perception toward investment in derivative market

7/29/2019 Perception Toward Investment in Derivative Market

1/88

Perception Toward Investment In Derivative Market

ST.GEORGE COLLEGE OF MANAGEMENT AND SCIENCE Page 1

INRODUCTION

FINANCE

Finance is the lifeblood of any business and it is very vital for its growth

and development. It is very essential for the smooth functioning of the

business activity function smoothly unless it has got sufficient funds at its

disposal for purchase of machines, materials and land and building to

house them and to meet day to day expenses to meet several other

purposes to run the business.

According to the Guthumann and Dougall, Business finance can

broadly be defined as the activity concerned with planning, raising,

controlling, administering of the funds used in the business.

Finance is classified into two classes; Public finance Private finance

Public finance:

It deals with the requirements, receipts and disbursements of funds

in the government institutions like states, local self-government

Private finance:

It is concerned with requirements, receipts and disbursement of

funds in case of an individual, a profit seeking business organization and

a non-profit organization.


2/88



The main reasons a business needs finance are to: Start a business:-Depending on the type of business, it will need

to finance the purchase of assets, materials and employing people.

There will also need to be money to cover the running costs. It may

be some time before the business generates enough cash from sales

to pay for these costs. Link to cash flow forecasting.

Finance expansions to production capacity:-As a businessgrows, it needs higher capacity and new technology to cut unit

costs and keep up with competitors. New technology can berelatively expensive to the business and is seen as a long

term investment, because the costs will outweigh the money saved

or generated for a considerable period of time. And remember new

technology is not just dealing with computer systems, but also new

machinery and tools to perform processes quicker, more efficiently

and with greater quality.

To develop and market new products:-In fast moving markets,where competitors are constantly updating their products, a

business needs to spend money on developing and marketing new

products.

To enter new markets:-When a business seeks to expand it maylook to sell their products into new markets. These can be new

geographical areas to sell to (e.g. export markets) or new types of

customers. This costs money in terms of research and marketing

e.g. advertising campaigns and setting up retail outlets.


3/88



Take-over/ Acquisition:-When a business buys another business,it will need to find money to pay for the acquisition (acquisitions

involve significant investment). This money will be used to pay

owners of the business which is being bought.

Moving to new premises:-Finance is needed to pay for simpleexpenses such as the cost of renting of removal vans, through to

relocation packages for employees and the installation of

machinery.

To pay for the day to day running of business:-A business hasmany calls on its cash on a day to day basis, from paying a supplier

for raw materials, paying the wages through to buying a new

printer cartridge.

FIANANCIAL MARKETS

Generally speaking, there is no specific place or location to

indicate a financial market. Wherever a financial transaction takes place,

it is deemed to have taken place in the financial market. Hence financial

markets are pervasive throughout the economic system. For instance,

issue of equity share, granting of loan by term landing institutions,

deposits of money into bank, purchase of debentures, sale of shares and

so on.

However, financial markets can be referred to as those centers and

arrangement, which facilitate buying and selling of financial assets, it

claims and services. Sometimes, we do find the existence of a specific

place or location for financial markets as in the case of stock exchange


4/88



NEW FINANCIAL PRODUCTS AND SERVICE

Today, the importance of financial services is gaining momentum all overthe world. With the injection of the economic liberation policy into our

economy and the opening of the economy to multinationals, the free

market concept has assumed much significance. As a result, the clients

both corporate and individuals are exposed to the phenomena of volatility

and uncertainty and hence they expect the financial service company to

innovate new products and services so as to meet their varied

requirements. Some of them are briefly discussed below:-

I) Mutual Funds: A mutual funds refers to a fund raised by a financial

service company by pooling the savings of the public. It is invested in a

diversified portfolio with a view to spreading and minimizing risk. The

fund provides Investment Avenue for small investors who cannot

participate in the equity of big companies. Its ensures low risks, steady

returns, high liquidity and better capital appreciation in the long run.

II) Derivative Security: A derivative security is a security whose Value

depends upon the values of other basic variables backing the security. In

most cases, these variables are nothing but the prices of traded securities.

A derivative security is basically used as risk management tool and it is

resorted to cover Ac risks due to price fluctuations by the investmentsmanager. Derivative helps to break the ; risks into various components

such as credit risk, interest rates risk, exchange rates risk and so on. It

enables the various risk components to be identified precisely and priced

them and even traded them if necessary, In India some forms of

derivatives are in operation. Example: Forwards in forex market.


5/88



INTRODUCTION TO DERIVATIVES

The origin of derivatives can be traced back to the need of farmers to

protect themselves against fluctuations in the price of their crop. From the

time it was sown to the time it was ready for harvest, farmers would face

price uncertainty. Through the use of simple derivative products, it was

possible for the farmer to partially or fully transfer price risks by locking-

in asset prices. These were simple contracts developed to meet the needs

of farmers and were basically a means of reducing risk.

A farmer who sowed his crop in June faced uncertainty over the

price he would receive for his harvest in September. In years of scarcity,

he would probably obtain attractive prices. However, during times of

oversupply, he would have to dispose off his harvest at a very low price.

Clearly this meant that the farmer and his family were exposed to a high

risk of price uncertainty.

On the other hand, a merchant with an ongoing requirement of

grains too would face a price risk that of having to pay exorbitant prices

during dearth, although favourable prices could be obtained during

periods of oversupply. Under such circumstances, it clearly made sense

for the farmer and the merchant to come together and enter into contractwhereby the price of the grain to be delivered in September could be

decided earlier. What they would then negotiate happened to be futures-

type contract, which would enable both parties to eliminate the price risk.


6/88



In 1848, the Chicago Board Of Trade, or CBOT, was established to

bring farmers and merchants together. A group of traders got together and

created the to-arrive contract that permitted farmers to lock into price

upfront and deliver the grain later. These to-arrive contracts proved useful

as a device for hedging and speculation on price charges. These were

eventually standardized, and in 1925 the first futures clearing house came

into existence.

Today derivatives contracts exist on variety of commodities such

as corn, pepper, cotton, wheat, silver etc. Besides commodities,

derivatives contracts also exist on a lot of financial underlying like stocks,

interest rate, exchange rate, etc.

THE NEED OF DERIVATIVES MARKET:

The derivatives market performs a number of economic functions:

1. They help in transferring risks from risk adverse people to risk oriented

People

2. They help in the discovery of future as well as current prices

3. They catalyze entrepreneurial activity

4. They increase the volume traded in markets because of participation of

risk adverse people in greater numbers

5. They increase savings and investment in the long run


7/88



DERIVATIVES

A derivative is a product whose value is derived from the value of one or

more underlying variables or assets in a contractual manner. The

underlying asset can be equity, forex, commodity or any other asset. In

our earlier discussion, we saw that wheat farmers may wish to sell their

harvest at a future date to eliminate the risk of change in price by that

date. Such a transaction is an example of a derivative. The price of this

derivative is driven by the spot price of wheat which is the underlying

in this case.

The Forwards Contracts (Regulation) Act, 1952, regulates the

forward/futures contracts in commodities all over India. As per this the

Forward Markets Commission (FMC) continues to have jurisdiction over

commodity futures contracts. However when derivatives trading in

securities was introduced in 2001, the term security in the SecuritiesContracts (Regulation) Act, 1956 (SCRA), was amended to include

derivative contracts in securities. Consequently, regulation of derivatives

came under the purview of Securities Exchange Board of India (SEBI).

We thus have separate regulatory authorities for securities and

commodity derivative markets.

Derivatives are securities under the SCRA and hence the trading of

derivatives is governed by the regulatory framework under the SCRA.


8/88



The Securities Contracts (Regulation) Act, 1956 defines derivative to

include-

A security derived from a debt instrument, share, loan whethersecured or unsecured, risk instrument or contract differences or any

other form of security.

A contract which derives its value from the prices, or index ofprices, of underlying securities

The National Stock Exchange of India Limited (NSE) is aMumbai-based Stock Exchange. It is the second largest stock

exchange in India in terms of daily turnover and number of trades,

for both equities and derivative tradingNSE is mutually owned by

a set of leading financial institutions, banks, insurance companies

Types Of Derivative Market

NSE

Index Option

BSE

Exchange Traded

Derivatives

Index Future

National Commodity and

Derivative Exchange

Over the counter

Traded Derivatives

Future RateStock

Option

Stock Future

Interest


9/88



and other financial intermediaries in India but its ownership and

management operate as separate entities.

The Bombay Stock Exchange (BSE) is the first stock exchange inthe 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.

Index Option:-A financial derivative that gives the holder theright, but not the obligation, to buy or sell a basket of stocks, such

as the S&P 500, at an agreed-upon price and before a certain date.

An index option is similar to other options contracts, the difference

being the underlying instruments are indexes.

Stock Option:-A privilege, sold by one party to another, that givesthe buyer the right, but not the obligation, to buy (call) or sell (put)

a stock at an agreed-upon price within a certain period or on a

specific date.

Index Futures:-A futures contract on a stock or financial index.For each index there may be a different multiple for determining

the price of the futures contract.

Future Interest Rate:-A futures contract with an underlyinginstrument that pays interest. An interest rate future is a contract

between the buyer and seller agreeing to the future delivery of any

interest-bearing asset. The interest rate future allows the buyer and

seller to lock in the price of the interest-bearing Asset for a future

date.


10/88



Derivatives

Future Option Forward Swaps

TYPES OF DERIVATIVES

FORWARD CONTRACTS

A forward contract is an agreement to buy or sell an asset on a

specified date for a specified price. One of the parties to the contract

assumes a long position and agrees to buy the underlying asset on a

certain specified future date for a certain specified price. The other

party assumes a short position and agrees to sell the asset on the

same date for the same price. Other contract details like delivery

date, price and quantity are negotiated bilaterally by the parties to the

contract. The forward contracts are no r ma l l y traded outside the

exchanges.

The salient features of forward contracts are:

They are bilateral contracts and hence exposed to counter-

party risk.

Each contract is custom designed, and hence is unique in terms

of contract size, expiration date and the asset type and quality.

The contract price is generally not available in public domain.

On the expiration date, the contract has to be settled by

delivery of the asset.

If the party wishes to reverse the contract, it has to compulsorily go

to the same counter-party, which often results in high pricesbeing charged.


11/88



FUTURE CONTRACT

In finance, a futures contract is a standardized contract, traded on afutures exchange, to buy or sell a certain underlying instrument at a

certain date in the future, at a pre-set price. The future date is called the

delivery date or final settlement date. The pre-set price is called the

futures price. The price of the underlying asset on the delivery date is

called the settlement price. The settlement price, normally, converges

towards the futures price on the delivery date. A futures contract gives the

holder the right and the obligation to buy or sell, which differs from an

options contract, which gives the buyer the right, but not the obligation,

and the option writer (seller) the obligation, but not the right. To exit the

commitment, the holder of a futures position has to sell his long position

or buy back his short position, effectively closing out the futures position

and its contract obligations. Futures contracts are exchange traded

derivatives. The exchange acts as counterparty on all contracts, sets

margin requirements, etc.

BASIC FEATURES OF FUTURE CONTRACT

1. Standardization:

Futures contracts ensure their liquidity by being highly standardized,

usually by specifying:

The underlying. This can be anything from a barrel of sweet crudeoil to a short term interest rate.

The type of settlement, either cash settlement or physicalsettlement.


12/88



The amount and units of the underlying asset per contract. This canbe the notional amount of bonds, a fixed number of barrels of oil,

units of foreign currency, the notional amount of the deposit over

which the short term interest rate is traded, etc.

The currency in which the futures contract is quoted. The grade of the deliverable. In case of bonds, this specifies which

bonds can be delivered. In case of physical commodities, this

specifies not only the quality of the underlying goods but also the

manner and location of delivery. The delivery month.

The last trading date. Other details such as the tick, the minimum permissible price

fluctuation.

2. Margin:

Although the value of a contract at time of trading should be zero, its

price constantly fluctuates. This renders the owner liable to adversechanges in value, and creates a credit risk to the exchange, who always

acts as counterparty. To minimize this risk, the exchange demands that

contract owners post a form of collateral, commonly known as Margin

requirements are waived or reduced in some cases for hedgers who have

physical ownership of the covered commodity or spread traders who have

offsetting contracts balancing the position.

Initial margin: is paid by both buyer and seller. It represents theloss on that contract, as determined by historical price changes,

which is not likely to be exceeded on a usual day's trading. It may

be 5% or 10% of total contract price.

Mark to market Margin: Because a series of adverse pricechanges may exhaust the initial margin, a further margin, usually

called variation or maintenance margin, is required by the


13/88



exchange. This is calculated by the futures contract, i.e. agreeing

on a price at the end of each day, called the "settlement" or mark-

to-market price of the contract.

To understand the original practice, consider that a futures trader, when

taking a position, deposits money with the exchange, called a "margin".

This is intended to protect the exchange against loss. At the end of every

trading day, the contract is marked to its present market value. If the

trader is on the winning side of a deal, his contract has increased in value

that day, and the exchange pays this profit into his account. On the other

hand, if he is on the losing side, the exchange will debit his account. If he

cannot pay, then the margin is used as the collateral from which the loss

is paid.

3. Settlement

Settlement is the act of consummating the contract, and can be done in

one of two ways, as specified per type of futures contract:

Physical delivery - the amount specified of the underlying asset ofthe contract is delivered by the seller of the contract to the

exchange, and by the exchange to the buyers of the contract. In

practice, it occurs only on a minority of contracts. Most are

cancelled out by purchasing a covering position - that is, buying a

contract to cancel out an earlier sale (covering a short), or selling a

contract to liquidate an earlier purchase (covering a long).

Cash settlement - a cash payment is made based on the underlyingreference rate, such as a short term interest rate index such as

Euribor, or the closing value of a stock market index. A futures

contract might also opt to settle against an index based on trade in a

related spot market.


14/88



Expiry: is the time when the final prices of the future aredetermined. For many equity index and interest rate futures

contracts, this happens on the Last Thursday of certain trading

month. On this day the t+2 futures contract becomes the t forward

contract.

In the case where the forward price is higher:

1. The arbitrageur sells the futures contract and buys the underlyingtoday (on the spot market) with borrowed money.

2.

On the delivery date, the arbitrageur hands over the underlying,and receives the agreed forward price.

3. He then repays the lender the borrowed amount plus interest.4. The difference between the two amounts is the arbitrage profit.

In the case where the forward price is lower:

1. The arbitrageur buys the futures contract and sells the underlyingtoday (on the spot market); he invests the proceeds.

2. On the delivery date, he cashes in the matured investment, whichhas appreciated at the risk free rate.

3. He then receives the underlying and pays the agreed forward priceusing the matured investment. [If he was short the underlying, he

returns it now.]

4. The difference between the two amounts is the arbitrage profit.


15/88



DISTINCTION BETWEEN FUTURES AND FORWARDS

CONTRACTS

FEATURES FORWARD CONTRACT FUTURE CONTRACT

Operational

Mechanism

Traded directly between two

parties (not traded on the

exchanges).

Traded on the exchanges.

Contract

Specifications

Differ from trade to trade. Contracts are standardized contracts.

Counter-party

risk

Exists. Exists. However, assumed by the clearing

corp., which becomes the counter party to

all the trades or unconditionally

guarantees their settlement.

Liquidation

Profile

Low, as contracts are tailor

made contracts catering to

the needs of the needs of the

parties.

High, as contracts are standardized

exchange traded contracts.

Price discovery Not efficient, as markets are

scattered.

Efficient, as markets are centralized and

all buyers and sellers come to a common

platform to discover the price.

Examples Currency market in India. Commodities, futures, Index Futures and

Individual stock Futures in India.


16/88



OPTIONS -

A derivative transaction that gives the option holder the right but not the

obligation to buy or sell the underlying asset at a price, called the strike

price, during a period or on a specific date in exchange for payment of a

premium is known as option. Underlying asset refers to any asset that is

traded. The price at which the underlying is traded is called the strike

price.

There are two types of options i.e., CALL OPTION AND PUT

OPTION.

I. CALL OPTION:

A contract that gives its owner the right but not the obligation to buy an

underlying asset-stock or any financial asset, at a specified price on or

before a specified date is known as a Call option. The owner makes a

profit provided he sells at a higher current price and buys at a lower

future price.

II. PUT OPTION:

A contract that gives its owner the right but not the obligation to sell an

underlying asset-stock or any financial asset, at a specified price on or

before a specified date is known as a Put option. The owner makes a

profit provided he buys at a lower current price and sells at a higher

future price. Hence, no option will be exercised if the future price does

not increase.

Put and calls are almost always written on equities, although occasionally

preference shares, bonds and warrants become the subject of options.


17/88



4. SWAPS -

Swaps are transactions which obligates the two parties to the contract to

exchange a series of cash flows at specified intervals known as payment

or settlement dates. They can be regarded as portfolios of forward's

contracts. A contract whereby two parties agree to exchange (swap)

payments, based on some notional principle amount is called as a

SWAP. In case of swap, only the payment flows are exchanged and not

the principle amount. The two commonly used swaps are:

I.INTEREST RATE SWAPS:

Interest rate swaps is an arrangement by which one party agrees to

exchange his series of fixed rate interest payments to a party in exchange

for his variable rate interest payments. The fixed rate payer takes a short

position in the forward contract whereas the floating rate payer takes a

long position in the forward contract.

II.CURRENCY SWAPS:

Currency swaps is an arrangement in which both the principle amount

and the interest on loan in one currency are swapped for the principle and

the interest payments on loan in another currency. The parties to the swap

contract of currency generally hail from two different countries. This

arrangement allows the counter parties to borrow easily and cheaply in

their home currencies. Under a currency swap, cash flows to be

exchanged are determined at the spot rate at a time when swap is done.

Such cash flows are supposed to remain unaffected by subsequent

changes in the exchange rates.


18/88



PARTICIPANTS IN DERIVATIVE CONTRACTS:

HEDGERS: They are in the position where they face riskassociated with the price of an asset. They use derivatives to reduce

or eliminate risk. For example, a farmer may use futures or options

to establish the price for his crop long before he harvests it.

Various factors affect the supply and demand for that crop, causing

prices to rise and fall over the growing season. The farmer can

watch prices discovered in trading at the commodity exchange and

when they reflect the price he wants, sell futures contracts to assure

him of a fixed price for his crop. Hedging usually presupposes that

the spot and futures markets of any commodity move in the same

direction and by almost the same magnitude. But this relationship

depends on the amount of carrying or storage costs till the maturity

month of the futures contract. Normally when the stocks are

abundant, the futures price will exceed the spot price by the cost

of storage till the maturity month of the futures contract. This is

called as Contango.

SPECULATORS: Speculators wish to bet on the futuresmovement in the price of an asset. They use derivatives to get extra

leverage. A speculator will buy and sell in anticipation of future

price movements, but has no desire to actually own the physicalcommodity.

ARBITRAGEURS: They are in the business to take advantage ofa discrepancy between prices in two different markets. If, for

example, they see the future prices of an asset getting out of line

with the cash price, they will take offsetting positions in the two

markets to lock in a profit.


19/88



TRADING ASPECTS IN DERIVATIVES:

Derivative contracts can be traded either in an exchange or OTC.

1. EXCHANGE:Exchange is a central marketplace for buyers and

sellers. The contracts are standardized to ensure that the prices mean the

same to everyone in the market. The prices in an exchange are

determined in the form of a continuous auction by the members who are

acting on behalf of their clients.

2. OVER-THE-COUNTER: Over-the-Counter is an alternative-trading

platform linked to a network of dealers who do not physically meet but

instead communicate through a network of phones and computers. Trades

are usually transacted between financial institutions that can also act as

market makers for the commonly traded instruments. All transactions

over the telephone are recorded, in case of future disputes that may arise.

The buyer and seller to suit their requirements can customize the

contracts traded in these markets. Hence, terms of the contract need not

Bespecified as in the case of an exchange.

There are 3 types of OTC Markets.

Traditional Dealer Market: In this, the dealers act as market makers bymaintaining bid and offer quotes. The dealers communicate the quotes

and the execution prices are negotiated upon over the telephone andsometimes through an electronic bulletin board. It is a bilateral trading as

only the two ends of a phone observe prices at a given point of time.

Electronic Broking Market: This is similar to the electronic tradingplatforms used by exchanges. These are considered to be Over-the-

Counter since the contracts are less standardized. The EBM neither sets

the contract design not clears the derivative transactions.


20/88



Proprietary Trading Platform Markets: This is a combination of thefirst two in which a dealer sets up his own proprietary electronic trading

platform. The dealer quotes the Bids and Asks exclusively for the market

participants to observe his quotes only and not each others.

BENEFITS OF DERIVATIVES

Derivative markets help investors in many different ways:

RISK MANAGEMENT: Futures and options contract can beused for altering the risk of investing in spot market. For instance,

consider an investor who owns an asset. He will always be worried

that the price may fall before he can sell the asset. He can protect

himself by selling a futures contract, or by buying a Put option. If

the spot price falls, the short hedgers will gain in the futures

market, as you will see later. This will help offset their losses in the

spot market. PRICE DISCOVERY: Price discovery refers to the markets

ability to determine true equilibrium prices. Futures prices are

believed to contain information about future spot prices and help in

disseminating such information. As we have seen, futures markets

provide a low cost trading mechanism. Thus information pertaining

to supply and demand easily percolates into such markets.

Accurate prices are essential for ensuring the correct allocation of

resources in a free market economy.

OPERATIONAL ADVANTAGES:- As opposed to spot markets,derivatives markets involve lower transaction costs. Secondly, they

offer greater liquidity. Large spot transactions can often lead to

significant price changes. However, futures markets tend to be

more liquid than spot markets, because herein you can take large


21/88



positions by depositing relatively small margins. Consequently, a

large position in derivatives markets is relatively easier to take and

has less of a price impact as opposed to a transaction of the same

magnitude in the spot market. Finally, it is easier to take a short

position in derivatives markets than it is to sell short in spot

markets.

MARKET EFFICIENCY: The availability of derivativesmakes markets more efficient; spot, futures and options markets

are inextricably linked. Since it is easier and cheaper to trade in

derivatives, it is possible to exploit arbitrage opportunities quickly

and to keep prices in alignment. Hence these markets help to

ensure that prices reflect true values.

EASE OF SPECULATION: Derivative markets providespeculators with a cheaper alternative to engaging in spot

transactions. Also, the amount of capital required to take a

comparable position is less in this case. This is important because

facilitation of speculation is critical for ensuring free and fair

markets. Speculators always take calculated risks.

The derivative market performs a number of economic functions.

The prices of derivatives converge with the prices of theunderlying at the expiration of derivative contract. Thus derivativeshelp in discovery of future as well as current prices.

An important incidental benefit that flows from derivatives tradingis that it acts as a catalyst for new entrepreneurial activity.

Derivatives markets help increase savings and investment in thelong run. Transfer of risk enables market participants to expand

their volume of activity.


22/88



DEVELOPMENT OF DERIVATIVES MARKET IN INDIA

The first step towards introduction of derivatives trading in India was the

promulgation of the Securities Laws (Amendment) Ordinance, 1995,

which withdrew the prohibition on options in securities. The market for

derivatives, however, did not take off, as there was no regulatory

framework to govern trading of derivatives. SEBI set up a 24member

committee under the Chairmanship of Dr.L.C.Gupta on November 18,

1996 to develop appropriate regulatory framework for derivatives tradingin India. The committee submitted its report on March 17, 1998

prescribing necessary preconditions for introduction of derivatives

trading in India. The committee recommended that derivatives should be

declared as securities so that regulatory framework applicable to trad ing

of securities could also govern trading of securities. SEBI also set up a

group in June 1998 under the Chairmanship of Prof.J.R.Varma, to

recommend measures for risk containment in derivatives market in India.

The report, which was submitted in October 1998, worked out the

operational details of margining system, methodology for charging initial

margins, broker net worth, deposit requirement and realtime monitoring

requirements. The Securities Contract Regulation Act (SCRA) was

amended in December 1999 to include derivatives within the ambit of

securities and the regulatory framework were developed for governing

derivatives trading. The act also made it clear that derivatives shall be

legal and valid only if such contracts are traded on a recognized stock

exchange, thus precluding OTC derivatives. The government also

rescinded in March 2000, the three decade old notification, which

prohibited forward trading in securities. Derivatives trading commenced

in India in June 2000 after SEBI granted the final approval to this effect


23/88



In may 2001 SEBI permitted the derivative segment of two stock

exchanges NSE and BSE and their clearing house/corporation to

commence trading and settlement in approved derivatives contracts. To

begin with SEBI approved trading in index futures contract based on S&P

CNX Nifty and BSE-30(sense) index this was followed by approval for

trading in options based on these two indexes and options on individual

securities

TURNOVER OF CASH MARKET AFTER DERIVATIVES

INTRODUCED:

TURNOVER OF CASH MARKET BEFORE DERIVATIVES

INTRODUCED:

YEAR BSE Turnover(Rs.Cr,)(F.Y. Jan-Dec)

NSE Turnover (Rs.Cr.)(F.Y. Apr-Mar)

2009-10(up to 31stAug.) 587901 1922783

2008-2009 1586441.49 2,752,023

2007-2008 1160248.63 3,551,038

2006-2007 701709.67 1,945,285

2005-2006 547922.44 1,569,556

2004-2005 365613.61 1,140,071

2003-2004 409372.67 1,099,535

2002-2003 332909.01 617,9892001-2002 475278.79 513,167

YEAR BSE Turnover(Rs.

Cr,)(F.Y. Jan-Dec)

NSE Turnover (Rs.

Cr.)(F.Y. Apr-Mar)

2000-2001 998655.28 1,339,5101999-2000 527960.16 839,052

1998-1999 414,474

1997-1998 370,193

1996-1997 294,503

1995-1996 67,287

1994-1995 1,805
http://nseindia.com/content/equities/eq_busgrow2006-07.htmhttp://nseindia.com/content/equities/eq_busgrow2000-01.htmhttp://nseindia.com/content/equities/eq_busgrow1999-00.htmhttp://nseindia.com/content/equities/eq_busgrow1998-99.htmhttp://nseindia.com/content/equities/eq_busgrow1997-98.htmhttp://nseindia.com/content/equities/eq_busgrow1996-97.htmhttp://nseindia.com/content/equities/eq_busgrow1995-96.htmhttp://nseindia.com/content/equities/eq_busgrow1994-95.htmhttp://nseindia.com/content/equities/eq_busgrow1994-95.htmhttp://nseindia.com/content/equities/eq_busgrow1995-96.htmhttp://nseindia.com/content/equities/eq_busgrow1996-97.htmhttp://nseindia.com/content/equities/eq_busgrow1997-98.htmhttp://nseindia.com/content/equities/eq_busgrow1998-99.htmhttp://nseindia.com/content/equities/eq_busgrow1999-00.htmhttp://nseindia.com/content/equities/eq_busgrow2000-01.htmhttp://nseindia.com/content/equities/eq_busgrow2006-07.htm


24/88



The Bank of International Settlements measures the size and the growth of

the derivative market. According to BIS, the derivative market growth in the

over the counter derivative market witnessed a slump in the second half of

2006. Although the credit derivative market grew at a rapid pace, such

growth was made offset by a slump somewhere else. The notional amount of

the Credit Default Swap witnessed a growth of 42%. Credit derivatives grew

by 54%. The single name contracts grew by 36%. The interest derivatives

grew by 11%. The OTC foreign exchange derivatives slowed by 5%, the

OTC equity derivatives slowed by 10%. Commodity derivatives also

experienced crawling growth pattern.

Business Growth in Derivatives segment

Yea Index Futures Stock Futures Index Options Stock Options

No. of contract Turnover

(Rs. cr.)

No. of

contracts

Turnover

(Rs. cr.)

No. of

contracts

Notional

Turnover

(Rs. cr.)

No. of

contracts

Notional

Turnove

(Rs. cr.)

2009-10 86651879 1715349.01 59128122 2257189.61 13288975 2789950.24 4731748 187261.34

2008-09 210428103 3570111.40 221577980 3479642.12 212088444 3731501.84 13295970 229226.81

2007-08 156598579 3820667.27 203587952 7548563.23 55366038 1362110.88 9460631 359136.55

2006-07 81487424 2539574 104955401 3830967 25157438 791906 5283310 193795

2005-06 58537886 1513755 80905493 2791697 12935116 338469 5240776 180253

2004-05 21635449 772147 47043066 1484056 3293558 121943 5045112 168836

2003-04 17191668 554446 32368842 1305939 1732414 52816 5583071 217207

2002-03 2126763 43952 10676843 286533 442241 9246 3523062 100131

2001-02 1025588 21483 1957856 51515 175900 3765 1037529 25163

2000-01 90580 2365
http://nseindia.com/content/fo/fo_busgrow2008-09.htmhttp://nseindia.com/content/fo/fo_busgrow2007-08.htmhttp://nseindia.com/content/fo/fo_busgrow2006-07.htmhttp://nseindia.com/content/fo/fo_busgrow2005-06.htmhttp://nseindia.com/content/fo/fo_busgrow2004-05.htmhttp://nseindia.com/content/fo/fo_busgrow2003-04.htmhttp://nseindia.com/content/fo/fo_busgrow2002-03.htmhttp://nseindia.com/content/fo/fo_busgrow2001-02.htmhttp://nseindia.com/content/fo/fo_busgrow2000-01.htmhttp://nseindia.com/content/fo/fo_busgrow2000-01.htmhttp://nseindia.com/content/fo/fo_busgrow2001-02.htmhttp://nseindia.com/content/fo/fo_busgrow2002-03.htmhttp://nseindia.com/content/fo/fo_busgrow2003-04.htmhttp://nseindia.com/content/fo/fo_busgrow2004-05.htmhttp://nseindia.com/content/fo/fo_busgrow2005-06.htmhttp://nseindia.com/content/fo/fo_busgrow2006-07.htmhttp://nseindia.com/content/fo/fo_busgrow2007-08.htmhttp://nseindia.com/content/fo/fo_busgrow2008-09.htm


25/88



Research Design

Meaning of research design

According to Green and Tull "A research design is the specification of

methods and procedures for acquiring the information needed. It is the

over-all operational pattern or framework of the project that stipulates

what information is to be collected from which source by what

procedures."

Research design can also be defined as the - plan, structure and

strategy. The plan is the outline of the research scheme on which the

researcher is to work. The structure of the research work is a more

specific scheme and the strategy suggests how the research will be carried

out i.e. methods to be used for the collection and analysis of data. In brief,

research design is the blueprint of research. It is the specification of

methods and procedures for acquiring the information needed for solving

the problem. Questionnaires, forms and samples for investigation are

decided while framing research design. Finally, the research design

enables the researcher to arrive at certain meaningful conclusions at the

end of proposed study.


26/88



STATEMENT OF THE PROBLEM

Any business concerns in the economy needs money in order to run the

business successfully, money is available with the general public in the

form of savings. The investors invest their savings in various investment

avenues in order to get returns. Now a days investors have lost their

interest in investing in non-marketable securities due to less rate of

returns, but they are much aware of and interest in making investments in

marketable securities which gives back higher returns in minimum period

of time.

But investment in one type of security is very risky, because the investors

have to do security analysis. Investors have the other option of investing

in portfolios where the investment is made on different types of securities

of different companies where again risk and returns are uncertain.

Therefore there is confusion prevailing between investors have to do

security analysis.

SCOPE OF THE STUDY

The corporate Exposure & Learning Research on A study of Perception

towards Derivative Market, helps to know the attitude, awareness,

preferences of the investors. Based on this information stock brokers can

carry out further research on specific problems. The researchers

suggestion through this report may be helpful for stockbrokers to improve

their services in stock broking & particularly in derivative market. The

services like counselling, fundamental analysis, technical analysis can be

improved to attract new investors. This study helps to give value added

services & maintain healthy investor relationship.


27/88



NEED OF THE STUDY

The study has been done to know the different types of derivatives and

also to know the derivative market in India. This study also covers the

recent developments in the derivative market taking into account the

trading in past years. Through this study I came to know the trading done

in derivatives and their use in the stock markets.

TYPE OF RESEARCH

Descriptive is fact finding investigation with adequate interpretation it

provides information for formulating more sophisticated studies. Data are

collected by filled questionnaire the researcher has no control over

variables he can only report the happenings. The research is descriptive in

nature the sources of information are both primary and secondary. a well

structured questionnaire was prepared for the primary research to collect

responses of the target population

OBJECTIVES OF THE STUDY:

1. To study investors attitude towards stock market investment.2. To study the investors preferences towards Derivative Market.3. To study the factors influencing for Derivative Investment.4. To suggest the improvement of services in Derivative Trading.

TITLE OF THE STUDY

A STUDY ON THE PERCEPTION OF INVESTOR TOWARDS

DERIVATIVES MARKET


28/88



AREA OF THE STUDY

The area of the study of the topicA STUDY ON THE PERCEPTION

OF INVESTOR TOWARDS DERIVATIVES MARKETwas conducted

in Bangalore city only

DATA COLLECTION METHOD

Both Primary Data and Secondary Data were used for the study.

Primary Data: are obtained by a study specifically designed tofulfil the data needs of the problem at hand. Such data are original

in character. Primary data for the study were collected through

questionnaires. The selection of respondents is made on the basis

of simple random method of sampling. The questionnaire is

prepared in a structural manner. Also information was collected

from personal interview with clients.

Secondary Data: are those data which are not originally collectedbut rather obtained from published or unpublished sources. The

Secondary data for study has been collected from various sources:

Books Journals Magazines Internet sources Reports

TOOLS USED FOR ANALYSIS

Simple tools like graphs, Ms-Excel and tables have been used.


29/88



SAMPLING METHODOLOGY

Sampling is the process of learning about the population on the basis of a

sample drawn from it thus in sampling technique instead of every unit of

the universe only a part of the universe is studied and the conclusion are

drawn on the basis for the entire universe

Sampling technique

The non-probability sampling technique was used to collect the data from

the respondent. Convenience sampling is obtained by selecting

convenient people. This method is also called the chunk. A chunk refers

to the fraction of the population being investigated which is selected

neither by probability nor by judgement but by convenience

Sampling Unit

The respondent who were asked to fill out the questionnaire in the

Bangalore city are the sampling units. These respondents comprise of the

person dealing in derivative market. The people have been asked to fill

the questionnaire in the open market, in front of the companies and

through other sources also.

Sample Size

The sample size was restricted to only 30 respondents.

Sampling Area

The area of the research was held in Bangalore city.


30/88



LIMITATIONS OF THE STUDY

1. Due to time constraint, extensive study is not conducted on thetopic.

2. Sampling survey is restricted to only 30 respondents.3. Sampling survey is restricted to only Bangalore city.4. Availability of information is limited.5. Language barrier

CHAPTER SCHEME

1. INTRODUCTION: This chapter covers the introduction tofinance, and Introduction to derivative and types of derivatives.

2. RESEARCH DESIGN: This chapter covers the following topic-Introduction, type of research, statement of problem, Scope of the

study, topic of the study, objective of the study, area of the

study,samplingtools used for analysis, limitation of the study,

chapter scheme

3. COMPANY PROFILE: Brief information about the company i.e.into what the business is, When it came into existence, its products.


31/88



4. ANANLYSIS AND INTERPRETATION: This chapter deals inapplication of statistical tools on the data collected for the project

report and is being represented in graphs and tables.

5. FINDINGS SUGGESTIONS AND CONCLUSIONS:-Thischapter gives details on the findings dealt with analysis and

interpretation. providing suitable suggestion to the company based

on the findings and conclusion stating how a project was dealt with

and its suitability to the organization


32/88



Company Profile

Religare is one of the leading integrated financial services institutions of

India. The company offers a large and diverse bouquet of services

ranging from equities, commodities, insurance broking, to wealth

advisory, portfolio management services, personal finance services,

Investment banking and institutional broking services. The services are

broadly clubbed across three key business verticals- Retail, Wealth

management and the Institutional spectrum. Religare Enterprises Limited

is the holding company for all its businesses, structured and being

operated through various subsidiaries.

Religare Enterprises Limited (REL) is a leading emerging markets

financial services group anchored in India.

In India, we offer a wide array of services including broking, insurance,

asset management, lending solutions, investment banking and wealth

management. With a network of over 2,200 business centres across 550

plus locations, and more than a million clients, REL enjoys a dominant

presence in the Indian financial services space.

We have also built an emerging markets Investment Banking business

and a multi-boutique global asset management platform to tap the broader

opportunities offered by the most promising emerging markets around theworld. Our robust experience of doing business in India equips us with

the ability to work around the constraints and peculiarities of other

emerging markets that are in the middle of similar multi-year growth

cycles.


33/88



Religares retail network spreads across the length and breadth of the

country with its presence through more than 1,217 locations across more

than 392 cities and towns. Having spread itself fairly well across the

country and with the promise of not resting on its laurels, it has also

aggressively started eyeing global geographies.

Religare Enterprises Limited (REL) is a significant player in the

field of Retail, Institutional and Wealth spectrums. It has a diverse and

wide base of clientele. REL holds 44% equity in AEGON Religare Life

Insurance Company Ltd. Talking about Bennett, Coleman & Co. Ltd.

(BCCL) it is a mammoth in the field of media, since it is associated with

the Times Group, India's largest media house. The Joint Venture of the

three giants (of their respective fields) has given rise to AEGON Religare

Life Insurance word that translates as 'to bind together'. This name has

been chosen to reflect the integrated nature AEGON Religare Life

Insurance Company (ARLI) in India is a joint venture

between AEGON (26%), Religar Enterprises Limited (44%) and Bennett,

Coleman & Company (30%).

AEGON, with its headquarters in Netherlands, is one of the worlds

largest providers of life insurance, pension, long-term savings and

investment products. With approximately 28,000 employees, the group

serves over 40 million customers in over 20 markets. Aegon was formed

in 1983 though the companys history goes back to the 19th

century. Religare Enterprises Limited is one of the leading integrated

financial services groups in India which offers insurance, asset


34/88



management, broking, consumer finance, investment banking and wealth

management solutions to its clients. Bennett, Coleman & Co. Ltd.

(BCCL) is part of the mammoth Times Group, is Indias largest media

house and is part of this venture through Times Private Treaties arm.

Aegon Religare has launched multiple products, but the iTerm

Plan which is the cheapest term insurance plan available in India, is by far

their most attractive offering. It is an online product which can be

purchased on the internet by anyone and is very simple to understand thus

eliminating the need of agents.

3.2 Our Brand Identity

Name

Religare is a Latin of the financial services the company offers.

The name is intended to unite and bring together the phenomenon of

money and wealth to co-exist and serve the interest of individuals and

institutions, alike.

Symbol

The Religare name is paired with the symbol of a four-leaf clover.

The four-leaf clover is used to define the rare quality of good fortune that

is the aim of every financial plan. It has traditionally been considered

good fortune to find a single four leaf clover considering that statistically

one may need to search through over 10,000 three-leaf clovers to even

find one four leaf clover. Each leaf of the four-leaf clover has a special

meaning in the sphere of Religare.
http://www.myinsuranceclub.com/life-insurance/term-insurancehttp://www.myinsuranceclub.com/life-insurance/term-insurance


35/88



Mission

Providing financial care driven by the core values of diligence and

transparency.

Vision

"To be the leading emerging markets financial services group driven by

innovation, delivering superior value for all stakeholders globally"

This vision animates our Three Pillar Strategy that seeks to maximize

value from our vast presence in India and to build a financial services

franchise that connects the most promising emerging markets globally.

Our Three Pillar Strategy

An Integrated Indian Financial Services Platform that leverages therobust Indian growth story, providing solid breadth and depth to the

financial services sector, resulting in rapid growth of profit pools.

An Emerging Markets Capital Markets Platform that intermediatesthe flow of capital into and out of emerging markets based on its

global reach and an on-the-ground understanding of how emerging

markets function.

A Global Asset Management Platform that brings together nicheasset managers with proven track record and capabilities in the

alternatives space.


36/88



The first leaf of the clover represents Hope. The aspirations to

succeed. The dream of becoming. Of new possibilities. It is the

beginning of every step and the foundations on which a person

reaches for the stars.

The second leaf of the clover represents Trust. The ability to place

ones own faith in another. To have a relationship as partners in ateam. To accomplish a given goal with the balance that brings

satisfaction to all not in the binding but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient

that is the cement in every relationship. The truth of feeling that

underlines sincerity and the triumph of diligence in every aspect.From it springs true warmth of service and the ability to adapt to

evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune.

Signifying that rare ability to meld opportunity and planning with

circumstance to generate those often looked for remunerative moments

of success.

Hope. Trust. Care. Good fortune. All elements perfectly combine in

the emblematic and rare, four-leaf clover to visually symbolize the

values that bind together and form the core of the Religare vision


37/88



3.5 The Milestone

CustodialService

1999 InstitutionalBusiness

2001 RetailOperations

2002 CorporateFinance

2003 PortfolioManagement Service

2004 BSE Membership &

Commodities

2004 Mutual fund

distribution

2004 100+ Branches &200+ FranchiseLocations

2005


38/88



3.6 Our Envisaged Group Structure

Client Interface

Retail Spectrum- To cater to a large number of retail clients by offering all products

under one roof through the Branch Network and Online mode

Equity and Commodity Trading

Personal Finance Services Mutual Funds Insurance Saving Products Personal Credit Personal Loans Loans against Shares Online Investment Portal


39/88



Institutional Spectrum- To Forge & build strong relationships with Corporate and

Institutions

Institutional Equity Broking

Investment Banking Merchant Banking Transaction Advisory Corporate Finance

Wealth Spectrum - To provide customized wealth advisory services to High Net

worth Individuals

Wealth Advisory Services Portfolio Management Services International Advisory Fund Management Services Priority Equity Client Services Arts Initiative

Religare Service Offering


40/88



MAJOR COMPETITORS IN THE REGION

ICICI DIRECT

INDIA INFOLINE SECURITY PVT. LTD.

INDIA BULLS

KOTAK SECURITIES

RELIANCE MONEY

SHARE KHAN SECURITIES

MOTILAL OSWAL

ANAND RATHI SECURITIES

SHAREKHAN SECURITIES :Sharekhan Securities is one of theleading retail brokerage of Citi Venture which is running

successfully since 1922 in the country. Earlier it was the retail

broking arm of the Mumbai- based SSKI Group, which has overeight decades of experience in the stock broking business.

Sharekhan offers its customers a wide range of equity related

services including trade execution on BSE, NSE, Derivatives,

depository services, online trading, investment advice etc.


41/88



ANANDRATHI SECURITIES :Anand Rathi is a leading full serviceinvestment bank founded in 1994 offering a wide range offinancial services and wealth management solutions to institutions,

corporations, high-net worth individuals and families. The firm has

rapidly expanded its footprint to over 350 locations across India

with international presence in Dubai & New York. Founded by Mr.

Anand Rathi and Mr. Pradeep Gupta, the group today employs

over 2,500 professionals throughout India and its internationaloffices.

HDFC SECURITIES:HDFC Securities, a trusted financial serviceprovider promoted by HDFC Bank and JP Morgan Partners and

their associates, is a leading stock broking company in the country,

serving a diverse customer base of institutional and retail investors.

INDIA BULLS: India bulls Securities Limited (ISL) is the pioneerin Retail Broking Industry having a pan India presence and

providing services to a customer base exceeding half a million. ISL

is in the business of providing securities broking and advisory

services and is a corporate member of capital market, wholesale

debt market and derivative segment of NSE and of the capital

market and derivative segment of BSE. ISL is the first and only

brokerage house to be assigned the highest rating BQ-1 by CRISIL.


42/88



Joint Venture

AEGON RELIGARE

ReligareThe largest shareholder in the JV Launched with pan-India multi-channel operation in July 2008

with over 30 branches spread across India

Targeting to be one of the strongest life insurance brands with astrong retail network

Successfully beginning to build the brand through the much talkedabout KILB Campaign.

Religare Macquaire

Indias 1st Wealth Management JV between Religare andMacquarie

Poised to redefine the landscape of wealth management for theHNIs In India

ACTIVE Advisory led approach Powered By Religares strong local insights and Macquaries

global expertise


43/88



Vistaar Religare

Religare and Vistaar entertainment ventures private limited entereda 74:26 joint venture agreement

Vistaar Religare capital advisors limited (VRCAL) formed SEBI approved Film Fund Category First Aims at completing 50 projects in one year Four releases till date including one international releases

Milestone Religare

Religare Venture Capital Limited and Milestone Capital Entered a50:50 Joint venture agreement

Together they will manage a Rs 600 crores health care andeducation fund to be raised domestically

They would manage Milestones current India Build out Fund Iwith a clear focus on healthcare and education space.

Religare along with its affiliates has also committed to contributeRs 60 Crores to the fund which has an existing corpus of more

than Rs.100 Crores.


44/88



About Promoters

AEGON

160 years of experience in the insurance business Ranked 5th largest insurance company in the world on revenues* Present in 20 countries throughout the America, Europe & Asia Track record of finding beneficiaries of policies and settling claims Even in the wake of crisis in the financial world, rated AA# by

rating agencies

AEGON is an international business, providing life insurance,pensions and other long-term savings and investment products to

millions of customers around the world.

The company has major operations in the United States, theNetherlands and the United Kingdom as well as other businesses in

Asia, the Americas and elsewhere in Europe.

AEGON is listed on the stock exchanges of Amsterdam, London,New York and Tokyo.

With just over EUR 330 billion in revenue-generating investmentsat the end of 2008, AEGON companies employ just over 31,000

people worldwide, serving more than 40 million policyholders in

over twenty countries across the globe.

It holds 26% equity in AEGON Religare.


45/88



RELIGARE

A diversified financial services group with a pan-India presenceand presence in multiple international locations, Religare

Enterprises Limited ("REL") offers a comprehensive suite of

customer-focused financial products and services targeted at retail

investors, high net worth individuals and corporate and institutional

clients.

REL, along with its joint venture partners, offers a range ofproducts and services in India, including asset management, life

insurance, wealth management, equity and commodity broking,

investment banking, lending services, private equity and venture

capital.

Religare has also ventured into the alternative investments spherethrough its holistic arts initiative and film fund.

Has launched India's first wealth management joint venture underthe brand name 'Religare Macquarie Private Wealth'.

REL, through its subsidiaries, has launched India's first holistic artsinitiative - with a gallery - as well as the first SEBI approved film

fund, which is an initiative towards innovation and spotting new

opportunities for creation and maximization of wealth for

investors.


46/88



REL operates from seven domestic regional offices, 43 sub-regional offices, and has a presence in 498* cities and towns

controlling 1,837* business locations all over India.

To make a mark in the global arena, REL acquired UK-basedHichens, Harrison & Co. in 2008 which was subsequently re-

named as Religare Hichens Harrison PLC ("RHH"). Hichens,

Harrison & Co. was incorporated in London in the year 1803 and is

believed to be one of the oldest firms of stockbrokers in the City of

London.

Pursuant to expansion of REL's business, the company has grownfrom largely an equity trading company into a diversified financial

services company.

With the addition of RHH the REL group now operates out ofmultiple global locations, other than India, (the UK, the USA,

Brazil, South Africa, Dubai and Singapore).

It holds 44% equity in AEGON Religare.


47/88



Bennett, Coleman & Co. Limited

Bennett, Coleman & Co. Limited, is the flagship company of TheTimes Group, which has a heritage of over 150 years and is one of

India's leading media groups.

It reaches out to 2468 cities and towns all over India.

The group owns and manages powerful media brands like The Timesof India, The Economic Times, Maharashtra Times, Navbharat Times,

Femina, Filmfare, Grazia, Top Gear, Radio Mirchi, Zoom, Times

Now, Times Music, Times OOH, Private Treaties and indiatimes.com

All of its brands are multinational in outlook, traditional at heart andnational in spirit.

From the very first edition on November 3, 1838 the mammoth BCCLGroup has come a long way.

By way of the innovative venture of Times Private Treaties, theBCCL Group holds 30% equity in our company.


48/88



3.9 Awards and Accolades

Religare Capital Markets has been adjudged the Most ImprovedBrokerage in the Last 12 Months by Asia Money Brokers Poll.

Religare Broking TVC (archery creative) won Silver Abby in theSound and Design craft category at Goafest 2011.

Religare Capital Markets Limited has been awarded the covetedStarmine award for the ''Best Brokerage Research House''.

Religare Commodities Ltd has been awarded the ''The BestCommodity Broker of the year'' at the Bloomberg UTV''s financial

Leadership awards.

Religare Enterprises Ltd presented the the Best Retail MarketingCampaign of the Year 2010 at Asia Retail Congress.

Religare Enterprises Ltd received the coveted Master BrandAward for 2010 and Best Marketing Campaign of the year atWorld Brand Congress 2010.


49/88



Religare Securities Limited was awarded the "Best Broking Housewith a Global Presence" by Dun and Bradstreet for 2010.

Religare Tax Plan awarded the first runner up for NDTV mutualfund awards in the Equity Tax plan Category.

Religare Capital Markets Ltd was awarded Best Deal in the HealthCare Category for Acquisition of stake in Parkway Holdings Ltd by

Fortis Health Care Ltd in the HealthCare/ Life Sciences Category.

Religare awarded Greentech HR Excellence Awards, 2010 in 2categories - Innovation in Recruitment & Technology Excellence in

HR.

Mr. Sunil Godhwani, conferred the ''Indian Business Leader of theYear'' award at the Global Indian Business Meeting hosted by

Horasis.


50/88



Table 4.1

TABLE SHOWING THE EDUCATIONAL QUALIFICATION OF

INVESTORS

S.No Education No. of respondent Percentage

1 Graduate 11 37

2 Post graduate 17 56

3 Professional 2 7

Total 30 100

Interpretation

From the above table we can conclude that 37% are graduates, 56% of

respondent are post graduate and 7% of them are professional degreeholder.

GRAPH 4.1

GRAPH SHOWING THE EDUCATIONAL QUALIFICATION OF

INVESTORS

1

10

17

24%

33%

56%

7%

Under graduate Graduate Post graduate Professional

No. of respondent Percentage


51/88



Table 4.2

TABLE SHOWING THE ANNUAL INCOME RANGE OF

INVESTORS IN DERIVATIVE MARKET

S.No Income range

No. of

Respondent Percentage

1 Below Rs

1,50,000 5

7

2 Rs 1,50,000- Rs

3,00,000 9

30

3 Rs 3,00,000- Rs

5,00,000 14

46

4 above Rs

5,00,000 2

17

Total 30 100

Interpretation

The above table shows that 7% of respondent are having income range

below Rs 150000,30% are having income range between Rs 1,50,000-Rs

3,00,000,46% of respondent are having income range of Rs 3,00,000-Rs

5,00,000 and 17% of the respondent are having income range above Rs

5,00,000


52/88



GRAPH 4.2

GRAPH SHOWING THE ANNUAL INCOME RANGE OF


7%

30%

46%

17%

below Rs 1,50,000 Rs1,50,000-Rs3,00,000

Rs3,00,000-Rs5,00,000 above Rs5,00,000


53/88



Table 4.3

TABLE SHOWING THE INVESTMENT TERM PREFERRED BY

INVESTOR

S.No Term No. Of

Respondent

Percentage

1 Long Term Investor 10 34

2 Short Term Investor 15 50

3 Daily Trader 5 16

Total 30 100

Interpretation

The above table shows that 34% of the respondents are long term

investor, 50% of the respondents are short term investor and 16% of the

respondents are daily trader.


54/88



GRAPH 4.3

GRAPH SHOWING THE INVESTMENT TERM PREFERRED BY

INVESTOR

10

15

5

34%

50%

16%

Long Term Investor Short Term Investor Daily Trader

No. Of Respondent Percentage


55/88



Table 4.4TABLE SHOWING PERCENTAGE OF THE MONTHLY

HOUSEHOLD INCOME AVAILABLE FOR INVESTMENT

S.No Investment

No. of

RespondentPercentage

1 Between 5% to 10% 8 27

2 Between 11% to 15% 12 40

3 Between 16% to 20% 6 20

4 Between 21% to 25% 4 13

5 More than 25% 0 0

Total 30 100

Interpretation

The above table shows that 27% of respondent provide between 5-10% of

their income for investment, 40% of respondent provide between 11-15%

of their income for investment, 20% of the respondent provide

between16-20% of their income for investment and 13% of the

investment provide between 21-25% of income for investment.


56/88



GRAPH 4.4

GRAPH SHOWING PERCENTAGE OF THE MONTHLY

HOUSEHOLD INCOME AVAILABLE FOR INVESTMENT

27%

40%

20%

13%

Between 5% to 10% Between 11% to 15% Between 16% to 20%

Between 21% to 25% More than 25%


57/88



Table 4.5

TABLE SHOWING THE REASON FOR NOT INVESTING IN

DERIVATIVE MARKET

S.No Reason No. of

respondent

Percentage

1 Lack of knowledge 15 50

2 Increase speculation 6 20

3 Risky & highly leveraged 8 26

4 Counter party risk 1 4

Total 30 100

Interpretation

The above table shows that 50% of the respondent do not invest in derivative

market because of lack of knowledge and understanding,20% of respondent do not

invest because of increase speculation,26% of the respondent do not invest

because of risk and high leverage and 4% of respondent because of counter party

risk.


58/88



GRAPH 4.5

GRAPH SHOWING THE REASON FOR NOT INVESTING IN DERIVATIVE

MARKET

15

68

1

50%

20%

26%

4%

Lack of knowledge &

understanding

Increase speculation Risky & highly

leveraged

Counter party risk

No.of Responant Percentage


59/88



Table 4.6

TABLE SHOWING PERCENTAGE OF INVESTMENT

ALLOCATED FOR DERIVATIVES

S.No Allocated for

derivatives

No.Of

Respondent

Percentage

1 Less than 20% 16 53

2 20%-40% 12 40

3 40%-60% 2 7

4 Above 60% 0 0

Total 30 100

Interpretation

The above table shows that 53% of respondent allocate less than 20

percentage of their investment for derivative, 40% of the respondentallocate 20-40% of their investment and 7% of the respondent allocate

40-60% of their investment for derivatives.


60/88



GRAPH 4.6

GRAPH SHOWING PERCENTAGE OF INVESTMENT

ALLOCATED FOR DERIVATIVES

53%40%

7%

Less than 20% 20%-40% 40%-60% Above 60%


61/88



Table 4.7

TABLE SHOWING INSTRUMENT INVESTORS TRADE INDERIVATIVES

S.No Instruments No.Of Result Percentage

1 Futures 18 60

2 Options 12 40

Total 30 100

Interpretation

The above table shows that 40% of the respondent trade in option

derivative and 60% of them trade in future derivatives.

GRAPH 4.7

GRAPH SHOWING INSTRUMENT INVESTORS TRADE IN

DERIVATIVES

60%

40%

Futures Options


62/88



Table 4.8

TABLE SHOWING THE FACTOR INFLUENCING INVESTORS

FOR TRADING IN DERIVATIVE MARKET

S.No Factors for trading

in derivative

No.Of Respondent Percentage

1 Technical

Information

1 3

2 Market Information 8 27

3 Individual Analysis 6 20

4 All of the above 15 50

Total 30 100

Interpretation

The above table shows that 3% of respondent invest in derivative market

using technical information, 27% of respondent using market

information, 20 % of respondent by individual analysis of market and

50% of respondent using all the above factors.


63/88



GRAPH 4.8

GRAPH SHOWING THE FACTOR INFLUENCING INVESTORS

FOR TRADING IN DERIVATIVE MARKET

1

86

15

3%

27%

20%

50%

Technical

Information

Market Information Individual Analysis All of the above



64/88



Table 4.9

TABLE SHOWING THE EXPECTATION OF INVESTORS IN

OPTIONS

S.No Expectation No. Of

Respondent

Percentage

1 Grow very fast 5 17

2 Grow moderately 18 60

3 Not grow much 2 6

4 Cant say anything 5 17

Total 30 100

Interpretation

The above table shows that 17% of the respondents expect option will

grow very fast, 60% of the respondents predict that it will grow

moderately, 6% of the respondents expect that option will not grow much

and 17% of respondents cannot say anything about option.


65/88



GRAPH 4.9

GRAPH SHOWING THE EXPECTATION OF INVESTORS IN

OPTIONS

5

18

25

17%

60%

6%

17%

Grow very fast Grow modearately Not grow much Cant say anything



66/88



Table 4.10

TABLE SHOWING THE RISK INVESTOR PERCEIVE WHILEINVESTING IN THE STOCK MARKET

S.No Risk in stock market No. of

Respondent

Percentage

1 Uncertainty of returns 23 77

2 Slump in stock market 5 16

3 Fear of windup of

company

2 7

4 Others 0 0Total 30 100

Interpretation

From the above graph we can say that 77% of respondent are having the

risk of uncertainty of returns, 16% of respondent are having risk of slump

in stock market and 7% of respondent are having fear of winding up of

the company.

GRAPH 4.10

GRAPH SHOWING THE RISK INVESTOR PERCEIVE WHILE

INVESTING IN THE STOCK MARKET

23

52 0

77%

16% 7% 0

Uncertainity ofreturns

Slump in stockmarket

Fear of windup ofcompany

Others

No.of Respondent Percentage


67/88



Table 4.11

TABLE SHOWING THE MOST FAVORED FACTORS BY


S.No Factors Favored No. Of

Respondent

Percentage

1 Stock index futures 15 50

2 Stock index options 2 7

3 Futures on

individual stocks

10 33

4 Options on

individual stocks

3 10

Total 30 100

Interpretation

The above table shows that 50% of the respondent favors stock index

futures, 7% of respondent favor stock index option, 33% of respondent

favor futures on individual stocks and 10% of the respondent favor

options on individual stocks.


68/88



GRAPH 4.11

GRAPH SHOWING THE MOST FAVORED FACTORS BY


15

2

10

3

50%

7%

33%

10%

Stock index futures Stock index options Futures on

individual stocks

Options on

individual stocks



69/88



Table 4.12TABLE SHOWING STRATEGIES USED BY INVESTORS IN A

BEARISH MARKET

S.No Strategies No. of respondent Percentage

1 Short futures 15 50

2 Short Call 5 17

3 Short Index Futures 10 33

4 Short Index Call 0 0

Total 30 100

Interpretation

The above table shows that 50% of the respondent used short future

strategy in a bearish market, 17% of the respondents prefer short call

strategy in a bearish market and remaining 33% of the respondents prefer

short index future strategy in a bearish market.


70/88



GRAPH 4.12

GRAPH SHOWING STRATEGIES USED BY INVESTORS IN A

BEARISH MARKET

15

5

10

0

50%

17%

33%

0%

Short futures Short Call Short Index Futures Short Index Call

No. of respondent Percentage


71/88



Table 4.13

TABLE SHOWING THE PURPOSE OF INVESTING IN

DERIVATIVE MARKET

S.No Purpose of investment No. Of

Respondent

Percentage

1 Hedge their fund 10 33

2 Risk Control 9 30

3 More Stable 6 20

4 Direct investment without

buying & holding assets

5 17

Total 30 100

Interpretation

The above table shows that 33% of respondent invest in derivative to

hedge their fund, 30% invest for risk control, 20% invest because it is

more stable and remaining 17% prefer because of direct investment

without buying and holding assets.


72/88



GRAPH 4.13

GRAPH SHOWING THE PURPOSE OF INVESTING IN

DERIVATIVE MARKET

109

6

perception toward investment in derivative market

Documents