“A STUDY ON INVESTMENT BEHAVIOUR OF THE INVESTORS” “Dissertation Report” submitted in partial fulfillment of the requirement for the award

of the degree of

“Master of Business Administration” Of Bangalore University Submitted By Avinash Kumar Singh (06RWCM6012) Under the guidance of Ms M. Priya

T. JOHN GROUP OF INSTITUTIONS Bangalore

Student’s Declaration
I Avinash Kumar Singh hereby declare that this dissertation titled “A Study on Investment Behavior of the Investors” submitted by me to the department of Management, Bangalore University in partial fulfillment of requirement of MBA programme is a bonafide work carried by me under the guidance of Ms M Priya This has not been submitted to any other university or institution for the award of any degree or published any time before.

Place: Bangalore Singh Date:

Avinash Kumar

Certificate from Faculty Guide
Certified that this dissertation entitled “A Study on Investment Behavior of the Investors” submitted in partial fulfillment for the award of MBA Degree of Bangalore University, was carried out by Avinash Kumar Singh has not been submitted to any other university or institution for the award of any degree/diploma/certificate.

__________________ ____ (Ms M Priya)

Acknowledgement
I express my sincere gratitude towards the Manager for providing me the information for the successful completion of my dissertation. I am also thankful towards the management for providing me the opportunity, guidance and encouragement for the successful completion of my dissertation. I am also thankful to my Guide Ms M Priya for giving me the valuable time and teachings. Under the able guidance of my mentor I have learned a lot about how to go about for my dissertation. Lastly I express my sincere thanks to my Parents and Friend and Those who have helped directly or indirectly in successful completion of my Dissertation

Contents

1. Introduction to Insurance industry. 2. Research Design 3. Industry Profile

4. Analysis and Interpretation of Data 5. Summary of Findings, Conclusion and

Recommendations. Bibliography Annexure

List of Tables
S. No 1 2 3 4 5 6 7 Title Investment preference among varies age groups Investment preference among various income levels Types of Investment Frequency of Investment Basis of investment Investment pattern affected by market movement Factors influence to choice various investment alternatives Period of the investment Reason behind the choice of investment Analysis of companies before investing in percentage

8 9 10

11

The type of analysis used by the investors.

List of Graphs

S. No 1 2 3 4 5 6 7

Title Investment preference among varies age groups Investment preference among various income levels Types of Investment Frequency of Investment Basis of investment Investment pattern affected by market movement Factors influence to choice various investment alternatives Period of the investment Reason behind the choice of investment Analysis of companies before investing in percentage

8 9

10 The type of analysis used by the investors. 11

INTRODUCTION

1. Introduction: Chapter 1 The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future, which is known as 'investment'. There are various investment avenues such as Equity, Bonds, Insurance, Bank Deposit etc. A Portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal.

The two key aspects of investment are time and risk. Sacrifice takes place now and is certain. Benefit is expected in the future and tends to be uncertain. In some investments (like stock options) risk element is dominant attribute and in some investment (like govt. bonds) time is dominant attribute .There are various factors which affects investors' portfolio such as annual income, government policy, natural calamities, economical changes etc.

Almost every one owns a portfolio of investments. The portfolio is likely to comprise financial assets (bank deposits, bonds, stocks, and so on) and real assets (motorcycle, house, and so on)

The Companies Act 1850, introduced the concept of limited liability to India, served to stimulate the activity in the stock market. From then number of acts are passed to boost the revolutionary change. The global capital market registered spectacular growth in the decade of 1990's which had an effect on the growth of Indian market.

The world market capitalization grew at an average annual rate of 16% during the decade, it grew from about US $ 9.3 trillion in 1990 to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion by 2001.

The turnover on all markets taken together has grown nearly 19 times from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before depleting to about US $ 42 trillion in 2001.

The turnover in developed markets has, however, grown more sharply than that in emerging markets. The US alone accounted for about 70% of world wide turnover in 2001. Despite having a large number of companies listed in its stock exchanges, India accounted for a merger of 59% in 2001 as compared to 1.06% in 2000.

The stock markets world wide has grown in size as well as depth: since last one decade. During the decade 1990-2000, the world market: capitalization/GDP ratio more than doubled from 51% to 120%. Value traded GDP rose from 29% to 103% and turn over ratio shot up from 48% to 89%. The combined market capitalization of a select 22 emerging economies increased US $ 339 billion in 1990 to US $ 2.2 trillion in 2000.

The average market capitalization increased from 3.6% to 7%, Annual value of shares traded increased from $ 180 billion to $ 2.2 trillion increased from 16.7% to 45.5%.

For India the total capitalization grew from $ 38,567 million at the end of 1990 to $ 110,396 million at the end of 2001. Turn-over of stocks increased from $ 21,198 million in 1990 to $ 249,298 million in 2001. Market capitalization as a percentage of GDP grew from 12.2% in 1999 to 32.4% in 2001 .while turnover ratio went up from 65.9% in 1999 to 191.4% in 2000. The number of listed companies in India was 5,975 as at end of 2001. There are very few countries, which have higher turnover ratio than India. Standard and Poor (SP) ranked India, 25th in terms of market capitalization, 15th in terms of total value traded in stock-exchanges and 6th in terms of turn-over ratio.

2.1 Industry Overview: Globalization of the financial market has led to a manifold increase in investment. New markets have been opened; new instruments have been developed new services have been launched.

India has a well established capital market mechanism where in effective and efficient transfer of money capital or financial resources from the -vesting class to the entrepreneur class in the private and public sector of the economy occurs. Indian capital market has a long history of organized trading which started with the transaction in loan stocks of the East India Company from; at time it has undergone drastic changes to meet the requirements of the globalization.

The Indian Capital Market had been dormant in the 70's and 80's - 3S witnessed unprecedented boom during the recent years. There has been a shift of household savings from physical assets to financial assets, particularly:" i.e. risk bearing securities such as shares and debentures. Capital markets 3tructure has also undergone sea changes with number of financial services and banking companies, private limited companies coming in to the scene which lade the competition in the market stiffer.

The Companies Act 1850, introduced the concept of limited liability in India, served to stimulate the activity in the stock market. From then number of acts are passed to boost the revolutionary change. The global capital market registered spectacular growth in the decade of 1990's which had an effect on the growth of Indian market.

The world market capitalization grew at an average annual rate of ° 6% during the decade, it grew from about US $ 9.3 trillion in 1990 to about US $ 6 trillion in 2000 but f911 to about US $ 28 trillion by 2001. The turnover on all markets taken together has grown nearly 19 times from US $ 5.5 trillion in 1990 US $ 48 trillion in 2000 before depleting to about US $ 42 trillion in 2001.

The turnover in developed markets has, however, grown more sharply than that in emerging markets. The US alone accounted for about 70% of world wide turnover in 2001. Despite having a large number of companies listed in its stock exchanges, India accounted for a merger of 59% in 2001 down from 1.06% in 2000.

The stock markets world wide has grown in size as well as depth over last one decade. During the decade 1990-2000, the world market capitalization/GDP ratio more than doubled from 51% to 120%. Value traded 3DP rose from 29% to 103% and turn over ratio shot up from 48% to 89%. The combined market capitalization of a select 22 emerging economies increased from US $ 339 billion in 1990 to US $ 2.2 trillion in 2000.

The average market capitalization increased from 3.6% to 7%, annual value of shares traded increased from $ 180 billion to $ 2.2 trillion and GDP increased from 16.7% to 45.5%.

For India the total capitalization grew from $ 38,567 million at the ed of 1990 to $ 110,396 million at the end of 2001.

Turn-over of stocks increased from $ 21,198 million in 1990 to $ 249,298 million in 2001. Market capitalization as a percentage of GDP grew from 12.2% in 1999 to 32.4% in 2001 while turnover ratio went up from 65.9% in 1999 to 191.4% in 2000. The number of listed companies in India was 5,975 as at end of 2001. There are very few countries, which have higher turnover ratio than India. Standard and Poor (SP) ranked India, 25th in terms of market capitalization, 15th in terms of total value traded in stock-exchanges and 6th in terms of turnover ratio.

Indian Securities Market

The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. Along with this growth, the profiles of the investors, issuers and intermediaries have changed significantly. The market has witnessed Fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety.

Dependence on Securities Market Three main sets of entities depend on securities market. While the corporate and Governments raise resources from the securities market to meet their obligations, the households invest their savings in the

securities. Corporate Sector: The 1990s witnessed emergence of the securities market as a major source of finance for trade and industry. A growing number of companies are accessing the securities market rather than depending on loans from FIls/banks. The corporate sector is increasingly depending on external sources for meeting its funding requirements.

There appears to be growing preference for direct financing (equity and debt) to indirect financing (bank loan) within the external sources. According to CMIE data, the share of capital market based instruments in resources raised externally increased to 53% in 199394, but declined thereafter to 33% by 199900 and further to 21 % in 2001-02.

In the sector-wise shareholding pattern of companies listed on NSE, it is observed that on an average the promoters hold more than 55% of total shares. Though the Non-promoter holding is about 44%, Indian public held only 17% and the public float (holding by Fils, MFs, Indian public) is at best 25%

There is not much Difference in the shareholding pattern of companies in different sectors. Strangely, 63% of shares in companies in media and entertainment sector are held by private corporate bodies though the requirement of public offer was relaxed to 10% for them. The promoter holding is not strikingly high in respect of companies in the IT and telecom sectors where similar relaxation was granted.

Governments: Along with increase in fiscal deficits of the governments, the dependence on market borrowings to finance fiscal deficits has increased over the years. During the year 1990-91, the state governments and the central government financed nearly 14% and 18% respectively of their fiscal deficit in percentage terms, dependence of the state governments on market borrowing did not increase much during the decade 1991-2001. In case of central government, it increased to 77.6% by 2002-03.

Households: According to RBI data, household sector accounted for 82.4% of gross domestic savings during 2001-02. They invested 38% of financial savings in deposits, 33% in insurance/provident funds, 11 % on small savings, and 8% in securities, including government securities and units of mutual funds during 2001- 02. Thus the fixed income bearing instruments are the most preferred assets of the household sector. Their share in total financial savings of the household sector witnessed an increasing trend in the recent past and is estimated at 82.4% in 2001- 02. In contrast, the share of financial savings of the household sector in securities (shares, debentures, public sector bonds and units of UTI and other mutual funds and government securities) is estimated to have gone down from 22.9% in 1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02; Though there was a major shift in the saving pattern of the household sector from physical assets to financial assets and within financial I assets, from bank deposits to securities, the trend got reversed in the recent past due to high real interest rates, prolonged subdued conditions in the secondary Market, lack of confidence

by the issuers in the success of issue process as well as of investors in the credibility of the issuers and the systems and poor performance of mutual funds. The portfolio of household sector remains heavily weighted in favor of physical assets and fixed income bearing instruments. Investor Population

The Society for Capital Market Research and Development carries out periodical surveys of household investors to estimate the number of investors. Their first survey carried out in 1990 placed the total number of share owners at 90-100 lakh. Their second survey estimated the number of share owners at around 140-150 lakh as of mid-1993. Their latest survey estimates the number of shareowners at around 2 crore at 1997 end, after which it remained stagnant up to the end of 1990s.

The bulk of increase in number of investors took place during 199194 and tapered off thereafter.49% of the share owners at the end of 2000 had, for the first time, entered the market before the end of 1990, 44% entered during 1991-94, 6.3% during 1995-96 and 0.8% since 1997. The survey attributes such tapering off to persistent depression in the share market and investors' bad experience with many unscrupulous company promoters and managements.

Distribution of Investors: The Society for Capital Market Research & Development estimates that 15% of urban households and only 0.51.0% of semi-urban and rural households own shares. It is estimated that 4% of all households own shares.

RESEARCH DESIGN

RESEARCH DESIGN

Chapter 2

2.1. Problem Identification:

Analyze the investment pattern of people and the popularity of different products (Fund Invest, RBI Bonds, Stock Direct, Insurance ,mutual funds and other securities ) provided by the financial institutions and banks for investment.

2.2 Objective of the study:

•To study the investment pattern of people. •To study the investment decisions of different social class people (in term of age group, education, income level etc.) •To analyze the investment pattern of people who reside in an economically developed area and economically developing area. •To study techniques and principles useful in systematic and rational investment management. •To study the popularity of various products offered for investment in the market. •And, to study the role of brokerage firm as an intermediaries.

2.3 CONCEPTS

2.3.1 Investment:

Investment means buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold as an investment, real estate, or collectibles.

Investment is the commitment of a person's fund to derive future income in the form of interest, dividend, premiums ,pension benefits or appreciation in the value of their capital .Valuation is the method for assessing whether a potential investment is worth its price. Types of financial investments include shares or other equity investment, and bonds (including bonds denominated in foreign currencies). These investments assets are then expected to provide income or positive future cash flows, but may increase or decrease in value giving the investor capital gains or losses.

Essential nature of investment •Reduced current consumption •Planned later consumption •By saving money (instead of spending it), individuals tradeoff present consumption for a larger future consumption.

2.3.2 Characteristics of Investment:

(i)

Interest (return)

When we borrow money, we are expected to pay for using it - this is known as Interest. Interest is an amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal balance (the amount of money borrowed).

The percentage rate may be fixed for the life of the loan or it may be variable, depending on the terms of the loan. And also it can be defined when we invest in some asset then,

Rate of return

=

Annual income + (end price -begin price) Begin price

What factors determine interest rates?

The factors which govern these interest rates are mostly economy related and are commonly referred to as macroeconomic factors. Some of these factors are:

• • • •

Demand for money Level of Government borrowings Supply of money Inflation rate

(ii) Risk Risk may relate to loss of capital, delay in repayment of capital nonpayment of interest, or variability of return. While some investment such as government securities and bank deposits are almost without risk, others are more risky. The risk of an investment is determined by the investment's maturity period, repayment capacity, nature of return commitment, and so on.

To measure the deviation of the person's income: - Variance - Standard deviation - Beta

(iii) Safety Every investor expects to get back the initial capacity on maturity without loss and without delay. Investment safety is gauged through the reputation established by the borrower of the fund. A highly reputed and successful corporate entity assures investors of their initial capital.

(iv) Liquidity An investment which is easily saleable or marketable without loss of money and without loss of time is said to be possess the characteristic of liquidity. Some investments such as deposit in unknown corporate entities, bank deposit, post office deposit, national saving certificate, and so on are not marketable.

An investor tends to be prefer maximization of expected return, minimization of risk, safety of fund, and liquidity of investment

Investment versus speculation

INVESTER • Has a relatively longer • • •

SPECUALTER Has very short planning Assumes high risk Assumes high rate of return

planning horizon • • return • Gives greater significance Assumes moderate risk Assumes modest rate of

for high risk • Relies more on hearsay

technical charts, and market. • Normally borrow from

to fundamental factors and evaluates the firm • funds Typically uses his own

others.

The three Qolden rules for all investors are: ~ Invest early ~ Invest regularly ~ Invest for long term and not short term

One needs to invest for ~ Earn return on your idle resources ~ Generate a specified sum of money for a specific goal in life ~ Make a provision for an uncertain future

~ To meet the cost of inflation

2.3.4 Types of Investment:

(i) Short term Investment- It is an investment made by the investor for very short period of time i.e. for one to three years. Such as investment in bank, money market, liquid funds etc.

(ii) Long Term Investment - When investor invests money for more than three to five years then it is called long term investment. Such as investment in bonds, mutual funds, fixed bank deposits, PPF, insurance etc Various options available for investment ~ Physical assets • Real estate • Gold/jewelry • Commodities • Assets etc. ~ Financial assets • fixed deposits with banks • Small saving instruments with post offices • Insurance /provident /pension fund etc. > Securities market • Share

• Bonds • Debentures • Mutual fund • Derivatives etc. 2.3.5 Investor: Investor is a person or an organization that invest money in various investment sources for specific objective. Attitude of investment is different in each alternative. E.g. financial market have different attitude towards risk and return. Some investors are risk avers, while some have an affinity of risk. The risk bearing capacity of investor is a function of personal, economical, environment, and situational factors such as income, family size, expenditure pattern, and age. A person with higher income is assumed to have higher risk-bearing capacity. Thus investor can be classified as risk skiers, risk avoiders, or risk bearers Before making any investment, one must ensure to: > Obtain written documents explaining the investment > Read and understand such documents > Verify the legitimacy of the investment > Find out the costs and benefits associated with the investment > Assess the risk-return profile of the investment > Know the liquidity and safety aspects of the investment > Ascertain if it is appropriate for your specific goals > Compare these details with other investment opportunities available > Examine if it fits in with other investments you are considering or you have already made

> Deal only through an authorized intermediary > Seek all clarifications about the intermediary and the investment > Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.

Portfolio

A Portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal. Items that are considered a part of your portfolio can include any financial asset you own, like shares, debentures, bonds, mutual fund units etc. and real assets like gold, art and even real estate etc. However, for most investors a portfolio has come to signify an investment in financial instruments like shares, debentures, fixed deposits, mutual fund units.

Diversification

It is a risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of anyone security on overall portfolio performance. Diversification is possibly the best way to reduce the risk in a portfolio.

Advantages of having a diversified portfolio

A good investment portfolio is a mix of a wide range of asset class. Different securities perform differently at any point of time.

So with a mix of asset types, your entire portfolio does not suffer the impact of a decline of anyone security. When your stocks go down, you may still have the stability of the bonds in your portfolio. There have been all sorts of academic studies and formulas that demonstrate why diversification is important, but it's really just the simple practice of "not putting all your eggs in one basket. If you spread your investments across various types of assets and markets, you'll reduce the risk of your entire portfolio getting affected by the adverse returns of any single asset class.

PORTFOLIO MANAGEMENT PROCESS 1.specification of investment objectives and constraints 2.choice of the asset mix 3.formulation of [portfolio strategy 4.selection of securities 5.portfolio execution 6.portfolio revision 7.performance evaluation

2.4 SCOPE OF THE STUDY 2.4.1 Investment Avenues: In India, numbers of investment avenues are available for the investors. Some of them are marketable and liquid while others are non marketable and some of them also highly risky while others are almost risk less. The investor has to choose Proper Avenue among them, depending upon his specific need, risk preference, and return expected

Investment avenues can broadly categories under the following heads 1. Corporate securities Equity shares Debenture/Bonds Warrants Preference shares GDR's/ADR's Derivatives

2.Deposit in bank and non banking companies 3.Post office deposits and certificate 4.Life insurance policies 5.Provident fund schemes 6.Government and semi-government securities 7.Mutual fund and schemes 8.Real estate

Odd Lot Market The odd lot market facility is used for the Limited Physical Market. The main features of the Limited Physical Market are detailed in a separate section (1.14).

RETDEBT Market The RETDEBT market facility on the NEAT system of capital market segment is used for transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in the same manner as in equities (capital market) segment. The main features of this market are detailed in a separate section (1.15) on RETDEBT market.

Auction Market

In the Auction market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. The main features of this market are detailed in a separate section (1.13) on auction.

(a) Equity share Equity capital represents ownership capital. Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a 'share'. Thus, the company then is said to have 20, 00,000 equity shares of Rs 10 each. Equity share holders collectively own the company .they bear the risk and enjoys the rewards of ownership. The holders of such shares are members of the company and have voting rights. When company makes profit shareholder receives there share of the profit in form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companies share goes up in the market.

\Investor can invest in shares either primary market offerings or in the secondary market. While fixed income investment avenues may be the more important of the investors, equity shares seem to capture their interest the most.

Authorized capital: The amount of capital that a company can issue as per its memorandum .

Issued capital: The amount offered by the company to the investors Paid-up capital: It is part of issued capital that has been subscribed to by the investors.

Face value: The value printed on the share scrip (if share is issued at face value It is called par value) Premium: If the share sold at higher than face value. Discount If the share sold at lower than face value.

(b) Preference shares Preference share as that part of share capital of the Company which enjoys preferential right as to: (a) payment of dividend at a fixed rate during the life time of the Company; and (b) the return of capital on winding up of the Company. It is lie in between pure equity and debt. But preference shares cannot be traded, unlike equity shares, and are redeemed after a pre-decided period. Also, Preferential Shareholders do not have voting rights. These are issued to the public only after a public issue of ordinary shares.

Preference shares also get traded in the market and give liquidity to investor. Investor can opt for this type of investment when their risk performance is very low. currently preference dividend is tax exempt.

(c) Debentures and Bonds It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government corporations and similar institutions sell bonds.

A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.

Many types of debenture and bonds have been structured to suit investors with different time needs. Though having higher risk as compared to bank fixed deposits, bonds and debentures do offer higher returns. Debenture instruments require scanning the market and choosing specific securities that will cater to investment objectives of the investor.

(d) Depository Receipts (GDRs/ADRs)

Global depository receipts are the instrument in the form of a depository receipts or certificate created by the overseas depository bank outside India and issued to non-resident investors against ordinary shares. A GDR issued in America, is an American Depositary Receipts. As investors seek to diversify their equity holdings, the option of GDRs and ADRs is very lucrative, while investing in such securities, investors should identify the

capitalization and risk characterizes of the instrument and the companies' performance in the home country.

(e) Warrants

A warrant is a certificate giving its holder rights to purchase securities at a stipulated price within a specified time limit. The warrants act as a value addition because holder of the warrant has the right but not the obligation to investing in equity at the indicated rate. An option contract often sold with another security. For instance, corporate bonds may be sold with warrants to buy common stock of that corporation. Warrants are generally detachable. Options generally have lives of up to one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called Warrants and are generally traded over-the counter

(ii) Savings bank account with commercial bank Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options. Savings Bank Account is often the first banking product people use, which offers low interest (8%-11.5% p.a.), making them only marginally better than fixed deposits. (iii) Bank fixed deposits Fixed Deposits with Banks are also referred to as term deposits. Minimum investment period for bank FDs is 30 days. Fixed Deposits in banks are for those investors, who have low risk appetite. Bank FDs is likely to be lower than money market fund returns. •Deposits in banks are very safe because of the regulations of RBI and the guarantee provided by the deposit insurance corporation. •The interest rate on fixed deposits varies with term of the deposits

•Bank deposits enjoy exceptionally high liquidity •Loans can raised against bank deposits iv) Company fixed deposits These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi annually or annually. Fixed deposits mobilized by manufacturing companies is regulated by the Company Law Board and fixed deposits mobilized by the finance companies (precisely non banking companies) are regulated by the RBI .They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes. •Company deposits represents unsecured loans •Company deposits have to be necessarily credit rated •Depositors don't get any tax benefits. (v) Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any Post Office. It provides an interest rate of 8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in multiples of Rs. 1,000/-. Maximum amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/-(if held jointly) during a year.

It has a maturity period of 6 years. A bonus of 10% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely. The 10% bonus is also denied. •Deposits can be made in multiple of Rs.50 •Deposits can be pledged •The interest rate on deposits is slightly higher than banks • The interest is calculated half yearly and paid yearly Schemes like monthly income scheme of post office, Kisan vikas patra, and National saving certificate etc...

(vi) Life insurance policies Insurance companies offer many investment schemes to investors. These schemes promote saving and additionally provide insurance cover. L1C is the largest life insurance company in India. Some of its schemes include life policies, •Convertible whole life assurance policy, •Endowment assurance policy, •Jeevan Saathi, •Money back policy •Unit linked plan •Term assurance •Immediate annuity •Deferred annuity • Riders etc.

Insurance policies, while catering to the risk compensation to be faced in the future by investor, also have the advantage of earning a reasonable interest on their investment insurance premiums.

Considerations in choosing a policy: •Reviewing the insurance needs and circumstances and that most closely fit our needs. •Ability of the payment of the premiums •Don't buy life insurance unless you intend to stick with your plan (vii) Public Provident Fund (PPF): A long term savings instrument with a maturity of 15 years but no of contributions annually has to be 16 and interest payable at 8% per annum compounded annually. The subscriber to a PPF has to make minimum of deposits of Rs.100 Annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free.

A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any.

The subscriber to the PPF is eligible to take loan from the third year sixth year after opening of account .and interest for that loan is 1 % higher than PPF ACC interest rate.

(viii) Government and semi-government securities It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.

The government issues securities in the money market and in the capital market. Money market instruments are traded in Wholesale Debt Market (WDM) trades and retail segments. Instruments traded in the money market are short term instruments such as treasury bills and convertible bonds. Three types of instruments are issued by govt are:

•An investment resembles a co. debenture .It carries the name of the holder and registered with Public Debt Office. •A promissory note to the holder, which contain the promise by President of India (or state govt). •A bearer security where the interest and other payments are made to holder.

(ix) Mutual fund These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time, risk factor or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification.

Till 1986 the Unit Trust Of India was only offering mutual funds. As mutual fund sector is liberalized, at present there are more than 30 mutual funds offering over 1000 schemes.

Entities involved in mutual find operation are: Mutual fund, the trustee, the asset management company, the custodian, the registrar and transfer agents.

Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net asset value (NA V), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds, which are short term instruments.

Mutual fund schemes invest in three broad categories of financial assets like equity ,bond and cash .On the basis of objective we can categories mutual funds as equity funds/growth funds, diversified funds, sector funds, index funds, tax saving funds, debt/income funds, liquid funds/money market funds, gift funds, balanced funds, mixed funds. And on the basis of flexibility we can categories them as open-ended funds, close-ended funds and interval funds. Pros and cons of mutual funds Pros Diversification Professional management Liquidity Tax advantages Comprehensive regulation Transparency Cons expenses lack of thrill

(x) Real Estate Investment in real estate also made when the expected returns are very attractive. Buying property is an equally strenuous investment decisions. Real estate investment is often linked with the future development plans of the location. At present investment in real assets is booming there are various investment source are available for investment which are directly or indirectly investing real estate.

In addition to this, the more affluent investors are likely to be interested in other type of real estate, like commercial property ,agricultural land ,semi urban land , and resorts .

Sources of Housing Finance •Employers •Life insurance corporations •Housing Finance corporations •Commercial banks (xi) Bullion investment The bullion offers investment opportunity in the form of gold, silver, art objects (paintings ,antiques), precious stones and other metals (precious objects), specific categories of metals are traded in the metal exchange.

The bullion market presents an opportunity for an investor by offering returns and the end value of future. It has been absurd that on several occasions, when stock market failed, the gold market provided a return on investments.

2.5 METHODOLOGY Primary Data A questionnaire schedule was prepared and the primary data was collected.

Secondary Data •Company website •Customer data base •Company report ' s •Books and publications

•Related information from various websites Period of Study: The study concentrates only on the past 3 years data with the help of data source available. Period of study and analyzing the primary data is two months.

Type of research: This is a descriptive research where survey method is adopted to collect primary information from the investors using different scales as required and the required secondary information for the analysis.

Sampling Technique The sampling technique followed in this study is non-probability convenient sampling. Simple random techniques are used to select the respondent from the available database. The research work will be carried on the basis of structured questionnaire. The study is restricted to the investors of the Bangalore and Bhubaneswar city only.

Sample Size The population being large the survey will be carried among 150 respondents who are the clients (or investors) of Bangalore Stock Exchange. They will be considered adequate to represent the characteristics of the entire population.

Tools used for data analysis The analysis of data collection is completed and presented systematically with the use of Microsoft Excel.

2.6 Sources of data Sources of study for investors: A look out for new investment opportunities helps investors to beat the market. There are many sources from which investors can gather the required information. Such as;

(i) Financial institutions Corporate house, government bodies and mutual funds are the main source of investment information. Many of these enterprises have their own website and post investment related information on their websites.

(ii) Financial market Stock exchange and regulated bodies also provide useful information to investor to make there investment decisions. With respect to secondary market, the Securities and Exchange Board of India uses various modes to promote investors education and takes great effort to achieve an investor friendly secondary market in India.

The Reserve Bank of India also provide useful information relating to the prevent interest rates and non-banking financial intermediaries that mobiles money through deposit schemes.

(iii) Financial service intermediaries These are intermediaries who promote securities among the public. Many of these intermediaries are the agencies of specific instruments especially tax saving instruments. These intermediaries offer to share their commission from there concerned organization with the individual investor thus investor get additional advantages while investing through intermediaries.

(iv) Media Press sources such as financial news papers, financial magazine, business news channel, websites etc. provide information related to investment to the public. Besides information on securities, these sources also provide analysis of information and in certain instance suggest suitable investment decisions to be made by investor

INDUSTRY PROFILE

INDIAN CAPITAL MARKET

Chapter 3

3.1 About Capital Markets and Depository

3.1.1 About Capital Market: The function of the financial market is to facilitate the transfer of funds from surplus sectors (lenders) to deficit sectors (borrowers). A financial market consists of investors or buyers of securities, borrowers or sellers of securities, intermediaries and regulatory bodies. Indian financial system consists of money market and capital market.

The capital market consists of primary and secondary markets. The primary market deals with the issue of new instruments by the corporate sector· such as equity shares, preference shares and debt instruments. The secondary market or stock exchange is a market for trading and settlement of securities that have already been issued. The investors will holding securities or sell securities through registered brokers/sub-brokers of the stock exchange.

The introduction of NSE & SSE has increased the reach of capital market manifold which in turn increased the number of investors participating in the capital market and thus creates the possibility of a bad delivery. The cost & time spend by the brokers for rectification of this bad delivery tends to be higher with the geographical spread of the clients. The increase in trade volumes leads to exponential rise in the back office operation.

The inconvenience faced by the investors (in area that are far long & away from the main metros) in the settlement of the trade also limits the opportunity for such investors in participating in auction trading.

This has made the investors as well as brokers wary of Indian capital market. The erstwhile settlement system on Indian stock exchanges was inefficient and increased risk, due to the time that elapsed before trades was settled. The transfer was by physical movement of papers. There had to be a physical delivery of securities - a process fraught with delays and resultant risks.

The second aspect of the settlement related to transfer of shares in favor of the purchaser by the company. The system of transfer of ownership was grossly inefficient as every transfer involves physical movement of paper securities to the issuer for registration, with the change of ownership being evidenced by an endorsement on the security certificate. In many cases the process of transfer would take much longer than the two months stipulated in the Companies Act and a significant proportion of transactions would end up as bad delivery due to faulty compliance of paper work. Theft, forgery, mutilation of certificates and other irregularities were rampant. In addition, the issuer had the right to refuse the transfer of a security. All this added to costs and delays in settlement, restricted liquidity and made investor grievance redress time consuming and, at times, intractable.

To obviate these problems, the Depositories Act, 1996 was passed. It provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security.

3.1.2 Depository: Depository is an organization where the securities of a shareholder are held in the electronic form at the request of the shareholder through a medium of a Depository Participant (DP). The principal function of a

Depository is to dematerialize securities and enables their transaction in book-entry form electronically.

Depository functions like a security bank, where the dematerialized securities are traded and held in custody. This facilitates faster, riskfree and low cost settlement similar to bank.

Following tables compares the two; (a) Bank Hold funds in account Transfer funds between accounts (b) DEPOSITIRY Hold securities in accounts Transfer accounts Transfer without physically Transfer without physically securities between

handling money Safekeeping of money

handling securities Safekeeping of securities

In India the Depository Act defines a Depository to mean, a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (1 A) of section 12 of the Securities and Exchange Board of India Act, 1992

Depositories in India There are two depositories in India, which provide dematerialization of securities

• •

National Securities Depository Limited (NSDL) Central Depository Services Limited (CDSL)

Benefits of participation in a depository o Immediate transfer of securities

No stamp duty on transfer of securities

o Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.

o Reduction in paperwork involved in transfer of securities

o Reduction in transaction cost

o Ease of nomination facility

o Change in address recorded with DP gets registered

electronically with all companies in which investor holds securities eliminating the need to correspond with each of them separately

o Transmission of securities is done directly by the DP eliminating correspondence with companies

o Convenient method of consolidation of folios/accounts

o Holding investments in equity, debt instruments and Government securities in a single account; automatic credit into Demat account of shares, arising out of split/consolidation/merger etc.

Depository Participant The Depository provides its services to investors through its agents called Depository Participants (DPs). These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities, i.e. Banks, Financial Institutions and SEBI registered trading members can become DPs. The depository has not prescribed any minimum balance. Customer can have zero balance in his account.

ISIN ISIN (International Securities Identification Number) is a unique identification number for a security.

Custodian A Custodian is basically an organization, which helps register and safeguard the securities of its clients. Besides safeguarding securities, a custodian also keeps track of corporate actions on behalf of its clients: Maintaining a client's securities account

Collecting the benefits or rights accruing to the client in respect of securities

Keeping the client informed of the actions taken or to be taken by the issue of securities, having a bearing on the benefits or rights accruing to the client.

Dematerialization of securities In order to dematerialize physical securities one has to fill a Demat Request Form (DRF) which is available with the DP and submit the same along with physical certificates. Separate DRF has to be filled for each ISIN number. Odd lot share certificates can also be dematerialized. Dematerialized shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable. One can dematerialize his debt instruments, mutual fund units; government securities in his single Demat account.

Re-materialization If one wishes to get back his securities in the physical form one has to fill in the Remat Request Form (RRF) and request his DP for rematerialisation of the balances in his securities account.

Legal framework: The Depositories Act 1956 provides the regulation of depositories in securities.

EBI formulated the Depositories and participants Regulation Act, 1996 to oversee the matter regarding admission and working of Depositories and its participant. The Depositories Act passed by parliament received the President's assents on August 10, 1996. The Act enables the setting up of multiple depositories in the country. Only a company registered under the companies Act (1956) and sponsored by the specified categories of institution can setup depository in India. The Depository offers services relating to holding of securities and facility processing of transaction in such securities in book entry form. The transaction handled by depositories includes settlement of market trades, settlement of off-market trades, securities lending and borrowing, pledge & hypothecations. Eligibility criteria for a Depository: Any of the following may be a Depository: •A public financial institution as defined in section 4A of the Companies Act, 1956. • A bank included in the second schedule to the RBI Act, 1934.

• A foreign bank operating in India with the approval of the RBI. • A Recognized Stock Exchange. •An institution engaged in providing financial services where not less then 75% of the equity is held jointly or severally by the institution. • A custodian of the securities approved by Government of India. •A foreign financial services institution approved by Government of India. The promoters of Depository are also known as its sponsors. A depository company must have a minimum net worth of Rs. 100 cr. The sponsor(s) of the depository have to hold at least 51 % of the capital of the Depository Company. Agreement between depository and issuers: If either the issuers (a company which has issued securities) or the investor opts to hold his securities in a Demat form, the issuer enters' into an agreement with the depository to enable the investors to dematerialize their securities. No such agreement is necessary where the state or central government is the issuer of securities. Where an issuer has appointed a registrar to the issue of share transfer, the depository enters into a tripartite agreement with the issuer and (R&T) agent; the case may be, for the securities declared eligible for dematerialize Rights and obligation of Depositories: •Every depository should have adequate mechanism for reviewing monitoring and evaluating the controls, system, procedures and safeguards. •Annual inspections of the procedures and it should be reported to SEBI. •To ensure that the integrity of automatic data processor system is maintained to safeguards information.

•Adequate measures, including insurance, to protect the interests of the beneficial owners against any risk.

3.2 Function of Depository Participant: • Dematerialization: One of the primary functions of depository is to eliminate or minimize the movement of physical securities in the market. This is done through converting securities held in physical form in to holdings in to back entry form. •Account Transfer: The depository gives effects to all transfer resulting from the settlement of trade and other transaction between various beneficial owners by recording entries in the accounts of such beneficial owners. •Transfer & Registration: A transfer is a legal change of ownership of a security in the records of the insurer. Transfer of securities under demat occur merely by passing book-entries in the records of the depositories, on the instruction of beneficial owners. •Pledge and hypothecation: •Depositories allow the securities with them to be used as collateral to secure loans and other credits. The securities pledged are transferred to a segregated or collateral • Linkage with clearing system: The clearing system performs the function of ascertainment in the pay in (sell) or payout (buy) of brokers who leave traded on the stock exchange. Actually delivery of securities from the clearing system is from the selling brokers and delivery of securities from the clearing system to the buying broker is done by depository. To achieve this depositories and the clearing system are linked electronically. To handle the securities in electronic form as per the Depositories Act

1996 two depositories are registered with SEBI. They are 1)NSDL -- National securities depository limited. CDSL -- Central depository service (India) limited. account through book-entries in the records of the depository .

3.3

NSDL

India had a vibrant capital market, which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. NSDL promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standard that handles most of the trading and settlement in dematerialized form. Using an innovative and flexible technology system, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency and minimizing risk and cost. In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfer. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificate sough simple account transfers.

.3.4 CDSL CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. CDSL received the certificate of commencement of business from SEBI in February 1999. Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book-entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a Demat account through any DP for dematerialization of his holdings and transferring securities. The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account, which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates, which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of securities.

3.5 Capital market structure

An indirect, but very authentic source of information about Distribution of Beneficial Accounts with NSDL at the end of Feb.2006

S. No. States / Union Territories 1 Andhra Pradesh 2 Bihar 3 Chandigarh 4 Delhi 5 Goa 6 Gujarat 7 Himachal Pradesh 8 Jammu & Kashmir 9 Karnataka 10 Kerala 11 Madhya Pradesh 12 Maharashtra 13 Orissa 14 Pondicherry 15 Punjab 16 Rajasthan 17 Tamil Nadu 18 Uttar Pradesh 19 West Bengal 20 Others Total

Beneficial Accounts Number % to total 194,405 6.08 27,340 0.85 7,891 0.25 323,693 10.12 11,374 0.36 536,720 0.12 3,706 0.12 7,320 0.23 195,159 6.10 76,793 2.40 71,158 2.23 911,997 28.52 14,701 0.46 2,481 0.08 52,434 1.64 72,316 2.26 230,407 7.20 188,835 5.90 214,432 6.71 54,802 1.71 3,197,964 100.00

Investor is the data base of beneficial accounts with the depositories. By February 2006, there were 3 million beneficial accounts with the National Securities Depository Limited (NSDL). The state-wise distribution of beneficial accounts with NSDL is presented in Table. As expected Maharashtra and Gujarat account for nearly 45% of total beneficial accounts. Account Opening Any investor who wishes to avail depository services must first open an account with a Depository participant of NSDL. The investor can open an account with any depository participant of NSDL. An Investor may open an account with several DPs or he may open several accounts with single DP. After exercising this choice, the investor has to enter into an agreement with the DP. The form and contents of this agreement are specified by the business rules of NSDL. A DP may be required to open three categories of accounts for clients Beneficiary Account, Clearing Member Account and Intermediary Account. A Beneficiary Account is an ownership account. The holder/s of securities in this type of account owns those securities. The Clearing Member Account and Intermediary Account are transitory accounts. The securities in these accounts are held for commercial purpose only. A Clearing Member Account is opened by a broker or a Clearing Member for the purpose of settlement of trades.

An Intermediary Account can opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. Check List for Account Opening Proof of Address, certified copies of ration card/ passport! voter ID/ PAN card/ driving License / bank passbook. Ensure that all compulsory fields in the account opening form are filled (except PAN/ GIR & nomination which are optional). In case of corporate, ensure a copy of board resolution of authorized signatories. Ensure proper authorization in case of power of attorney holder. DP should give a copy of agreement to the client, including the charges. Inform clients regarding standing instruction facility. Branches of DP to co-ordinate & follow up with Head Office for account opening. Ensure account is activated before forwarding Client 10 to client. ~ Inform settlement deadlines to clients. Dematerialization One of the methods for preventing all the problems that occur with physical securities is through dematerialization (Demat). The share certificates are shredded (i.e., its paper form is destroyed) and a corresponding credit entry of the number of securities (written on the certificates) is made in the account opened with the depository participant (DP). Each security is identified in the depository system by ISIN and short name.

i) Steps in Dematerialization of shares: 1. Client! Investor submits the DRF (Demat Request Form) and physical certificates to DP. DP checks whether the securities are available for Demat or not. Client defaces the certificate by stamping 'Surrendered for Dematerialization'. DP punches two holes on the name of the company and draws two parallel lines across the face of the certificate. DP enters the Demat request in his system to be sent to NSDL. DP dispatches the physical certificates along with the DRF to the R& T Agent. NSDL records the details of the electronic request in the system and forwards the request to the R& T Agent. R& T Agent, on receiving the physical documents and the electronic request, verifies and checks them. Once the R&T Agent is satisfied, dematerialization of the concerned securities is electronically confirmed to NSOL. NSDL credits the dematerialized securities to the beneficiary account of the investor and intimates the DP electronically. The DP issues a statement of transaction to the client.

2.

3. 4.

5.

Rematerialisation Re-materialization is the exact reverse of dematerialization. It refers to the process of issuing physical securities in place of the securities held electronically in book-entry form with a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re-materialized and physical certificates for the equivalent number of securities is/are issued.

A beneficial owner holding securities with a depository has a right to get his electronic holding converted into physical holding at any time. The beneficial owner desiring to receive physical security certificates in place of the electronic holding should make a request to the issuer or it's R& T Agent through his DP in the prescribed re-materialization request form (RRF). Re-Materialization Process: 1. The DP should provide re-materialization request forms (RRF) to clients.

2.

The client should complete RRF in all respects and submit it to the DP.

3.

If RRF is not found in order, the DP should return the RRF to the client for rectification.

4.

If RRF is found in order the DP should accept RRF and issue an acknowledgement to the client.

5.

DP should enter the re-materialization request in DPM. DPM will generate a remat request number (RRN) which should be mentioned on RRF.

6.

An authorized person, other than one who entered the RRF details in OPM, should verify the details of RRN and release a request to the depository .

7.

The OP should complete the authorization of RRF and forward it to the issuer or it's R& T Agent for rematerialization. The OP should forward RRF to the issuer or it's R& T Agent within seven days of accepting it from the client.

8.

The issuer or its R& T Agent should verify the RRF for validity, completeness and correctness. It should also match the details with the intimation received from the depository against the same RRN.

9.

In case the issuer or its R& T Agent finds RRF in order, it should confirm the re-mat request. The issuer or its R& T Agent should then proceed to issue the physical security certificates and dispatch them to the beneficial owner.

10.

The OP, on receiving confirmation of debit entry in OPM, should inform the client accordingly.

The entire process takes a maximum of 30 days.

3.6 Capital market nature of business & services Trading and settlement One of the basic services provided by NSOL is to facilitate transfer of securities from one account to another at the instruction of the account holder. In NSOL depository system both transferor and transferee have to give instructions to its depository participants lPO’s for delivering [transferring out] and receiving of securities. However, transferee can give 'Standing Instructions' [SI] to its OP for receiving in securities. If SI is not given, transferee has to give separate instructions each time securities have to be received. Transfer of securities from one account to another may be done for any of the following purposes: a. Transfer due to a transaction done on a person to person basis is called off-market’ transaction. b. c. Transfer arising out of a transaction done on a stock exchange. Transfer arising out of transmission and account closure.

Settlement of off-Market transaction Off-Market Table

Steps in settlement of off-market transaction

1.

Seller gives delivery instructions to his DP to move securities from his account to the buyer’s account.

2.

Buyer automatically receivers the credit of the securities into his account on the basis of standing instruction for credits.

3.

Buyer receivers credit of securities into his account only if he gives receipt instructions, if standing instructions have not been given.

4.

DP needs to be extra careful in verifying the signature of the client if unusual quantities of securities are being debited to the account.

5.

Funds move from buyer o seller outside he NSDL system.

Market Settlement-Demat Shares

A market trade is one that is settled through participation of a Clearing Corporation. In the depository environment, the securities move through account transfer. Once the trade is executed by the broker on the stock exchange, the seller gives delivery instructions to his DP to transfer securities to his broker's account.

The broker has to then complete the pay-in before the deadline prescribed by the stock exchange. The broker removes securities from his account to CC/CH of the stock exchange concerned, before the deadline given by the stock exchange.

The CC/CH gives pay-out and securities are transferred to the buying broker's account. The broker then gives delivery instructions to his DP to transfer securities to the buyer's account.

The movement of funds takes place outside the NSDL system.

1.

Seller gives delivery instructions to his DP to move securities from his account to his broker's account

2.

Securities are transferred from broker's account to CC on the basis of a delivery out instruction.

3.

On pay-out, securities are moved from CC to buying broker's account.

4.

Buying broker gives instructions and securities move to the buyer's account.

Transfer of securities towards settlement of transactions done on a stock exchange is called settlement of market transaction. This type of settlement is done by transferring securities from a beneficiary account to a clearing member account.

Brokers of stock exchanges that offer settlement through depository are required to open a 'clearing member account'. In addition to the brokers, custodians registered with SEBI and approved by stock exchanges can open a clearing member account.

These accounts are popularly known as 'Broker Settlement Account'. A client who has sold shares will deliver securities into the settlement account of the broker through whom securities were sold.

Pledge and Hypothecation The Depositories Act permits the creation of pledge and

hypothecation against securities. Securities held in a depository account can be pledged or hypothecated against a loan, credit, or such other facility availed by the beneficial owner of such securities. For this purpose, both the parties to the agreement, i.e., the pledger and the pledgee must have a beneficiary account with NSDL. However, both parties need not have their depository account with the same DP.

The nature of control on the securities offered as collateral determines whether the transaction is a pledge or hypothecation. If the lender (pledge) has unilateral right (without reference to borrower) to appropriate the securities to his account if the borrower (pledger) defaults or otherwise, the transaction is called a pledge.

Pledge of Demat shares Steps:

1.

Agreement is signed between the pledger and pledgee outside the NSDL system

2.

Pledger gives a pledge creation request to DP who enters it in the system.

3.

The request reaches the pledgee's DP through the NSDL system. Pledgee is intimated by his DP.

4.

Pledgee gives a pledge creation confirmation to his DP who enters it in the system.

5.

Securities are transferred from 'free balances' head to 'pledged balances' head.

6.

Loan is given by pledgee to pledger outside the NSDL system.

Checklist for pledge/hypothecation

While processing a pledge/hypothecation request, the DP should take care with regard to the following steps/points: 1. Ensure that the instruction form is submitted in duplicate.

2.

On receipt of instruction for creation of pledge, check whether there is enough balance in pledger's account to effect the creation of pledge/hypothecation or not. If not, advise the client suitably.

3.

Ensure that all compulsory fields in the instruction form are entered.

4.

Ensure that request for confirmation of pledge is given before the closure date mentioned in the instruction form.

Stock Lending and Borrowing The transactions involving lending and borrowing of securities are executed through approved intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997. Such an intermediary may deal in the depository system only through a special account (known as Intermediary Account) opened with a DP. An intermediary account may be opened with the DP only after the intermediary has obtained SEBI arrival and registered itself with SEBI under the Securities Lending Scheme. The intermediary also needs to obtain an approval of NSDL.

Deposit of securities from lender to intermediary

Steps:

1.

Lender forwards request to his DP.

2.

Lender's DP electronically communicates request to NSDL.

3.

The securities are blocked in lender's account in favor of the intermediary.

4.

NSDL electronically informs intermediary's DP.

5.

Intermediary forwards acceptance request to his DP.

6.

Intermediary’s DP electronically communicates acceptance to

NSDL. 7. Securities are moved from lender’s account to intermediary’s account.

Lending of securities by intermediary to Borrower

Steps: 1. 2. Borrower forwards request to his DP. Borrower's DP electronically communicates request to NSDL. 3. 4. 5. NSDL electronically informs intermediary's DP. Intermediary forwards acceptance request to his DP. Intermediary's DP electronically communicates acceptance to NSDL. 6. Securities are moved from intermediary's account to borrower's account

Repayment of securities by Borrower to intermediary 1. Borrower forwards repayment request to his DP.

2. Borrower's DP electronically communicates request to NSDL.

3. The securities are blocked in borrower's account in favour of the intermediary.

4. NSDL electronically informs intermediary's DP.

5. Intermediary forwards acceptance request to his DP.

6. Intermediary's DP electronically communicates acceptance to NSDL.

7. Securities are moved from lender's account to intermediary's account.

Repayment of securities by intermediary to lender 1. Intermediary forwards repayment requires to his DP.

2. Intermediary's DP electronically communicates request to NSDL.

3. Securities are blocked in intermediary's account in favour of the lender.

4. NSDL electronically informs lender's DP.

5. Lender forwards acceptance request to his DP.

6. Lender's DP electronically communicates acceptance to NSDL.

7. Securities are moved from intermediary's account to lender's account.

DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS AND INTERPRETATION Chapter 4

4.1

Methodology:

Primary Data A questionnaire schedule was prepared and the primary data was collected.

Secondary Data • • • • • Company website Customer data base Company report ' Books and publications Related information from net

Period of Study: The study concentrates only on the past 3 years data with the help of data source available. Period of study and analyzing the primary data is two months.

Type of research: This is a descriptive research where survey method is adopted to collect primary information from the investors using different scales as required and the required secondary information for the analysis.

Sampling Technique The sampling technique followed in this study is non-probability convenient sampling. Simple random techniques are used to select the respondent from the available database. The research work will be carried on the basis of structured questionnaire. The study is restricted to the investors of the Bangalore and Bhubaneswar city only. Sample Size The population being large the survey will be carried among 150 respondents who are the clients (or investors) of Bangalore Stock Exchange. They will be considered adequate to represent the characteristics of the entire population.

Tools used for data analysis The analysis of data collection is completed and presented systematically with the use of Microsoft Excel.

4.2 Data analysis

1. Investment preference among varies age groups:

Investment Avenues < 20

Age Group (in Years) 20 – 30 31 – 40 41 – 60 27 9 17 22 15 2 28 15 16 21 12 4 15 23 20 14 17 4 > 60

Equity Debenture / Bonds Bank Deposits Insurance Gold & Real Estate Others

25 11 18 20 18 2

24 10 18 24 15 4

30 25 20 15 10 5 0
De be Eq nt ui ur ty e Ba / Bo nk nd s D ep os its G In ol su d ra & nc R ea e lE st at e O th er s

Age Group (in Years) < 20 Age Group (in Years) 20 – 30 Age Group (in Years) 31 – 40 Age Group (in Years) 41 – 60 Age Group (in Years) > 60

Interpretation:

From the above tables we can conclude that, all the age groups are give more preference on investing in equity, except those who are more than sixty years. And the second more preferable investment avenue is insurance. But the age group which is more that sixty yeas gives more preference to invest in Debenture, Tax saving bonds and then bank deposits.

2. Investment preference among various income levels:

Investment Avenues Equity Debenture / Bonds Bank Deposits Insurance Gold & Real Estate Others <1 16 5 31 15 3 16

Annual Income (in Rs. Lakh) 1–2 19 6 24 17 4 14 2 – 3.5 26 7 21 18 5 5 3.5 – 5 > 5 26 7 18 20 8 6 29 8 14 21 9 3

35 30 25 20 15 10 5 0
/B on ds De po si ts In su G ra ol nc d & e R ea lE st at e Eq ui ty th er s

Annual Income (in Rs. Lakh) < 1 Annual Income (in Rs. Lakh) 1 – 2 Annual Income (in Rs. Lakh) 2 – 3.5 Annual Income (in Rs. Lakh) 3.5 – 5 Annual Income (in Rs. Lakh) > 5

ur e

Interpretation: The above table reveals that higher income levels are giving more preference to invest in equity where as lower income levels given more preference to invest in bank deposits. It implies that the higher income level groups are preferred to take more risk in investment rather than lower income level. And those who are taken more risk in investment are preferred to invest in equality rather than any investment avenues.

D

eb en t

Ba nk

O

3. Types of Investment:’

Types of Investment Short Term Investment Long Term Investment Both

Frequency 21 44 35

Type of investment

Both

Short Term Investment

Short Term Investment Long Term Investment

Long Term Investment

Both

Interpretation: Among the total sample size 44 per cent investors are prefer to investing in long term and 21 percent are prefer to investment in short term. Where as 35 per cent of investors are preferred to invest in both long term as well as in short term Investment Avenue

4. Frequency of Investment:

Frequency of Investment Frequency Weekly Monthly Quarterly Half Yearly Yearly 13 35 26 15 11

Frequency 40 35 30 25 20 15 10 5 0
Q ua rte rly Ha lf Ye ar ly W ee kly ly Ye ar on th ly

Frequency

Interpretation: This graph reveals that 35 percent of investors are investing monthly, 26 per cent of investors are investing quarterly. 11 per cent of investors are investing in a yearly basis where as 13 per cent and 15 per cent of investors are investing in weekly and half-yearly basis respectively.

M

5. Basis of investment

Types of Investment Self Analysis Financial Advice Broker Advice F/R Advice C A Advice

Frequency 54 19 19 11 5

Basis of Investment

Self Analysis F/R Advice

Financial Advice C A Advice

Broker advice

Interpretation: From this we can come to know most of the investor i.e. 54% basis of study is self analysis and remaining 46% of investors take advice from advisers such as broker advice, financial advice, friends or relatives advice or charted account advice for investment. So it shows most of the individual investor basis of study is self analysis

6. Investment pattern affected by market movement: Options Yes No Frequency 53 47

Frequency 54 53 52 51 50 49 48 47 46 45 44 Yes No Frequency

Interpretation: From this we can come to know that 53 investors investment pattern will affect if any market movement (SSE index, inflation rate etc). So majority of the investor's investment pattern will affect if any changes in the market. Market movement is very important factor for changing in investment pattern.

7. Factors influence to choice various investment alternatives:

Factors influence Risk Involved Return they give Past performance Future Growth Other factor

Percentage 16 30 20 24 10

Factors Influence on investment decision
Risk involved 16% Return they give 30%

Other factor Future 10% Growth 24% Past performance 20%

Risk involved Return they give Past performance Future Growth Other factor

Interpretation: By seeing this findings we can say 30% of investor investment decision is depend on return on investment, second important factor is future growth and past performance of the company. 16% of investor’s investment is based on risk involved. Choice of factor is changing from investor to investor.

8. Period of the investment.

Short Term 38

Long term 62

70 60 50 40 Series1 30 20 10 0 Short Term Long term

Interpretation: Most of the investors follow the long term investment to reduce the risk loss. And few investors invest in the short term, who is having good knowledge of investment and market

9. Reason behind the choice of investment

Reasons

No. of investors

Self awareness Financial advisors Brokerage firms Friends and relatives Media

16 33 25 10 16

No. of investors

Self awareness Brokerage firms Media

Financial advisors Friends and relatives

Interpretation: The above graph reveals that, the more investors choose the investment type by the financial advisor suggestions and some people choose by the help of brokers.

10. Analysis of companies before investing in percentage

Yes 65

No 35

70 60 50 40 30 20 10 0 Yes No Series1

Interpretation: The above graph reveals that, there are more number of investors make the analysis of companies before investing in that.

11. The type of analysis used by the investors.

Type of analysis Technical Company analysis News Follow the brokers

No of investors 10 20 40 30

No of investors 45 40 35 30 25 20 15 10 5 0 Technical Company analysis New s Follow the brokers

No of investors

SUMMARY OF FINDINGS SUGGESTION AND CONCLUSION

Summary findings conclusion and recommendations

FINDINGS Income level of an investor is an impotent factor which affects portfolio of the investor.

45 per cent of investors are preferred to invest in long term avenues where as 30 per cent of investors are preferred to invest in both long term and short term avenues.

55 percent of the investors are preferred to invest in either monthly or quarterly basis.

60 per cent of the investors are investing on the basis of selfanalysis.

Business paper is an important source of study for the investor. Apart from this, business channels and web sites are some other important sources of study..

Return on investment and risk involved is most important factor for the investor before taking any investment decisions.

Return on investment and credit rating are two important factors for those investor who are interested to invest in Bonds/Debenture.

Past record, dividend record and future growth of the firm are the important factor for those investors who are interested to invest in equity.

Higher income level groups and risk taking investors are preferred to invest in equity rather than any other investment avenues.

Middle age group investors are preferred to invest in equity, where as the old age group investors are preferred to invest in RBI Bonds or any other type of tax saving bonds.

Lower income level groups are not preferred to take risk and they choose bank deposits, post office savings and insurance as a better investment option. They also look for tax saving investment avenues.

Generally those investors who are invested in equity, are personally follow the stock market frequently i.e. in daily basis. But those who are invested in mutual funds are watch stock market weekly or fortnightly.

In Bangalore, investors are more aware about various investment avenues and the risk associated with that. But in Bhubaneswar, investors are more conservative in nature and they prefer to invest in those avenues where risk is less like bank deposits, small savings, post office savings etc.

Suggestions: Awareness program has to be conducted by Stock Brokering firms because most of the investors are unaware about this new service.

Since the intent and web based communication is getting popular brokerage firms and financial institutions should update web site frequently and provide information up to date

Investors have to compare the brokerage charges.

Since the investors expect better services from the firms it should provide more value added services like derivative trading, NSE trading etc.

As investors' investment decision is based on the study of different sources, trading firms should start giving advertisement in business newspaper and in business magazine.

Most of the investor's portfolio is diversified so there is huge scope in various new services. So intermediaries provide services like add more mutual funds in to its 'Fund Invest' etc.

Trading firms should expand its business by setting up of new branches in various places where they have lot of client for example

Bijapur

.Limitation and scope for further research: The study is conducted by taking a limited number of sample sizes which is stated earlier. And this study reflects the perceptions of those investors who are residing in Bangalore and Bhubaneswar. There might be a chance that the perceptions of the investors' of different cities are varied due to diversity in social life, living pattern, income level etc.

Conclusion

The study entitled "Investment Pattern of People" has been undertaken with the objective, to analyze the investment pattern of people in Bangalore city

Analysis of the study was undertaken with the help of survey conducted .After analysis and interpretation of data it is concluded that in Bangalore investors are more aware about various investment avenues & the risk associated with that.

All the age groups give more important to invest in equity & except people those who are above 50 give important to insurance, fixed deposits and tax saving benefits.

References & Bibliography:

Article

Capital Market Review 2005-06

Books Financial Management, PRASANNA CHANDRA, 6th edition Financial Management, KHAN & JAIN, 3rd edition Security Analysis and Portfolio Management, FISCHER &

• • •

JORDAI • Research Methodology, David .R. Cooper and Schindler

Websites • • • • www.shcil.com www.icicidirect.com www.nseindia.com www.economictimes.com

Annexure QUESTIONNAIRE I am Avinash Kumar Singh a student of T.John College Bangalore IV SEM, MBA undertaking a project as a part of my Course. I am conducting a Survey on "Study on the investment pattern of people in financial market in Bangalore city". I request you to kindly give me your valuable response to the queries below. I assure you that the data provided by you will be kept confidential.

1. Name: 2. Educational level PUC Professional Graduation Post-Graduation

Others (Please Specify) ………………

3. Age Less than 20 More than 60 20 – 30 31 – 40 41 – 60

4. Number of persons in the family 1 2 3 d4 d More than 4

5. Occupation Employed Public Sector Business Private Sector Self Employed Retired

Profession (CA/Lawyer/Doctor/Others ……………) Not employed

6. Annual income and savings a. Annual income (in Rs.) Less than 1 lakh 1 - 21akhs 2 - 3.5 lakhs 3.5 - 5 lakhs More than 5 lakhs

b. Annual savings (in Rs.) Less than 10,000 10,000 - 20,000 20,001 - 30,000 30,001 - 40,000 40,001 & above

7. Investment avenues that you like to choose Equity FI Bonds Corporate Debenture Bank Deposits Small / Post-office

Company Fixed Deposits PPF Savings Life Insurance

Gold

Real Estate

Mutual Funds

Others ……………

8. Average amount (in Rs.) invested in a year in the following avenues Equity FI Bonds Corporate Debenture Bank Deposits Small / Post-office Savings Mutual Funds

Company Fixed Deposits PPF Gold Life Insurance Real Estate

Others ……………

9. Are you a short term or long term investor? Short term Long term Both

10. State reason behind choice of your investment options d Self - Awareness Financial Advisors Broker's Advice Media

Friends' or Relatives' Advice

11. What is you frequency of investments? Weekly Half-yearly Monthly Yearly Quarterly

12. Do you personally follow the stock market? Yes No

13. If yes, then how frequently do you watch market? Daily Twice a Week Weekly Fortnightly

14. Do you like to invest by self knowledge or through any brokerage firms? By self knowledge through brokerage firms

15. Do you make analysis before investing? Yes No

16. If yes what kind of analysis do you make? Technical News Company analysis Follows the brokers

17. Has your experience till now is helping you to Invest/Trade. Yes No

18. Do you have any suggestion to make investment in a best way? …………………………………………………………………… ………………….…..…………………………………………… …………………………………………………………………… …………………………………………………………………… …………………….

Thank you for sharing your valuable response

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