Preface

Someone has greatly said that practical knowledge is far better than classroom teaching.

During this project I fully realized this and come to know about the present real world of

Derivative . I am pleased to know about the consumers wants and competitors activities

in the real world of Derivative.

The Broad objective of the project is the depth study to explore the investment and
growth opportunities in derivative market for the benefit of indian Capital market which
is essential to face any circumstances which can arise while providing service to the
clients.
This project will accomplish to understand how the people interact with technology savvy

products and if they are ready for doing all the trading. All these steps help me to

understand how to cope up with different types of people and there diversified need and

satisfaction level.

The project title Derivative Trading in Indian Capital Market itself suggests that the
project deals with the current market scenario of derivative trading in India. Both
financial and commodity derivative markets are taken into consideration in this project
and comparison has been made with equity cash segment market.
The subject of my study was Derivative Trading in Indian Capital Market for Reliance

Money. I have done by applying various tools and through direct interaction with

customers .I have also done a market survey with the use of a questionnaire to know the

clients interest towards the financial products and other companys functioning

To maintain and cope up with the growing competition from the various trading

1
providers, Reliance Money needs to find potential clients, also the new investors and

satisfy there needs.

The report is divided into six chapter and all the chapter is described in detail.

The chapter first gives brief introduction of the company.This chapter describes the
history of RELIANCE MONEY , growth of Reliance Group ,Investment options
available in Reliance Money.This also describes about the Derivatives ,functioning of
derivative market,Introduction to Futures and Options.
The second chapter described the research problem objective, importance and scope of

the study. The third chapter described about the the research methodology.The chapter

four contains the survey analysis and interpretation of the analysis. Chapter Five contains

finding and recommendation of the survey. The last chapter six consist of conclusion and

limitations of the study and along with bibliography and questionnaire of the project

report.

2
 Acknowledgment

Enumerating and enlisting all the individuals whose contributions went into the making

of the project is a very difficult task.

I offer my great sense of gratitude and thanks to Mr. Fahad Rahman (Branch

Head,Reliance Money,Varanasi) , who gave me a chance to work under him. I am

obliged to him for encouraging me and for providing me valuable knowledge.

I am highly indebted to Mr. RAHUL ANAND SINGH( HEAD OF DEPT OF

Department of Business Administration ) for giving his valuable time and advice

regarding this project.

I am extremely grateful to Dr. Neetu Singh(Training incharge) for providing me an

opportunity to undergo this project.

I am also thankful to Ms Chandan Singh , for guiding me during project

Last but not the least I am very obliged to the management and members of Reliance

Money, Varanasi who cooperated with me, devoting their valuable time for working and

preparing this project report.

Finally I would also like to thanks my parents, fellow colleagues and friends for helping

out in timely completion of the project report and for providing for their moral support,

suggestions and encouragement.

Kundan Kumar Upadhyay

3
 RELIANCE GROUP

Reliance is one of the fastest growing companies in India which is founded by Mr.

Dhirubhai Ambani. Reliance is the top most company in India and the son of Mr.

Dhirubhai Ambani, Mr. Mukesh Ambani and Anil Ambani are divided the Reliance in

two groups one is called Mukesh Ambani group and other is called Anil Ambani group.

The key to success of Reliance in the words of Mr. Dhirubhai Ambani is as follows:

"Growth has no limit at Reliance. I keep revising my vision.

Only when you can dream it, you can do it."

Dhirubhai H. Ambani
Founder Chairman Reliance Group
December 28, 1932 - July 6, 2002

4
Dhirubhai Ambani founded Reliance as a textile company and led its evolution as a

global leader in the materials and energy value chain businesses.

He is credited to have brought about the equity cult in India in the late seventies and is

regarded as an icon for enterprise in India. He epitomized the spirit 'dare to dream and

learn to excel'.

The US$ 125 billion Reliance Group is a living testimony to his indomitable will,

single-minded dedication Reliance Group and an unrelenting commitment to his

goals.

The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is India's largest

private sector enterprise, with businesses in the energy and materials value chain. Group's

annual revenues are in excess of US$ 34 billion. The flagship company, Reliance

Industries Limited, is a Fortune Global 500 company and is the largest private sector

company in India.

Backward vertical integration has been the cornerstone of the evolution and growth of

Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of

backward vertical integration - in polyester, fibre intermediates, plastics, petrochemicals,

petroleum refining and oil and gas exploration and production - to be fully integrated

along the materials and energy value chain.

The Group's activities span exploration and production of oil and gas, petroleum refining

and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals),

textiles and retail.

5
Reliance enjoys global leadership in its businesses, being the largest polyester yarn and

fibre producer in the world and among the top five to ten producers in the world in major

petrochemical products.

The Group exports products in excess of US$ 20 billion to 108 countries in the world.

Major Group Companies are Reliance Industries Limited (including main subsidiaries

Reliance Petroleum Limited and Reliance Retail limited) and Reliance Industrial

Infrastructure Limited.

The main reasons for the success of the Reliance are:

Growth through Commitments: Reliance believes that any business conduct can

be ethical only when it rests on the nine core values of Honesty, Integrity, Respect,

Fairness, Purposefulness, Trust, Responsibility, Citizenship and Caring.

The essence of these commitments is that each employee conducts the company's

business with integrity, in compliance with applicable laws, and in a manner that

excludes considerations of personal advantage.

They do not lose sight of these values under any circumstances, regardless of the goals

we have to achieve. To us, the means are as important as the ends.

Growth is care for good health: Reliance's occupational health centers carry out

pre-employment and periodic medical checkups as well as other routine preventive

services. Specialized tests like biological monitoring, health risk assessment studies and

audits for exposure to various materials are also performed. Health education and

awareness form an integral part of the health care programme at Reliance.

6
Growth is care for safety: They believe that the safety of each employee is the

responsibility of the individual as well as of the whole community of employees.

Growth is care for the environment : Reliance believes that a clean environment

in and around the workplace fosters health and prosperity for the individual, the group

and the larger community to which they belong. Environmental protection is an integral

part of the planning, design, construction, operation and maintenance of all our projects.

Growth is conservation: At Reliance, energy conservation efforts seek to reduce the

unit cost of fuels and to improve efficiencies in energy intensive processes.

Growth is betting on our people: Reliance builds with care a workplace that

proactively fosters professional as well as personal growth. There is freedom to explore

and learn; and there are opportunities that inspire initiative and intrinsic motivation. They

believe that people must dream to achieve, that these dreams will drive the company's

excellence in all its businesses. Reliance thinks, behaves, lives and thrives with a global

mindset, encouraging every employee to reach his / her full potential by availing

opportunities that arise across the group.

Growth is thinking beyond business: As corporate citizens, we invest in social

infrastructure, believing strongly that our business strength fuels our social contributions.

To this end, Reliance encourages, funds and develops numerous education, health, human

capital and infrastructure initiatives. These initiatives are undertaken through partnerships

with non-governmental organizations, corporates and trusts.

7
 RELIANCE CAPITAL

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)

registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of

India Act, 1934. RCL was incorporated as a public limited company in 1986 and is now

listed on the Bombay Stock Exchange and the National Stock Exchange (India).

With a net worth of over Rs 3,300 crore and over 165,000 shareholders, Reliance Capital

has established its presence as a leading player in the financial services sector in the

country. On conversion of outstanding equity instruments, the net worth of the company

will increase to about Rs 4,100 crore.

Reliance Capital sees immense potential in the rapidly growing financial services sector

in India and aims to become a dominant player in this industry and offer fully integrated

financial services. It is headed by Anil Ambani.

Reliance Capital is one of Indias leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and

banking companies, in terms of net worth.

Reliance Capital has interests in asset management and mutual funds, life and general

insurance, private equity and proprietary investments, stock broking and other activities

in financial services.

8
Reliance Capital Ltd is a part of the Reliance - Anil Dhirubhai Ambani Group, and is

ranked among the 25 most valuable private companies in India.

Reliance Capital is one of India's leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and

banking groups, in terms of net worth.

Reliance Capital has interests in asset management and mutual funds, life and general

insurance, private equity and proprietary investments, stock broking, depository services,

distribution of financial products, consumer finance and other activities in financial

services.

What makes our firm unique, and successful, is the relationship we have with their clients

and the way we manage money.

Their innovative approach and rigorous research are integral parts of the wealth

management process that sets Reliance Capital apart.

They specialize in developing long term relationships with individuals and corporations

and provide a full suite of services to serve the needs of their clients.

Reliance Money:

Reliance Capital has announced its foray into the brokerage business through Reliance

Money promoted by Anil Dhirubhai Ambani Group firm Reliance Capital. Reliance

Money will offer a 'fixed' flat fee structure and would offer highly competitive rates

9
based on the flat fee structure instead of the contemporary system where investors pay

brokerage fees (percentage) for each transaction conducted in the stock markets.

ANIL AMBANI

Reliance Money.com offers most dynamic web based trading environment to its

customers. The new trading platform has many new features which basically fill up the

gap between old online trading companies in India and their customers.

10
They are in the metros, mini-metros and B-class towns. Beyond that, there is hardly

anything. Whenever there is a good public issue, the places from which the applications

come are far larger than the places in which there are large financial intermediaries.

Reliance Money, the Broking and Distribution arm of Reliance Capital provides a single

window platform for transacting in a wide range of asset classes, including Equity, Equity

& Commodity Derivatives, IPOs, Mutual Funds, Life & General Insurance, Money

Changing and Money Transfer and Gold Coins amongst others.

Its Money Transfer business is under the brand name of 'Reliance Money Express',

amongst the largest principal agents of Western Union Money Transfer Services in India

with 21 branches and over 3000 sub agents across India.

Reliance Money emerged as the top brokerage house in Starcom Worldwide's India

Investor Survey 2007. The study shows that Reliance Money got this for cost

effectiveness offered to online trading customers.

The ground reality is that there is a huge demand for financial services from a credible

player, which is not being met. We are trying to spread our reach, which is a strength that

most large players do not possess today. Today, we have over 3,000 outlets in 700 cities

and towns.

Reliance Money has launched a comprehensive financial portal enabling customers to

carry out on-line trading and investment activities in a secure, cost-effective and

convenient manner.

11
You have ventured in may businesses over the past few months, spanning from stock and

commodity broking, money transfer, money changing, credit card, gold coin retail and

distribution of various financial products like IPOs, mutual funds, insurance policies and

offshore investment products. We are trying to become one shop stop. We are not a bank

but we are doing everything related to financial services. You can come to us with

anything and we will deliver.

If you analyse the country there are about 5,645 tehsils. Reliance Money wants to reach

all of these by the end of this financial year with 10,000 plus outlets. These would be a

combination of franchisees and company-owned outlets. The second aspect is cost;

Reliance Money wants to enter in a manner that is beneficial to customers.

Reliance Money analysed the industry and how things have changed in the broking

industry. A broker is connected to the exchange through their screen. You call them up

you want to buy 100 shares of a company and another person wants to buy 1,000 shares.

As a broker, Reliance Money provides a financial transactions platform, which enables

you to go and trade. They have equity, commodity, offshore investments, mutual fund

distribution, life and general insurance, money changing and money transfer. They have

started distributing credit cards and we will get into loan products also. You can even go

to their website and buy mutual funds.

Online you need to be a registered user to transact, offline you can walk into any of our

stores and transact. Our outlets will have the entire gamut of services under the same

12
roof. We also advise based on a financial planning module. So, will you give the

customer what he asks for or will you advice him based on what's best for him.

Anil Dhirubhai Ambani Group's (ADAG) online stock-broking firm Reliance Money is

set to expand overseas even as it plans to double its outlets across India in a couple of

years.

According to Sudip Bandyopadhyay, MD, Reliance Money, the company, which is a

subsidiary of ADAG's financial arm, Reliance Capital Ltd, plans to expand operations

overseas to keep up with India's strong "growth story."

"Reliance Money is going truly global. As we step up the Indian operations, we are also

chalking out plans to set up offices in at least seven strategic locations across the globe,"

Bandyopadhyay said, adding, "We have identified Kuwait, Bahrain and Doha in the

Middle East and Singapore and Hong Kong in South Asia to set up offices as early as

possible."

The company, which already has a branch in Dubai, is also in the process of setting up its

London office in the next six months, as well as an outlet in Muscat, the capital of Oman,

within the next couple of months.

"We are in 4,257 locations presently (in India) and plan to enhance our presence to 5,165

centers by this year-end while the total number of outlets will increase to 20,000 (from

10,000) during the period," Bandyopadhyay said, adding that about 7,000 outlets will be

opened in Tier-I and Tier-II cities in the next one year.

13
"More rural outlets would help the company to acquire more customers by making them

aware about various products. Large number of customers are now coming from the rural

parts of the country and showing interest to know more about equity-related investment

products," he said.

"We'll continue to push for expansion," Bandyopadhyay said, speaking at a news

conference to announce Reliance Money's tie-up with Canadian firm, Recognia.

"Technical analysis, till date, is a privilege available to institutions and HNIs (high
networth individuals) and the Indian retail investors have been deprived of these tools so
far," Bandyopadhyay said, adding Recognia will deliver automated interpretation of
technical analysis for Reliance Money customers.

The addition of Recognia's sophisticated automated technical analysis as an add-on

feature on the platform will provide automated simplified analysis that will inform the
customer about shift in trends of different stocks in the markets at one rupee per day, he
said.

According to a company official, the value-added service would provide additional

revenue stream for the company and it expects about 10-20 percent of its two million
customers to use this facility.

Reliance Money consumers can trade in equities, commodities and offshore investments,
IPOs, mutual funds, insurance and money transfer.

Investment options available in Reliance Money:

1. Equity (Stock) Trading

2. Derivatives Trading

3. Forex Trading

4. Commodity Trading

5. IPO's

14
 6. Mutual Funds

7. Insurance

Cost Effectiveness of Reliance Money: The success of Reliance Money is due to

the Cost Effectiveness policy. This is the assumption of MD Sudip Bandyopadhyay. He

defined the term cost effectiveness as: the cost effectiveness system is similar to the

telecom industry. You see when mobile phone was launched in India 10 years ago

outgoing was Rs 35 per call and incoming was Rs 16 a call. People used to say that don't

give your mobile phone number to everyone because you will incur a huge bill as

incoming is also heavily charged. Post-Christ (We call it ever since Reliance entered the

telephone business) things started changing in telephone industry. The rates were slashed

and things started getting better for consumers.

Today, my driver has a phone, my maid has a phone and my 12-year-old son is aspiring to

have a phone. The customer base changed when pricing changed and we learnt that from

telecom industry. So this is what we call as cost effectiveness.

Reliance Money - Transacting and investing simplified

Get ready to change the way you transact and invest in financial products and services.

Whether you wish to transact in Equity, Equity & Commodity Derivatives, IPOs,

Offshore Investments, or prefer to invest in Mutual Funds, Life & General Insurance

products or avail Money Transfer and Money Changing services, you can do it all

through Reliance Money.

15
Reliance Money would offer the brokerage services across 700 cities including Delhi and

Mumbai through more than 3,000 outlets.

Investors would need to pay brokerage at the rate of Rs 15 per assisted trade (from

Reliance's Franchisee or call center) and can trade free using online trading portal (fixed

fee of Rs500 for delivery trades up to Rs. 5 lacs and / or non-delivery trades up to Rs. 5

lacs, with validity period of one year), the company said.

Industry rates vary between 0.4 per cent to 0.85 per cent for delivery trades and between

0.05 per cent and 0.10 per cent for non-delivery trades Reliance's demat offers four

options for trading.

Industry rates vary between 0.4 per cent to 0.85 per cent for delivery trades and between

0.05 per cent and 0.10 per cent for non-delivery trades Reliance's demat offers four

options for trading.

Online Option: One can trade on his PC on reliance online portals.

Reliance provides three online portals named

Fast Trade

Easy Trade

Instra Trade

16
Offline Option: One can do assisted trade on Reliance's Franchisee Office on

Software named Fast Trade.

On Kiosks: One can use Reliance's Kiosks for online trading with usage cost of

50p/min.

Call Center: One can trade on phone by dialing '39886000' followed by local city

code.

Reliance Money deals with products like Demat A/c, Mutual Funds, Systemetic

Investment Plan, Life Insurance and General Insurance. Reliance Money offer online

trading as well as offline trading throgh its various franchisees. The major product of

Reliance Money is the Demat A/c.

also this project is on the demat A/c thats why first we must know about the Demat A/c.

S.W.O.T. Analysis of Reliance Money

StrengthsReliance Money

17
 Reliance Money provides multi-channel access to all its customers through a
strong online presence with www.reliancemoney.com and a call-center based
Dial-n-Trade facility
Reliance Money dedicated research teams for fundamental and technical
research.which constantly track the pulse of the market and provide timely
investment advice free of cost to its clients which has a strike rate .

Weakness

Localized presence due to insufficient investments for country wide

expansion.
Lack of awareness among customers .

Opportunities

With the booming capital market it can successfully launch new services and raise
its clients base.
It can easily tap the retail investors with small saving through promotional
channels like print media, electronic media, etc.
As interest on fixed deposits with post office and banks are all time low, more and
more small investors are entering into stock market.
Abolition of long term capital gain tax on shares and reduction in short term
capital gain is making stock market as hot destination for investment among small
investors.
Increasing usage of internet through broadband connectivity may boost a whole
new breed of investors for trading in securities.

Threats

18
 Aggressive promotional strategies by close competitors may hamper Reliance
Moneys acceptance by new clients.
Lack of sufficient branch-offices for speedy delivery of services.
Other players are providing margin funds to investors on easy terms
where as there is no such facility in Reliance Money.
More and more players are venturing into this domain which can
further reduce the earnings of Reliance Money.

19
20
 INTRODUCTION TO DERIVATIVES

Over the past two decades, the financial markets have experienced an impressive
expansion in terms of securities issued and traded on the secondary markets. In addition,
financial markets have become more and more interconnected allowing almost
continuous trading in some precious metals, currencies and stocks traded on several
exchanges.

Financial innovation that led to the issuance and trading of derivative products has been
perhaps one of the most important boosts to the changes and development of financial
market.

In the financial marketplace, some securities and some instruments are regarded as
fundamental, while others are regarded as derivative. In a corporation, for example the
stock and bonds issued by the firm are fundamental securities and form the bedrock of
financial geology. Every corporation must have stock and stock ownership gives rights of
ownership to the firm. In contrast with the fundamental securities such as stock and
bonds, there is an entirely distinct class of financial instruments called derivatives. In
finance a derivative is a financial instrument or security whose payoffs depend on a more
primitive or a fundamental good. For example a gold future contract is a derivative
instrument, because the value of the future contract depends upon the value of the gold
that underlies the future contract. The value of the gold is the key since the value of a
gold future contract derives its value from the value of the underlying gold.

DEFINITION OF DERIVATIVES

Derivative is a product whose value is derived from the value of one or more basic
variables called bases (underlying asset, index, or reference rate), in a contractual manner.
The underlying asset can be equity, forex, commodity, or any other asset). For example,

21
wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a
change in prices by that date. Such a transaction is an example of a derivative. The price
of this derivative is driven by the spot price of wheat which is the underlying.

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R)A) defines
derivatives to include:-

A security derived from a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract for differences or any other form of security.

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

Definition under SEBI Act:

The term Derivatives indicates that it has no independent value, i.e. its value is entirely
derived from the value of the underlying asset. The underlying asset can be securities,
commodities, bullion, currency, live stock or anything else. In other words, derivative
means a forward, future, option or any other hybrid contract of pre determined

fixed duration, linked fir the purpose of contract fulfillment to the value of a specified
real or financial asset or to an index of securities.

PARTICIPANTS OF DERIVATIVES MARKET

The three broad categories of participants are:

22
Hedgers: they face risk associated with the price of an asset. They use futures or
options markets to reduce or eliminate this risk.

Speculators: they wish to bet on future movements in the price of an asset. Future
and options contracts can give them an extra leverage; that is they can increase both the
potential gains and potential losses in a speculative venture.

Arbitrageurs: they are in business to take advantage of a discrepancy between

prices in two different markets. If, for example, they see the future price of an asset
getting out of line with the cash price, they will take offsetting positions in the two
markets to lock in a profit.

FUNCTIONS OF DERIVATIVES MARKET

The derivatives market performs a number of economic functions. They are:

Prices in an organized derivatives market reflect the perception of market participants
about the future and lead the prices of underlying to the perceived future level. The prices
of the derivatives converge with the prices of the underlying at the expiration of the
derivative contract. Thus derivatives help in discovery of future as well as current prices.

The derivatives market helps to transfer risks from those who have them but may not like
them to those who have an appetite for them.

Derivatives, due to their inherent nature are linked to the underlying cash markets. With
the introduction of derivatives the underlying market witnesses higher trading volumes
because of participation by more players who would not otherwise participate for lack of
an arrangement to transfer risk.

23
It acts as a catalyst for new entrepreneurial activity.

The derivative has a history of attracting many bright people with an entrepreneurial
attitude.

Derivatives market helps increase savings and investment in the long run. Transfer of risk
enables market participants to expand their volume of activity.

TYPES OF DERIVATIVES
Let us take a brief look at various derivatives contracts that have come to be used.

Forwards: A forward contract is customized contract between two entities, where

settlement takes place on a specific date in the future at todays pre-agreed price.

Futures: A future contract is an agreement between two parties to buy or sell an asset
at a certain time in the future at a certain price. Future contracts are special types of
forward contract in the sense that the former are standardized exchange-traded contracts.

Options: Options are of two types- calls and puts. Calls give the buyer the right but
not the obligation to buy a given quantity of an underlying asset, at a given price on or
before a given future date. Puts gives the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a given date.

Warrants: Options generally have lives upto one year, the majority of options
traded on options exchanges having a maximum maturity of nine months. Longer dated
options are called warrants and are generally traded over the counter.

Leaps: The acronyms leaps means Long Term Equity Anticipation Securities. These
are options having a maturity of upto three years.

24
Baskets: They are options on portfolio of the underlying assets. The underlying asset
is usually a moving average of a basket of assets. Equity index options are a form of
basket options.

Swaps: Swaps are private agreements between two parties to exchange cash flows in
the future according to a pre arranged formula. They can be regarded as portfolios of
forward contracts. The two commonly used swaps are:

Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.

Currency swaps: These entail swapping both principal and interest between the
parties with the cash flows in one direction being in a different currency than those in the
opposite direction.

Swaptions: They are options to buy or sell a swap that will become operative at the
expiry of the options. Thus swaption is a option on a forward swap. Rather than have
calls and puts, the swaption market have receiver swaptions and payer swaptions. A
receiver swaption is an option to receive fixed and pay floating. A payer swaption is an
option to pay fixed and receive floating.

HISTORY OF DERIVATIVES

25
The history of derivatives is surprisingly longer than what most people think. Some texts
even find the existence of the characteristics of derivatives contracts can even be found in
incidents of Mahabharata. The traces of derivative contract can even be found in
incidents that date back to the ages before Jesus Christ.

However, the advent of modern day derivative contracts is attributed to the need for
farmers to protect themselves from any decline in the price of their crops due to delayed
monsoon, or over production.

The first future contracts can be traced to the Yodoya rice market in Osaka, Japan
around 1650. these were evidently standardized contracts, which made them much like
todays future.

The Chicago Board Of Trade (CBOT), the largest derivative exchange in the world, was
established in 1848 where forward contracts on various commodities were standardized
around 1865. From then on, futures contracts have remained more or less in the same
form, as we know them today.

Indian Context

Derivatives have had a long presence in India. The commonly derivative market has been
functioning in India since the nineteenth century with organized trading in cotton trough
the establishment of Cotton Trade Association in 1875. since then contracts on various
other commodities have been introduced as well.

Exchange traded financial derivatives were introduced in India in June 2000 at the two
major stock exchanges, NSE and BSE. There are various contracts currently traded on
these exchanges.

Derivatives market in India

26
The first step towards introduction of derivatives trading in India was the promulgation of
the Securities Laws(Amendment) Ordinance, 1995, which withdrew the prohibition on
option in securities. The market for derivatives, however, did not take off as there was no
regulatory framework to govern the trading of derivatives. SEBI set up a 24- member
committee under the Chairmanship of Dr. L.C Gupta on November 18, 1996 to develop
appropriate regulatory framework for derivatives trading in India. The committee
submitted its report on March 17, 1998 prescribing necessary pre-conditions for
introduction of derivatives trading in India. The committee recommended that derivatives
should be declared as securities so that regulatory framework applicable to trading of
securities could also govern trading of securities. SEBI also set up a group in June 1998
under the chairmanship of Professor J.R Verma to recommend measures for risk
containment in derivatives market in India. The report which was submitted in October
1998, worked out the operational details of margining system, methodology for charging
initials margins, broker net worth, deposit requirement and real time monitoring
requirements.

The SCRA was amended in December 1999 to include derivatives within the ambit of
securities and the regulatory framework was developed for governing derivatives
trading. The act also made it clear that derivatives shell be made legal and valid only if
such contracts are traded on a recognized stock exchange thus precluding OTC
derivatives. The government also rescinded in March 2000, the three- decade old
notification, which prohibited forward trading in securities.

Derivatives trading commenced in India in June 2000 after SEBI granted the final
approval to this effect in May 2000. SEBI permitted the derivative segment of two
exchanges, NSE and BSE, and their clearing house/ corporation to commence trading and
settlement in approved derivatives contracts. To begin with, SEBI approved trading in
index future contracts based on S&P CNX Nifty and BSE-30(Sensex) index. This was
followed by the approval of trading in options based on these two indexes and options on
individual securities. The trading in index options commenced in June 2001 and the

27
trading in option on individual securities commenced in July 2001. Futures contracts in
individual stocks were launched in November 2001. trading and settlement in derivatives
contract is done in accordance with the rules, bylaws, and regulations of the respective
exchanges and their clearing house duly approved by SEBI and notified in the official
gazette.

Derivatives market at NSE

The derivatives trading on the exchange commenced with S&P CNX Nifty Index futures
on June 12, 2000. The trading in Index options commenced on June 4, 2001 trading in
options on individual securities commenced on July 2, 2001. Single stock futures were
launched on November 9, 2001. The index futures and options contract on NSE are based
on S&P CNX Nifty Index. Currently, the futures contracts have a maximum of 3-month
expiration cycles. Three contracts are available for trading. With one month, 2 months, 3
months expiry. A new contract is introduced on the next trading day following the expiry
of the near month contract.

Risk Management Tools

Derivatives are powerful risk management tools. To illustrate, lets take the example of an
investor who holds the stocks of Infosys, which are currently trading at Rs. 2,096.

Example: Infosys options were traded on the National Stock Exchange of India,
which gives the owner the right to buy (call) shares of Infosys at Rs 2,220 each (exercise
price), expiring on 30th June 2005. Now if the share price of Infosys remains less than or
equal to Rs 2,200, the contract would be worthless for the owner and he would lose the
money he paid to buy the option, known as premium.
However, the premium is the maximum amount that the owner of the contract can lose.
Hence he has limited his loss. On the other hand, if the share price of Infosys goes above

28
Rs 2,220, the owner of the call option can exercise the contract, buy the share at Rs 2,220
and make profits by selling the share at the market price of Infosys.

The upward gain can be unlimited. Say the share price of Infosys zooms to Rs .3,000 by
June 2005, the owner of the call option can buy the shares at Rs 2,220, the exercise price
of the option, and then sell it in the market for Rs 3,000.
Making a profit of Rs 780 less the premium that has been paid. If the premium paid to
buy the call option is say Rs 10, the profit would be Rs 770.

Turnover of Derivate Market at NSE

The trading volume on NSEs derivatives market has seen a steady increase since the
launch of the first derivatives contract. The average daily turnover at NSE now exceeds a
14000 crore.

Requirements for a NRI to invest in derivatives: NRIs are permitted

in invest in exchange traded derivative contracts subject to the margin and other
requirements which are in place for other investors. In addition, a NRI is subject to the
following position limits:

Index Index Stock Single Interest

Options Futures Options stock rate
Futures futures

29
 Disclosure Disclosure 1% of free float 1% of free float Rs. 100 Cr
requirement for requirement for market market or 15% of
any person or any person or capitalization or capitalization or total open
persons acting persons acting 5% of open 5% of open interest in
in concert in concert interest on a interest on a the market in
holding 15% or holding 15% or particular particular exchange
NRI
more of the more of the underlying underlying traded
level open interest of open interest of whichever is whichever is interest rate
all derivative all derivative higher higher derivative
contracts on a contracts on a contracts,
particular particular whichever is
underlying underlying higher.
index index

Financial derivative market

Financial derivative markets trade contracts trade have a financial assets or variable as
the underlying.

Equity, Interest rates, Exchange rates, Index, etc. are the most traded financial
derivatives. Equity derivatives in India were launched in June 2000. SEBI permitted the
the derivative segments in two stock exchanges, NSE and BSE, and their clearing
house/corporation to commence trading and settlement in approved derivatives contracts.
To begin with, SEBI approved trading in index futures contracts based on S&P CNX
Nifty and BSE-30(Sensex) index. This was followed by approval for trading in options
based on these two indices and options on individual securities. Within a span of one and
half years thereafter, the entire range of exchange traded equity derivative products, from
Index future, Index Options, Stock Options and Single Stock Future Contracts have been
successfully launched.

30
The ultimate importance of a financial derivatives market hinges upon the extent to
which it helps investors to reduce the risks they face.

Some of the largest derivatives markets in the world are on

Treasury bills (to help control interest rate risk)

The market index (to help control risk that is associated with fluctuations in the stock
market) and Exchange rate (to cope with currency risk).
The trading of derivatives in different stock exchanges has started in different time
periods. In BSE, Sensex options have commenced on June 4, 2001 and the trading in
options on individual securities commenced in July 2001. Futures contracts on individual
stocks were launched in November 2001. The derivatives trading on NSE has
commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in index
options has started on June 4, 2001 and trading in options on individual securities
commenced on July 2, 2001. Single stock futures were launched on November 9, 2001.
The index future and options contract on NSE are based on S&P CNX.

The stocks on which trading is allowed currently are:

Name of the Scrip Lot Size

ACC 1500
Bajaj Auto 800
Bharat Electronics Ltd 1100
BHEL 1200
BPCL 1100
BSES 1100
Cipla 200
Digital Global Soft 400
Dr Reddy Laboratories 400
Grasim 700
Gujarat Ambuja 1100
HCL Technologies Ltd 1300
Hero Honda Motors Ltd 800

31
Hindalco 300
Hindustan Lever 1000
HPCL 1300
HDFC 300
ICICI Bank Ltd 1400
Indian Petrochemicals Corporation Ltd 2400
Infosys 100
ITC 300
L&T 1000
Mastek Ltd 400
MTNL 1600
M&M 2500
National Aluminium Company Ltd 2300
NIIT 1500
Oil & Natural Gas Corporation Ltd 600
Polaris Software Laboratories Ltd 1400
Ranbaxy 500
Reliance Industries 600
Reliance Petroleum 4300
Satyam Computers 1200
SBI 1000
Shipping Corporation of India Ltd 3200
Sterlite Opticals 600
TELCO 3300
TISCO 1800
Tata Power 1600
Tata Tea 1100
VSNL 700
Wipro Ltd 200
NIFTY 200
SENSEX 50

32
Measures have been specified by SEBI to protect the rights of

investor in Derivatives Market

The measures specified by SEBI include:

o Investor's money has to be kept separate at all levels and is permitted to be used

only against the liability of the Investor and is not available to the trading member

or clearing member or even any other investor.

o The Trading Member is required to provide every investor with a risk disclosure

document which will disclose the risks associated with the derivatives trading so

that investors can take a conscious decision to trade in derivatives.

o Investor would get the contract note duly time stamped for receipt of the order

and execution of the order. The order will be executed with the identity of the

client and without client ID order will not be accepted by the system. The

investor could also demand the trade confirmation slip with his ID in support of

the contract note. This will protect him from the risk of price favour, if any,

extended by the Member.

o In the derivative markets all money paid by the Investor towards margins on all

open positions is kept in trust with the Clearing House/Clearing corporation and

in the event of default of the Trading or Clearing Member the amounts paid by

the client towards margins are segregated and not utilised towards the default of

the member. However, in the event of a default of a member, losses suffered by

33
 the Investor, if any, on settled / closed out position are compensated from the

Investor Protection Fund, as per the rules, bye-laws and regulations of the

derivative segment of the exchanges.

o The Exchanges are required to set up arbitration and investor grievances redressal

mechanism operative from all the four areas / regions of the country.

INTRODUCTION TO FUTURES AND OPTIONS

The futures and options are now actively traded on many exchanges and forward
contracts are popular on the OTC market.

FORWARDS CONTRACTS

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

specified price. One of the parties to the contract assumes a long position and agrees to
buy an underlying asset on a certain specified future date at a specified price. The other
party assumes a short position and agrees to sell that asset on the same date for the same
price. Other contract details like delivery date, price and quantity are negotiated
bilaterally by the parties to the contract. The forward contracts are normally traded
outside the exchanges.

34
The salient features of forward contracts are:

They are bilateral contracts and hence exposed to counter-party risk.

Each contract is custom designed, and hence is unique in terms of contract size,
expiration and the asset type and quality.

The contract price is generally not available in public domain.

On the expiration date, the contract has to be settled by the delivery of the asset.

If the party wishes to reverse the contract, it has to compulsory go to the same
counterparty, which often results in high prices being charged.

However forward contracts in certain markets have become very standardized, as in case
of foreign exchange, thereby reducing transaction costs and increasing transaction
volume. This process of standardization reaches its limit in the organized futures market.

Futures Vs Forwards

Futures contracts Forwards contracts

1. Are traded on an exchange
2. Use a Clearing House which
provides protection for both parties
3. Require a margin to be paid
4. Are used for hedging and
speculating
5. Are standardised and published
1. Are not traded on an exchange
2. Are private and are negotiated between
the parties with no exchange guarantees
3. Involve no margin payments
4. Are used for hedging and physical
delivery
5. Are dependent on the negotiated contract
conditions

35
6. Are transparent - futures contracts 6. Are not transparent as they are all private
are reported by the exchange. deals

INTRODUCTION TO FUTURES

Futures markets were designed to solve the problem that exists in forward markets. A
futures contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. But unlike forward contracts, the future contracts are
standardized and exchange traded. To facilitate liquidity in the futures contracts, the
exchange specifies certain standard features of the contract. It is a standardized contract
with the standard underlying instrument, a standard quantity and quality of the underlying
instrument that can be delivered, (or which can be used in reference purposes for
settlement) and a standard timing of such settlement. A futures contract may be offset
prior to maturity by entering into an equal and opposite transaction.

The standardized items in a future contract are:

Quality of the underlying
Quantity of the underlying
The date and month of delivery
The units price quotation and minimum price change
Location of settlement

FUTURES TERMINOLOGY

36
Spot price: The price at which an asset trades in the spot market.
Futures price: The price at which the futures contract trades in the futures market.

Contract cycle: The period over which a contract trades. The index futures
contracts on the NSE have one-month, two-months, three-month expiry cycles which
expire on the last Thursday of the month.

Expiry Date: It is the date specified in the futures contract. This is the last day on
which the contract will be traded, at the end of which it will cease to exist.

Contract size: The amount of asset that has to be delivered under one contract.
Basis: It can be defined as the future price minus the spot price. There will be a
different basis for each basis for each delivery month for each contract.

Cost of carry: This measures the storage cost plus the interest that is paid to finance
the asset less the income earned on the asset.

Initial margin: the amount that must be deposited in the margin account at the time
a futures contract is first entered into is known as initial margin.

Working of Futures Market

The futures market is a centralized marketplace for buyers and sellers from

around the world who meet and enter into futures contracts. Pricing can be

based on an open cry system, or bids and offers can be matched electronically.

37
The futures contract will state the price that will be paid and the date of delivery.

But don't worry, as we mentioned earlier, almost all futures contracts end without

the actual physical delivery of the commodity.

Concept of basis in futures market

Basis is defined as the difference between cash and futures prices:

Basis = Cash prices - Future prices.

Basis can be either positive or negative (in Index futures, basis generally is

negative).

Basis may change its sign several times during the life of the contract.

Basis turns to zero at maturity of the futures contract i.e. both cash and future

prices converge at maturity

Life of the contract

38
INTRODUCTION TO OPTIONS

An option gives the holder of the option the right to do something. The holder does not
have to exercise this right. In contrast, in forward or futures contract, the two parties have
committed themselves to do something. Whereas it costs nothing (except margin
requirements) to enter into a futures contract, the purchase of an option requires an up-
front payment.

OPTIONS TERMINOLOGY

Index options: These options have the index as underlying. Some options are
European while others are American. Like index futures contracts, index options
contracts are also cash settled.

Stock options: Stock options are options on individual stocks.

Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.

Writer of an option: The writer of a option is the one who receives the option
premium and is thereby obliged to see/buy the asset if the buyer exercises on him.

Call option: A call option gives the holder the right but not the obligation to buy an
asset by a certain date for a certain price.

39
Put option: A put option gives the holder the right but not the obligation to sell an
asset by a certain date for a certain price.

Option price: It is the price which the option buyer pays to the option seller. It is
also referred to as option premium.

Expiration date: The date specified in the option contract is known as expiration
date.

Strike price: The price specified in the option contract is known as the strike price
or the exercise price.

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

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

In-the-money option: It is an option that would lead to a positive cashflow to the

holder if it were exercised immediately.

At-the-money option: It is an option that would lead to zero cashflow if it were

exercised immediately.

Out-of-the-money option: it is an option that would lead to a negative

cashflow if it were exercised immediately.

40
Clearing & Settlement of Derivatives

National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement
agency for all deals executed on the Derivatives (Futures & Options) segment. NSCCL
acts as legal counter-party to all deals on NSE's F&O segment and guarantees settlement.

A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of
all deals executed by Trading Members (TM) on NSE, who clear and settle such deals
through them.

Clearing Banks

NSCCL has empanelled 11 clearing banks namely Canara Bank, HDFC Bank, IndusInd
Bank, ICICI Bank, UTI Bank, Bank of India, IDBI Bank, Hongkong & Shanghai
Banking Corporation Ltd., Standard Chartered Bank, Kotak Mahindra Bank and Union
Bank of India.
Every Clearing Member is required to maintain and operate a clearing account with any
one of the empanelled clearing banks at the designated clearing bank branches. The
clearing account is to be used exclusively for clearing & settlement operations.
Settlement Schedule

Product Settlement Schedule

Pay-in: T+1 working day at or after
Futures Contracts on 11.30 a.m.
Daily Mark-to-Market
Index & Individual
Settlement
Securities Payout: T+1 working day at or after
12.00 p.m. (T is trade day)
Futures Contracts on Final Settlement Pay-in: T+1 working day at or after
Index & 11.30 a.m.

41
 Payout: T+1 working day at or after
Individual Securities
12.00 p.m. (T is expiration day of
contract)
Pay-in: T+1 working day on or after
11.30 a.m.
Interest Rate Futures Daily Mark-to-Market
Contracts Settlement Payout: T+1 working day on or after
12.00 p.m.
(T is trading day)
Pay-in: T+1 working day on or after
11.30 a.m.
Interest Rate Futures
Final Settlement Payout: T+1 working day on or after
Contracts
12.00 p.m.
(T is expiration day)
Pay-in: T+1 working day at or after
11.30 a.m.
Options Contracts on
Index & Premium Settlement
Payout: T+1 working day at or after
Individual Securities
12.00 p.m.
(T is trade day)
Pay-in: T+1 working day at or after
11.30 a.m.
Options Contracts on Exercise & Final
Index Settlement Payout: T+1 working day at or after
12.00 p.m.
(T is expiration day of contract)
Options Contract on Interim Exercise Pay-in: T+2 working day at or after
Individual Settlement 11.30 a.m.
Securities

42
 Payout: T+2 working day at or after
12.00 p.m.
(T is exercise day)
Pay-in: T+2 working day at or after
Options Contract on 11.30 a.m.
Exercise & Final
Individual Payout: T+2 working day at or after
Settlement
Securities 12.00 p.m.
(T is expiration day)

Minimum Base Capital Requirements

A Clearing Member (CM) is required to meet with the Base Minimum Capital (BMC)
requirements prescribed by NSCCL before activation. The CM has also to ensure that
BMC is maintained in accordance with the requirements of NSCCL at all points of time,
after activation.

Every CM is required to maintain BMC of Rs.50 lakhs with NSCCL in the following
manner:-
(1) Rs.25 lakhs in the form of cash.
(2) Rs.25 lakhs in any one form or combination of the below forms:-

Cash
Fixed Deposit Receipts (FDRs) issued by approved banks and deposited with approved
Custodians or NSCCL
Bank Guarantee in favour of NSCCL from approved banks in the specified format.
Approved securities in demat form deposited with approved Custodians.

In addition to the above MBC requirements, every CM is required to maintain BMC of

Rs.10 lakhs, in respect of every trading member(TM) whose deals such CM undertakes to
clear and settle, in the following manner:-

43
(1) Rs.2 lakhs in the form of cash.
(2) Rs.8 lakhs in a one form or combination of the following:
Cash
Fixed Deposit Receipts (FDRs) issued by approved banks and deposited with approved
Custodians or NSCCL
Bank Guarantee in favour of NSCCL from approved banks in the specified format.
Approved securities in demat form deposited with approved Custodians.

Any failure on the part of a CM to meet with the BMC requirements at any point of time,
will be treated as a violation of the Rules, Bye-Laws and Regulations of NSCCL and
would attract disciplinary action inter-alia including, withdrawal of trading facility
and/ore clearing facility, closing out of outstanding positions etc.

Commodity Derivative Market

Commodity derivatives market trade contracts for which the underlying asset is a
commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton,
etc or precious like gold, silver, etc. hedge the exposure to market risk.

The commodity derivatives differ from the financial derivatives mainly in the following
aspects:

Firstly, due to the bulky nature of the underlying assets, physical settlement in
commodity derivatives creates the need for warehousing.

Secondly, in the case of commodities, the quality of the asset underlying a contract can
vary largely.

44
Some of the major market players in commodities market are:- Hedgers, Speculators,
Investors, Arbitragers
Producers Farmers
Consumers refiners, food processing companies, jewelers, textile mills, exporters &
importers

Why Commodities Market?

India has very large agriculture production in number of agri-commodities, which needs
use of futures and derivatives as price-risk management system.
Fundamentally price you pay for goods and services depend greatly on how well business
handle risk. By using effectively futures and derivatives can minimize risks, thus
lowering cost of doing business.
Commodity players use it as a hedge mechanism as well as a means of making money.
For e.g. in the bullion markets, players hedge their risks by using futures Euro-Dollar
fluctuations and the international prices affecting it.
For an agricultural country like India, with plethora pf mandis, trading in over 100 crops,
the issues in price dissemination, standards, certification and warehousing are bound to
occur. Commodity Market will serve as a suitable alternative to tackle all these problems
efficiently.

Commodities Market in India

India has a long history of futures trading in commodities. In India, trading in commodity
futures has been in existence from the nineteenth century with organized trading in
cotton, through the establishment of Bombay Cotton Trade Association Ltd. in 1875.
Over a period of time, other commodities were permitted to be traded in futures
exchanges Spot trading in India occurs mostly in regional mandis and unorganized
markets, which are fragmented and isolated.

45
There were booming activities in this market and at one time as many as 100 exchanges
were conducting forward trade in various commodities in the country. The securities
market was a poor cousin of this market as there were not many papers to be traded at
that time.

The era of widespread shortages in many essential commodities resulting in inflationary

pressures and the tilt towards socialist policy, in which the role of market forces for
resource allocation got diminished, saw the decline of this market since the mid-1960s.
This coupled with the regulatory constraints in 1960s, resulted in virtual dismantling of
the commodities future markets. It is only in the last decade that commodity future
exchanges have been actively encouraged. However, the markets have been thin with
poor liquidity and have not grown to any significant level.

Indian Policy makers have traditionally coped with the uncertainty and risks associated
with price volatility by resorting to policy instruments which attempted to minimize or
eliminate price volatility a virtually closed external trade regime, price control,
pervasive government controls on private sector activities extensive market interventions
and crop insurance.

Liberalization of Indian economy since 1991 recognised the role of market and private
initiative for the development of the economy. The much maligned market instruments
such as the futures were also given due recognition. After some halting efforts since 1994
when Prof. Kabra Committee submitted its report, the late 1990s spilling into the new
millennium, saw some bold initiatives in the commodity market.

A three-pronged approach has been adopted to revive and revitalize this market.

Firstly, on policy front many legal and administrative hurdles in the functioning of the
market have been removed. Forward trading was permitted in cotton and jute goods in
1998, followed by some oilseeds and their derivatives, such as groundnut, mustard seed,

46
sesame, cottonseeds etc. in 1999. A statement in the first ever National Agriculture
Policy, issued in July, 2000 by the government that futures trading will be encouraged in
increasing number of agricultural commodities was indicative of welcome change in the
government policy towards forward trading.

Secondly, strengthening of infrastructure and institutional capabilities of the regulator and

the existing exchanges received priority.

Thirdly, as the existing exchanges are slow to adopt reforms due to legacy or lack of
resources, new promoters with resources and professional approach were being attracted
with a clear mandate to set up demutualised, technology driven exchanges with
nationwide reach and adopting best international practices.
The year 2003 marked the real turning point in the policy framework for commodity
market when the government issued notifications for withdrawing all prohibitions and
opening up forward trading in all the commodities. This period also witnessed other
reforms, such as, amendments to the Essential commodities Act, Securities (Contract)
Rules, which have reduced bottlenecks in the development and growth of commodity
markets. Of the countrys total GDP, commodities related (and dependent) industries
constitute about roughly 50-60 % which itself cannot be ignored.

Most of the existing Indian commodity exchanges are single commodity platforms are
regional in nature, run mainly by entities which trade on them resulting in substantial
conflict of interests, opaque in their functioning and have not used technology to scale up
their operations and reach to bring down their costs. But with the strong emergence of:
National Multi-commodity Exchange Ltd., Ahmedabad (NMCE), National Commodities
and Derivatives Exchange, Mumbai (NCDEX), and National Board of Trade, Indore
(NBOT), all these shortcomings will be addressed rapidly. These exchanges are expected
to be role model to other exchanges and are likely to compete for trade not only among
themselves but also with the existing exchanges.

47
The recent policy changes and upbeat sentiments about the economy, particularly
agriculture, have created lot of interest and euphoria about the commodity markets. Even
though a large number of the traditional exchanges are showing flat volume, this has not
weakened excitement among new participants. Many of these exchanges have been
permitted with a view to extent the culture and tradition of forward trading to new areas
and commodities and also to introduce new technology and practices.

The current mindset of the people in India is that the Commodity exchanges are
speculative (due to non delivery) and are not meant for actual users. One major reason
being that the awareness is lacking amongst actual users. In Indian, Interest rate risks,
exchange rate risks are actively managed, but the same does not hold true for the
commodity risks. Some additional impediments are centered around the safety,
transparency and taxation issues.

Regulatory Body:

The Forward Markets Commission (FMC) is the regulatory body for commodity
futures/forward trade in India. The commission was set up under the Forward Contracts
(Regulation) Act of 1952. It is responsible for regulating and promoting future/forward
trade in commodities The FMC is headquartered in Mumbai while its regional office is
located in Kolkata. Curbing the illegal activities of the diehard traders who continued to
trade illegally is the major role of the Forward Market\s Commission.

Reasons for suitability of commodity for future trading:

The following are some of the key factors, which decide the suitability of the
commodities for future trading:-
The commodity should be competitive, i.e., there should be large demand for and
supply of the commodity no individual or group of persons acting in concert should
be in a position to influence the demand or supply, and consequently the price
substantially.

48
 There should be fluctuations in price.
The market for the commodity should be free from substantial government control.
The commodity should have long shelf life and be capable of standardization and
gradation.

Need For Futures Trading In Commodities:

Commodity Futures, which forms an essential component of Commodity Exchange, can

be broadly classified into precious metals, agriculture, energy and other metals. Current
futures volumes are miniscule compared to underlying spot market volumes are thus have
a tremendous potential in the near future.

Futures trading in commodities results in transparent and fair price discovery on account
of large-scale participations of entities associated with different value chains. It reflects
views and expectations of a wider section of people related to a particular commodity. It
also provides effective platform for price risk management for all segments of players
ranging from producers, traders and processors to exporters/importers and end-users of a
commodity.

It also helps in improving the cropping pattern for the farmers, thus minimizing the losser
to the farmers. It acts as a smart investment choice by providing hedging, trading and
arbitrage opportunities to market players. Historically, pricing in commodities futures has
been less volatile compared with equity and bonds, thus providing an efficient portfolio
diversification option.
Raw materials form the most key element of most of the industries. The significance of
raw materials can further be strengthened by the fact that the increase in raw material
cost means reduction in share prices In other words share prices mimic the commodity
price movements.
Industry in India runs the raw material price risk; hence going forward the industry can
hedge this risk by trading in the commodities market.

49
Problems faced by Commodities Markets in India:

Institutional issues have resulted in very few deliveries so far. Currently, there are a lot of
hassles such as octroi duty, logistics. If there is a broker in Mumbai and a broker in
Kolkata, Transportation costs, octroi duty, logistical problems prevent trading to take
place. Exchanges are used only to hedge price risk on transactions carried out in the local
markets. Also multiple restrictions exist on inter-state movement and warehousing of
commodities.

Risks associated with commodities markets:

No risk can be eliminated, but the same can be transferred to someone who can handle it
better or to someone who has the appetite for risk. Commodity enterprises primarily face
the following classes of risks, namely: the price risk, the quantity risk, the yield/output
risk and political risk. Talking about the national wide commodity exchanges, the risk of
the counter party (trading member, client, venders etc) not fulfilling his obligations on
due date or at any time thereafter is the most common risk.

This risk is mitigated by collection of the following margins:-

Initial margins
Exposure margins
Market to market of positions on a daily basis
Position limits and intra day price limits
Surveillance

Commodity price risks include:-

50
 Increase in purchase cost vis--vis commitment on sales price
Change in value of inventory
Counter party risk translating into commodity price risk

Key Factors for success of commodities market

The following are some of the key factors for the success of the
commodities markets:-

How one can make the business grow?

How many products are covered?
How many people participate on the platform?

Key factors for success of commodities exchanges:

The following are some of the key factors for the success of the
commodities exchanges:
Strategy, method of execution, background of promoters, credibility of the institution,
transparency of platforms, scaleable technology, robustness of settlement structures,
wider participation of Hedgers, Speculators and Arbitrageurs, acceptable clearing
mechanism, financial soundness and capability, covering a wide range of commodities,
size of the trade guarantee fund, reach of the organization and adding value on the
ground. In addition to this, if the Indian commodity exchange needs to be competitive in
the global market, then it should be backed with proper Capital account convertibility.

51
The interests of Indian consumers, households and producers are most important, as these
are the people who are exposed to risk and price fluctuations.

Key expectation of investors from commodities exchanges:

The following are some of the key expectations of the

investors w.r.t. any commodity exchange:-

To get in place the right regulatory structure to even out the differences that may exist in
various fields.

Proper product conceptualization and design.

Fair and transparent price discovery & dissemination.
Robust trading & settlement systems.
Effective management of counter party credit risk.
Self-regulation to ensure: Overview of trading and surveillance, audit and review
of members, enforcement of exchange rules.

Future Prospects:

With the gradual withdrawal of the government from various sectors in the post-
liberation era, the need has been felt that various operators in the commodities market be
provided with a mechanism to hedge and transfer their risks. Indias obligation under
WTO to open agriculture sector to world trade would require future trade in a wide verity
of primary commodities and their products to enable diverse market functionaries to cope
with the price volatility prevailing in the world markets. Government subsidy may go
down as a result of WTO. The MSP programme will not be sustainable in such a

52
scenario. The farmer will have to look at ways of being in ways of being in a position to
trade on commodity exchanges in future. Also, corporate will feel the pressure to hedge
their price risk once the frontiers open up for free trade.
Indian markets have recently thrown open a new avenue for retail investors and traders to
participate: commodity derivatives. For those who want to diversify their portfolios
beyond shares, bonds and real estate, commodities is the best option.
Following are some of the applications, which can utilize the power of the commodity
markets and create a win- win situation for all the involved parties:-

Regulatory approval / permission to FIIs for trading in

the commodity markets:- FIIs are currently not allowed nor disallowed
under any law. As, they have added depth to the equity markets; they will add depth to
the commodities markets, since they globally know the commodities.

Active involvement of mutual fund industry in India:

Currently Mutual Funds are prohibited from not using derivatives apart from hedging.
Mutual Funds as investors can invest in gold and gets returns as they get from debt
instruments, equity markets. AMFI & SEBI need to collectively work towards the same.
Launch of the commodity funds by the mutual funds in India, can serve as a newer
instrument avenue for investors.

Active Involvement of Small Regional Stock Exchange:

The existing regional stock exchanges (RSE), which have good trading infrastructure in
place but are having tough time due to tiny volumes, should be used for trading
commodities. The skills and infrastructure of these RSEs will be very useful to get a
jump ahead in terms of market development at low cost.

53
Steady Transition towards Electronic Warehouse
Receipts:
Commodity exchange in India is expected to contribute significantly in strengthening
Indian economy to face the challenges of globalisation.
Indian markets are poised to witness further development in the areas of Electronic
warehouse receipts (similar to demat shares), which would facilitate seamless
nationwide spot market for commodities.

Impact of WTO Regime:

India being a signatory to WTO may open up the agricultural and other commodity
markets more to the global competition. Indias uniqueness as a major consumption
market is an invitation to the world to explore the Indian market. Indian producers and
traders too would have the opportunity to explore the global markets. Price risk
management and quality consciousness are two important factors to succeed in the global
competition. Indian companies are allowed to participate in the international commodity
exchanges to hedge their price risk, resultant from export and import activities of such
companies. But due to the compliance issues and international exchange rules, 90% of
the commodity traders and producers are not in a position to participate in the
international exchanges.

Convergence of various markets:

In the near future the integration of the international equity, commodities, forex and debt
would enhance the business opportunities. It will also create specialized treasuries and
fund houses that would offer a gamut of services, thus providing comprehensive risk
management solutions to Indias corporate and trade community.

54
Amendments in the commodities act and implementation of VAT:
Amendments to Essential Commodities Act and implementation of Value-Added-Tax
would enable movement of across states and more unified tax regime, which would
facilitate easier trading in commodities.

Introduction of Option Contract:

Options contract in commodities are being considered and this would again boost the
commodity risk management markets in the country.
Thus, Commodity derivatives as an industry is poised to take-off, which may provide the
numerous investors in this country with another opportunity to invest and diversify their
portfolio.

Structured Commodity Financing: (Asset-backed

Financing)

In Structured Finance, collateral is assigned and an automatic reimbursement procedure is

devised. It can be made available as receivable-backed financing and inventory financing.
The clients retain the economic benefits and risks of ownership by transacting a swap.
For successful implementation of structured financing in India, the rural banking
infrastructure should be made strong, the government should come across with strong
policies and lastly there should be increased awareness and training amongst masses.

Launch of Weather Derivatives, though the commodity exchanges in the near future.
Globally, it is done on a temperature basis, whereas in India it could be done on rainfall
basis.

55
The Road Ahead
The following 4-step action plan sums up the road ahead
for commodity markets in India:-

1) Seeking changes in banking regulation

Banking regulation act to be modified.
Accreditation of warehouses and quality of products furthers bank lending against
commodities.
Change in priority sector norms.
Lending against commodities to be considered priority sector lending.
Banks to lend against bullion.
Need for hallmarking.

2) Changing the face of warehousing

Electronic warehouse receipt (EWR) to be legally recognized EWR to be a
negotiable instrument.

Depositories act to be amended to cover commodities.

SEBI to notify that FMC is regulatory body for demat commodities.

3) Inducing policy changes

Introduction of options.
Will ably substitute the MSP programme of government.
Permit weather derivatives.

56
 Redefining commodities.
Goods not covered under securities.
Products not covered under SCRA.
Physical delivery not to be mandatory.

4) Budget proposals relating to commodities

Integration of commodity market with securities market.
Service tax on forward contracts to affect commodity brokers.
Significant omissions in light of other announcements.
Weather derivatives.

Comparative Analysis of Commodity And Equity

Market:

Factors Commodity Market Equity Market

Percentage Returns
Initial Margin
Arbitrage Opportunities
Price Movement
Gold gives 10-15% returns Returns in the range of 15-
on the conservative basis. 20% on annual basis.
Lower in the range of 4-6% Higher in the range of 25-
40%
Exists on 1-2 months Significant arbitrage
contracts. There is a small opportunities exist.
difference in prices, but in
case of commodities, which
is in large tones in make
huge difference.
Price movements are purely Prices movements are based
based on the supply and on the expectation of future
demand performance.

57
Price Changes Price changes are due to Price changes can also be
policy changes, changes in due to corporate actions,
tariff and duties. Dividend announcement,
and Bonus shares/ stock
splits.
Future Predictability Predictability of future Predictability of futures
prices is not in the control performance is reasonably
due to factors like Failure of high, which is supplemented
Monsoon and El-ninos at by the History of
pacific. management performance.
Volatility Lower Volatility Higher Volatility
Securities Transaction Act Securities Transaction act is Securities Transaction act is
Applicable not applicable to applicable to equity market
commodity future trading. trading.

Action Plan required to be taken:

The following steps need to be taken by the exchanges, regulator and the government in
order that this market develops in a robust manner and the benefits flows to the ultimate
beneficiaries like the consumers, processors, exporters and farmers etc.-

To mount a massive awareness programme among the potential beneficiaries about

the benefits and risks of futures trading.

Disseminate futures prices widely so that stakeholders can take informed decisions.

Develop other allied activities such as warehousing, standardization and gradation;

collateral financing linked to futures markets.

Reforms in physical market to develop efficient and integrated national market.

58
 Make necessary amendments in the FC(R) for permitting futures in intangible
commodities and options trading, which are at present prohibited.
Allow participation in mutual funds and financial institutions in the commodity
market

Coordination with other segments of the financial market such as banking, debt and
capital market.

Above all, to upgrade and empower regulator to provide effective and efficient
leadership for the development and regulation of the market.

59
 Chapter-2

1 Research Problem

2 Objectives

3 Importance

4 Scope of the study

Research Problem
To find the awerence of D-Mat among the investors

60
 To find the reasons why investors choose other broking firm to invest.
Though there is technical advancement , to find the preference of investment in
Stock Market.

Objectives:-

In depth study to explore the investment and growth opportunities in derivative

market for the benefit of indian Capital market.

To examine the preference of investment segment like IPO,Mutual Fund

Insurance and alike.
To analysis the recent scenario of capital market.

Importance

This project report would helpful for those interested in acquiring advanced

knowledge about capital market.

The purpose of this study is to obtain information about the company which help

to identification of the problem and to determine the issue dimension and

magnitude to enumerate and evaluate the alternative solution to select the right

course of action to follow the purpose of the study also to provide information to

facilitate the identification of an opportunity or problem situation are encountered.

Scope of Study

61
Broad aspect of study :-Risk management in NSE, BSE, NYSE, NASDAQ, etc

Specific aspect:- Hedging using futures, options, swaps, forward

Researcher has been conducted in the Varanasi region like Rathyatra, Lanka, Kabir

Chaura, Lahura Beer, Godauliya, Durga Kund,Luxa. The study will help to know the

market share and will also helps the creating & providing high quality services which

increase the brand loyalty.

The researcher will also help in improving marketing sales promotion and new strategy

of the company. Useful for researcher for future research for gating insight about the

topic.

62
 Chapter-3

1.Research Methodology

RESEARCH DESIGN

63
A research design is defined, as the specification of methods and procedures for acquiring

the Information needed. It is a plant or organizing framework for doing the study and

collecting the data. Designing a research plan requires decisions all the data sources,

research approaches, Research instruments, sampling plan and contact methods.

A research design specifies the methods and procedures for conducting a particular

study.The researcher should specify the approach he intends to use with respect to the

proposed study.
A research design specifies the methods and procedures for conducting a particular

study.The researcher should specify the approach he intends to use with respect to the

proposed study.

Broadly speaking, research designs can be grouped into three categories-

Exploratory research,

Descriptive research

Casual research.

Exploratory research

As the term suggests, exploratory research is often conducted because a problem has not

been clearly defined as yet, or its real scope is as yet unclear. It allows the researcher to

familiarize him/herself with the problem or concept to be studied, and perhaps generate

hypotheses (definition of hypothesis) to be tested. It is the initial research, before more

conclusive research (definition of conclusive research) is undertaken. Exploratory

64
research helps determine the best research design, data collection method and selection
of subjects, and sometimes it even concludes that the problem does not exist!

Another common reason for conducting exploratory research is to test concepts before

they are put in the marketplace, always a very costly endeavor. In concept testing,

consumers are provided either with a written concept or a prototype for a new, revised or

repositioned product, service or strategy.

Exploratory research can be quite informal, relying on secondary research such as

reviewing available literature and/or data, or qualitative (definition of qualitative

research) approaches such as informal discussions with consumers, employees,

management or competitors, and more formal approaches through in-depth interviews,

focus groups, projective methods, case studies or pilot studies.

The results of exploratory research are not usually useful for decision-making by

themselves, but they can provide significant insight into a given situation. Although the

results of qualitative research can give some indication as to the "why", "how" and

"when" something occurs, it cannot tell us "how often" or "how many". In other words,

the results can neither be generalized; they are not representative of the whole population

being studied.

Descriptive research

65
Descriptive research or statistical research provides data about the population or universe

being studied. But it can only describe the "who, what, when, where and how" of a

situation, not what caused it. Therefore, descriptive research is used when the objective is

to provide a systematic description that is as factual and accurate as possible. It provides

the number of times something occurs, or frequency, lends itself to statistical calculations

such as determining the average number of occurrences or central tendencies.

One of its major limitations is that it cannot help determine what causes a specific

behavior, motivation or occurrence. In other words, it cannot establish a causal research

relationship between variables.

The two most commonly types of descriptive research designs are

1. Cross sectional.
2. Longitudinal.

Causal research

If the objective is to determine which variable might be causing a certain behavior, i.e.

whether there is a cause and effect relationship between variables, causal research must

be undertaken. In order to determine causality, it is important to hold the variable that is

assumed to cause the change in the other variable(s) constant and then measure the

66
changes in the other variable(s). This type of research is very complex and the researcher

can never be completely certain that there are not other factors influencing the causal

relationship, especially when dealing with peoples attitudes and motivations. There are
often much deeper psychological considerations, that even the respondent may not be

aware of.

There are two research methods for exploring the cause and effect relationship between

variables:

1.Experimentation

2.Simulation

An exploratory research focuses on the discovery of ideas and is generally based on

secondary data. It is a preliminary investigation which does not have a rigid design.This

is because a researcher engaged in an exploratory study may have to change his focus as

a result of new ideas and relationships among the variables.

A descriptive study is undertaken when the researcher wants to know the characteristics

of certain groups such as age ,sex, educational level, income, occupation ,etc. In contrast

to exploratory studies, descriptive studies are well-structured.

A casual research is undertaken when the researcher is interested in knowing the cause

and effect relationship between two or more variables. Such studies are based on

reasoning along well-tested lines

Steps involved in research design

67
Their are many steps involved in research design

1 formulating the research problem

The first step in research is formulating a research problem. It is the most important

stage in applied research as poorly defined problems will not yield useful results. It is

rightly said that

a problem well defined is half solved. Poorly defined problem cause confusion and do

not allow the researcher to develop a good research design.

A complete problem definition must specify each of the following:

Unit of analysis.

Time and space boundaries.

Characteristics of interest both the results that are of concern to management and the

variables that are to be tested for there relationship to the result.

Specific environmental conditions.

DETERMINING SOURCES OF DATA

The next step is to determine the sources of data to be used. The marketing researcher

has to decide whether he has to collect primary data or depend exclusively on secondary

data. Sometimes, the research study is based on both secondary or primary data.

When a study is to be based on secondary data, whether partly or fully,it is necessary

68
satisfy oneself that a data are quite suitable for the objectives spelt out by the study. It is

also advisable to evaluate secondary data in detail to avoid possible sources of error.To

begin with, one should be familiar with the authentic sources of relevant data, their

periodicity, the agency publishing or having such data, the concepts the concepts used in

compilation and their limitation, if any.

A sincere effort must be made to look into the existing data with a view to examining

their suitability for the research. It is only when such secondary data are unavailable,

inadequate, or unreliable, that a researcher should decide on collecting fresh data.

DESIGNING DATA COLLECTION FORMS :

Once the decision in favor of collection of primary data is taken, one has to decide the

mode of collection .The two methods available are:

(i) Observational method

(ii) Survey method

Observation :

This method suggests that data are collected through one's observation .If the researcher

is a keen observer, with integrity he would be in a position to observe and record the data

faithfully and accurately . While the observational method may be suitable in case of
some studies , several things of interest such as attitudes , opinions, motivations and other

intangible states of mind cannot be observed Another aspect this method is that it is

69
noncreative as data are collected unobtrusively without the direct participation of the

respondent. This is major advantage as the behavior can be recorded without relying on

reports from the respondents

Surveys :
In marketing research, fields surveys are commonly used to collect primary data from the

respondents.

surveys methods are

(i) Personal survey

(ii) Telephone survey

(iii) Mail survey

(iv) Computer survey .

Of these, personal mail surveys are more frequently used in India . A choice has to be

made regarding the type of surveys for collecting data. There are certain advantages

and limitations of each type of surveys. In contrast,surveys based on personal

interviews are suitable when detailed information is to be collected. Sometimes a

combination of two or more methods could also be used.

DETERMINING SAMPLING DESIGN AND SAMPLING

SIZE

70
Another aspect which forms a part of research process is the sampling plan. When the

marketing researcher has decided to carry out a field survey, he has to decide whether it

is to be a census or sample survey.In almost all cases, a sample survey is undertaken on

account of its overwhelming advantages over a census survey.

When a decision in favor of sample survey has to be taken, it is necessary to have a

clear definition of the population from which the sample is to be drawn, before deciding

on the type of sample design to be used. First, a broad choice is to be made between

probability sampling and non-probability sampling. The researcher then selects a specific

type of sample design from a number of sample designs

The type of sample design chosen will depend on its suitability and also the availability

of the requisite sample frame.

The objects of sampling is to choose a sample which will faithfully reproduce the

characteristics of the population or universe. In practice, however, this objective is never

completely attained on account of the occurrence of two types of errors- errors due to

bias in the selection and sampling errors. It is desirable to minimize these errors and to

consult an experienced statician on sampling.

ORGANISING AND CONDUCTING THE FIELD SURVEY

71
Having prepared the questionnaires and selected the sample design and size of sample,

the next step is to organize and conduct the field survey. Two important aspects should be

looked into: interviewing and supervision of the field work. The task of interviewing

seems to simple but, in reality, it is one of the most difficult task in marketing research.

This is because the respondents are generally hesitant in giving information unless

approached with tact, initiative and intelligence. Supervision of field work is generally

important to ensure the timely and proper completion of the field survey.

PROCESSING AND ANALYSING THE COLLECTED

DATA

Once the field survey is over and questionnaires have been received, the next task is to

aggregate the data in a meaning full manner. A number of tables are prepared to bring out

main characteristic of the data. The researcher should have a well thought out framework

for processing and analyzing the data, and this should be done prior to the collection. It is

advisable to prepare dummy tables, as such an exercise would indicate the nature and

extent of tabulation as also the comparison of data that can be undertaken.

It is necessary that the researcher gives as much importance to the analysis and

interpretation of data as he has given to their collection. In the absence of proper analysis,

data may be rendered useless resulting in a waste of time and money.

In this project
11 Descriptive research design is used as we have to find out characteristics of

72
particular individual

2.SECONDARY DATA: - college library, internet, news letter, research reports.

3.Sample Size:

Sample size for the questionnaire prepared for Investors was 100. Various areas of
Varanasi were covered in order to fill the questionnaire. I interacted
with 100 individuals in order to know about their interest.

4. Data collection is done with the help of questionnaire and personal interview

5.Sample areas includes-

Rathyatra, Lanka, Kabir Chaura, Lahura Beer, Godauliya, Durga Kund,Luxa

Clients of various broking firms, including Angel Broking, Kotak ,

Unicon .

Employees of ING Vysya Bank,

Marketing Executive of Reliance Money.

Business persons

Surveys also include Malls.

6.Data is analyzed with the help of bar diagram and pie chart.

73
 CHAPTER -4

4.1 DATA ANALYSIS

74
Market Research Analysis

1.Age of investors

Age of No. of Percentage of

75
 Respondants Respondants respondants
20-30 35 35%
30-40 42 42%
4050 11 11%
50-60 7 7%
60 Above 5 5%
Total 100

Analysis:The graph shows that 42% of investors are from age group 30-40 and then

35% of investors belong to age group 20-30.

Interpretation: From survey the sample taken were 100, in which maximum

responents were from the age group 30-40 .

2. What is the Percentage Of Your saving from your Income?

Percentage of No. of Percentage of

76
 savings Respondants Respondants
(5 TO 10)% 34 34%
(10 TO 15)% 31 31%
(15 TO 20)% 19 19%
(20-30)% 16 16%
Total 100

Analysis:The graph shows that 34% of investors save their 5 to 10% from their

income,31 % save their 10 to 15% from their income and 19% of investors save their 15

to 20% of income.

Interpretation:From survey it is analysed that the maximumof people save their 5 to

77
10% from their income. This shows that people invest only upto5 to 10% of
their earnings

in the stock market or any where else, again reiterating the volatile
and non-transparent

structure of the Indian stock market. Hence, effective and efficient

steps should be

undertaken to woo the customers to invest more in the lucrative stock

market.

3. Do You Have a Demat Account?

Having D-Mat No. of Percentage of

a/c Respondants Respondants

78
 Yes 69 69%
No 31 31%
Total 100

Analysis:The graph shows that 69% of investors are having d-mat account and ony
31% of these invest in way.

Interpretation:In today scenario it is found that those who are aware about the D-mat

account , among those majority are having their d-mat a/c in any broking firm.

4. Where Do You like to Invest Your Savings?

Choice of No. of Percentage of

79
 Investment Respondants Respondants
Bank a/c 32 32%
IPO 22 22%
Mutual Fund 34 34%
Others 12 12%
Total 100

Analysis:This shows that 34% of investors invest in mutual fund ,32% having bank
account and 22% invest in IPO.

Interpretation: This shows that the mutual funds market is on the rise
yet, the most favored investment continues to be in the Mutual fund.

5.What Is Your Criteria While Making Your Investment Decision?

Choice of No. of Percentage of

Creiteria Investors investors
Return 35 35%
Safety 31 31%
Liquidity 21 21%

80
 Time Periods 13 13%
Total 100

Analysis:The criteria adopted in saving is seen ,that 35% invest for a good

return 31% invest for their safety and only 21% invest for liquidity.

Interpretation:This shows that the investors invest their money depending upon the
return the will get fromtheir investment for the period

6. In Which DP You are Having Your demat Account?

Option of DP No. of Investors Percentage of

Investors
Reliance Money 13 19%
Karvy 11 15%
Anand Rathi 6 9%
ICICI 14 21%

81
 HDFC 5 7%
Others 20 29%
Total 69

Analysis:The graph shows the investors preference for Reliance Money,only 19% of
investors having d-mat account in Reliance Money.

Interpretation: This shows that even with sufficiently high Brand

Equity, Reliance Money ranks only3rd amongst the Demat account
providers

82
 7. How Do You Rate The Services Provided By Your DP?

Services No. of Investors Percentage of

Rating rating
Excellent 13 19%
V.Good 25 37%
Good 17 24%
Satisfactory 14 20%
Total 69

Analysis:It is found that 37% investors rate the services very good from their

respective firm where they have invested.

Interpretation:The servicesgiven to these investors from their DP , the maximum of

these investors are satisfied that they are getting sufficient better services from their DP.

83
8. Do You Think Dp Account Help You To Receive Corporate Actions ?

Dp Account Help You To Receive No. of invstors Percentage of

Corporate Actions who agree investors
Yes 61 89%
No 8 11%
Total 69

Analysis:It is seen that 89% of investors agree with the DP account help in receiving

corporate actions and 11% do not agree.

Interpretation:Majority that is nearly 89% of investors feel that DP account help

them to receive corporate actions.

9. You Prefer To have a Demat Account With a DP Which Is

84
 [ ] Providing Trading Facilities
[ ] Not Providing Trading Facilities

Preference To have a Number of investors Percentage of

Demat Account With a DP who agree responses
which ------------
Providing Trading Facilities 53 77%
Not Providing Trading 16 23%
Facilities
Total 69

Analysis:The graph shows that 77% of investors prefer d-mat account with a DP which

provide trading facilities and 23% do not prefer.

Interpretation:The survey shows that investors prefer have a d- mat a/c with a DP

which provides them a trading facilities.

10. What Do You Feel About The Customer Services Of Reliance Money?

85
 Services Of R- No. of Percentage of
Money Investors Response
V. Good 29%
Good 52%
Satisfactory 19%
Total

Analysis:The graph shows that 52% of customer of reliance money feel that the

services provided by reliance Money is Good ,29% says that sevices are very good

whereas for 19% ofcustomer are only satisfied with the services.

Interpretation:The services given by R- Money to their customer are found to be

good according to them.They are satisfy with the services as compare to others.

11. Are You Aware Of The Fact The new policy or changing scenario of capital
market?

86
 Awerence of New Number of Percentage of Responses
policy or changing Respondants
scenario
Yes 31 31%
No 69 69%
Total 100

Analysis:The graph shows that only 31% of investors are aware about the new policy

or changing scenario of capitl market whereas 69% are not aware.

Interpretation:The shows that majority are not aware of the new policy or changing

scenario of capital market.

87
 Chapter-5

5.1. Findings & Recommendations

88
89
 Findings

After analyzing all the data,I found certain key findings that is very important for
project.

1. The people belonging from age group 30-40 are mostly interested in investing.

2. The investors save their 5 to 10 % of income which they invest .

3. There are maximum of respondents who are aware of the d-mat a/c and having d-
mat account.

4. Though there is advantagement in technology in trading investors prefer to invest

their saving in mutual fund then they go for bank a/c.

5. These investors invest their savings on the basis of the return they would receive
from their investment.

6. Due to some lacking in awareness ,it is found that reliance money stand 3rd in
position in case of d-mat a/c.

7. The investors wherever they have invested their money are quite satisfy from the
services provided by company.

8. It is found that maximum of investors agree that DP account help them to receive
corporate action.

90
9. It is found that maximum of investors like to prefer a D-Mat account with a DP
which provide trading facilities

10. The services provided by Reliance Money to their respective customer are good,
they show a satisfying response on survey.

91
 Recommendations

We suggest following measures, which Reliance Money could take so as to take on heavy

competition.

1. To identify regions where promotions are required. Reliance Money lacks visibility in

some region where as it is a well known name in other region. Even then, its

promotional campaign focuses on all region where as some region is still waiting for

promotional campaigns.

2. Try to reduce cost, so that benefits can be passed on to customers. But the fact is,

India being a price sensitive market, people at times go for monetary benefits rather

than for long term non- monetary benefits.

3. If charges cant be reduced because of costs involved, make the services customized,

so that services are provided to only those customers who are willing to pay the price

for services they are getting and let the other customers enjoy costs benefits without

getting services.

92
4. Concept of margin funding should be introduced, as more and more people are asking

for it.

5. Reliance Money should contact with their clients regularly for knowing the problems

faced by them. This will help Reliance Money in providing best services to

customers. This will result in additional customer base by getting further references

from satisfied clients.

6. To launch slab wise brokerage structure as Reliance Money has fixed brokerage

structure which can not be negotiated. But other players in the market offer launch

slab wise brokerage structure which motivate customers to increase their volumes.

93
 CHAPTER-6

1. Conclusion & Limitation

2. Bibliography

3. Annexures

94
 CONCLUSION

The financial derivative market is now playing an important role in Indian capital market
and has outperformed the cash segment.

The interesting fact is that the retail investors are the main players in the derivative
segment as compared to cash market where FIIs dominate the market.

When compared to the other stock exchanges of the world, NSE is good only in future
segment, but in option segment it has been ranked poorly.

On the other hand commodity market is poised to play an important role of price
discovery and risk management for the development of agriculture and other sectors in
the supply chain. New issues and problems will surface as the market evolves. The
government, regulators and stakeholders will need to be proactive and quick in their
response to new developments.

The globalization of market under the WTO regime makes it all the more urgent to
develop these market to enable our economy, specially agriculture to meet the challenges
of new regime and benefit from opportunities unfolding before us. With risk not been
absorbed anymore, the idea is to transfer it as the focus is shifting to Manage price

95
change rather than change price, the commodity markets will play a key role for the
same.

Limitations

The study is limited to the geographical area of Varanasi and thereof cannot be
generalized.

Some respondents either do not have time or willing does not respond as they are
quite annoyed with the phone call.

Lack of time was the major constraint in my study The time duration of two
months was short for the completion of all activities.

I also had to perform the routine work assigned to me so I could not devote much
of the time to my project.

Most of them were reluctant to supply information because of the misconception

that information supplied can be misused.

Many people also dont take the surveys very seriously.

96
 BIBLIOGRAPHY
Kothari C. R. Research Methodology 2 n d revised edition

2004 published by New Age International Ltd.

NSDL Depository operations module :--NCFM

Indian financial system by M.Y KHAN

1. Internet/ Websites
http://www.nseindia.com
http://www.bseindia.com
http://www.investopedia.com
http://www.moneycontrol.com
www.reliancemoney.com

2. Newspapers
Economic Times
Times of India
Business Line

97
3. Magazines
Business Today

98
Questionnaire

1. NAME

AGE - 20-30[ ] 30-40 [ ] 40-50 [ ] 50-60 [ ] ABOVE 60 [ ]

GENDER- MALE [ ] FEMALE [ ]

OCCUPATION- BUSINESS [] SERVICE [] PROFESSION []

2. What is the Percentage Of Your saving from your Income?

[ ] 5 to 10% [ ] 10 to 15% [ ] 15 to 20% [ ] 20 to 30%

3. Do You Have a Demat Account?

[ ] Yes [ ] No

99
4. Where Do You like to Invest Your Savings?

[ ] Mutual Funds [ ] IPO [ ] Bank Deposits [ ] Others

5. What Is Your Criteria While Making Your Investment Decision?

[ ] Liquidity [ ] Safety [ ] Return [ ] Time Period

6. In Which DP You are Having Your demat Account?

[ ] Reliance Money [ ] KARVY [ ] ANAND RATHI [ ] ICICI [ ] HDFC

[ ] OTHERS

7. How Do You Rate The Services Provided By Your DP?

[ ] Excellent [ ] V.Good [ ] Good [ ] Satisfactory

8. Do You Think Dp Account Help You To Receive Corporate Actions ?

[ ] Yes [ ] No

9. You Prefer To have a Demat Account With a DP Which Is

[ ] Providing Trading Facilities

[ ] Not Providing Trading Facilities

10. What Do You Feel About The Customer Services Of Reliance Money?

[ ] V.Good [ ] Good [ ] Satisfactory

100
11. Are You Aware Of The Fact The new policy or changing scenario of capital
market?

[ ] Yes [ ] No

101
102