19
0

76

percentage

BAR CHART SHOWING THE PERCEPTION

TOWARDS THE FACILITY CHARGED BY THEIR COMPANY.

Findings
It can be seen that, 76% of the investors feel that the facility fee charged by
their company is reasonable, 20% of them feel that the facility fee charged by
their company is high and 4% of the investors feel that it is very high.

Interpretations
It can be concluded that most of the investors feel that the facility fee charged by
their company is reasonable.
[70]

13) What do you think of the return derived from

commodity futures?

particular
Good

No. of Respondents
17

Reasonable
Bad

68
6
8

24

percentage

BAR CHART SHOWING THE EXTEND OF

RETURNS DERIVED BY THE INVESTOR
FROM COMMODITY FUTURES

Findings
It can be seen that, 68% of the investors feel that they got good returns from
commodity futures trading, 24% of them feel that they got reasonable returns
commodity futures, 8% of the investors felt they got bad returns from
commodity futures.

Interpretations
It can be concluded that most of the investors got good returns from
commodity futures.
[71]

14) Do you think risk can be reduced by commodity

futures?

particular

No. of Respondents

Yes

22

No

88
12

BAR CHART SHOWING THE INVESTOR

OPINION ON WHETHER RISK CAN BE
REDUCED BY COMMODITY FUTURES

percentage

Findings
It can be seen that 88% of the investors feel that risk can be reduced through
commodity futures, and 12% of the
Investors feel

Interpretation

that risk cannot be reduced through commodity futures.

It can be concluded that most of the investors feel that risk can be reduced
through commodity futures trading.

[72]

15) Do you think commodity future is a good investment

opportunity?

particular

No. of Respondents

Yes

22

NO

percentage

88
12

BAR CHART SHOWING THE OPINION OF THE INVESTOR OF WHETHER

COMMODITY FUTURE IS A
GOOD INVESTMENT OPPORTUNITY

Findings
From the above table and chart, it can be seen that 92% of the investors feel
that commodity futures is a good

investment opportunity and 8% investors feel that commodity futures is not a good
investment opportunity.

Interpretation
It can be concluded that most of the investors feel that commodity futures is
a good investment opportunity.
[73]

CONCLUSION

The prime objective of this study is to attempt to prove that commodity futures
can be efficiently used to reduce risks of a person who is directly involved with
the trading of the commodity. Another objective was to prove that it was a
sound investment opportunity.

In order to prove both the objectives, a few sub objectives were earmarked and
analyzed. The first being the trading system of commodity futures. The trading
system included the exchange where the trade takes place the clearinghouse which
ensures that the money is transferred to the right person at the right time.
The trading system also includes trading and intermediary participants, who ensure
the correct price discovery. Thus the trading system is one of the factors which
reduce the risk in commodity futures.

Commodity futures trading included the intermediary and trading participants

likes brokers who make use of the various technical analysis tools in order to
make predictions of the price movements they also take into consideration the
fundamental analysis. Thus with the help of the various analysis tools, efficient
price predictions can be made, where the investors in commodity futures can
benefit from the price movements. There was also an objective to analyze the
growth of commodity future. From the analysis, it can be
Concluded that, commodity futures trading is experiencing tremendous growth.
This can be emphasized by the fact that

there has been an increasing trend in the volume traded in

[74]
most of the commodities. Thus, commodity futures are a growing market.

To find out the investors perception towards commodity futures, questionnaire

survey was conducted, where in various parameters were taken into
consideration. From the questionnaire, it could be concluded that most of
the respondents felt that risk could be reduced through commodity
futures and that it was a sound investment opportunity.

[75]
APPENDIX

ANGEL BROKING LTD

KNOW YOUR CLIENT ( KYC)

1.

ARE YOU AWARE ABOUT THE FOLLOWING SERVICES

OF ANGEL BROKING LTD:

SR.
NO

PRODUCT NOT AT

ALL PARTILE
FULL
1.

NSE, BSE, FO

2.

DEMAT ACCOUNT

3.

MCX, NCDX

4.

PMS

5.

INSURANCE

6.

MUTUAL FANDS

2.

PLEASE TICK ONE OF THE FOLLOWING STATUMANTS:

[ ] I am totally satisfied & dont want to switch.

[ ] I am satisfied but expect more improvements in service.
[ ] I am totally dissatisfied and switch over.

3. DO YOU HAVE ANY COMPAINS OR SUGGESTION FOR US:

__________________________________________________
_____________________________________________________________________________________
________________________________________________________________________________

CLINT ID:- ___________________

CLINT NAME:-________________
CLINT SIGNATURE:-___________
[76]

QUESTIONNAIRE

PART A

1) Name:-

__________________________________

2) Sex:

Male:Female:-

3) Age:

20-30 Years:-

30-40 years:-

40-50 Years:-

Above 50 years:-

4) Education:

secondary:Higher secondary:Graduation:Post-graduation:Any other:-

5) Occupation:
Government employee:Self-employee:Commodity futures investor:Private sector employee:Others Businessman:-

6) Income:
Below 400000:4,00,001 10,00,000:10,00,001 25,00,000:Above 25,00,000:[77]

PART B

1) Have you invested in commodity futures?

Yes:-

No:-

2) Have you invested in any other security?

Yes:No:-

3) Which are the investments you have made (excluding

commodity futures)?

Shares:Bonds:
Mutual funds:Bank deposits:Real estate:Jewellery:Others:

4) What is your experience in your previous investment

(excluding commodity futures)?

Good:Reasonable:Bad:-

5) How often do you trade in commodity futures?

Everyday:Once a week:Trade only when there is a good price:[78]
6) What is your objective when trading in commodity

futures?
Less risky investment:Diversification of portfolio:Very good returns:-

Others:-

7) What is the amount you have invested in commodity

futures?
2,00,000:2,00,000-3,00,000:3,00,000-5,00,000:5,00,000-10,00,000:Above 10,00,000:-

8) Which commodities have you traded in the most?

Wheat:cotton:Coffee:Corn:-

9) What percentage of savings have you invested in

commodity futures?
0-10% :10-20%:20-30%:30-50%:50% and above:-

10) How did you get to know about commodity futures

trading?
Friends/family:Self-research:Media:Others:-

11) Which is the risk management technique, which you

use mostly?
Switching:Averaging:Locking:Cut loss:-

12) What do think about the felicitation fee charged by

your company?

Very high:High:Reasonable:Low:-

13) What do you think of the return derived from

commodity futures?

Good:-

Reasonable:Bad:-

14) Do you think risk can be reduced by commodity

futures?
Yes:No:-

15) Do you think commodity future is a good investment

opportunity?
Yes:No:-

[80]

BIBLIOGRAPHY

BOOKS:-

THE INDIAN FINANCIAL SYSTEM BY VASANTH DESAI

Websites
www.rbi.org
www.sebi.com
www.barchart.com

www.angeltraed.com

www.angelcommodity

[81]