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Roll No. 520XXXXXX

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I wish to express my most sincere thanks to “Mr. Kabul Singh ” “Branch

Manager” Kotak Scurities Alwar and “Mr.Naresh Motwani” “Area Sales
Manger, e-broking division, Pune for providing me the opportunity to work with
the renowned organization and enabling me to gain practical knowledge in the
field of Finance and Operations. I also owed my profound gratitude to my field
guide Ms. Shikha Gupta(back office staff) and Mr. Shyam sunder (relation ship
manager)for their guidance during the duration of project.

A special note of thanks is also reserve to, training and placement officer of
Indira School of Career Development, Pune Campus. Moreover I am also
indebt to Mr. Ashok Bapna, “Director”, INDIRA AHL Pune campus for their
kind help and co-operation for completing this project work.

I indeed thanks to Kotak Securities Ltd. Alwar and INDIRA AHL Pune campus
for giving me an opportunity to have experience in a professionally run

Avinash Kumar Singh

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Any kind of learning is incomplete till it is practically applied in the concerned

field. Only then does a person understand and get hold of even the minutest
details of what he/she has learnt in his stay at the institute doing his/her MBA.
So, to practically apply what I had gained in the past one year in the MBA
programme, I underwent two months summer training at Kotak Securities Alwar.
It has been a wonderful learning experience, which has given me an insight into
Management of modern business which requires an appreciation of
multidisciplinary concept and in-depth knowledge of specific analytical tools,
geared to the solution of real life problems. No doubt every real situation is
unique but a set of theoretical tools of knowledge, itself based on empirical
foundation, can help in developing the mechanism for handling such situation.
So the MBA curriculum has been desired to provide to the future manager’s
ample practical exposure to the business world.

The summer training is essential for the fulfillment of MBA curriculum; it

provides an opportunity to the student to understand the industry with special
emphasis on the development of skills in analyzing interpreting practical
problems through application of management.

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The whole study has been divided into various parts:

1. The First chapter includes the introduction about derivatives and history of
kotak securities ltd. its awards and recognitions and its business in online trading.

2. The Second chapter includes the objectives, significance, and research

methodology and data collection.

3. The Third chapter has reported facts and information gathered by student in
the course of study of topic.

4. The Fourth chapter is about online trading and the software KEAT used by
the organization.

5. The Fifth chapter is about the SWOT Analysis, which can help the
organization to solidify its position in the market.

6. The Sixth chapter includes the Suggestions and Recommendation for the
further development and pointing out the weak points so that changes can be

Lastly, there is a Bibliography of the books, which was used by the researcher.

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CHAPTER 1: Overview
a. Basic introduction of derivative.
b. Introduction of Kotak Mahindra Group
c. History of Kotak Mahindra group
d. Introduction of Kotak securities ltd.
e. Structural organization of Kotak
f. Awards and recognition of Kotak
g. Products and services of Kotak

CHAPTER 2 : Research profile

a. Objectives of study
b. Significance of study
c. Research methodology and data collection

CHAPTER 3 : Facts and findings

a. Introduction of SEBI,BSE and NSE
b. Introduction about derivatives and participants in derivatives market
c. What are futures and their trading strategies
d. What are options and their trading strategies

CHAPTER 4 : Online trading

a. Basic introduction about online trading
b. Products available for trading
c. Trading tools provided by KEAT

CHAPTER 5 : SWOT analysis

a. Strength
b. Weakness
c. Opportunities
d. Threats

CHAPTER 6 : Suggestions
a. Suggestions and recommendations

CHAPTER 7 : Bibliography
a. Bibliography

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The title of the study undertaken by the researcher is “operations and
services offered by Kotak Securities Ltd. and the procedure involved in
online equity trading with more emphasis on customer preference.”
The title given to the researcher found to be very interesting and learning
in nature. Although researcher faced various problems seeking information
from various sources due to the competition of various banks, but due to
co-operation from various friends, colleagues and specially the staff of
Kotak Securities Ltd. she had completed the report.


To help the researcher in knowing out the various kinds of services
provided by Kotak group.
§ To study the different products of Kotak Securities Ltd.
§ To maintain the database regarding various
• To give an in depth knowledge about security,
Derivatives; futures and options, capital market; primary and secondary,
NSE and BSE.
• To study how to determine various Pricing
Strategies involved in online trading.
• To study the software KEAT used by the company for trading.


Everyone put his or her time, money and efforts because to have some
significance. My studies have some significance to:

The organization
As organization has got valuable data regarding customer preference and market
share of Kotak Securities Ltd. in finance industry. Now the Organization can
take some significant actions in the direction of customer satisfaction so that the

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customer can avail more benefits and the organization can get good customers
and more business.

The Student:-

It also has significance to me that I got the precious knowledge about various
operations of different department, policies and data regarding various schemes
provided by the Kotak Securities Ltd. It will help me in my future for the
practical application in real life.

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Research Methodology is a way to systematically solve the research problem. It

may be understood as a science of studying how research is done scientifically.
In it we study the various steps that are generally adopted by a researcher in
studying his research problem along with the logic behind them.

Entire data has been collected and calculated up to the accurate extent is from
primary as well as secondary sources i.e. no previous data was available on the
basis of which calculation for graphical presentation is done. As it was assured to
the respondents that their response would be kept confidential so they were very
free and frank while giving their response.

It was descriptive research. The researcher-collected data from personal

interviewed with officials of different banks, by filling questionnaires, surfing on
Internet, articles published in magazines, literature available with Kotak
Securities Ltd.

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To make the report more authentic and valid, the collection of data should
be through reliable sources and the approach is very important. For the
purpose of this report, the data and information were collected in the
following manner:

Direct Contact with the organization: -

The organization was visited daily to collect the information about their
services and products offered. Their pamphlets were obtained and studied.

Websites and Search Engines: -

The Internet, being the largest source of information and knowledge
proved to be biggest help in data collection. The websites of the Kotak
Securities Ltd. gave the information regarding the industry in general.

Books Available:-
The data was also collected from the book with us and the brochures also
proved very useful.

The data so collected was then sorted and classified to make it suitable for
analysis. Several questions proved to be reluctant and were dropped in
final analysis. Conclusions were drawn on the basis of the majority
opinion. Some points were the conclusions were ambiguous were also
removed from analysis.

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Chapter 1

ü Basic introduction of derivative.

ü Introduction of Kotak Mahindra Group

ü History of Kotak Mahindra group

ü Introduction of Kotak securities ltd.

ü Structural organization of Kotak

ü Awards and recognition of Kotak

ü Products and services of Kotak

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Derivatives are the financial contracts that derive their value from an underlying asset, which
could be stocks or stock indices, commodities or currencies or even exchange rates or the
rate of interest. the value of a stock may rise or fall, an exchange rate may swing in favour of
one currency or the other, the price of a commodity may increase or decrease. A feature
common to all underlying assets is that they carry the risk of change in value. Derivative
contracts seek to transfer these risks from a counterparty that is not comfortable with the risk
to the one that is.


The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to stock
broking, to mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporate.

The group has a net worth of around Rs. 3,200 crore, employs around 10,800 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 300 cities and towns in India and offices in New York,
London, Dubai, Mauritius and Singapore. The Group services around 2.6 million customer

Kotak Mahindra is one of India's leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to stock
broking, to mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporates.

As on March 31, 2007, the group has a net worth of over Rs.3,200 crore, and the AUM
across the group is around Rs. 224 billion and employs over 10,800 employees in its various
businesses. With a presence in 300 cities in India and offices in New York, London, Dubai,
Mauritius and Singapore, it services a customer base of over around 2.6 million.

The group specializes in offering top class financial services, catering to every segment of

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the industry.The various group companies include:

Kotak Mahindra Capital Company Limited

Kotak Mahindra Securities Limited
Kotak Mahindra Inc
Kotak Mahindra (International) Limited
Global Investments Opportunities Fund Limited
Kotak Mahindra (UK) Limited
Kotak Securities Limited
Kotak Mahindra Old Mutual Life Insurance Company Limited
Kotak Mahindra Asset Management Company Limited
Kotak Mahindra Trustee Company Limited
Kotak Mahindra Investments Limited
Kotak Forex Brokerage Limited
Kotak Mahindra Trusteeship Services Limited
Kotak Mahindra Prime Limited

The company has a full-fledged research division involved in Macro Economic studies,
Sectoral research and Company Specific Equity Research combined with a strong and well
networked sales force which helps deliver current and up to date market information and

History of Kotak Mahindra Group

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and
that's when the company changed its name to Kotak Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and success.
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1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting
1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market
1990 The Auto Finance division is started
The Investment Banking Division is started. Takes over FICOM, one of India's
largest financial retail marketing networks
1992 Enters the Funds Syndication sector
Brokerage and Distribution businesses incorporated into a separate company -
1995 Kotak Securities. Investment Banking division incorporated into a separate
company - Kotak Mahindra Capital Company
The Auto Finance Business is hived off into a separate company - Kotak Mahindra
Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak
1996 Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for
financing Ford vehicles. The launch of Matrix Information Services Limited marks
the Group's entry into information distribution.
Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.
Kotak Securities launches its on-line broking site (now
Commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.
Matrix sold to Friday Corporation
Launches Insurance Services
Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian
company to do so.
2004 Launches India Growth Fund, a private equity fund.
Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime
(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak
Launches a real estate fund
Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital
Company and Kotak Securities

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Kotak Securities Limited, a strategic joint venture between Kotak Mahindra Bank and
Goldman Sachs (holding 25% - one of the world’s leading investment banks and brokerage
firms) is India’s leading stock broking house with a market share of 5 - 6 %.

Kotak Securities Limited is one of the largest players in distribution of IPOs - it was ranked
number One in 2003-04 as Book Running Lead Manager in public equity offerings by
PRIME Database. It has also won the Best Equity House Award from Finance Asia - April

The Company has a full-fledged Research division involved in macro economic studies,
sectoral research and Company specific equity research combined with a strong and well
networked sales force which helps deliver current and up-to-date market information and

The Company has 113 branches servicing around 1,00,000 customers, through our own
offices and a large franchisee network. It’s has an Online presence through
where we offer Internet Broking services and also online IPO and Mutual Fund Investments.

Kotak Securities Limited manages assets over Rs. 1700 crores through it’s Portfolio
Management Services (PMS) servicing high net worth clients with a large investible surplus
through its preferred client services in the mass affluent and wealth management segments.

. Kotak Securities Ltd is also a depository participant with National Securities Depository
Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual benefit
services wherein the investors can use the brokerage services of the company for executing
the transactions and the depository services for settling them.

Kotak Securities has 813 outlets servicing more than 3,15,000 customers and a coverage of
277 Cities., the online division of Kotak Securities Limited offers
Internet Broking services and also online IPO and Mutual Fund Investments.

Kotak Securities Limited manages assets around 2300 crores of Assets Under Management
(AUM) .The portfolio Management Services provide top class service , catering to the high
end of the market. Portfolio Management from Kotak Securities
comes as an answer to those who would like to grow exponentially on the crest of the stock
market, with the backing of an expert.

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Kotak Securities is all about attracting new customers and building a long term relationship
with its existing customers.

Kotak Securities has a centralized Marketing department located in Mumbai. It broadly

looks into four areas i.e.

• Brand Building
• Customer Acquisition
• Customer Retention and
• Public Relations

Various marketing strategies have been initiated to acquiring, building and retaining
customers for Online and Offline Broking division, Portfolio Management Services &
Distribution division and Kotak Securities as a whole.

Last year 2004 focused on Easy Mutual Fund and Easy IPO campaigns, which was
appropriate as a wide range of IPO's and Mutual funds were offered in the retail market.
There are many new marketing initiatives in the pipeline for this year.
We give you a glimpse into Kotak Securities as you journey through this presentation and
familiarize yourself with the organization; it’s structure, people and product offerings and
know what makes Kotak Securities Limited one of the most enterprising and value driven
players in the capital markets


Kotak Mahindra Bank

At Kotak Mahindra Bank, we address the entire spectrum of financial needs for individuals
and corporates. we have the products, the experience, the infrastructure and most
importantly the commitment to deliver pragmatic, end-to-end solutions that really work.

Deposits accounts

• Savings account
• Current account
• Term deposits


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• Personal loans
• Home loans
• Loan against property

Investment services

• Demat
• Mutual fund
• Insurance
• Gold

Convenience banking

• Phone banking
• Net banking
• ATM Network

Kotak Mahindra Old Mutual Life Insurance Ltd.

Kotak Mahindra Old Mutual Life Insurance is a 76:24 joint venture between Kotak
Mahindra Bank Ltd. and Old Mutual plc. Kotak Mahindra Old Mutual Life Insurance is one
of the fastest growing insurance companies in India and has shown remarkable growth since
its inception in 2001.

Old Mutual, a company with 160 years experience in life insurance, is an international
financial services group listed on the London Stock Exchange and included in the FTSE 100
list of companies, with assets under management worth $ 400 Billion as on 30th June, 2006.
For customers, this joint venture translates into a company that combines international
expertise with the understanding of the local market.

Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak Mahindra
Bank Ltd.(KMBL), and Old Mutual plc. At Kotak Life Insurance, we aim to help customers
take important financial decisions at every stage in life by offering them a wide range of
innovative life insurance products, to make them financially independent.

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Kotak Mahindra Asset Management Company Limited (KMAMC

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF).

KMAMC started operations in December 1998 and has over 4 Lac investors in various
schemes. KMMF offers schemes catering to investors with varying risk - return profiles and
was the first fund house in the country to launch a dedicated gilt scheme investing only in
government securities.

We are sponsored by Kotak Mahindra Bank Limited, one of India's fastest growing banks,
with a pedigree of over twenty years in the Indian Financial Markets. Kotak Mahindra Asset
Management Co. Ltd., a wholly owned subsidiary of the bank, is our Investment Manager.

We made a humble beginning in the Mutual Fund space with the launch of our first scheme
in December, 1998. Today we offer a complete bouquet of products and services suiting the
diverse and varying needs and risk-return profiles of our investors.

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Kotak Headstart Child Plans

Kotak Sukhi Jeevan Plan

Kotak Privileged Assurance Plan

Kotak Term Plan

Kotak Preferred Term Plan

Kotak Money Back Plan

Kotak Child Advantage Plan

Kotak Endowment Plan


Employee Benefits

Kotak Term Grouplan

Kotak Credit-Term Grouplan

Kotak Complete Cover Grouplan

Kotak Gratuity Grouplan

Kotak Superannuation Grouplan`

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Securities has been graced with include;

• Euromoney Award (2006 & 2007) - Best Provider of Portfolio Management : Equities
• Asiamoney Award (2006)- Best Broker In India
• Euromoney Award (2005)-Best Equities House In India
• Finance Asia Award (2005)-Best Broker In India
• Finance Asia Award (2004)- India's best Equity House
• Prime Ranking Award (2003-04)- Largest Distributor of IPO's

The accolades that Kotak Securities has been graced with include:

• Prime Ranking Award(2003-04)- Largest Distributor of IPO's

• Finance Asia Award (2004)- India's best Equity House
• Finance Asia Award (2005)-Best Broker In India
• Euromoney Award (2005)-Best Equities House In India
• Finance Asia Award (2006)- Best Broker In India

Euromoney Award (2006) - Best Provider of Portfolio Management : Equities

Kotak Securities Ltd. is India's leading stock broking house with a market share of around
8.5 % as on 31st March. Kotak Securities Ltd. has been the largest in IPO distribution. is a world class internet share trading website, offering investment and
trading options to individuals with speed & easy access. Led by Prasanth Prabhakaran, has its presence in more than 78 cities in the Country today. is the only online trading website which gives real time Stock Market
access to clients via ‘KEAT’, its in-house developed product. offers
convenience of anywhere trading through the net and the telephone.

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Life Insurance

Mutual fund

Car finance


Institutional Equities

Investment Banking

Kotak Mahindra International

Kotak Private Equity

Kotak Reality Fund

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Chapter 3

Facts and findings

ü Introduction of SEBI,BSE and NSE

ü Introduction about derivatives and participants in derivatives market

ü What are futures and their trading strategies

ü What are options and their trading strategies


The Securities and Exchange Board of India (Amendment) Ordinance, 2002, seeks to amend
the SEBI Act, 1992 in order to enlarge the strength of its Board, Securities Appellate
Tribunal, confer on SEBI power of search and seizure with court approval and enhanced
penalty to Rs. 25 crores. This is intended to stabilize capital market and build confidence of
investors for an effective regulation of listed companies to save them from predatory
manipulators in tune with the emerging globalization of Indian economy....

The BSE (Corporatisation and Demutualization) Scheme, 2005

Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange in Asia with a
rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock
Brokers Association" in 1875. It is the first stock exchange in the country to obtain
permanent recognition in 1956 from the Government of India under the Securities Contracts
(Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of
the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide.
Earlier an Association of Persons (AOP), the Exchange is now a demutualised and
corporative entity incorporated under the provisions of the Companies Act, 1956, pursuant to
the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and

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Exchange Board of India (SEBI).Bombay Stock Exchange Limited received its Certificate of
Incorporation on 8th August, 2005 and Certificate of Commencement of Business on 12th
August, 2005. The 'Due Date' for taking over the business and operations of the BSE, by the
Exchange was fixed for 19th August, 2005, under the Scheme. The Exchange has succeeded
the business and operations of BSE on going concern basis and its recognition as an
Exchange has been continued by SEBI.

With demutualization, the trading rights and ownership rights have been de-linked
effectively addressing concerns regarding perceived and real conflicts of interest. The
Exchange is professionally managed under the overall direction of the Board of Directors.
The Board comprises eminent professionals, representatives of Trading Members and the
Managing Director of the Exchange. The Board is inclusive and is designed to benefit from
the participation of market intermediaries.

In terms of organisation structure, the Board formulates larger policy issues and exercises
over-all control. The committees constituted by the Board are broad-based. The day-to-day
operations of the Exchange are managed by the Managing Director & CEO and a
management team of professionals.

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The
systems and processes of the Exchange are designed to safeguard market integrity and
enhance transparency in operations. During the year 2004-2005, the trading volumes on the
Exchange showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary
system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &
settlement functions of the Exchange are ISO 9001:2000 certified.


The National Stock Exchange (NSE) is India's leading stock exchange covering various
cities and towns across the country. NSE was set up by leading institutions to provide a
modern, fully automated screen-based trading system with national reach. The Exchange has
brought about unparalleled transparency, speed & efficiency, safety and market integrity. It
has set up facilities that serve as a model for the securities industry in terms of systems,
practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-art
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information technology to provide an efficient and transparent trading, clearing and
settlement mechanism, and has witnessed several innovations in products & services viz.
demutualisation of stock exchange governance, screen based trading, compression of
settlement cycles, dematerialisation and electronic transfer of securities, securities lending
and borrowing, professionalisation of trading members, fine-tuned risk management
systems, emergence of clearing corporations to assume counterparty risks, market of debt
and derivative instruments and intensive use of information technology.

Capital Market

The capital market (securities markets) is the market for securities, where companies and the
government 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 respective 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.

The primary is that part of the capital markets that deals with the issuance of new securities.
Companies, governments or public sector institutions can obtain funding through the sale of
a new stock or bond issue. This is typically done through a syndicate of securities dealers.
The process of selling new issues to investors is called underwriting. In the case of a new
stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is
built into the price of the security offering, though it can be found in the prospectus. Features
of Primary Market are:-

1. This is the market for new long term capital. The primary market is the market where the
securities are sold for the first time. Therefore it is also called New Issue Market (NIM).

2. In a primary issue, the securities are issued by the company directly to investors.

3. The company receives the money and issue new security certificates to the investors.

4. Primary issues are used by companies for the purpose of setting up new business or for
expanding or modernizing the existing business.

5. The primary market performs the crucial function of facilitating capital formation in the

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6. The new issue market does not include certain other sources of new long term external
finance, such as loans from financial institutions. Borrowers in the new issue market may be
raising capital for converting private capital into public capital; this is known as ‘going

Methods of issuing securities in the Primary Market

1. Initial Public Offer;

2. Rights Issue (For existing Companies); and

3. Preferential Issue.

The secondary market is the financial market for trading of securities that have already been
issued in an initial private or public offering. Alternatively, secondary market can refer to the
market for any kind of used goods. The market that exists in a new security just after the
new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a
stock exchange, investors and speculators can easily trade on the exchange, as market
makers provide bids and offers in the new stock.

In the secondary market, securities are sold by and transferred from one investor or
speculator to another. It is therefore important that the secondary market be highly liquid and
transparent. Before electronic means of communications, the only way to create this liquidity
was for investors and speculators to meet at a fixed place regularly. This is how stock
exchanges originated, see History of the Stock Exchange.

Secondary marketing is vital to an efficient and modern capital market. Fundamentally,

secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not
to tie up his or her money for a long period of time, in case the investor needs it to deal with
unforeseen circumstances) with the capital user's preference to be able to use the capital for
an extended period of time. For example, a traditional loan allows the borrower to pay back
the loan, with interest, over a certain period. For the length of that period of time, the bulk of
the lender's investment is inaccessible to the lender, even in cases of emergencies. Likewise,
in an emergency, a partner in a traditional partnership is only able to access his or her
original investment if he or she finds another investor willing to buy out his or her interest in

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the partnership. With a securitized loan or equity interest (such as bonds) or tradable stocks,
the investor can sell, relatively easily, his or her interest in the investment, particularly if the
loan or ownership equity has been broken into relatively small parts. This selling and buying
of small parts of a larger loan or ownership interest in a venture is called secondary market

Under traditional lending and partnership arrangements, investors may be less likely to put
their money into long-term investments, and more likely to charge a higher interest rate (or
demand a greater share of the profits) if they do. With secondary markets, however,
investors know that they can recoup some of their investment quickly, if their own
circumstances change.

In financial markets, stock is the capital raised by a corporation or joint-stock company

through the issuance and distribution of shares. A person or organization which holds at least
a partial share of stocks is called a shareholder. The aggregate value of a corporation's issued
shares is its market capitalization.

In the United Kingdom, South Africa and Australia, the term share is used the same way, but
stocks there refer to either a completely different financial instrument, the bond, or more
widely to all kinds of marketable securities.

In finance a share is a unit of account for various financial instruments including stocks,
mutual funds, limited partnerships, and REIT's. In British English, the usage of the word
share alone to refer solely to stocks is so common that it almost replaces the word stock

A share is one of a finite number of equal portions in the capital of a company, entitling the
owner to a proportion of distributed, non-reinvested profits known as dividends and to a
portion of the value of the company in case of liquidation. Shares can be voting or non-
voting, meaning they either do or do not carry the right to vote on the board of directors and
corporate policy. Whether this right exists often affects the value of the share. Voting and
Non-Voting shares are also known as Class A and B shares.

An initial public offering (IPO) is the first sale of a corporation's common shares to investors
on a public stock exchange. The main purpose of an IPO is to raise capital for the
corporation. While IPOs are effective at raising capital, being listed on a stock exchange
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imposes heavy regulatory compliance and reporting requirements. The term only refers to
the first public issuance of a company's shares. If a company later sells newly issued shares
(again) to the market, it is called a 'Seasoned Equity Offering'. When a shareholder sells
shares it is called a "secondary offering" and the shareholder, not the company who
originally issued the shares, retains the proceeds of the offering. These terms are often
confused. In distinguishing them, it is important to remember that only a company which
issues shares can make a "primary offering". Secondary offerings occur on the "secondary
market", where shareholders (not the issuing company) buy and sell shares with each other.

A mutual fund is a form of collective investment that pools money from many investors and
invests their money in stocks, bonds, short-term money market instruments, and/or other
securities. In a mutual fund, the fund manager trades the fund's underlying securities,
realizing capital gains or losses, and collects the dividend or interest income. The investment
proceeds are then passed along to the individual investors. The value of a share of the mutual
fund, known as the net asset value per share (NAV), is calculated daily based on the total
value of the fund divided by the number of shares currently issued and outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1940 (the
primary regulatory statute governing investment companies), a mutual fund is one of three
basic types of investment companies available in the United States.[2] Outside of the United
States (with the exception of Canada, which follows the U.S. model), mutual fund is a
generic term for various types of collective investment vehicle. In the United Kingdom and
western Europe (including offshore jurisdictions), other forms of collective investment
vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs),
SICAVs and unitized insurance funds.

In Australia the term "mutual fund" is generally not used; the name "managed fund" is used
instead. However, "managed fund" is somewhat generic as the definition of a managed fund
in Australia is any vehicle in which investors' money is managed by a third party (NB:
usually an investment professional or organization). Most managed funds are open-ended
(i.e., there is no established maximum number of shares that can be issued); however, this
need not be the case. Additionally the Australian government introduced a compulsory
superannuation/pension scheme which, although strictly speaking a managed fund, is rarely
identified by this term and is instead called a "superannuation fund" because of its special
tax concessions and restrictions on when money invested in it can be accessed.

Indira School of Career Development, Pune Page 27

A security is a fungible, negotiable instrument representing financial value. Securities are
broadly categorized into debt and equity securities such as bonds and common stocks
respectively. The company or other entity issuing the security is called the issuer. What
specifically qualifies as a security is dependent on the regulatory structure in a country. For
example private investment pools may have some features of securities, but they may not be
registered or regulated as such if they meet various restrictions.
Securities may be represented by a certificate or, more typically, by an electronic book entry
interest. Certificates may be bearer, meaning they entitle the holder to rights under the
security merely by holding the security, or registered, meaning they entitle the holder to
rights only if he or she appears on a security register maintained by the issuer or an
intermediary. They include shares of corporate stock or mutual funds, bonds issued by
corporations or governmental agencies, stock options or other options, limited partnership
units, and various other formal investment instruments that are negotiable and fungible.


Derivatives are the financial contracts that derive their value from an underlying asset, which
could be stocks or stock indices, commodities or currencies or even exchange rates or the
rate of interest.the value of a stock may rise or fall, an exchange rate may swing in favour of
one currency or the other, the price of a commodity may increase or decrease.A feature
common to all underlying assets is that they carry the risk of change in value.Derivative
contracts seek to transfer these risks from a counterparty that is not comfortable with the risk
to the one that is.


Hedgers are traders who wish to protect themselves from the risk involved in price
movements. They look for opportunities to pass on this risk to those who are willing to bear
it. They are also keen to rid themselves of the uncertainity associated with the price changes
that they may be even ready to do so at a predetermined cost.

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While you may be averse to risks, there are people who embrace them, since risk and return
always go hand in hand. Speculators, unlike hedgers, look for opportunities to take on risk in
the hope of making returns.
In the Indian markets, there are two types of speculators- day traders and the position
traders. A day trader tries to take advantage of intra day fluctuations and the up and down
movement in prices. They do not leave any position open at the end of the day. On the other
hand, position traders greatly rely on tips and news and take a longer view, say a month, in
order to realize better profits.

These are the speculators who make use of the payment mechanism, which is peculiar to the
derivative markets. When you trade in derivatives products, you are not required to pay the
total value of your position upfront. You are required to pay a fraction (called margin) of the
value of your outstanding position. This is called margin trading and results in a high
leverage factor in derivative trades, i.e., with a small deposit you are able to maintain a large
outstanding position.

Life is not perfect and capital markets have their share of imperfections too. Arbitrageurs
exploit these imperfections and inefficiencies to their advantage. Arbitrage trade is a riskless
trade where a simultaneous purchase of securities is done in one market and a corresponding
sale is carried out in another market. These are done when the same securities are being
quoted at different prices in the two markets.


A future contact is an agreement between two parties- a buyer and a seller, wherein the
former agrees to purchase from the latter, a number of shares or an index at a certain time in
the future (expiry date) for a predetermined price, which is agreed upon when the transaction
takes place.these are standardized in terms of expiry dates and contract sizes, they can be
freely traded on exchanges.every contact is guranteed and honoured by the stock exchange,
or more precisely, the clearing house of the stock exchange, which is an agency designated
to settle trades of investors on the stock exchanges.

Every stock futures contract consists of a fixed lot of the underlying share; this lot
determined by the exchange on which it is traded and differs from stock to stock.
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Futures contracts are available in durations of 1month, 2months, 3months(called near month,
middle month and far month respectively)The month in which a contract expires is called the
contract month for that contract. All three maturities are traded simultaneously on the
exchange and expire on the last Thursday of their respective contract months.


Two models try to explain what constitutes the difference between the spot price (i.e. the
current market price of the stock in the cash market or the value of an index on that day) and
the futures price. There are two theories that explain how futures contracts are priced


This model assumes that arbitrage between the cash market and the futures market
eliminates the future imperfections in pricing, i.e., unaccounted for differences between the
cash price and futures price.

The difference that remains is due to a factor called ‘The cost of Carry’. The model also
assumes, for simplicity sake, that the contract is held till maturity, so that a fair price can be
arrived at.

To put it briefly, once all distortions in the futures price have been erased by arbitrage, a fair
futures price = the spot price+ the net cost of carry of the asset from today to the date on
which the contract expires.
The net cost of carry involves all costs that you may have had to incur in order to hold a
similar position open in the cash market, less the returns that you would have received from
this position.

The costs typically include financing charges, at the prevailing rate of interest. This is
because you may have borrowed to finance a similar position in the cash market, and if not,
you may have lost the interest on the capital that you invested to keep your position open. In
the contrast in the futures market, you merely have to deposit a fraction of the value of your
position in the form of margin.

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The returns that you receive could consist of dividends or bonuses that you may have
received in case you had held stocks in the cash market. In the case of an index future, your
returns may be gauged by the average return that an index delivers.


It says that the futures price is nothing but the expected spot price of an asset in the future. If
there are more traders who expect the future price of an asset to rise in the future than those
who expect it to fall, the current futures price of that asset will be positive. In fact, the theory
suggests that it is not the relation between the cash market price and the futures price that is
relevant, but the relationship between the expected spot price on the date of expiry of the
contract and the futures price that is.


There is usually a difference between the future price and the spot price. This difference is
called the basis. The basis normally remains positive when the markets are not volatile or are
in a secular run (not affected by short term, speculation driven volatility). However, when
the markets are in bear grip and cash market prices are expected to fall in the near term, the
basis could turn negative.
Since a futures contract is settled at the cash market price on the date of the expiry of the

contract, as it reaches expiration, the futures price and spot price as shown below:


Before you actually begin trading, you must tie up with a broker who is a member of the
stock exchange on which you plan to trade or you can trade through a sub-broker, who
routes your trades through a broker to the stock exchange. As per the SEBI rules, you need
to enter into a client broker agreement with the broker with whom they wish to trade.once
you have furnished your KYC form , broker sets up an account for you and allots you a
unique code.Once you deposit your margin money , you can place your orders.
The main types of orders are:
• Market orders- which is executed at the prevailing market price.
• Limit orders- it gets executed at the specific stated price.
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• Stop loss orders-you can direct to square up your position at a predetermined price in order
to limit your losses.


On expiry

In the Indian markets, buying a stock futures contract does not result in delivery of the
underlying shares. The futures contract has to be settled on the expiry day at the closing
price of the underlying stock in the cash market.

Illustration of mark-to-market margins for 100 nifty bought at 3550

Index MTM Margin Explanation

closed at
Day of 3600 Credit of Difference between purchase price and closing
purchase Rs.5,000 price i.e.(3600-3500)*100
Day 2 3500 Debit of Difference between the closing price on the
Rs.10000 date of purchase day 2 closing price i.e., (3500-
(100*100) 3600)*100
Day 3 3490 Debit of Difference between day 2 and day 3 closing
Rs.1000 prices, i.e. (3490-3500)*100

Before expiry
Although futures expire on a particular date, most traders do not hold on to their positions
until the expiry date of the contract. They usually exit much before the expiry date by
offsetting or canceling their position, i.e., selling their long positions or buying back their
short positions. Here again your profits or losses will be returned to or collected from you ,
after adjusting them from the margins that you have deposited till the day on which you
square off your position.

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On expiry

Index futures contracts are settled in cash and the closing index value on the date of the
expiry of the contract is considered as the settlement price for the index futures.
Consider a case where you purchase one contract of Nifty future at 3560 say on July 7 .this
particular contracts expire on July 27, being the last Thursday of the contract series. If you
have not been able to sell the future till the date of expiry the exchange will settle your
contract at the closing price of the nifty prevailing on the expiry day. So if on July 27, the
Nifty stands at 3550, then you will make a loss of 1,000. Your broker will deduct the amount
from your margins deposited with him and forward it to then stock exchange, which in turn
will forward it to the seller who has made that profit.

Before expiry

In order to exit a position you do not have to wait in the futures market ,you could have sold
your long position on the day of purchase itself or on any day till the exiry date of the
contract, if the price in the futures market looked attractive.


By speculators

They take long or short positions in index and stock futures, depending on their perceptions
of the market.
Let,s take the case of stock futures of RIL; Contract size:600 shares; price of future:960; spot
price:955; margin required:10 percent of the contract value:

Perception Action Margin required Purchase/sell Amount required for Leverage

for one lot (600 price the purchase of similar
shares) qty in cash market
Bullish Buy 57600 960 576000 10times
Bearish Sell 57600 960 - 10times
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In the above case, any movement in the stock prices to say Rs.980 would make the futures
buyer richer by Rs.12,000 (600*20) for each contract. Similarly in the case of a fall in the
prices to say Rs.950, the investor would loose Rs.6000 (600*10) for each contract. The
seller, on the other hand, would lose when the buyer gains and gain when the buyer loses , to
the same extent.

By arbitrageurs

They stay focused on both cash market and futures markets in order to benefit from
unexplained price differences.

Let,s take scrip-RIL; contract size:600shares; price of future:960; spot price950; margin
required:10 percent of the contract value.

Price in cash market Rs950

Price in futures Rs960
Action Buy in cash market and sell in futures market
Condition Basis is more than the cost of carry and opportunity cost of

Since the arbitrageur looks for inefficiencies between the prices in the two markets, in the
above case, he buys 600 shares of RIL in the cash market and takes delivery of the same. At
the same time, he sells 600 shares in the future market by paying a 10 percent margin on the
contract value. The arbitrageur would sell the physical shares on the expiry date and buy
back the futures, which he had sold. In this transaction, the arbitrageur has made a profit of
Rs6000 (600*10).

By hedgers

If the hedger wants to protect his portfolio, which consists of a variety of blue chip stocks,
from the possibility of a fall in prices in the market, he may consider selling Nifty futures as
this index generally represents the movement of market leaders. In order to completely cover
his portfolio balue, he will have to purchase 2 nifty contracts (No. of contracts= value of
portfolio / Nifty value,i.e., 6lakh/3lakh).

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Value of portfolio holdings Rs6lakh
View Bearish for the next one month
Action Sell Index futures
Nifty futures level 3000points
Value of one Nifty contract Rs3lakh

Since our hedger is bearish about the market for the next one month, he will short sell two
contracts of Nifty futures with a maturity period of 1 month each.

If thew market falls by 10 per cent ,i.e., the value of the Nifty falls by 300points to 2700, the
value of the hedger’s portfolio would be reduced to Rs.5.4lakh (rs6lakh less 10 per cent),
assuming that his portfolio is extremely well represented by the index. At the same time,
since he has sold futures worth Rs6lakh , he will make a gain of Rs60,000 due to the fall in
index. As a result the value of his overall holdings remains unaffected by the fall in market.

However, in case of rise in the market, the hedger would lose out on the upside, since he will
have to bear losses on account of his short selling of futures contracts. Here, we have
assumed a 1:1 ratio between the portfolio and the futures value. Incase the hedger had
decided to sell only one contract and the market rose by 10 percent, the losses from selling
futures would be only 30,000 while the gain in the value of his portfolio ould have been


An option contract goes one step beyond a futures contract, towards capping risks. These
contracts give you the right but not the obligation to buy or sell shares or an index, at a
specified price (strike price), on or before a given date in future(expiration rate).So, if you
have purchased an option contract, you have the right to simply ignore the terms of the
contract if the price of the underlying shares or index goes against you. Ofcourse you have to
pay a price, called a premium, for this privilege.
On the other hand of this transaction, there is an option seller, also called the option writer.
This trader gives you the right to buy or sell the underlying asset in exchange for the
premium that you pay. He,
himself has no rights and is obligated to comply with the contract if you choose to exercise
your option.
The lot sizes in the case of option contracts are the same as those for the futures.
The expiration dates for the option contracts are also standardized to match those of the
futures contracts.

Indira School of Career Development, Pune Page 35


These are the levels of strike prices for each index and stock options. The exchange
authorities determine the strike prices. For every option type, the exchanges provide a
minimum of five strike prices during the month. Two contracts will be above the spot price,
two below the spot price and the last one will be equivalent to the spot price. Although the
strike prices are fixed, the strike prices that are added to the existing ones that are traded
keep on changing with the change in spot price.


On the basis of whether you want the option to buy shares or sell tjem at a specific price in
the future, there are two types of options available in the derivatives markets .They are
called the ‘Call option’ and the ‘Put option’.The former gives you the right to buy shares or
an index where as the latter gives you the right to sell them, with no obligation.Let’s take a
look at these two options, one at a time.

Call option
When you purchase a ‘call option’, you purchase the right to buy a certain number of shares
or index, at a predetermined price(strike or exercise price), on or before a specific date in the
future(expiry date).In exchange for this facility,you have to pay an option premium to the
seller/writer of the option.This is because the vwriter of the option assumes the risk that the
market price will rise beyond your strike price on or before the expiry dateof your contract
and he will be obliged to sell you shares at the strike price,although it means making a
loss.The premium payable is a small amount that is also market driven.

Illustration of a call option on an index

As a trader you would choose to purchase an index option if you have a view on the price
movement of the index rather than any expectation about the price movement of a particular
share.Indices on which you can trade include the S&P Nifty CNX 50, CNX IT and Bank
Nifty on the NSE and the Sensex on the BSE.

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Suppose the Nifty is quoting around 3000 points today.If you are bullish about the market
and forsee this index reaching the 3100 mark within the next month, you may buy the one
month Nifty call at 3100.Let’s say that this call is available at a premium of Rs 30 per share.
Since the current contract size of the Nifty is 100 units, you will have to pay a total premium
of rs 3000 to purchase one call option on the index.
If the index remains below 3100 points for the whole of the next month, until the contract
expires, you would certainly not want to purchas4e vit at 3100 levels.And you have no
obligation to purchase it either.You could simply ignore the contract and all you have lost is
ypur premium of Rs3000.

If , on the other hand, the index does cross 3100 points, as you expected,you have the right
to buy at 3100 levels. Naturally, you would like to exercise your call option. But remember
that you will start making profits only once the Nifty crosses 3130 levels, since you must
add the cost youn have incurred by paying the premium to the cost of the index. This is
called your break even point a point where you make no profits and no losses.When the
index is anywhere between 3100 and 3130 points,you begin to recover your premium cost,
so it still makes sense to exercise your option at these levels, if you do not expect the index
to rise further or the contract reaches its expiry date at these levels.
Now let’s look at how the writer of this option is fairing. As long as the index does not cross
3100 and you do not exercise the option, he benefits from the option premium that he has
received from you. If you exercise your option when the index is between 3100 and 3130,he
is forced to part with some of the premium that you have paid him .once the index is
above3130 and you exercise your option,hs losses are equal in proportion to your gains and
both depend upon how much the index rises.

In a nutshell,the option write has taken on the risk of a rise in the index for a sum of Rs30
per share.Further ,while your losses are limited to the premium tht you pay and your profit
potential is unlimited, the writer’s profits are limited to the premium and his losses could be

Indira School of Career Development, Pune Page 37

Index levels Payoff for the Index Call Purchaser Payoff for the Index Call
Below 3100levels Call Purchaser loses premium The premium is the
option writer’s income
Between 3100and Call purchaser recovers part of the premium The option writer loses
3130levels element but still making an overall loss part of the premium
At 3130levels Call purchaser breaks even The option writer also
breaks even
Above 3130levels Profit starts for the call owner Losses start for the
option writer

Illustration of a call option on a stock

In the Indian market, options cannot be sold or purchased on any and every stock. SEBI has
permitted options trading on only certain stocks that meet its stringent criteria. These stocks
are chosen from amongst the top 500 stocks in terms of average daily traded value in the
previous six months on a rolling basis, amongst other technical criteria.

Suppose the AGM o f RIL is due to be held shortly and you believe that an important
announcement will be made at the AGM, while the share is currently quoting at Rs 950, you
feel that this announcement will drive the price upwards, beyond Rs.950. however, you are
reluctant to purchase Reliance in the cash market as it involves too large an investment and
you would rather not purchase it in the futures market as futures leave you to open an
unlimited risk, in case the market goes against you. Yet you do not want to lose the
opportunity to benefit from this rise in price due to the announcement and you are ready to
stake a small sum of money to rid yourself of the uncertainty. An option is ideal for you.

Depending on what is available in the options market, you may be able to buy a call option
of Reliance at a strike price of Rs950 at present, by paying a premium of Rs10 per share.
The total premium that you will have to pay is Rs 6, 000, since one contract of Reliance
consists of 600 shares.

You start making profits once the price of Reliance in the cash market crosses Rs980 per
share (i.e. your strike price of Rs970 + premium paid of Rs10).

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Now let,s take a look at how your investment performs under various scenarios. If the AGM
does not result in any spectacular announcements and the share price remains static at Rs950
or drifts lower to Rs930 because market players are disappointed, you could allow the cal
option on reliance to lapse. In this case, your loss would be Rs10 per share, amounting to a
total of Rs6, 000. However, things could have been worse if you had purchased the same
shares in the cash market or un the futures segment.

On the other hand, if the company makes an important announcement, it would result in a
good amount of buying and the share price may move to Rs1,000. You would stand to gain
Rs20 per share,i.e. rs1,000 less Rs980 (strike price of Rs970 + premium of Rs10), which was
your cost per share.

As in the case of the index call option, the writer of this option would stand to gain only
when you lose and vice versa, and to the same extent as your gain /loss.

Price of Payoff for the Reliance Call Payoff for the Reliance Call
Reliance Purchaser at Strike Price of Rs970 Seller at Strike Price of Rs970
Below Rs970 Call purchaser loses the premium The premium is the option
writer’s income
Between Rs970 Call purchaser recovers part of the The option writer loses part of the
and Rs980 premium element but still making an premium
overall risk
At Rs980 Call purchaser exercises the option The option writer also breaks even
Above Rs980 Call owner exercises the option and Option writer makes losses that
makes profits are equivalent to the call owner’s

Purchasing a call option

You must register with a broker by entering into Client Broker Agreement and completing
all the legal formalities. Once registered you can place an order for an option contract based
on your perceptions about the future movements in the market.


Buying options
When you buy an option contract you pay only the premium for the option and not the full
price of the contract. The premium is payable to the broker based on the contract issued to
you at the end of the day. Your broker then passes this premium to the exchange on the next
Indira School of Career Development, Pune Page 39
working day. Then exchange pays this premium to the broker of the seller option, who in
turn passes it to his client.

Selling options

While the buyer of the opinion has the liability that is limited to the premium that he must
pay, the seller has a limited gain but his potential losses are unlimited. Therefore, the seller
of an option has to deposit a margin with the exchange, via his broker, as security in case of
an adverse movement in the price of the options that he has sold. The margins are levied on
the contract value and the amount (in%terms) that the seller has to deposit is dictated by the
exchange. This amount typically ranges from 15% to as high as60% in times of extreme
volatility. So, the seller of a call option of Reliance at astrike price of 970, who received a
premium of Rs10 per share would have to deposit a margin of Rs1,11,640, assuming a
margin of 20% (20%of 970*600), although the value of this outstanding position is

Settling a call option

When you sell a call or purchase an index option, you can either exit your position before
expiry date, through an offsetting trade in the market, or hold your position open till the
option expires. Subsequently, the clearinghouse settles the trade. In the case of stock options,
you can neither sell your long positions or buy back your short positions before the expiry of
the con tract or exercise your option anytime on or before the expiry date of the contract.

For the buyer of a call option

When you square off your position by selling your options in the market, as the seller of an
option, you will earn a premium. The difference between the premium at which you bought
the options and the premium at which you sold them will be your profit or loss.
In case you exercise your option on or before the expiration date, the stock exchange will
calculate the profit or loss on your positions. This is basically the difference between closing
market price on the day you exercise the option and the strike price.your maximum loss will
be restricted to the premium paid.

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For the seller of a call option

If you have sold call options and want to square off your position, you will have to buy back
the same number of call options that you have written and these must be identical in terms of
the underlying scrip and maturity date to the ones that you have sold. The profits and losses
will be adjusted in against the margin that you have provided to the exchange.

Put option
When you purchase a ‘put option’ it gives you the right to sell the underlying stock or index
at a predetermined price(strike price/exercise price) on or before a specified date in the
future(expiry date).


• A strike price and expiry date are predetermined by the stock exchange.
• The buyer of a put option places a buy order, through his broker, for an option that is
available in the market, specifying the strike price and the expiry date and how much he is
ready to pay for the option.
• The buyer of the put option must pay a premium, which is passed on to the seller by the
• The seller must maintain margins with its broker.
• The buyer of a put option can exercise his option to sell the shares on or before the expiry
date in the case of stock options and only on the expiry date in case of index options.
• The buyer could also sell off the put option to another buyer before the expiry date and
receive a premium.

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Illustration of a put option on an index

Suppose the nifty is currently 3000points and you feel bearish about the market and expect
the nifty to fall from its present levels to around 2900 with in a month. To make the most of
your view of the market, you could purchase a 1-month put option with a strike price of
2950. If the premium for this contract is Rs10 per share, you will have to pay up Rs.1,000
for the nifty put option(100units*Rs10 per unit)

Index Levels Payoff for the index put purchaser Payoff for the index put seller
Above 2950levels Put lapses and the purchaser loses The premium is the option
the premium writer’s income
Between 2950 and Put purchaser recovers part of his The option writer loses part of
2940 levels premium but still makes an overall the income that he has received
At 2940 levels Put purchaser breaks even if the The option writer also breaks
option is exercised even
Below 2940 levels Put owner makes profits if the option Option writer makes loses
is exercised

Illustration of a put option on stocks

Put options on stocks also work on the same way as call options on stocks. Assuming you
believe the price of the Reliance will fall from its current level of Rs950 per share. To make
the most of a fall in the price, you could buy a put option on reliance, at the strike price of
Rs930 at a market determined premium of say Rs10 per share. You would have to pay
Rs6,000 as premium (600 shares* Rs10 per share) to purchase one put option on Reliance.

Price of Reliance Payoff fir the Reliance Put Payoff for the Reliance put
Purchaser Seller
Above Rs930 Put lapses and the purchaser loses The premium is the option
the premium writer’s income
BetweenRs920 Put purchaser recovers part of his The option writer loses part of
and Rs930 premium but still makes an overall the income that he has received
At Rs920 Put purchaser breaks even if the The option writer also breaks
option is exercised even
Below 920 levels Share price tumbles to say Rs900 The out seller makes loses that
and the put owner exercises his are equivalent to the put
option to make profits. purchaser’s profits.

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While the buyer of the option has limited scope for loses, he could make unlimited profits, if
the market moves strongly in his favour. The seller of an option, on the other hand, only
stands to benefit from the premium that he receives but could lose, does this
mean that an option seller must necessarily be an intrepid speculator? No, you could sell call
options in order to hedge your investments or reduce the cost of your investments. However,
the difference is that you must actually hold the underlying shares of the calls that you sell.
These are called COVERED OPTIONS.

Suppose you actually hold600 shares of Reliance in your demat account. If you do not
expect any major movements in the price of Reliance in the cash market and wish to reduce
the cost of these shares, you could sell a call option to the extent of the shares that you hold.
This becomes a covered call. If you don’t expect the price of the Reliance to go beyond
rs950 per share, you may sell a Reliance call at a strike price of Rs950 for a premium of
Rs20. You will receive a total premium of Rs12,000 (Rs20 * 600 shares).

Naked calls or puts

When you sell a naked call or put option, you have no underlying assets or open position in
the futures market to protect you from an unlimited loss, if the market goes against you.
These type of options are sold by speculators who feel very strongly about the direction of
an index or the price of a stock and, if market does go against them, they may try to salvage
the situation by offsetting their option sale by purchasing identical options or they may
consider taking up a position in the futures market that will nullify the losses made through
selling a naked call or put.

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Online trading

ü Basic introduction about online trading

ü Trading tools provided by KEAT

Easy usage of the software


Online Trading is a service offered on the Internet for purchase and sale of equity,
derivatives and commodities. In Online Trading, you will access a stockbroker's website
through your internet-enabled PC and place orders through the broker's internet-based
trading engine. These orders are routed to the concerned Stock or commodity Exchange
without manual intervention and executed thereon in a matter of a few seconds.

For doing online trading the customer needs to open a demat account with the organization.
The requirements for opening an account are:

1. PAN Card of the customer

2. 2 passport size photographs
3. Address proof
4. Passport
5. Bank statement showing latest transactions
6. Cheque leaf of margin money
7. Name declaration (if required)
8. Photocopy of the previous holdings (if any)
9. Signatures of the client
10. Witness signatures
11. Photograph of a nominee and his signatures
12. email id of the client

The client can get his account linked to the organization if he/she is having a saving account
in either of the following banks: HDFC, ICICI, Kotak Mahindra Bank or UTI. This will help
the client in easy money transfer as and when required by the client.

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Less than 1lakh 0.59% Kotak Gateway

1-5 lakh 0.55%
5-10 lakh 0.45%
10-20 lakh 0.36%
20-60 lakh 0.27% Kotak Value Account
60lakh-2 crore 0.23%
greater than 2crore 0.18% Kotak Privilege circle

Cash squaring up

Less than 25 lakhs 0.06%both sides Kotak Gateway Account

25lakhs-2 crores 0.05%both sides Kotak Value Account
2crores-5crores 0.04%both sides Kotak Privilege circle
Greater than 5 crores 0.0.3%both sides


Daily Sq. up Settlement

Less than 2 crores 0.07%both sides 0.09% both sides- Kotak Gateway Account
2-5.5 crores 0.45% both sides 0.073% both sides- Kotak Value Account
5.5-10 crores 0.36% both sides 0.046% both sides
10-25 crores 0.27% both sides 0.046% both sides- Kotak previlege A/c
Greater than 25 crores 0.23% both sides 0.032% both sides

These charges are negotiable and can be further reduced if the client is able to produce the
contract note of his earlier trading with some other organisation to the company.

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• Service tax of 10.2% of brokerage will be charged in addition.

• Securities Transaction Tax(STT) @0.1% of turnover will be charged in addition on all
delivery trades.
• STT @0.02% will be charged on non delivery trades in the cash market.
• STT @0.0133% will be charged on non delivery trades in derivatives market.


Sr. Account Head Rate Minimum

No. Payable
1 Dematerialisation Rs. 3/-per certificate plus
Rs.25/-per request
2 Rematerialisation 0.04%of the value of Rs.15/-
3 Market Transaction(sell) 0.04% of the value of Rs.23/-
4 Off Market Transaction(sell) 0.04% of the value of Rs.23/-
5 Account Maintainence Rs.30/-per month -
6 Pledge charges 0.05% of the value of Rs.30/-
7 Invocation of Pledge 0.04% of the value of Rs.30/-
8 Borrowing of securities 0.05% of the value of Rs.30/-

• There are no charges payable at the time of opening account. All other charges will be
billed on a monthly basis.
• In case of delays in the payment of charges, the demat account can be frozen for all
operations in such time all dues are cleared.
• All market instructions for transfer must be received latest by 4.00p.m. on the previous
working day prior to the pay in day as per SEBI guidelines.
• All instructions for transfer must be received at least 48 hours before the execution date.
Late instructions would be executed at the account holder’s risk and responsibility.

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• Charges are subjected to revision at the company’s sole descretion and as per revisions in
NSDL charges.
• Any service not quoted above will be charged separately.
• Value of transaction will be in accordance wih rates provided by the depository.
• Service tax and other statutory charges if applicable will also be levied.

Different types of orders that can be placed on Kotak

1. Normal orders : When you sell shares without marking delivery it is treated as a short sale
and would be executed if there are sufficient funds available to execute the transactions.

2. Delivery mafk orders : This intimates the system to take delivery for the order placed. You
need not mark delivery for a buy order, because if you don’t square-off the transaction, the
system automatically takes delivery. In case you mark delivery for a sell order, then it is
not reckoned as a utilization of limits and hence your “utilized margin” will remain
unchanged on execution of these transactions. The system will check your demat stock
availability and the transaction will go through only if the stock is available in your demat

3. Margin finance order : A margin finance order can be placed only if you have registered
for margin funding. Using this facility you can buy shares at 50% margin, the balance
50% is provided by at a nominal interest rate.

4. Market order : An order placed for execution at the prevailing market price. To place a
market order type 0 as the price column or the price displayed by default is taken as
market order.

5. Limit order : An order placed with a specific price that we want is a limit order. In such a
case we may replace the market price with a price of our own.

6. Stop loss order : An order placed, which gets activated only when the market price of the
relevant scrip reaches or crosses a threshold price, which is called trigger price. Until then
the order does not enter the market but sits with the NSE.

7. Disclosed order quantity : The order quantity to be placed in the market can be any
number with a minimum quantity of one share. In case of large quantity orders, there is an
option of disclosing smaller quantity i.e., in lots of 10% of the total quantity. As and when

Indira School of Career Development, Pune Page 47

the lot is executed, the next lot will be pushed into the market automatically for execution
till the quantity is filled.

8. Multiple order : It is a facility provided by which allows you to place

an order in 5 scrips with a single click.

9. Cover order : It is a facility by wherein two orders will be accepted at

the same time, onr being a normal order and second a stop loss order with a trigger price.
Eg-if you place an order to buy 200 shares of sbi at 886, you can simultaneously, place a
sell order at 880 to restrict your losses. In case SBI does not reach 880, this order will be
automatically cancelled at the end of the trading day. You need to mention the trigger
price at which stop loss will be released in the system.


• For rolling settlements it is necessary to pay us the relevant amount at least a day (before
3.30p.m.) before the pay in date of the concerned settlement. Clear funds for share
purchases are required to be in the client’s bamk account one day prior to the pay in date.
Shares should be available in your demat account with the organization one day prior to
the pay in date.
• Pay out money will be credited to your account by the next working day after receipt of
the money from the exchange. The purchased shares will be transferred to your demat
account on the next working day after the receipt from the exchange.

Payment cycle when customer buys the shares(applicable on delivery trades)

Day Transaction Party with Activity

Day obligation
Day1 T (Monday) Customer Order for buy shares of a particular company is
Day2 T+1 (Tuesday) Customer Funds to be paid by customer to Kotak Securities
for shares purchased.
Day3 T+2 Kotak Kotak Securities transfers funds to stock exchange.
(Wednesday) Securities
Day3 T+2 Stock Stock exchange transfers shares to Kotak
(Wednesday) Exchange Securities.
Day4 T+3 Kotak Shares purchased on day1 are reflected in the
(Thursday) Securities customer’s dmat account and are made available
for delivery trade.

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Payment cycle when customer sells shares

Day Transaction Party with Activity

Day obligation
Day T (Monday) Customer Sell order for shares lying in his/her demat A/c is
Day T+1 (Tuesday) Customer Shares to be sold should be available in the demat
A/C with Kotak Securities.
Day T+2 Kotak Securities Kotak Securities transfers sgares to stock
(Wednesday) exchange.
Day T+2 Stock Exchange Stock exchange transfers funds to Kotak
(Wednesday) Securities.
Day T+3 (Thursday) Kotak Securities Funds due to customer for the shares sold are
reflected in his trading A/C.

The products available with Kotak Securities Ltd.

1. Portfolio management scheme(PMS)

In this the investor is required to invest a sum of Rs. 5 lakhs of whose portfolio is then being
managed by the organization which promises to give the customer a guranteed return (not in
written) of 30%.Kotak securities Ltd. gave a satisfying return of 56% to the customers the
previous financial year.

2. Kotak Mahindra Investment Ltd.

In the customer is required to invest a sum of Rs.5lakhs. Under this scheme the finance is
provided by the company at an interest rate of 18%.
This scheme is basically for those who desire to invest in the market , have a good market
knowledge but have a shortage of finance.

3. Jumpstart

Kotak Super Saver : Investment account with an attractive flat brokerage rate and lower
initial margin.
Kotak Super Secure : Investment account with a flat brokerage rate along with additional
insurance cover.

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Initial margin Rs.1000/- Rs.1000/-

Account Rs.2500/- Rs.2500/-

opening fee Rs.2000/- reversible against 7 Rs.2000/- reversible against
months brokerage including the 7months brokerage including the
month of account opening. month of account opening.

Insurance Insurance of Rs.500000/-

At a premium of Rs.1000/-
And handling charges of


Delivery 0.045% 0.045%

Cash square up 0.05% 0.05%

Derivatives 0.06% 0.06%
daily square up

SMS Stock Rs.100/-p.m. Rs.100/-p.m.

Call and trade First 20 calls free.Rs.20/-per First 20 calls free.Rs.20/-per
facility Call from the 21st call Call from the 21st call

KEAT Lite free Free

4. Kotak Gateway Secure : is an investment account for beginners in the stock market with the
added advantage of an insurance cover.
Account can be activated with any amount between Rs.5,000/- to Rs.5,00,000 as margin.
This can be in form of cash or the value of shares you transfer.

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Volume slab Brokerage

Less than 1 lakh 0.59%
1lakh-5lakh 0.55%
5lakh-10lakhs 0.45%

Volume Slab Brokerage

Less than 25 lakhs 0.06% both sides

Volume Slab Daily Sq. Up Settlement

Less than 2 crores 0.07% both sides 0.09%both sides

SMS Stock alerts Rs.100/-

Call and trade facility First 20 calls free.Rs.20/-per
Call from the 21st call

KEAT Lite Free

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SWOT Analysis

ü Strength

ü Weakness

ü Opportunities

ü Threats


• Kotak Securities one of the largest players in distribution of IPO’s.

• It’s brokerage charges are almost half of those with ICICI Web trade.

• Highly co-operative and skilled staff.

• Sales oriented organization.

• Aggressiveness of sales force in selling products.

• The company has expertise in managing big business.

• Effective and wider distribution network

• It has 113 branches serving around 1,00,000 people.
• It is currently managing assets worth Rs.1700 crores.

• Product designed for every area of personal.

• The office hours of the company for the customers are from 9am to 6pm.
• The company enjoys a very high brand loyalty and recall value among its customers.

• The company has a presence in all metros as well as in the most of the major cities in
the country.

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• No presence in the rural and semi-urban segment.

• Lack in making follow-ups.

• Lack of corporate agents.

• Lack of customer services and promotional activities.

• There is continuous growth in this sector.

• People have started turning towards the organization as they know that facilities are
far better than the others.
• Market is fully vacant to capture because the branch has recently setup its business.

• Competition in the sector is increasing with the entry of lots of private giants with the
collaboration of foreign giants.
• Selling attitude for the company always has to be maintained in order to compete
with other companies.
• Continuous follows up of the clients and customers.
• As other organizations like ICICI web trade, India Info line, etc.are there in the city
so it is a little bit difficult for them to capture the market.



Some of the Suggestions and Recommendations for improving the present Image as well as
the Services of Kotak Securities Ltd.are as follows:

More Branches:
Some more branches should be opened so it become more easy and approachable for the
people to do their transaction. The branches should have well trained employees.
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Customer Awareness:
The people should be updated with the new issues and the schemes started by the
organization to the exiting customers.
The customers should be informed about the newly issued scrips as well as be given daily
basis tips / news for profitable transactions.
Regular contact with the customers through telephone can be maintained for smooth running
of the business.

Feed Back:

A proper feedback system should be designed to take care of the dissatisfied customers and
solving their problem as their bad words of mouth publicity can make Kotak Securities Ltd.
loose it’s potential as well as existing customers.

Well Trained Customers Care Staff:

For satisfactorily handling queries to establish more good standards in trading can be done
through outstanding performance, courteous services and a high ethical benchmark

Higher Penetration in the Untapped Market:

Approaching all the potential clients, making them aware about various instruments and
convincing them.

Newspaper and Agents:

Newspaper and agents are most effective tools for awareness, so Kotak Securities Ltd.
should use these tools more for Advertisement.


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Research Methodology: C.R. kothari

Financial Management: Khan & Jain

Investment Management: Preeti Singh

Ø Annual Report, Kotak Securities Ltd.2006

Ø Pamphlets and Brochures of Kotak Securities Ltd.
Ø Organizational Profile of Kotak Securities Ltd.
Ø Click by Click user manual of Kotak Securities Ltd.



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