Capital market reforms in India and the launch of the Securities and Exchange Board of India

(SEBI) accelerated the incorporation of the second Indian stock exchange called the National

Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest

stock exchange in India.

Three segments of the NSE trading platform were established one after another. The Wholesale

Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment

was opened at the end of 1994. Finally, the Futures and Options segment began operating in

2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.

In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior

Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50

stocks from 25 different economy sectors. The Indices are owned and managed by India Index

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Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard &

Poor's.

In 1998, the National Stock Exchange of India launched its web-site and was the first exchange

in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership

in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by

Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).

Scope Of The Study:

This study is not only based on theoretical data but also the awareness of the investing public

about futures and options to minimize risk and loss. This study gives a fair view about the

potential of the futures and options market.

Objective Of The Study:

The prime objective of this research study is to know the awareness among the retail

investors about futures and options.

The other Objectives:

To find out the satisfaction level of investors by investing through such derivatives

How well investors utilized derivatives in minimizing their investment risk.

Criteria for investment in the present scenario

How the unknown segment of futures and options want to know more about this tool.

To identify the potential of futures and options in the future.

Importance of study:

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Futures and options were started in India in November 1997 and is one of the integral

part of the stock market for hedging though India is overcoming the US market with respect to

the volumes it is to be seen how well this has been exposed to the retail segment.

RESEARCH METHODOLOGY

Type of project study:

It is a Freelance type study. Along with the study about the investors of different security

dealers it has a field study with general investor analysis.

Tool for collection of data:

Structured questionnaire

The secondary information is collected from various text books, news papers and web

sites.

Respondents Size:

This study is confined to 100 respondents, which includes clients of various broking

houses and investing public.

Sample Design:

Random sampling (investors)

Method of Analysis

Tabulation, graphical representation and logical analysis

Limitations:

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1. This study is mainly conducted with only a few clients of Geojit Securities, Integrated

Services, IL & FS investments and few other security dealers. Also with general public at few

areas of Chikamagalore and does not take the whole of the derivative investors in India.

2. This study is restricted to 100 respondents. As the numbers of respondents are only 100,

this may not give the clear picture about all the investors’ attitude towards the futures and

options.

3. This study is conducted bet January 2012, the respondents’ preference might be different

due to the changing conditions for different investment avenues.

Industry profile

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Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning

three centuries in its 133 years of existence. What is now popularly known as BSE was

established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)

from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's

pivotal and pre-eminent role in the development of the Indian capital market is widely

recognized. It migrated from the open outcry system to an online screen-based order driven

trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and

demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to

the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and

Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges,

Deutsche Börse and Singapore Exchange, as its strategic partners

.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by

providing it with an efficient access to resources. There is perhaps no major corporate in India

which has not sourced BSE's services in raising resources from the capital market.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies and

the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood

at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for

easy reference, are classified into A, B, S, T and Z groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is

tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is

constructed on a 'free-float' methodology, and is sensitive to market sentiments and market

realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has

entered into an index cooperation agreement with Deutsche Börse. This agreement has made

SENSEX and other BSE indices available to investors in Europe and America. Moreover,

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Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has

created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables

investors in Hong Kong to take an exposure to the Indian equity market.

BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading

of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's

equity markets for the first time, without requiring American Depository Receipt (ADR)

authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on

BSE. It brings to the investors a trading tool that can be easily used for the purposes of

investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term

view of the market.

BSE provides an efficient and transparent market for trading in equity, debt instruments and

derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of

India. BSE has always been at par with the international standards. The systems and processes

are designed to safeguard market integrity and enhance transparency in operations. BSE is the

first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is

also the first exchange in the country and second in the world to receive Information Security

Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System

(BOLT).

BSE continues to innovate. In recent times, it has become the first national level stock exchange

to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has

successfully launched a reporting platform for corporate bonds in India christened the ICDM or

Indian Corporate Debt Market and a unique ticker-***-screen aptly named 'BSE Broadcast'

which enables information dissemination to the common man on the street.

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In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic

Reporting System) to facilitate information flow and increase transparency in the Indian capital

market. While the Directors Database provides a single-point access to information on the boards

of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their

corporate announcements.

BSE also has a wide range of services to empower investors and facilitate smooth transactions:

Investor Services: The Department of Investor Services redresses grievances of investors. BSE

was the first exchange in the country to provide an amount of Rs.1 million towards the investor

protection fund; it is an amount higher than that of any exchange in the country. BSE launched a

nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264

programmes were held in more than 200 cities.

The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen

based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located

across over 450 cities in India.

BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based

Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world

to trade on the BSE platform.

Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the

price movements, volume positions and members' positions and real-time measurement of

default risk, market reconstruction and generation of cross market alerts.

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BSE Training Institute: BTI imparts capital market training and certification, in collaboration

with reputed management institutes and universities. It offers over 40 courses on various aspects

of the capital market and financial sector. More than 20,000 people have attended the BTI

programs.

Awards

The World Council of Corporate Governance has awarded the Golden Peacock Global CSR

Award for BSE's initiatives in Corporate Social Responsibility (CSR). The Annual Reports and

Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the

ICAI awards for excellence in financial reporting.

The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its

efforts in employer branding through talent management at work, health management at work

and excellence in HR through technology Drawing from its rich past and its equally robust

performance in the recent times, BSE will continue to remain an icon in the Indian capital

market.

Financial Services Industry

Financial services organizations are striving to achieve increasingly ambitious profit and

growth targets against a background of heightened risk, regulation and market pressures. As of

2004, the financial services industry represented 20% of the market capitalization of the S&P

500 in the United States.

Financial services refer to services provided by the finance industry. The finance industry

encompasses a broad range of organizations that deal with the management of money. Among

these organizations are banks, credit card companies, insurance companies, consumer finance

companies, stock brokerages, investment funds and some government sponsored enterprises.

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Customer needs and expectations are evolving in the face of increasing personal wealth,

more private funding of pensions and healthcare and the desire for ever more accessible and

personalized financial products and services. In turn, intense competition has squeezed industry

margins and forced organizations to cut costs while still seeking to enhance the quality of client

choice and service. The battle for talent is also heating up as companies seek to enhance

innovation, customer loyalty and investment returns

The corollary of this market evolution is increasing risk as products become more complex,

organisations more diffuse and the business environment ever more uncertain. Regulation is also

tightening in the wake of public and government pressure for improved governance,

transparency and accountability.

In this environment, the winners will be companies that can turn the challenges into

opportunities to build stronger and more enduring customer relationships; sharpen process

efficiency; unlock talent and creativity; use improved risk management processes to deliver more

sustainable returns; and use new regulatory demands as a catalyst for strengthening the business

and enhancing market confidence.

Organizations will also need to identify and concentrate on core competencies where they can

exert maximum competitive advantage, be this a particular product, service, process or

geographical territory. For some this will require a strategic re-orientation towards becoming a

specialist niche provider. Even larger groups will need to differentiate their offering and by

implication the associated brand

In economics, a financial market is a mechanism that allows people to easily buy and sell (trade)

financial securities (such as stocks and bonds), commodities (such as precious metals or

agricultural goods), and other fungible items of value at low transaction costs and at prices that

reflect the efficient market hypothesis. Financial markets have evolved significantly over several

hundred years and are undergoing constant innovation to improve liquidity.

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Both general markets (where many commodities are traded) and specialized markets (where only

one commodity is traded) exist. Markets work by placing many interested buyers and sellers in

one "place", thus making it easier for them to find each other. An economy which relies

primarily on interactions between buyers and sellers to allocate resources is known as a market

economy in contrast either to a command economy or to a non-market economy such as a gift

economy

In finance, financial markets facilitate--

The raising of capital (in the capital markets);

The transfer of risk (in the derivatives markets);

International trade (in the currency markets)

--and are used to match those who want capital to those who have it.

Typically a borrower issues a receipt to the lender promising to pay back the capital. These

receipts are securities which may be freely bought or sold. In return for lending money to the

borrower, the lender will expect some compensation in the form of interest or dividends.

Definition of financial market

The term financial markets can be a cause of much confusion.

Financial markets could mean:

1. Organizations that facilitate the trade in financial securities. i.e. Stock Exchanges facilitate

the trade in stocks, bonds and warrants.

2. The coming together of buyers and sellers to trade financial securities. i.e. stocks and shares

are traded between buyers and sellers in a number of ways including: the use of stock

exchanges; directly between buyers and sellers etc.

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Types of Financial Markets

The financial markets can be divided into different subtypes:

Capital Market which is the market for securities, where companies and governments

can raise long term funds. The capital market includes the stock market and the bond

market. Financial regulators, such as the U.S. Securities and Exchange Commission,

oversee the capital markets in their designated countries to ensure that investors are

protected against fraud. The capital markets consist of the primary market, where new

issues are distributed to investors, and the secondary market, where existing securities

are traded.

CAPITAL MARKETS WHICH CONSIST OF:

Stock Markets :- which provide financing through the issuance of shares or common stock,

and enable the subsequent trading thereof.

Bond Markets :- which provide financing through the issuance of Bonds, and enable the

subsequent trading thereof.

Commodity Markets:- which facilitate the trading of commodities.

Money Markets :- which provide short term debt financing and investment.

Derivatives Markets:- which provide instruments for the management of financial risk.

o Futures Markets, which provide standardized forward contracts for trading products

at some future date; see also forward market.

Insurance Markets :- which facilitate the redistribution of various risks.

Foreign Exchange Markets :- which facilitate the trading of foreign exchange.

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The capital markets consist of primary markets and secondary markets. Newly formed

(issued) securities are bought or sold in primary markets. Secondary markets allow investors to

sell securities that they hold or buy existing securities.

Raising Capital

To understand financial markets, let us look at what they are used for, i.e. what is their purpose?

Without financial markets, borrowers would have difficulty finding lenders themselves.

Intermediaries such as banks help in this process. Banks take deposits from those who have

money to save. They can then lend money from this pool of deposited money to those who seek

to borrow. Banks popularly lend money in the form of loans and mortgages.

More complex transactions than a simple bank deposit require markets where lenders and

their agents can meet borrowers and their agents, and where existing borrowing or lending

commitments can be sold on to other parties. A good example of a financial market is a stock

exchange. A company can raise money by selling shares to investors and its existing shares can

be bought or sold.

The following table illustrates where financial markets fit in the relationship between

lenders and borrowers:

Relationship between lenders and borrowers

Lenders Financial Intermediaries Financial Markets Borrowers

Individuals

Companies

Banks

Insurance Companies

Pension Funds

Mutual Funds

Interbank

Stock Exchange

Money Market

Bond Market

Foreign Exchange

Individuals

Companies

Central Government

Municipalities

Public Corporations

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Analysis Of Financial Markets

Much effort has gone into the study of financial markets and how prices vary with time. Charles

Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a

set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called

technical analysis method of attempting to predict future changes. One of the tenets of "technical

analysis" is that market trends give an indication of the future, at least in the short term. The

claims of the technical analysts are disputed by many academics, who claim that the evidence

points rather to the random walk hypothesis, which states that the next change is not correlated to

the last change.

The scale of changes in price over some unit of time is called the volatility. It was discovered by

Benoît Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather

modeled better by Levy stable distributions. The scale of change, or volatility, depends on the

length of the time unit to a power a bit more than 1/2. Large changes up or down are more likely

than what one would calculate using a Gaussian distribution with an estimated standard

deviation.

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Company profile

Stoke broker definition

“Broker who Deals primarily with transactions involving stock.”

A stock broker is a regulated professional broker who buys and sells shares and other securities through

market makers or Agency Only Firms on behalf of investors.

ABOUT GEOJIT BNP PARIBAS

A leading retail financial services player

Geojit BNP Paribas today is a leading retail financial services company in India with a growing

presence in the Middle East. The company rides on its rich experience in the capital market to

offer its clients a wide portfolio of savings and investment solutions. The gamut of value-added

products and services offered ranges from equities and derivatives to Mutual Funds, Life &

General Insurance and third party Fixed Deposits. The needs of over 460 000 clients are met via

multichannel services - a countrywide network of 500 offices, phone service, dedicated

Customer Care centre and the Internet.

Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and

the Bombay Stock Exchange (BSE). In 2007, global banking major BNP Paribas joined the

company’s other major shareholders - Mr. C.J.George, KSIDC (Kerala State Industrial

Development Corporation) Strategic joint ventures and business partnerships in the Middle East

has provided the company access to the large Non-Resident Indian(NRI) population in the

region. Now, as a part of the BNP Paribas global network, Geojit BNP Paribas is well positioned

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to further expand its reach to NRIs in 85 countries. Barjeel Geojit Securities is the joint venture

with the Al Saud group in the United Arab Emirates that is headquartered in Dubai with branches

in Abu Dhabi, Ras Al Khaimah, Sharjah and Muscat. Aloula Geojit Brokerage Company

headquartered in Riyadh is the other joint venture with the Al Johar group in Saudi Arabia. The

company also has a business partnership with the Bank of Bahrain and Kuwait, one of the largest

retail banks in Bahrain and Kuwait.

At the forefront of the many fruitful associations between Geojit BNP Paribas and BNP Paribas

is their joint venture, namely, BNP Paribas Securities India Private Limited. This JV was created

exclusively for domestic and foreign institutional clients.

Expanding range of online products and Services.

Geojit BNP Paribas has proven expertise in providing online services. In the year 2000, the company was

the first stock broker in the country to offer Internet Trading. This was followed by integrating the first

Bank Payment Gateway in the country for Internet Trading, and many other industry firsts. Riding on this

experience, and harnessing BNP Paribas Personal Investors’ expertise as the leading online broker in

Europe, is helping the company to rapidly expand its business in this segment. Presently, clients can trade

online in equities, derivatives, currency futures, mutual funds and IPOs, and select from multiple bank

payment gateways for online transfer of funds.

Further, deployment of BNP Paribas’ state-of-the-art globally accepted systems and processes is already

scaling up the sales of Mutual Funds and Insurance.

Wide range of products and Services

Certified financial advisors help clients to arrive at the right financial solution to meet their individual

needs. The wide range of products and services on Equities | Derivatives | Currency Futures | Custody

Accounts | Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services |

Property Services | Margin Funding | Loans against Shares.

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A growing footprint

With a presence in almost all the major states of India, the network of 500 offices across 300 cities and

towns presently covers Andhra Pradesh, Bihar, Chattisgarh, Goa, Gujarat, Haryana, Jammu & Kashmir,

Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi, Orissa, Punjab, Rajasthan,Tamil Nadu &

Pondicherry, Uttar Pradesh, Uttarakhand and West Bengal.

Evolution of the Company

It all started in the year 1987 when Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a

partnership firm. In 1993, Mr.Ranajit Kanjilal retired from the firm and Geojit became the proprietary

concern of Mr. C .J. George. In 1994, it became a Public Limited Company named Geojit Securities Ltd.

The Kerala State Industrial Development Corporation Ltd. (KSIDC), in 1995, became a co-promoter of

Geojit by acquiring a 24 percent stake in the company, the only instance in India of a government entity

participating in the equity of a stock broking company. The year 1995 also saw Geojit being listed on the

leading regional stock exchanges. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year 2000.

Company’s wholly owned subsidiary, Geojit Commodities Limited, launched Online Futures Trading in

agri-commodities, precious metals and energy futures on multiple commodity exchanges in 2003. This

was also the year when the company was renamed as Geojit Financial Services Ltd. (GFSL). The Board

consists of professional directors; including a Kerala Government nominee. With effect from July 2005,

the company is also listed at The National Stock Exchange (NSE). Company is a charter member of the

Financial Planning Standards Board of India and is one of the largest Depository Participant(DP) brokers

in the country.

On 31st December 2007, the company closed its commodities business and surrendered its

membership in the various commodity exchanges held by Geojit Commodities Ltd. Global banking major

BNP Paribas took a stake in the year 2007 to become the single largest shareholder. Consequently, Geojit

Financial Services Limited has been renamed as Geojit BNP Paribas Financial Services Ltd.

Page 16

About BNP Paribas:

BNP Paribas (www.bnpparibas.com) is the Eurozone’s leading bank in terms of deposits, and

one of the 10 most important banks in the world in terms of net banking income, equity capital

and market value. Furthermore, it is one of the 6 strongest banks in the world according to

Standard & Poor's. With a presence in 85 countries and more than 205,000 employees, 165,200

of which in Europe, BNP Paribas is a global-scale European leader in financial services. It holds

key positions in its three activities: Retail banking, Investment Solutions and Corporate &

Investment Banking. The Group benefits from its four domestic markets: Belgium, France, Italy

and Luxembourg. BNP Paribas also has a significant presence in the United States and strong

positions in Asia and the emerging markets.

BNP Paribas has been operating in India since 1860 in a number of businesses such as

Investment Banking (CIB), Private banking (BNP Paribas Wealth Management), Life Insurance

(SBI Life) and Asset Management (Sundaram BNP Paribas), Infrastructure Funding (Srei BNP

Paribas), Retail Financing (Sundaram BNP Paribas Home Finance), Car Contract Hiring (Arval),

Institutional Broking (BNP Paribas Securities India) and Securities Services (Sundaram BNP

Paribas Securities Services and BNP Paribas Sundaram Global Securities Operations).

Why geojit bnp Paribas…………

1. 22 years of history in Indian Capital Market

Geojit BNP Paribas has 22 years of in-depth broking experience in the Indian Capital Market.

More than 4.5 lakh clients and over Rs 5,400 crores (as of 31st Mar.’09) in Assets Under

Management reflect the trust reposed in our expertise.

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2. Pioneer in Online Trading in Feb. 2000

In the year 2000, Geojit BNP Paribas pioneered the simple concept of providing individuals with

the facility to trade online. This revolution has given the company the first mover advantage in

online trading. As a creative innovator, Geojit BNP Paribas uses advanced technology in online

trading to meet client requirements such as customized online trading platforms and many other

services.

3. Srrong Shareholders

Geojit BNP Paribas is backed by srrong shareholders. In 2007, global banking major BNP

Paribas joined the company’s other major shareholders- Mr. C.J George, KSIDC (Kerala State

Indusrial Development Corporation ) And Mr. Rakesh Jhunjhunwala- when it took a Stake to

become the single largest shareholder.

Wide range of products

Geojit BNP Paribas offers a wide range of trading and investment products and solutions.

Certified financial advisors help clients to arrive at the right financial solution to meet their

individual needs.

The wide range on offer includes - Equities | Derivatives | Currency Futures | Custody Accounts |

Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services |

Property Services | Margin Funding | Loans against Shares

Attractive brokerage Slabs

We provide value for money! To start with, we offer low online brokerage charges which

further decrease automatically, as and when, your volumes increase.

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Learn the craft

You too can develop your trading skills by availing of the effective guidance by our our clients into successful traders

Daily mails delivered to our clients mailbox on market conditions and recommendations

Technical analysis of BSE 200 index scrips

Free monthly investment magazine

Services of professionally qualified executives at 500 offices Across india.

our strong research ideas have been instrumental in converting our clients into successful traders.

Multichannel service- internet, Phone, Branch trading

Trade the way that you want to by selecting from multiple channel options- Internet, Phone or Branch.

First mover advantage

Geojit BNP Paribas through its first mover advantage in different areas has been the first to serve

investors with its innovative offerings.

1st to launch internet trading in the year 2000.

1st to launch integrated internet trading system for cash and

derivative segments in the year 2002.

1st Indian stock broking company to commence domestic retail

broking operations in any foreign country.

1st in the industry to have a global player offering its name thereby creating Geojit BNP Paribas.

1st to launch exclusive branches for women in 2005.

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Our deep reach

we have a pan-India network of 500 offices with industry certified executives and a dedicated

Call Centre to provide you quality services.

Wide range of fund options

Geojit BNP Paribas gives you the option to choose from the 700 plus Mutual Fund schemes

offered by over 35 Asset Management companies such as SBI Mutual Fund, Reliance Mutual

Fund, Franklin Templeton India Mutual Fund, Tata Mutual Fund, Sundaram BNP Paribas

Mutual Fund, Fidelity Mutual Fund, and HDFC Mutual Fund.

13/03/2007 With Geojit, BNP Paribas enters into savings products distribution in India and

creates the BNP Paribas Personal Investors business line BNP Paribas acquires a 27% interest in

the India-based company Geojit and becomes its main shareholder.

BNP Paribas enters the capital of Geojit Financial Services Ltd through a preferential allotment

representing 27% of Geojit’s equity. The capital increase will take place in two stepts and the

share of BNP Paribas will increase up to a minimum of 34.35% in the coming few weeks.

Based in Kochi, Kerala, Geojit is a brokerage firm and distributor of financial savings products,

with approximately 250,000 clients, a network of 400 branches throughout India, and over 2,000

employees. Geojit also operates in the United Arab Emirates through the joint-venture Barjeel

Geojit Securities.

Geojit offers brokerage services for equities, derivatives and commodities, financial savings

products (funds, life insurance, programmed savings plans) and a portfolio management service,

mainly to private customers.

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The capital increase allotted to BNP Paribas will mainly allow to finance the continued

development of the company in India and to bolster its presence in the Gulf countries, primarily

through the opening of a new joint-venture in Saudi Arabia. The company will use the brand

name Geojit BNP Paribas and the common logo of the group's companies for all its operations in

India.

CJ George, age 48, has been the CEO of Geojit since its creation and becomes CEO of Geojit

BNP Paribas. He holds a Masters in Business and the Certified Financial Planner (CFP) degree.

He was elected Businessman of Kerala in 2002. He is a member of the Executive Board of the

Associated Chambers of Commerce and Industry of India, New Delhi (ASSOCHAM), of the

Kochi Chamber of Commerce and of the Executive Committee of Financial Planning standard

Board of India, Bombay. He also sat on the Executive Board of the National Stock Exchange

(NSE).CJ George joins the Executive Board of BNP Paribas Personal Investors.

A strategic partnership between Geojit and BNP Paribas

Already present in India through its Investment Banking, Private Banking, Insurance (joint-

venture SBI Life) and Asset Management (joint-venture Sundaram BNP Paribas, etc.) activities,

BNP Paribas will find in Geojit a strong trading and distribution platform in a fast growing

market.

To accelerate its growth, Geojit will benefit from the BNP Paribas Group's experience in savings

distribution (investment funds, life insurance), cross-selling, consulting and discretionary

management of stocks and investment funds, multi-channel distribution and direct marketing and

telesales.

A new business line, BNP Paribas Personal Investors, is part of the Asset Management &

Services (AMS) division

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- Cortal Consors

- its subsidiary, the brokerage firm B* Capital

- the interest in Geojit

BNP Paribas Personal Investors is dedicated to providing financial investment advice to a mass-

affluent clientele in Europe and several emerging countries through various distribution channels

(Internet, telephone and face-to-face). These operations are managed jointly so as to ensure that

their identity.

BNP Paribas Personal Investors, with 4,000 members, operates in Europe through Cortal

Consors, the leading broker in personal investing and online trading, which offers a complete

range of products and investment services through various distribution channels. Cortal Consors

operates in 5 European countries: Germany, France, Belgium, spain and Luxemburg.

B capital, a Cortal Consors brokerage firm, offers private investors wishing to manage their own

portfolio information and peronalized consulting and management under mandate services.

BNP Paribas is a European leader in banking and financial services, with a signifi cant and

growing presence in the United States and leading positions in Asia. The Group has one of the

largest international banking networks, a presence in over 85 countries, with almost 163,000

employees, including over 126,000 in Europe. BNP Paribas enjoys key positions in its three core

businesses.

The company has in the Market Capitalisation ( In billions of eoros) in the year( 2007 ) 67.2

And Return on equity (in%) year (2007) 19.6

Geojit BNP Paribas Financial Services Ltd. consists of four companies.

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BNP Paribas India solutions Pvt.Ltd.

BNP Paribas India Solutions Private Limited (BNPPISPL), incorporated in 2005, is a subsidiary

of BNP Paribas S.A. BNPPISPL aims to provide info-center, data warehousing, IT and back-

office processing services, with major focus on capital markets information technologies as well

as regional organization and methods.

BNP Paribas Investment Services Pvt.ltd.

BNP Paribas Investment Services India Pvt. Ltd. brings to the table a high level of personalised

service, expert guidance, comprehensive financial plans and strategies, competitive products, and

convenient access to state-of-the-art technologies.

Joint Venture- Geojit BNP Paribas Financial Services Ltd.

Geojit, is a leading retail broker with more than 340 000 clients, Rupees 6000 CR of assets

under custody and executes more than 150 000 trades per day. It is listed on NSE and its network

is made of more than 400 offices all overIndia.

BNP Paribas’ credit rating to AA+ in July 2007, our Group joined one of only a handful of

banks worldwide considered as a beacon of fi nancial strength. BNP Paribas is also one of the

world’s most valuable brands.

Research is the solid foundation on which Geojit BNP Paribas financial Services Ltd.

advice is based. Almost 10% of revenue is invested on equity research and we hire and train the

best resources to become advisors. At present we have 25 equity analysts researching over 26

sectors. From a fundamental, technical and derivatives research perspective; Geojit BNP Paribas

research reports have received wide coverage in the media (over a 1000 mentions last year).

Geojit BNP Paribas Financial Services Ltd. has witnessed rapid organic growth due to

favorable market conditions as well as efforts put in by the company itself. Over a period of time

many more regional broking firms may be acquired to gain solid footing in various regions of

Page 23

India. The company has also established a base in the UAE to address the needs of the overseas

audience.

Geojit BNP Paribas Financial Services Ltd. was founded in 1988 as partnership firm, with just

two people Mr. C.J.George And Mr. Ranjit running the show.

This company’s institutional business unit has relationships with almost all leading foreign

institutional investors (FIIs) in the Roma, Istanbul, London and Singapore.

We provide advice-based broking (equities and derivatives), portfolio management services

(PMS), e-Broking, depository services, commodities trading, IPO and mutual fund investment

advisory services.

Geojit BNP Paribas Financial Services Ltd value portfolio scheme has demonstrated very strong

performance backed by our single-minded focus on research-based value investing and the

experience and management of.

Mr C.J.George – an acknowledged expert in value investing.

Geojit BNP Paribas Financial Services Ltd.unique Wealth Creation Study, authored by Mr.

C.J.George, Managing Director. Investors keenly await this annual study for the wealth of

information it has on how companies created wealth during the preceding five years.

The organization finds its strength in its team of young, talented and confident individuals.

Qualified professionals carry out different functions under the able leadership of its promoter,

Page 24

Mr. C.J.George Stringent employee selection process, focus on continuous training and adoption

of best management practices drive the quest to achieving our Core Purpose and Values

HISTORY

1988 :-The Company Geojit Sequrities Limited (GSL) , was A Partnership Firm , with two

partners – Mr.C. J. George And Mr. Ranjit.

1994 :-The Company was incorporated as a Public Limited Company on 24th November and

obtained its certificates on commencement of business 25th January 1995.

1995 :-The Company has a Subsidiary in the name of the Geojit Stock and shares Limited

(GSSL) To Carry on the activities as a Dealer of Over the Counter exchange of India.

1996 :- The Company had make a Public issue of .equity Shares aggregating To RS.95 / -

Lakhs , During the Period under Report which received and was Oversubscribed Over 14

times.

1998 :-The Company , a joint Venture company with Kerala State Industrial Development

Corporation ( KSIDC) , has Announced improved working results for 1997-98.

1999:-The equity shares of the Company are Presently listed at five stock exchange VIZ.,

Madras, Ahemdabad,, Coimbatore, Delhi and Coachin.

Page 25

2000:-Geojit Securities Ltd, a leading Retail Share broking firm launched Internet sequrities

trading for the first time in india.

Geojit securities is a joint Venture with Kerala State Industrial Development Corporation

(KSIDC) with Branches in 40 cities .

Geojit Securities Ltd , the first Company to start online trading services, has Signed MoU with

UTI Bank to enable investors to buy \ Sell Demat Stocks through the Companies Web Site. The

company launched its online interface with HDFC Bank for Internet Trading.

.Geojit Securities Ltd, a leading Stock broking Company , has decided to issue bonus Shares at

1:1 ratio, to capitalize part of general reserve

CORE PURPOSE & VALUES

Core Purpose

To be a well respected and preferred global Stock broking financial services organization

enabling wealth creation for all Geojit BNp Paribas Financial services’s stock brokers.

Values.

Integrity : A company honoring commitment with highest ethical and business practices.

Team Work : Attaining goals collectively and collaboratively.

Meritocracy : Performance gets differentiated, recognized and rewarded in an apolitical

environment.

Passion & Attitude: High energy and self motivated with a “Do It” attitude and

entrepreneurial spirit.

Excellence in Execution: Time bound results within the framework of the company’s

value system.

Page 26

Management Team

MOSt management team is regularly engaged in finding ways to improve operational

efficiencies and customer satisfaction.

You will find CAs, CFAs, ICWAs, , MBAs and IT professionals managing crucial functions, to

bring you best products and services - from research & advice to trade execution & settlement.

At MOSt we practice meritocracy and each of the team members is provided extensive training.

SENIOR MANAGEMENT

Mr. Binoy Varghese Samuel is the Chief financial officer and Managing Director of Geojit BNP

Paribas financial services Ltd.

Mr. A.P.Kurjan has served on the Non-executive independent chairman of the board. He is

currently a member of the Bombay stock Exchange & National Stock Exchange (NSE)

committee for F&O.

Recently, Mr. C.j George was conferred the “CIO 100 ingenious award at the 4th annual CIO

100 symposium and awards ceremony.”

Geojin BNP Paribas Financial Services group activities include Wealth Management,

Investment Banking, Institutional Broking, Private Equity with operations in 1300 Business

locations in over 400 cities and more than 3,00,000 customers.

Gojit BNP Paribas Financial services Ltd. recently became a listed company with a Market

Capitalisation of above 3000 Crores.

Page 27

FAST FACTS/MILESTONES

Charter member of the Financial Planning Standards Board of India of 2006.

BNP Paribas acquires a 27% interest in the India-based company Geojit and becomes its

main share holder.

Geojit Financial Services Ltd through a preferential allotment representing 27% of

Geojit's equity.

In 2009 Geojit Finance Launch of Property Services division.

In 2009 Geojit Finance Launch of online trading in currency Derivatives.

1 st brokerage to offer full Direct Market Access to execution in india For institutional

clients.

BNP Paribas Securities india (P) Ltd – a joint venture with BNP Paribas S.A for

stitutional Brokerage.

Geojit Credits, a subsidiary, registers with RBI as a Non-Banking Financial Company

(NBFC).

PRODUCTS / FINANCIAL SERVICES.

Equities

Geojit BNP Paribas, a member of NSE and BSE, has a network of over 500 branches in India

and abroad, rendering quality equity trading services. Geojit BNP Paribas not only has a strong

offline presence but also provides automated online trading services.

Page 28

Geojit BNP Paribas also provides a Call & Trade facility to its customers wherein they can place

and track their orders through our dedicated Call Centre Desk by dialing the toll free number

1800-425-5501 or 91-484-2405822 (Standard Rates Apply).

Geojit BNP Paribas's retail spread caters to the need of individual investors. Trading in equities

is made simple, safe and interesting with smart advice from the research desk through daily SMS

alerts, market pointers, periodical research reports, stock recommendations and customer meets

organized frequently.

The online trading system allows customers to track the markets by setting up their own market

watch, receiving research tips, stock alerts, real-time charts and news and many more features

enable the customer to take informed decisions.

The brokerage structure* makes Geojit BNP Paribas's Online trading all the more attractive:

0.03% for day trading (applicable on both sides)

0.30% for delivery

Benefits

MOSt RMs proactively help you take informed equity investment decisions and build a healthy

portfolio. The RMs keep a close watch on the performance of each stock in your portfolio and

suggest changes as and when there is a significant trend reversal or deterioration in a company's

performance. This is to help you reach your investment goal. The RM doesn't stop at just that, he

goes a step further to ensure that your trades are settled and stocks credited in your Demat

account in a timely manner. This allows us to give you a convenient single window service and

your RM becomes the single point contact for all equities related matters. You will receive

regular portfolio valuation reports to enable you to monitor performance and view the progress

towards the investment objective.

Page 29

Derivatives

Geojit BNP Paribas Financial sevices Ltd F&O

Futures & options are derivatives, which use equity as their underlying. Hence our Equity

Advisory Group (EAG), which is highly qualified, will also act as your advisors & help you take

informed decisions while trading in these derivative instruments.

My Broker (E-Broking)

There is nothing more exhilarating , more daring and more rewarding than making the right trade

at the right time. Welcome to Geojit Finance’s (E-Broking) Platform which brings you a world

class experience of online investing –anyplace, anytime. Buying and selling of shares is now just

a click away.

IPO

Background:

Book Building and Fixed Price Issue are the two types of Initial Public Offerings (IPOs) through

which a corporate can raise money in the capital market.

In a book building public issue the bids are received at different price levels and the demand for

the issue is built up over a period of time. Depending upon the bids received at different price

levels the issue price is ascertained. In a fixed price issue the issue price is pre ascertained by the

issuer.

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Portfolio Management Services

In today's complex financial environment, investors have unique needs which are derived from

their risk appetite and financial goals. But regardless of this, every investor seeks to maximize

his returns on investments without capital erosion.

While there are many investment avenues such as fixed deposits, income funds, bonds, equities

etc…. It is a proven fact that Equities as an asset class typically tend to outperform all other asset

classes over the long run.

Investing in equities, require knowledge, time and a right mind-set. Equity as an asset class also

requires constant monitoring may not be possible for you to give the necessary time, given your

other commitments.

Geojit BNP Paribas Financial Services Ltd. recognize this, and manage your investments

professionally to achieve specific investment objectives, and not to forget, relieving you from the

day to day hassles which investment require.

Geojit BNP Paribas Financial Services Ltd. brings with more than 2 decades of experience &

expertise in equity research and stock broking.

When you invest through our PMS, you can be assured of the best research being used for the

investment decisions. Geojit Finance’s equity research has been consistently ranked very highly

in surveys conducted by leading international publications.

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Portfolios

After understanding your risk appetite and financial goal, Geojit Finance has created various

investment portfolios. Geojit BNP Paribas Financial Services Ltd. currently offer following

schemes, with different approaches to managing your investments.

Value Portfolio

Bull’s Eye Portfolio

Next Trillion Dollar Opportunity Portfolio.

Benefits of Portfolio Management Service

Professional Management

The service offers professional management of your equity investments with an aim to deliver

consistent return with an eye on risk.

.

Risk Control

Well defined investment philosophy & strategy acts as a guiding principle in defining the

investment universe. Geojit Finance has a very robust portfolio management software that

enables the entire construction, monitoring and the risk management processes.

Convenience

Geojit Finance’s Portfolio Management Service relieves you from all the administrative hassles

of your investments. Geojit Finance provides periodic reports on the performance and other

aspects of your investments.

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Constant Portfolio Tracking

Geojit Finance understands the dynamics of equity as an asset class, so we track your

investments continuously to maximize the returns.

Transparency

You will get account statements and performance reports on a monthly basis. That’s not all; web

access will enable you to track all information relating to your investment on daily basis. A

password protected web login, will enable your to access details your investment on click of a

button.

The following portfolio reports are accessible online :

Performance Statements

Portfolio Holding Reports

Transactions Statements

Capital Gain / Loss Statements

Mutual Funds

Mutual funds… realize your financial goal through MOSt MUTUAL.

Investments can seem complicated and mystical. As all the traditional investment avenues like

bank deposits, RBI Bonds, NSC, KVP etc are becoming unattractive with the interest rate falling

continuously affecting the yields, one needs to look for other investments alternatives. Mutual

funds offer a platform to participate in the equity & debt market indirectly through professional

management.

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Mutual funds are becoming the most popular investment vehicle offering various kinds of

schemes with different investment objectives. Geojit Finance believes that investments through

mutual funds are one of the most safest, easiest and convenient ways of successful investment

making. The investments are in congruence to the laid down investment objectives securing the

goals & objectives of the unit holders.

At Geojit BNP Paribas Financial Services Ltd, they understands the importance of financial

goals of our privileged clients and to provide them one stop solution to all your financial needs

and tailor made portfolio we now have separate dedicated Mutual fund desk.

Depository Services

In the times of having a demat account linked to your trading account becomes really convenient.

The non-trading clients can also avail of DES. Today DES is available at all business locations

of Geojit Finance. In terms of number of accounts Geojit Finance’s DES is the biggest

Depository Participant with over 1,20,000 accounts. You receive regular account reports and an

efficient service at all times. Clients having holdings over Rs. 10 lakhs receive special SMS

service.

Sales & Trading

Geojit BNP Paribas Financial Services Ltd’s sales & trading team, comprising top equity

professionals, translates Geojit Finance’s research findings into actionable advise for clients,

based on their specific needs. Each of Geojit Finance’s sales personnel has at least five years’

experience in equity research. Sophisticated computerized tools are used to understand client

investment profile and objectives, which ensures proactive and timely service.

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DERIVATIVES

HISTORY OF DERIVATIVES

The concept of derivatives is not a new one. A kind of derivatives instruments were used

in Ancient Greece in 330 B.C. The Olive growers in order to reduce the risk of a low price for

their crop which were to be harvest months later, entered into forward agreements where a price

was agreed for delivery at a specific time in future. In 1636 in Amsterdam, the producers and

purchasers of tulips made also forward agreements to limit their risk in case that the harvest of

tulips was poor. In United States the establishment of the New York Stock Exchange in 1790,

created the need for investors for a formal and organized derivatives market. The securities

companies of Wall Street published projects on derivatives transactions for the public investors.

At the beginning of 1900 the transactions on derivatives were made over the counter (OTC). In

1929 after the Crash, the American Congress established the Securities Exchange Commission

(SEC) with the task to monitoring the smooth operation of the market. What gave the boost for

the significant growth of the derivatives market were the establishment of the Chicago Board

Options Exchange and the creation of Options Clearing Corporation in 1973. Ten years later in

1983, derivatives on indices made their appearance. The first one was Standard and Poor's 100.

This innovation was followed by derivatives on bonds and interest rates.

The world financial markets have undergone qualitative changes in the last three decades

due to phenomenal growth of derivatives. An increasingly large number of organizations now

consider derivatives to play a significant role in implementing the financial policies. Derivatives

are used for a variety of purposes but perhaps the most important is hedging. Hedging involves

transfer of market risk - the possibility of sustaining losses due to unforeseen unfavorable price

changes. A derivative transaction allows a firm to alter its market risk for a price.

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Risk is a characteristic feature of all commodity and capital markets. Prices of all

commodities whether agricultural like wheat, cotton, rice, coffee or tea of non-agricultural like

silver, gold, etc are subject to fluctuation over time in keeping with the prevailing demand and

supply conditions. To hedge against this, came the use of derivatives.

What are Derivatives?

Derivatives are contracts for the future delivery of assets at prices agreed at the time of

the contract. The quantity and quality of the asset is specified in the contract. The buyer of the

asset will make the cash payment at the time of delivery. Derivative products initially emerged,

as hedging devices against fluctuations in commodity prices and commodity-linked derivatives

remained the sole form of such products for almost three hundred years.

Derivatives Defined

Derivative is a security whose value is derived from the value of the underlying asset in a

contractual manner. In the Indian context, the Securities Contracts (regulation) Act, 1956

(SCRA) defines "derivative" to include:

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security.

2. A contract, which derives its value from the prices, or index of prices, of underlying

securities.

The derivatives are securities under the SCRA and the trading of derivatives is governed

by the regulatory framework under the SCRA.

All derivatives are based on some "cash" products. The underlying assets of derivative

instruments may be any produce of the following types.

Commodities include grain, coffee, beans, orange juice, etc.

Precious metals like gold and silver

Foreign Exchange rate

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Bonds of different types, including medium to long-term negotiable debt

securities issued by governments, companies, etc.

Short-term debt securities such as trade bills.

OTC (Over the Counter) money market products such as loans or Deposits.

Derivatives are specialized contracts which are employed for variety of purpose including

reduction of funding cost by borrowers, enhancing the yield on asset, modifying the payment

structure of assets to correspond to investors market view, etc. However the most important use

of derivatives is in transferring market risk, called hedging. Of late derivatives have assumed a

very significant place in the field of finance and they seem to be the driving global financial

markets.

There are many kinds of derivatives including futures, options, interest rate swaps and

mortgage derivatives.

Forward Contracts

A deal for the purchase or sale of a commodity, security or other assets can be in the spot

or forward markets. A spot or cash market is most commonly used for trading. In addition to

cash purchases another way to acquire or sell assets is by entering into a Forward Contract. In

forward contract the buyer agrees to pay cash at a later date when the seller delivers the goods.

EG: If a car is booked with a dealer and the delivery 'matures' the car is delivered after its price

has been paid.

Usually no money changes hands when forward contract are entered into, but sometimes one or

both the parties to a contract may like to ask for some initial, good faith, deposit to ensure that

the contract is honored by the other party.

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Typically in a forward contract the price at which the underlying commodity are asset will be

traded is decided at the time of entering the contract. The essential idea of entering into a forward

contract is to peg the price and thereby avoid the price risk.

Forward contracts have been in existence since quiet some time. The organized commodities

exchange, on which forward contracts are traded, probably started in Japan in the early

eighteenth century, while establishment of the Chicago Board Of Trade (CBOT) in 1848 led to

the start of a formal commodities exchange in the USA.

Futures Contract

The problem associated with forward contracts led to the emergence of Futures Contract. A

futures contract is a standardized contract between two parties where one of the parties commits

to sell and the other to buy, a stipulated quantity (and quality where applicable) of a commodity,

currency, security, index or some other specified item at an agreed price on or before a given

date in the future.

Futures contract is an improvement over the forward contract in terms of standardization,

performance guarantee and liquidity. Thus, whereas forward contracts are not standardized, the

futures are standardized ones, so that

1. The quantity of the commodity or the asset which would be transferred or would form

the basis of gain/loss on maturity of a contract.

2. The quality of the commodity—if a certain commodity is involved - and the place

where delivery of the commodity would be made,

3. The date and month of delivery

4. The units of price quotation

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5. The minimum amount by which the price would change and the price limits for the

days' operations, and other relevant details are all specified in the futures contract. Thus

in a way, it becomes a standard asset, like any other asset to be traded.

People can buy or sell futures like other commodities. When an investor buys a future contract

(is that he takes a long position) on an organized futures exchange, he is, in fact assuming the

right and obligation of taking delivery of the specified underlying item (say 10 Quintals of wheat

of a specified grade) on a specified date. Similarly, when an investor sells a contract, to take a

short position one assumes that the right and obligation to make delivery of the underlying asset.

While there is a risk of non-performance if the forward contract, it is not so in case of futures

contract. This is because of the existence of a clearing house or clearing corporation associated

with futures exchange, which plays a pivotal role in the trade so that it become the buyer to seller

and the seller to the buyer. When a party takes a long position in contract it is obligated to sell

the underlying commodity in question at the stipulated price to the clearinghouse on the maturity

of the contract. Similarly an investor, who takes a short position on the contract, can seek its

execution through the clearinghouse only.

Unlike forward contract, it is not necessary to hold on to a futures contract until maturity- one

can easily close out a position in a futures contract. Either of the parties may reverse their

position by initiating a reverse trade so that the original seller of a contract can sell an identical

contract at a later date, canceling, in effect the original contract. Thus the exchange facilitates

subsequent selling (buying) of a contract so that a party can offset its position and eliminate the

obligations.

Futures Terminology

Spot price:

The price at which an asset trades in the spot market.

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Futures price:

The price at which the futures contract trades in the futures market.

Contract cycle:

The period over which a contract trades. The index futures contracts on the NSE as well

as BSE have one-month, two-months and three-months expiry cycles, which expire on the last

Thursday of the month. Thus a July expiration contract would expire on the last Thursday of

July. On the Friday following the last Thursday, a new contract having a three-month expiry

would be introduced for trading. More generally we can say, on the first trading day after the day

of the expiry of that month's futures contract.

Expiry date:

It is the date specified in the futures contract. This is the last day on which the contract

will be traded. It will cease to exist by the end of that day.

Contract size:

The amount of asset that has to be delivered under one contract. The contract size of the

stock index futures on NSE Nifty is 200 and the contract size, of the stock index futures on BSE

Sensex is 50.

Basis:

Basis is usually defined as the spot price minus the futures price. There will be a different

basis for each delivery month for the same asset at any point in time. On 19th June 2001 Nifty

closed at 1096.65. August 2001 Nifty futures closed at 1098.90.

Therefore the basis for the August Nifty futures is -2.25 index points. In a normal market, basis

will be negative. This reflects the fact that the underlying asset is to be carried at a cost for

delivery in the future.

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Cost of carry:

The relationship between futures prices and spot prices can be summarized in terms of

what is known as the cost of carry. This measures the storage cost plus the interest that is paid to

finance the asset less the income earned on the asset. In the case of stocks, dividend will be the

income earned on the asset. The storage cost will be negligible.

Initial Margin:

The amount that must be deposited in the margin account kept with the broker at the time

a futures contract is first entered into is known as initial margin. Margins are to be strictly

collected in the futures and options markets by brokers as per the exchange regulations.

Otherwise the exchange cannot guarantee the trades to all participants in the market.

Marking-to-market:

In the futures market, at the end of each trading day, the margin account is adjusted to

reflect the investor's gain or loss depending upon the futures closing price or settlement price.

This is called marking-to-market.

Maintenance margin:

If the balance in the margin account falls below the maintenance margin, the investor

receives a margin call and is expected to top up the margin account to the initial margin level

before trading commences on the next day

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Beta:

Beta is a concept to be used in using futures and options for hedging. Beta measures the

sensitivity of a share or a portfolio to that of the index. Beta of a share is found out by relating

the daily price changes of a share to the daily changes in a stock price index. If a graph is drawn

with daily changes of the share price on y-axis and daily changes in the index on x-axis the slope

of the straight line fitted will be the value of beta. Mathematically it is found by regression

method. If the beta of Tisco is found to be 1.23, it implies if the index increases by 10% in a

period, price of Tisco will increase by 12.3%.

Beta of the portfolios is found by weighted average of the betas of the shares in the portfolio. For

example, an investor's portfolio has equal value in Tisco and Infosys. Tisco has a beta of 1.23

and Infosys has a beta of 1.37. The portfolio beta is the average of 1.23 and 1.37, which is 1.3.

NSE website is providing values of beta for a large number of shares.

Options:

An option ids the right, but not the obligation, to buy or sell a specified amount (and quality) of a

commodity, index, or financial; instrument or to buy or sell a specified number of underlying

futures contracts at a specified price on or before a given date in the future. Thus options, like

futures, also provide a mechanism by which one can acquire a certain commodity or other asset,

or to take a position in order to make profit or cover risk for a price. The buyer who takes a long

position and the seller (the writer), who takes a short position. An option contract gives its owner

right to buy/sell a particular commodity to asset at a predetermined price by a specific date.

Options are of two types Call option and Put options. A call option gives an owner the right to

buy a specific quantity of underlying asset at a predetermined price-the exercise price on a

specified date—the date on maturity.

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For example, suppose it is January now and an investor buys a March call option contract on

(Reliance India Limited) RIL shares with an exercise price of Rs 300. With this the investor

obtains the right to buy 100 shares of RIL at her rate of Rs 300 per share on a particular day in

the month of March. The investor is not obliged to buy the shares. Obviously, if on the expiry of

the option the price of the share in the market is being quoted at higher than Rs 300, the investor

would like to exercise the call. By buying shares at Rs 300 and selling them at the prevailing

higher price, the investor can make a profit. If on the other hand, the price of the share is quoted

at Rs 300 of lower, the investor would not benefit by buying the share. In any case, the writer of

the call option is obliged to sell the shares at Rs 300 per share if called upon.

In case of Put option the option holder has the right to sell a specific amount of the underlying

asset at the agreed price on the date of maturity. Thus id an investor buys a March put option on

RIL shares with an exercise price of Rs 300 per share the investor gets the right to sell 100 shares

of RIL at the rate of Rs 210 per share on a specific day in the month of March. The investor

would naturally be inclined to exercise the option if the share price in the month of march

happen to be lower than Rs300. by buying shares in the market at a lower then Rs300 per share,

and selling than at Rs 300 per share, the investor would gain stand again. In this kind of an

option, the writer undertakes to buy the shares at the exercise price, in case the holder of the

option opts for that.

Option Terminology

Index option:

An option having the index as the underlying asset. Like index futures contracts, index

options contracts are also cash settled.

Stock options:

Stock options are options on individual stocks. A contract gives the holder the right to

buy or sell shares at the specified price.

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American option:

American options are options that can be exercised any time up to the expiration date.

This name is only a classification and does not imply that they are available only in America.

European options:

European options are options that can be exercised only on the expiration date. European

options are easier to analyze than American options, and properties of American options are

frequently deducted from those of its European counter part.

Call option:

A call option gives the holder the right but not the obligation to buy an asset by a certain

date for a certain price.

Put option:

A put option gives the holder the right but not the obligation to sell an asset by a certain

date for a certain price.

Buyer of an option:

The buyer of the option, either call or put, pays the premium and buys the right but not

the obligation to exercise his option on the seller/writer.

Writer of an option:

The writer of a call/put option is the one who receives the option premium and is thereby

obliged to sell/buy the asset if the buyer exercises on him. Option writer is the seller of the

option contract.

Strike price:

The price specified in the option contract at which buying or selling will take place is

known as the strike price or the exercise price.

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Option price:

Option price is the premium, which the option buyer pays to the option seller or writer.

Black and Scholes formula is widely used for determining the fair value of options.

Expiration date:

It is the date on which the European option is exercised. It is also called as exercise date,

strike date or maturity date.

Intrinsic value of an option:

The option premium can be broken down into two components- intrinsic value and time value.

The intrinsic value of an option is the amount, which the holder will get by exercising his option

and immediately selling or buying the acquired shares in the spot market.

For example, if the strike price of a call option on Reliance shares is Rs.325 and current market

price is Rs.350. The holder of the option can buy the Reliance shares at Rs.325 by exercising the

option and can make a profit of Rs.25 by immediately selling them in the market. In this case the

intrinsic value of the call option is Rs.25.

Time value of the option:

The time value of an option is the difference between its premium and its intrinsic value.

At-the-money:

An option is called at-the-money option when the strike price equals, or nearly equals, the

spot price of the share. For example, if the strike price of stock index option on Nifty is 1080 and

the Nifty index is also at 1080, the option is called at-the-money option.

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In the money:

A call option is in the money when the underlying asset price is greater than the strike

price. For example, if the strike price in the case of Nifty stock index option is 1050 and Nifty is

at 1080, the option is in-the-money option.

Out-of-the-money:

A call option is out-of-the-money if the strike price is greater than the underlying asset

price. For example, if the strike price in the case of Nifty stock index option is 1100 and Nifty is

at 1080, the option is out-of-the-money option,

The following table defines the relationship between the spot price and strike price for

calls and puts for categorizing them as at-the money, in the money and out-of-the-money.

Strategy Call option Put Option

In –the-money Spot >Strike Spot<Strike

At-the money Spot= Strike Spot = Strike

Out-of-the –money Spot<Strike Spot>Strike

Participants in Derivatives Markets

The participants in derivatives markets are broadly classified into three groups:

Hedgers

Speculators

Arbitrageurs.

Page 46

Hedgers

As already observed, hedging (covering against losses) is the prime reason, which has led to the

emergence of derivatives. The availability of derivatives allows the undertaking of many

activities at a substantially lower risk. Hedgers therefore are an important constituent of the

traders in derivatives market.

Hedgers are the traders who wish to eliminate the risk (of price change) to which they are

already exposed. They may take a long position on, or short sell, a commodity and would,

therefore stand to lose should the price move in adverse directions. Example. Suppose a leading

trader buys a large quantity of wheat that would take two weeks to reach him. Now he fears that

the wheat prices may fall in the coming two weeks and so wheat may have to be sold at lower

prices. The trader can sell futures (or forward) contract with a matching price to hedge. Thus if

the wheat prices do fall, the trader would lose money on the inventory of the wheat but will

profit from the futures contract, which would balance the loss.

Speculators

Speculators are those who are willing to take risk. These are the people who take

positions in the market and assume risk to profit from fluctuations in prices. In fact, the

speculators consume information, make forecasts about the prices and put their money in these

forecasts. In this process, they feed information into prices and thus contribute to market

efficiency by taking positions they are betting that a price would go up or they bet that it would

go down. Depending on their perceptions, they make long or short positions on futures /or

options, or may hold (spread) positions (simultaneously long and short positions on the same

derivatives). Example supposes that a share is currently quoted at Rs 32 and a speculator is

strong on this share. Assume that a call option, with exercise price of Rs 35 and due in one

month, on this share is available in the market at 50 paise (per share). Buying this option would

require Rs 50(a call is for 100 shares) only.

Page 47

Now the price of the share is less than or equal to Rs 35, the call shall not be exercised and the

loss would be Rs 50 or 100% of the investment. If on the other hand the price rules at Rs 40, then

a gain of 100* (Rs 40-Rs35))= Rs 500 would be made, which works out to be 900% of the

investment.

With no option or other derivative available, the investor would be required to invest Rs 3200(for

100 share) and would make a profit of Rs 800 i.e., only 24% of the amount invested. Not only

that, many losses would be incurred if the share price were to settle at less than Rs 32.

Obviously, therefore, the derivatives adequately address the needs of the speculators without

threatening the market integrity in the process.

Arbitrageurs

They are People who trade in two or more different markets. Thus arbitrageur involves

making risk-less profit by simultaneously entering into transactions in two or more markets. If a

certain share is quoted at a lower rate on the (DSE) Delhi stock exchange and at a higher rate in

BSE an arbitrageur would make profit by buying the share at DSE and simultaneously selling at

BSE.

Page 48

FLOW CHART OF DERIVATIVE TRADING

Page 49

Member Firm

Reports Sale

Reports Purchases

Member FirmMember Firm

Selling broker

Confirms

purchase

SellingBroker

Clearinghouse

1 1

Obligation Obligation

Long Short

Seller now short 1 Contract

Confirms

Sale

Buyer now long 1 Contract

Confirms

Purchase

Trading ring

Orders were

executed by out

cry but now it is

Buying broker

Confirms

purchase

Seller

Buying BrokerMember Firm

Buyer

Pricing of Futures

There are various models for valuating the futures

Cost of carry model

According to the cost of carry model the price of a futures contract is spot price plus the

cost of carry of the asset till the date of delivery specified in the futures contract.

F = S + C

The cost of carry C will have three components, storage cost, cost of financing and any

income earned by holding the asset (which is treated as a negative cost and deducted). For shares

cost of storage will be zero. In the case of commodities like wheat, coffee, the storage cost needs

to be incurred to carry stocks.

Example

Find out the fair price of a two-month futures contract on Nifty given the following

information.

1. Current value of Nifty is 1078.

2. Reliance declared a dividend of Rs.5 per share, which will be received by the shareholders

after 15 days of purchasing the contract. The market price of Reliance is Rs.350 and its weight in

Nifty is 15%.

3. The cost of financing is 10 percent per annum.

4. The cost of storage will be nil.

Page 50

Solution:

1. Since Nifty is traded in multiples of 200, spot value of the contract is 200*1078 = Rs.2,15,600.

2. Reliance has a weight of 15% in Nifty, its value in the contract is Rs.32,340 (215600*0.15)

3. If the market price is Rs.350, then a traded unit of Nifty involves 92.4 shares of Reliance. The

dividend received is therefore going to be Rs.462.

4. Thus, fair futures price F = Rs. 1078+17.72-2.34 = Rs.1093.38

5. Note: interest cost (1078*0.1 *(60/365) =Rs. 17.72) and interest on

dividend received ([462/200] +462*0.1 *(45/365)/200 = Rs.2.34) are calculated at simple

interest)

6. Note that a dividend receipt has an effect on fair futures pricing. Hence it is important to know

the dividend already declared or likely to be declared to determine the fair futures price.

Participants interested in selling futures at fine prices have to know these details.

Carry Price Model

P = SP + CC-CR

Where P is future price, SP Spot price, CC Carry Cost, CR Carry Return. Here Spot price

id the current market price of one unit of the share in the market. Carry cost refers to the holding

cost, including the interest charges on borrowings the cash to buy the asset. In case of physical

commodities, storage, etc. Carry return refers to the income such as dividends on shares, which

may accrue to the investor.

Page 51

Valuation of options

The option premium or the price is determined competitively on the floor of the option

exchange by the influx of buy and sell orders. It is influenced by a number of factors some of

them, which are listed as, follows:

1. Price of the underlying asset

2. Volatility

3. Length of the period

4. Interest rates

5. Tax rules with regard to gains and losses arising from the option trading.

6. Margin requirements in case of uncovered option writers

7. Transaction cost

Essentials for a good derivatives market

Large market capitalization

Liquidity

Clearinghouse that guarantees trades

Physical Infrastructure

Risk taking capability and analytical skills

Page 52

Role of derivatives in India

Derivatives will make hedging possible

Derivatives will enable separation between speculators who wish to bear risk Vs Hedgers

Derivatives will lead to an improvement in cash market

Develop Indian financial Industry

Risk management

Price Discovery

Market effectiveness

Ease of speculation

WORLD DERIVATIVES MARKETS:

The past three decades have witnessed a singular rise in the development and growth of

derivatives markets in the world over. Futures and options trading has registered a phenomenal

rise and new products have been evolved. Futures and options exchanges and OTC derivative

markets are integral parts of virtually all the economies which have reached an advanced state of

economic development such markets are likely to become important parts of developing

economies as well, when they move into advanced stages of development with the passage of

time.

Apart from USA, U.K. and several European counties, Japan and Singapore, amongst others,

which have well-developed futures and options markets, a large number of other countries have

also developed, or are in the process of developing such markets. The countries and markets

include Argentina, Brazil, Bulgaria, Chile, China, Columbia, Costa Rica, Greece, Guatemala,

Hungary, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Portugal, Russia,

Slovak Republic, Slovenia, South Africa, Thailand and Turkey.

Page 53

Introduction of Futures and options in India:

India is one of the many emerging markets of the world where derivatives have been

introduced in the recent past. For long exchanges like the stock exchange, Mumbai and Vadodara

Stock Exchange showed their willingness in introducing trading in futures and options. However,

a concerted effort in this direction was made by the National Stock Exchange(NSE) in July, 1995

when it considered the modalities of introducing derivatives trading, mainly futures and options.

Within a few months, NSE developed a system of options and futures trading aiming at

modifying the carry forward system to include options and futures in its scope.

By January 1996, the NSE started work on the scheme of such trading. In March 1996, it

made a presentation to SEBI on its plans to commence trading in futures and options. The

exchange proposed to start with index based futures and index based options, which are seen as

comparatively safer forms of derivatives.

Functions performed by derivatives Markets

The derivatives markets perform a number of useful economic functions:

1. Price discovery:

The futures and options markets serve an all important function of price discovery. The

individuals with better information and judgment are inclined to participated in these markets to

take advantage of such information. When some new information arrives, perhaps some good

news about the economy for instance, the actions of speculators swiftly feed their information

into the derivatives markets causing changes in the prices of the derivatives. As these markets are

usually the first ones to react because the transaction cost is much lower in these markets than in

the spot markets. Therefore, these markets indicate what is likely to happen and thus assist in

better price discovery.

Page 54

2. Risk Transfer:

By their very nature, the derivative instruments do not themselves involve risk. Rather, they

merely redistribute the risk between the market participants. In this senses, the whole derivatives

market may be compared to a gigantic insurance company – providing means to hedge against

adversities of unfavourable market movements in return for a premium, and providing means and

opportunities to those who are prepared to take risks and make money in the process.

3. Market Completion:

The existence of derivative instruments adds to the degree of completeness of the market. A

complete market implies that the number of independent securities or instruments is equal to the

number of all possible alternative future states of the economy.

A market would be said to be complete if instruments may be created which can, solely or

jointly, provide a cover against all the possible adverse outcomes, it is held that a complete

market can be achieved only when, firstly there is a consensus among all investors in the

economy as to the number of adds, or states, that the economy can land up with, and, secondly,

there should exist an ‘efficient fund’ on which simple options can be traded. Here an ‘efficient

fund’ implies a portfolio of basic securities that exist in the market with the property of having a

unique return for every possible outcome, while a simple option is one whose pay off depends

only on one underlying return. The presence of future and options markets does, however lead to

a greater degree of market completeness.

Page 55

RISK

Definition Of Risk:

It is the possibility of loss or the degree or probability of such a loss. A technical definition on

risk. Risk and uncertainty are an integral part of investment decision. Technically "Risk" can be

defined as a situation where the possible consequences of the decision that is to be taken are

known." Uncertainty" is generally defined to apply to situations where the probabilities cannot

be estimated. However risk and uncertainty are used interchangeably

Risk can be classified as follows:

Page 56

RISK

Internal Risk

1. Business Risk2. Financial Risk

External Environmental risks

1. Market Risk2. Interest rate risk3. Purchasing power Risk

Unique Risks

1. Labour Strikes2. Weak Managerial policies3. Consumer preferences

Risk of

1. Securities Market 2. Economy

Unsystematic

1. Industry Risk

Systematic

1. Economic2. Sociological3. Political4. Legal Risk

Types of Risk:

a) Systematic

b) Unsystematic

Systematic Risk:

External risks are uncontrollable and broadly effect the investments. These external risks

are called Systematic risk. They include Economic, sociological, political, legal risks.

Unsystematic Risk:

Risk due to internal environment of a firm or those affecting a particular industry are

referred as unsystematic risk. This risk is depending on the firm or industry.

With respect to this project we are confined to market risk, which arises from systematic

risk. Market risk, is referred to stock variability due to changes in investor's attitudes and

expectations. The investor's reaction to the news etc. Market risk triggers off through real events

comprising political, social, economic reasons. The initial decline or 'rise' in the market price will

create an emotional instability of investors and cause a fear of loss or create an undue

confidence, relating possibility of profit. The reaction to loss will culminate in excessive selling

and pushing price down and reaction to gain will bring in the active buying of securities. How

ever investors are more reactive towards decline in prices rather than increase in prices.

Hedging strategies using index futures

There are eight basic modes of trading on the index futures market:

Page 57

Hedging:

1. Long security, short Nifty futures

2. Short security, long Nifty futures

3. Have portfolio, short Nifty futures

4. Have funds, long Nifty futures

Speculation:

1. Bullish index, long Nifty futures

2. Bearish index, short Nifty futures

Arbitrage:

1. Have funds, lend them to the market

Hedging:

TIP:

Hedging does not always making money. If the index has gone up instead of going down

futures position will show a loss and the investor has to fund it if required by reducing his

portfolio. The best that can be achieved using hedging is the removal of unwanted exposure. The

hedged position will make less profit than the un-hedged position, half the time. The investor

should adopt this strategy for the short periods of time where the market volatility that he

anticipates makes him uncomfortable, or when he plans to sell his holdings in the near future.

Long Security, Short Nifty Futures

A person may buy Larsen & Toubro at Rs 300 thinking that it would announce good

results and the security price would rise. A few days later, Nifty drops, so he makes losses, even

if his understanding of Larsen & Toubro was correct.

Page 58

Every buy position on a security is simultaneously a buy position on Nifty. This is because a

LONG LARSEN & TOUBRO position generally gains if Nifty rises and generally loses if Nifty

drops. The stock picker may be thinking he wants to be LONG LARSEN & TOUBRO, but a

long position on Larsen & Toubro effectively forces him to be LONG LARSEN & TOUBRO +

LONG NIFTY

Those who are bullish about index should just buy Nifty futures; they need not trade

individual securities.

Those who are bullish about LARSEN & TOUBRO do wrong by carrying along a long

position on Nifty as well.

Every time we adopt a long position on a security, we should sell some amount of Nifty

futures. This offsets the hidden Nifty exposure that is inside every long security position.

Short Security, Long Nifty:

A person may sell MUL at Rs 230 thinking that it would announce poor results as decline

in car sales and the security price would fall. A few days later, Nifty rises, so he makes losses,

even if his understanding of MUL was correct.

Every sell position on a security is simultaneously a sell position on Nifty. This is

because a SHORT MUL position generally gains if Nifty falls and generally loses if Nifty rises.

The stock picker may be thinking he wants to be SHORT MUL, but a long position on MUL

effectively forces him to be Short Mul + Short Nifty.

Page 59

Those who are bearish about index should just sell Nifty futures; they need not trade

individual securities.

Those who are bearish about MUL do wrong by carrying along a short position on Nifty

as well.

Every time we adopt a short position on a security, we should buy some amount of Nifty futures.

This offsets the hidden Nifty exposure that is inside every short security position.

Hedging: Have portfolio, short Nifty futures:

Every portfolio contains a hidden exposure. This statement is true for all portfolios. In the case of

portfolios, most of the portfolio risk is accounted for by index fluctuations (unlike individual

securities, where only 30-60% of the securities risk is accounted for by the index fluctuations).

Hence a position LONG PORTFOLIO + SHORT NIFTY can often become one-tenth as risky as

the LONG PORTFOLIO position.

Page 60

SURVEY AND ANALYSIS

AGE BREAK UP OF RESPONDENTS

Table No. 4.1

AGE GROUP OF RESPONDENTS

Graph No. 4.1

Age is an indication of matured thoughts. We can see from the above data that 83% of the

respondents are of the age group of more than 40. 5% are of the age between 25 to 40 and 12%

are in the age of less than 25. From this we can see that the respondents are quiet experienced in

spending and investing their earnings. This shows the maturity of the respondents.

Page 61

AGE GROUP

12%

5%

83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

LESS THAN 25 25 - 40 MORE THAN 40

LESS THAN 25

25 - 40

MORE THAN 40

AGE GROUP RESPONDENTS PERCENTAGE

LESS THAN 25 12 12

25 – 40 5 5

MORE THAN 40 83 83

DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS

Table No. 4.2

SEX RESPONDENTS PERCENTAGE

MALE 69 69

FEMALE 31 31

DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS

Graph No. 4.2

The above data reveals that 69% of the respondents are males and 31% are females. It shows

that although the men are having more control on their investments and decision making in the

family, women are also interested in investments.

From the above data it is clear that a trend is developing, in which women are also

moving towards investing their savings.

Page 62

GENDER

69%

31%

MALE

FEMALE

OCCUPATION OF RESPONDENTS

Table No. 4.3

OCCUPATION RESPONDENTS PERCENTAGE

BUSINESS 17 17

EMPLOYEE 57 57

PROFESSIONAL 26 26

OCCUPATION OF RESPONDENTS

Graph No. 4.3

It can be observed that 17% of the respondents are in business, 57% are employees and rest

26% are professionals. The majority of the investors come from the employee and aged segment

of the society.

The employee segment of the respondents is more interested in investing. The objective

of their investment may be to live a secured and happy life after the retirement from their job.

Page 63

17%

57%

26%

0%

10%

20%

30%

40%

50%

60%

BUSINESS EMPLOYEE PROFESSIONAL

OCCUPATION

BUSINESS

EMPLOYEE

PROFESSIONAL

INCOME OF THE RESPONDENTS

Table No. 4.4

INCOME RESPONDENTS PERCENTAGE

LESS THAN 15,000 28 28

15,000 - 25,000 39 39

MORE THAN 25,000 33 33

INCOME OF THE RESPONDENTS

Graph No. 4.4

From the above table we can find out that 28% of the respondents have income less than 15,000

about 39% are ranging between 15, 000 to 25,000 however, about 33% constitute income group

of more than 25,000.

This indicates that middle income people are more interested in investing. They want to earn

more from what they have invested in order to live a luxurious life.

Page 64

28%

39%

33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

LESS THAN 15,000 15,000 - 25,000 MORE THAN 25,000

INCOME

LESS THAN 15,000

15,000 - 25,000

MORE THAN 25,000

SAVING AND INVESTMENT PATTERN OF RESPONDENTS

Table No. 4.5

SAVING & INVESTMENT RESPONDENTS PERCENTAGE

YES 100 100

NO 0 0

SAVING AND INVESTMENT PATTERN OF RESPONDENTS

Graph No. 4.5

All respondents have the nature of saving of what they have earned. They invest their savings in

order to earn more. The availability of many investment avenues and raise in the education level

of the people also contributed towards saving and investment of their earnings.

Page 65

100%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

YES NO

SAVING AND INVESTMENT

YES

NO

THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE

Table No. 4.6

BROKING HOUSE RESPONDENTS PERCENTAGE

Geojit SECURITIES 34 34

IL & FS SECURITIES 21 21

INTEGRATED SERVICES 18 18

OTHERS 27 27

THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE

Graph No. 4.6

34%

21%18%

27%Geojit IL&FS INTEGRATED OTHERs

The above data reveals that in CKM Geojit Securities is having a major market share, compare to

the other security dealers. As the Geojit Securities are no.1 security dealers in India, respondents

choose Geojit Securities as their broking house. The reputation and market share of the company

helped here to get more clients.

Page 66

INVESTMENT AREAS AWARE OF

Table No. 4.7

INVESTMENT AREAS RESPONDENTS PERCENTAGE

REAL ESTATE 24 8

POST OFFICE 52 17

STOCK MARKET 60 20

PRECIOUS METALS 14 5

BANKS 85 28

MUTUAL FUNDS 32 11

COMMODITIES 4 1

INSURANCE 29 10

INVESTMENT AREAS

Page 67

Graph No. 4.7

Among the various investment areas available banks dominate since it is quiet safe

compared to other investments and it occupies 28%, followed by stock market 20%, because of

the recent boom. The safest among all investments is the post office 17%, real estate 8%, mutual

funds 11%, insurance 10%, precious metals 5% and commodities 1%.

INVESTMENT CRITERIA

Page 68

8%

17%

20%

5%

28%

11%

1%

10%

0%

5%

10%

15%

20%

25%

30%

REAL ESTATE

POST OFFICE

STOCK MARKET

PRECIOUS METALS

BANKS

MUTUAL FUNDS

COMMODITIES

INSURANCE

INVESTMENT AREAS

Table No. 4.8

CRITERIA RESPONDENTS PERCENTAGE

LIQUIDITY 14 14

PROFITABILITY 26 26

SAFETY 52 52

LEGALITY 8 8

INVESTMENT CRITERIA OF RESPONDENTS

Graph No. 4.8

It can be seen that all the investors give preference for safety for their investment. Safety of

investment can be seen in banks, safety occupies 52%, profitability 26%, liquidity 14% and

legality 8%.

This shows a direct relationship between safety and investment. As the banks are more

safer, more people invest in banks.

Page 69

CRITERIA

14%

26%

52%

8%

LIQUIDITY

PROFITABILITY

SAFETY

LEGALITY

IN THE PRESENT SCENARIO I PREFER INVESTING IN

Table No. 4.9

PREFERED AREAS RESPONDENTS PERCENTAGE

REAL ESTATE 12 12

POST OFFICE 6 6

STOCK MARKET 41 41

BANK 21 21

INSURANCE 8 8

MUTUAL FUNDS 12 12

THE PRESENT SCENARIO I PREFER INVESTING IN

Graph No. 4.9

Due to the stock market boom with FDI and FII inflows, respondents prefer stock market with

41% followed by banks 21%, real estate and mutual funds 12% each, post office 6% and

insurance 8% respectively.

It is clear that most of the respondents prefer stock market investment. This is because in the

present scenario the stock market is booming and the SENSEX has already achieved a record

high. So in order to get the benefit of the stock market boom, respondents are more interested in

stock market investments.

Page 70

PREFERED AREAS

12%

6%

41%

21%

8%

12%

REAL ESTATE

POST OFFICE

STOCK MARKET

BANK

INSURANCE

MUTUAL FUNDS

AWARENESS ABOUT INVESTOR AWARENESS ADVERTISEMENTS

Table No. 4.10

AWARENESS ABOUT ADVERTISEMENTS RESPONDENTS PERCENTAGE

YES 53 53

NO 47 47

AWARENESS ABOUT SEBI ADVERTISEMENTS

Graph No. 4.10

53% of the respondents watch the investor awareness advertisements given by SEBI. It is found

that most of the respondents do not watch the investor awareness advertisements given by SEBI.

Hence there is a need to educate the investors about their rights and obligations.

Page 71

AWARENESS ABOUT ADVERTISEMENTS

53%

47%

YES

NO

RISK SEEKING OF INVESTORS

Table No. 4.11

RISK SEEKER RESPONDENTS PERCENTAGE

YES 29 29

NO 71 71

RISK SEEKING OF INVESTORS

Graph No. 4.11

From the above data we can conclude that most of the investors are risk averse. They do

not want to take risk, they prefer low risk investments. As most of the respondents are from the

middle income group they do not want to take risk with their investment.

Page 72

YES

NO

PERCENTAGE

29%

71%

0%

10%

20%

30%

40%

50%

60%

70%

80%

RISK SEEKER

YES

NO

INVESTMENT PATTERN ON THE BASIS OF RISK

Table No. 4.12

INVESTMENT PATTERN RESPONDENTS PERCENTAGE

LOW RISK INVESTMENTS 31 31

MODERATE RISK INVESTMENTS 60 60

HIGH RISK INVESTMENTS 9 9

INVESTMENT PATTERN ON THE BASIS OF RISK

Graph No. 4.12

We can see that 31% of the respondents prefer low risk investments, 60% prefer moderate risk

and only 9% go in for high risk investments.

This shows that respondents prefer those investments, in which the risk involved is

moderate or low.

Page 73

INVESTMENT PATTERN31%

60%

9%

LOW RISK INVESTMENTS

MODERATE RISKINVESTMENTS

HIGH RISK INVESTMENTS

PREFERENCE GIVEN ACCORDING TO RISK AND RETURN

Table No. 4.13

PREFERENCE ACCORDING TO RISK RESPONDENTS PERCENTAGE

MINIMUM RISK MAXIMUM RETURN 55 55

MINIMUM RISK MINIMUM RETURN 35 35

MAXIMUM RISK MAXIMUM RETURN 10 10

PREFERENCE GIVEN ACCORDING TO RISK AND RETURN

Graph No. 4.13

It is found that most of the respondents prefer investments of minimum risk and maximum

return. 35% of the respondents prefer minimum risk and minimum return. Only 10% go for

maximum risk and maximum return in their investments.

This suggests that most of the respondents do not want to take risk while investing.

Page 74

PREFERENCE

55%

35%

10%

0%

10%

20%

30%

40%

50%

60%

MINIMUM RISK MAXIMUM RETURN

MINIMUM RISK MINIMUM RETURN

MAXIMUM RISKMAXIMUM RETURN

MINIMUM RISK MAXIMUMRETURN

MINIMUM RISK MINIMUMRETURN

MAXIMUM RISK MAXIMUMRETURN

RESPONDENTS WHO THINK RISK CAN BE MINIMIZED

Table No. 4.14

RISK CAN BE MINIMIZED RESPONDENTS PERCENTAGE

YES 93 93

NO 7 7

RESPONDENTS WHO THINK RISK CAN BE MINIMIZED

Graph No. 4.14

As the saying goes “higher the risk higher the return”, 7% of the respondents are of the opinion

that risk can not be minimized and the remaining 93% says that risk can be minimized.

Risk is involved in every investment, in some investments it may be less and in some

investments it may be high. The respondents are of the opinion that the risk involved in

investments can be minimized.

Page 75

RISK CAN BE MINIMIZED

93%

7%

YES

NO

RISK MINIMIZING INSTRUMENTS

Table No. 4.15

INSTRUMENTS RESPONDENTS PERCENTAGE

INSURANCE 56 56

POST OFFICE 10 10

GOVERNMENT BONDS 6 6

FUTURES & OPTIONS 26 26

OTHERS 2 2

RISK MINIMIZING INSTRUMENTS

Graph No. 4.15

As an instrument of minimizing risk the respondents are aware of insurance than derivatives.

Insurance constitute 56%, followed by futures and options 26%, post office 10%, government

bonds 6% and others 2%.

As compared to futures and options, insurance is very easy to understand and to deal

with. So the respondents opt for insurance as a risk minimizing instrument rather than

complicated futures and options.

Page 76

INSTRUMENTS

56%

10%

6%

26%

2%

0%

10%

20%

30%

40%

50%

60%

INSURANCE POST OFFICE GOVERNMENTBONDS

FUTURES &OPTIONS

OTHERS

INSURANCE

POST OFFICE

GOVERNMENT BONDS

FUTURES & OPTIONS

OTHERS

AWARENESS TO FUTURES AND OPTIONS

Table No. 4.16

AWRENESS OF DERIVATIVES

RESPONDENTS PERCENTAGE

YES 42 42

NO 58 58

AWARENESS TO FUTURES AND OPTIONS

Graph No. 4.16

Only 42% of the respondents are aware of futures and options or partially know about

them. The remaining 58% do not know about futures and options.

This indicates that still futures and options are not known to a large segment of investors.

This shows that media and market experts have not been so effective in educating the investors

about futures and options.

Page 77

AWRENESS

58%

42%

YES

NO

RESPONDENTS WHO LIKE TO KNOW MORE ABOUT THEM

Table No. 4.17

LIKE TO KNOW MORE RESPONDENTS PERCENTAGE

YES 85 85

NO 15 15

LIKE TO KNOW MORE ABOUT DERIVATIVES

Graph No. 4.17

It shows that about 85% of the respondents want to know more about futures and options, this

also include people with partial knowledge and the remaining 15% say no, this can be either they

know about them or do not want to know about it.

Majority of the respondents wants to know more about futures and options. As the futures

and options are little complex to understand, respondents would like to know more about them.

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85%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

YES NO

LIKE TO KNOW MORE

YES

NO

MEDIAS TO UNDERSTAND THE CONCEPTS OF DERIVATIVES

Table No. 4.18

LEARNING MEDIA RESPONDENTS PERCENTAGE

SEMINARS 23 23

PRINT MEDIA 19 19

TELEVISION 32 32

INTERACTION WITH EXPERTS 26 26

LEARNING MEDIA

Graph No. 4.18

Most of the respondents want to understand the concept of futures and options through

Television which constitutes 32%, seminars 23%, interaction with market experts 26% and print

media 19%.

Some of the respondents have little knowledge about futures and options yet, they are

interested to learn about this aspect through various media.

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LEARNING MEDIA

23%

19%

32%

26%

SEMINARS

PRINT MEDIA

TELEVISION

INTERACTION WITH EXPERTS

TRADING PATTERN OF INVESTORS IN DERIVATIVES

Table No. 4.19

TRADE RESPONDENTS PERCENTAGE

DO NOT TRADE 67 67

DAILY 7 7

WEEKLY 6 6

FORTNIGHTLY 4 4

MONTHLY 16 16

TRADING PATTERN OF INVESTORS IN DERIVATIVES

Graph No. 4.19

Since most of the respondents are not derivative traders, they trade less. 67% of the respondents

do not trade, 7% trade daily, 6% weekly, 4% fortnightly and 16% trade monthly through

derivatives.

This indicates that investors trade less frequently in futures and options.

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67%

7% 6% 4%

16%

0%

10%

20%

30%

40%

50%

60%

70%

TRADE

DO NOT TRADE

DAILY

WEEKLY

FORTNIGHTLY

MONTHLY

I USE THIS INSTRUMENT TO TRADE IN

Table No. 4.20

TRADE IN RESPONDENTS PERCENTAGE

GOLD 0 0

SHARES 30 72

CURRENCY 6 14

COMMODITY 6 14

RESPONDENTS USED OF DERIVATIVES TO TRADE IN

Graph No. 4.20

Futures and options mainly used by respondents to trade in shares, it constitute about 30%. The

6% of the respondents use it to trade in currency and commodities.

It can be concluded that most of the respondents use futures and options only to trade in

shares. They are not aware or do not trade in Gold and other precious metals through derivatives.

The use of futures and options to trade in currency and commodities is also comparatively low.

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TRADE IN

0%

72%

14%

14%

GOLD

SHARES

CURRENCY

COMMODITY

I THINK THROUGH DERIVATIVES

Table No. 4.21

THROUGH DERIVATIVES RESPONDENTS PERCENTAGE

RISK CAN BE MINIMIZED 32 76

LOSS CAN BE MINIMIZED 10 24

RESPONDENTS WHO THINK THROUGH DERIVATIVES

Graph No. 4.21

76% of the respondents think that through derivatives risk can be minimized. In contrast

24% of the respondents feel that derivatives can be used to minimize the loss. This indicates that

futures and options are mainly used to minimize the risk involved in the investment.

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THROUGH DERIVATIVES

76%

24%

RISK CAN BE MINIMIZED

LOSS CAN BE MINIMIZED

EXPERIENCE WITH DERIVATIVES WAS

Table No. 4.22

EXPERIENCERESPONDENT

S PERCENTAGE

VERY SATISFACTORY

8 19

SATISFACTORY 18 43

NOT SATISFACTORY 10 24

NONE 6 14

RESPONDENTS EXPERIENCE WITH DERIVATIVES

Graph No. 4.22

43% of the respondents are satisfied with the trading in derivatives. 24% are not satisfied

with the performance of derivatives. 19% says they are very satisfied with the performance of

derivatives. 14% says none.

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EXPERIENCE

19%

43%

24%

14%

VERY SATISFACTORY

SATISFACTORY

NOT SATISFACTORY

NONE

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FINDINGS

1. The study shows that most of the respondents are aged more than 40 years.

2. Major parts of the respondents are employees and regular investors to stock markets.

3. The respondents consider safety and liquidity to be the prime importance and therefore

want to invest their savings in banks rather than in the stock market and other investment

avenues.

4. Major portions of investors consider insurance, as the best hedging tool and the exposure

to futures and options is also quite well.

5. Respondents believe that futures and options are very technical and difficult to

understand.

6. They prefer television and seminars to understand about futures and options.

7. Among the players in the derivative market most of the respondents trade on monthly

positions, and are quite satisfied with their performance.

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SUGGESTIONS

1. Although the derivatives market is growing considerably in India, respondents lack

knowledge about futures and options, therefore awareness has to be developed about

derivatives.

2. As the majority of the respondents fall in the middle income group, they do not opt for

futures and options due to high margins. So steps should be taken to lower the initial

margins, in order to make derivatives popular among small and medium level investors.

3. There is a necessity from the brokers’ point of view to provide adequate and timely

information to the clients.

4. The television media with assistance from market experts can help the investors or

traders to give more knowledge about futures and options.

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CONCLUSION

Though the derivatives market has overtaken the cash market in daily turnover and volumes we

can see that the awareness among the investing public about futures and options as a tool of

hedging is not much and respondents think that this topic is highly technical and complicated to

understand. And a few respondents know about derivatives and are reluctant in keeping heavy

sums and margins with brokers.

As the study shows that most of the respondents do not want to take risk in their investment, the

futures and options can be an ideal tool for minimizing their investment risk. But the problem is,

they are not aware of futures and options fully. There is a necessity on the part of the media and

market experts to make futures and options more familiar among the investing public.

It is also found that futures and options mainly used to trade in shares only. So there is a need to

make them familiar in the trading of commodities, currencies and precious metals.

The complexity involved in the trading of futures and options should be reduced and it should be

made simple to understand, even for a common man. This will definitely help in developing

Indian futures and options market in the coming years.

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Annexure

QUESTIONNAIRE

1. Name:.......................................

2. Address:....................................

3. Age Group:

Less than 25 25-40 More than 40

4. Sex : Male Female

5. Occupation:

Business Employee Professional

Others (Please Specify)...................

6. Monthly Income :

Less than 15,000 15,000-25,000 More than 25,000

7. Do you invest your savings?

Yes No

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8. The name of the company through which you invest

Geojit Securities IL & FS Securities Integrated Services Other (Please

specific)……………………..

9. Areas of investment that you are aware of:

Real Estate Post Office Stock Market

Precious metals Banks Mutual funds

Other (Please specific)…………………..

10. While investing you give the highest preference to (Any one)

Liquidity Profitability Safety

Legality Others (please specify)…………………….

11. Which investment according to you is most preferable?

Real estate Post office Stock Market

Precious metals Banks Mutual funds Other

(Please specific)……………………

12. Do you watch the investor awareness advertisements given by SEBI?

Yes No

13. Are you a risk seeker?

Yes No

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14. You invest in :

Low risk Investments Moderate risk investments

High risk investments

15. In your investments you give preference for :

Minimum risk, Maximum return

Minimum risk, Minimum return

Maximums risk, Maximum return

16. Do you think that risk can be minimized? (If No go to Q. No 18 )

Yes No

17. If YES what are the instruments that can be used to minimize your

investment risk.

Insurance Post office Government Bonds

Futures and options Others (Please Specify)………………..

18. Are you aware of futures and options?

Yes No

19. Do you like to know more about futures and options?

Yes No

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20. Through which medium would you like to understand about futures and options?

Seminars Print Media Television

Interaction with market experts

21. How often do you trade through futures and options?

Do not trade Daily Weekly

Fortnightly Monthly

22. I use derivatives to trade in :

Gold Shares Currency Commodities

Others (Please Specify)………………….

23. Which one do you think is correct?

Through Derivatives:

Risk can be minimized Loss can be minimized

24. Your experience with futures and options as an. instrument to minimize risk or loss

has been :

Very satisfactory Satisfactory

Not satisfactory None

25. Please give suggestions if any, to your company (broker)……………………………

THANK YOU

Page 91

BIBLIOGRAPHY

1. N.D. Vohra and B.R. Bagri, “Futures and options”, Tata Mc Graw – Hill Publications,

2001, Pp2-10.

2. Hull C. John “Options, futures and other derivatives”, Pearson Education, 4 th Edition

2001, Pp28.

3. Edwards. R. Franklin and Cindy, “Futures and Options”, Mc Graw – Hill Publications,

1992, Pp92.

4. Parameshwara K. Sunil, “Futures Market theory and practice”, Tata Mc Graw – Hill

Publications, 2003, Pp2-48.

5. D.C.Patwari and A. Bhargava, “Options and futures – An Indian perspective”, Jaico

Publishing house, 2005, Pp1-30.

INTERNET:

http://www.angelfire.com/a_brief_history_of_derivatives.htm

http://www.business_standard.com

http://www.bseindia.com

http://www.nscindia.com

http;//www.geojitbnpparibas.com

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