TYBAF FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

Submitted By
LAXMIDEVI LALSINGH
Roll No. 01

Under the Guidance of

PROF.MACKRINA TUSCANO

SHANKAR NARAYAN COLLEGE OF ARTS, COMMERCE AND SCIENCE

NAVGHAR ROAD, BHAYANDAR (EAST)
THANE - 401105

ACADEMIC YEAR 2018-2019

Semester VI
TYBAF

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TYBAF FINANCIAL INSTRUMENTS

Declaration

I the undersigned MISS LAXMIDEVI LALSINGH hereby declare that the work
embodied in this project work titled “FINANCIAL INSTRUMENTS” forms my own
contribution to the research work carried out under the guidance of PROF.MACKRINA
TUSCANO is a result of my own research work and has not been previously submitted
to any other Degree/Diploma to this or any other university.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, hereby further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conducts.

Signature of Student:

LAXMIDEVI LALSINGH

Certified by:

PROF. MACKRINA TUSCANO

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TYBAF FINANCIAL INSTRUMENTS

Acknowledgment
“Success is always to be found on the other side of fear”

Milestones achieved in the journey of life are never achieved alone,

and this is one exception. As I completed this enlighten journey, I would like
acknowledge and thank my Guide and Companions, who helped me, put my
best foot forward and made this story a successful.

So, first of all I would like to thank our college ―SHANKAR

NARAYAN COLLEGE OF ARTS & COMMERCE and principle of the
college “DR. V. N. YADAV” for this continuous faith and UNIVERSITY
OF MUMBAI who has given this opportunity to do this project in this
curriculum.

I am very grateful to the “H.O.D. PROF. BRINDA SHAH” and

my project Guide, “PROF. MACKRINA TUSCANO” who inspired me to
work well on the topic and seeing to it that my performance is up to the mark.
I would really like to thank her for her support, eagerness and professional
approach in guiding me through the careful details of the project.

I would also like to express my gratitude to my friends and colleagues

who have been support in my effort to explore this area of study.

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TYBAF FINANCIAL INSTRUMENTS

CONTENT

SR.NO. CHAPTERS PAGE NO.

1. INTRODUCTION OF FINANCIAL INSTRUMENT 5-39

1.1 Introduction of Financial Instruments
1.2 Characteristics of Financial Instrument
1.3 Funds flow through Financial System
1.4 Functions and uses of Financial Instruments
1.5 Different types of Financial Instruments
1.6 Underlying V/S Derivative Instruments
1.7 Breaking down Financial Instruments
1.8 Money Market Instruments V/S Capital Market
Instruments
1.9 Financial Instruments of India
1.10 Financial Instruments of Foreign Market
1.11 Case Study
2. RESEARCH AND METHODOLOGY 40-44
2.1 Introduction
2.2 Objective of the study
2.3 Significance
2.4 Conceptualization
2.5 Focus of problem
2.6 Limitation of the study
3 LITERATURE REVIEW 45-46
4 DATA COLLECTION AND INTERPRETATION 47-59
4.1 Personal Information of the respondents
4.2 Analysis of the response
5 CONCLUSION AND RECOMMENDATION 60-61

BIBLIOGRAPHY 62

APPENDIX 63-68

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CHAPTER 1: INTRODUCTION OF FINANCIAL INSTRUMENTS

1.1 INTRODUCTION OF FINANCIAL INSTRUMENTS:

Financial instruments are assets that can be traded. They can also be seen as packages of
capital that may be traded. Most types of financial instruments provide an efficient flow
and transfer of capital all throughout the world's investors. These assets can be cash, a
contractual right to deliver or receive cash or another type of financial instrument, or
evidence of one's ownership of an entity.

The transfer of available funds takes place through the buying and selling of financial
instruments or securities. The following is definition of a financial instrument:

A financial instrument is the written legal obligation of one party to transfer something of
value, usually money, to another party at some future date, under certain conditions.

This is a mouthful, but breaking it down, we see several key features. First, this is a
binding, enforceable contract under the rule of law, protecting potential buyers. Second,
there is the transfer of value between two parties, where a party can be a bank, insurance
company, a government, a firm, or an individual. The future dates may be very specific
(like a monthly tooltip FACT purple ICON.pngmortgage payment) or may be quite
uncertain and depend on certain events (like an insurance policy)

Financial instruments, like money, can function as a means of payment or a store of

value. As a means of payment, financial instruments fall well short of money in terms of
liquidity, divisibility, and acceptance. However, they are considered better stores of value
since they allow for greater increases in wealth over time, but with higher levels of risk.
A third function of these instruments is risk transfer. Tooltip TIP blue ICON.png For
certain instruments, buyers are shifting risk to the seller, and are basically paying the
seller to assume certain risks. Insurance policies are a prime example of this.

Most financial instruments are standardized in that they have the same obligations and
contract for buyers. Google stock shares are the same obligation, regardless of buyer. Car
loan and mortgage loans contracts use uniform legal language, differing only in specific
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loan amounts and terms. This standardization reduces costs (since the same types of
contracts are used over and over) and makes it easier for buyers and sellers to trade these
instruments over and over. In addition to this standardization, financial instruments must
provide certain relevant information about the issuer, the characteristics and the risks of
the security. This information requirement is a way to even the playing field among
different parties and reduce unfair advantages.

1.1.1 MEANING AND DEFINITION:

Financial instruments are monetary contracts between parties. They can be created,
traded, modified and settled. They can be cash (currency), evidence of an ownership
interest in an entity (share), or a contractual right to receive or deliver cash (bond).

DEFINITION:

Key definitions [IAS 32.11]

Financial instrument: a contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.

Financial asset: any asset that is:

Cash an equity instrument of another entity a contractual right

to receive cash or another financial asset from another entity; or to exchange financial
assets or financial liabilities with another entity under conditions that are potentially
favourable to the entity; or

a contract that will or may be settled in the entity's own equity instruments and is:

a non-derivative for which the entity is or may be obliged to receive a variable number of
the entity's own equity instruments a derivative that will or may be settled other than by
the exchange of a fixed amount of cash or another financial asset for a fixed number of
the entity's own equity instruments. For this purpose the entity's own equity instruments
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do not include instruments that are themselves contracts for the future receipt or delivery
of the entity's own equity instruments puttable instruments classified as equity or certain
liabilities arising on liquidation classified by IAS 32 as equity instruments

Financial liability: any liability that is:

A contractual obligation:

to deliver cash or another financial asset to another entity; or to exchange financial assets
or financial liabilities with another entity under conditions that are potentially
unfavourable to the entity; or

a contract that will or may be settled in the entity's own equity instruments and is

a non-derivative for which the entity is or may be obliged to deliver a variable number of
the entity's own equity instruments or a derivative that will or may be settled other than
by the exchange of a fixed amount of cash or another financial asset for a fixed number
of the entity's own equity instruments. For this purpose the entity's own equity
instruments do not include: instruments that are themselves contracts for the future
receipt or delivery of the entity's own equity instruments; puttable instruments classified
as equity or certain liabilities arising on liquidation classified by IAS 32 as equity
instrument.

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1.1.2 VALUATION OF FINANCIAL INSTRUMENT:

The value of any financial instrument depends on how much it is expected to pay, the
likelihood of payment, and the present value of the payment.

Obviously, the greater the expected return of the instrument, the greater its value. This is
why the stock of a fast-growing company is highly valued, for instance.

A financial instrument that has less risk will have a higher value than a similar instrument
that has more risk—the greater the risk, the more it lowers the value of the security
because risk requires compensation. This is why United States Treasuries which have
virtually no credit default risk command higher prices (lower yields) than junk bonds
with the same principal. So an investor would pay less money for a junk bond with a
$1,000 principal than for a Treasury with the same $1,000 principal and coupon rate since
there is a much greater risk that the junk bond may default. So, by paying less money for
the junk bond, the junk bond pays a higher yield.

The present value of a payment is determined by when the payment will be made. The
greater the amount of time until payment, the less the present value of the security, and,
hence, the lower its value. So a zero coupon bond that was going to pay its $1,000
principal 1 year from now will obviously have a greater value than a zero that will pay its
principal 10 years from now.

1.1.3 OVERVIEW OF FINANCIAL INSTRUMENTS:

IAS 32 Financial Instruments: Presentation outlines the accounting requirements for the
presentation of financial instruments, particularly as to the classification of such
instruments into financial assets, financial liabilities and equity instruments. The standard

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also provide guidance on the classification of related interest, dividends and gains/losses,
and when financial assets and financial liabilities can be offset.

IAS 32 was reissued in December 2003 and applies to annual periods beginning on or
after 1 January 2005.

1.2.1 CHARACTERISTICS OF FINANCIAL INSTRUMETS:

Following are the characteristics of financial instruments:

 These contracts are very complex.

 This complexity is costly, and people do not want to bear these costs.
 Standardization of financial instruments overcomes potential costs of complexity.
[Most mortgages feature a standard application with standardized terms.]
 Financial instruments also communicate information, summarizing certain details
about the issuer.
[Continuous monitoring of an issuer is costly and difficult.]
 Mechanisms exist to reduce the cost of monitoring the behavior of counterparties.
[A counterparty is the person or institution on the other side of the
contract.]
 The solution to high cost of obtaining information is to standardize both the
instrument and the information about the issuer.
 Financial instruments are designed to handle the problem of asymmetric
information.

1.2.2 Features of different types of instruments:

Features of different type of investment in terms of safety, returns, volatility, liquidity

and convenience are given in table 1.1

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TYBAF FINANCIAL INSTRUMENTS

Features of different types of instruments:

Returns Safety Volatility Liquidity Convenience

Equity High Low High High Moderate

Bonds Low High Moderate Moderate High

Co- Moderate Moderate Moderate Low Low

debentures

FDs Moderate Low Low Low Moderate

Bank Low High Low High High

deposits

PPF Moderate High Low Moderate High

Life Low High Low Low Moderate

insurance

Gold Moderate High Moderate Moderate Moderate

Real estate High Moderate High Low Low

Mutual High Moderate Moderate High High

funds

Forex Moderate Moderate Moderate High Moderate

Table 1.1

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TYBAF FINANCIAL INSTRUMENTS

1.2.3 A PRIMER FOR VALUING FINANCIAL INSTRUMENTS:

Four fundamental characteristics influence the value of a financial instrument:

 Size of the payment:

Larger payment - more valuable.

 Timing of payment:

Payment is sooner - more valuable.

 Likelihood payment is made:

More likely to be made - more valuable.

 Conditions under with payment is made:

Made when we need them - more valuable

1.3 FUNDS FLOW THOUGH FINANCIAL SYSTEM:

Funds flow through Financial System is shown in following figure 1.1

Financial system include:

- Financial markets
- Lenders and savers
- Borrowers/Spenders
- Financial instrument
- Financial instruments
- Funds

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TYBAF FINANCIAL INSTRUMENTS

Figure 1.1

1.4 FUNCTIONS AND USES OF FINANCIAL INSTRUMENTS:

1.4.1 Functions:

 Financial instruments act as a means of payment (like money).

 Employees take stock options as payment for working.
 Financial instruments act as stores of value (like money).
 Financial instruments generate increases in wealth that are larger than from
holding money.
 Financial instruments can be used to transfer purchasing power into the future.

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 Financial instruments allow for the transfer of risk (unlike money).

 Futures and insurance contracts allows one person to transfer risk to another.

1.4.2 USES:

We organize financial instruments by how they are used:

A. PRIMARY USED AS STORES OF VALUE:

1) Bank loans:
 Borrower obtains resources from a lender to be repaid in the future.

2) Bonds:
 A form of a loan issued by a corporation or government.
 Can be bought and sold in financial markets.

3) Home mortgages:
 Home buyers usually need to borrow using the home as collateral for the loan.
 A specific asset the borrower pledges to protect the lender’s interests.

4) Stocks:
 The holder owns a small piece of the firm and entitled to part of its profits.
 Firms sell stocks to raise money.
 Primarily used as a stores of wealth.

5) Asset-backed securities:
 Shares in the returns or payments arising from specific assets, such as home
mortgages and student loans.
 Mortgage backed securities bundle a large number of mortgages together into a
pool in which shares are sold.
 Securities backed by sub-prime mortgages played an important role in the
financial crisis of 2007-2009

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B. PRIMARILY USED TO TRANSFER RISK:

6) Insurance contracts:
 Primary purpose is to assure that payments will be made under particular, and
often rare, circumstances.

7) Futures contracts:
 An agreement between two parties to exchange a fixed quantity of a commodity
or an asset at a fixed price on a set future date.
 A price is always specified.
 This is a type of derivative instrument

8) Options
 Derivative instruments whose prices are based on the value of an underlying
asset.
 Give the holder the right, not obligation, to buy or sell a fixed quantity of the asset
at a pre-determined price on either a specific date or at any time during a specified
period.

1.5 DIFFERENT TYPES OF FINANCIAL INSTRUMENTS:

For the most part, regardless of how fancy a name may be, the financial products are
classified into two main types.

 Cash instruments
 Derivative instruments

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A cash instrument is classification of a financial product whose value is determined by

the markets. These could be securities and most importantly, the ones that can be easily
transferable. They are also more liquid.

A derivative instrument is one whose value is derived from the underlying asset such as
index or interest rate of even currency rates. The term asset is commonly used, but there
can only be two types of assets.

 Equity based asset

 Debt based asset

Figure 1.2

The exception to the case is of course foreign exchange, which falls into none of the
above categories.

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Both of the above types of financial instruments are then sub-classified into exchange
traded or over-the-counter (OTC) traded products.

Thus, combining the above, the financial instruments are as follows:

1.5.1 Debt based instruments:

 Debentures :
debenture is similar to a bond except the securitization conditions are different. A
debenture is generally unsecured in the sense that there are no liens or pledges on
specific assets. It is defined as a certificate of agreement of loans which is given
under the company’s stamp and carries an undertaking that the debenture holder
will get a fixed return (fixed on the basis of interest rates) and the principal
amount whenever the debenture matures.
In finance, a debenture is a long-term debt instrument used by governments and
large companies to obtain funds. The advantage of debentures to the issuer is they
leave specific assets burden free, and thereby leave them open for subsequent
financing. Debentures are generally freely transferrable by the debenture holder.
Debenture holders have no voting rights and the interest given to them is a charge
against profit.

 Bonds (cash or securities instrument):

A bond is a fixed income instrument that represents a loan made by an investor to

a borrower (typically corporate or governmental). A bond could be thought of as
an I.O.U. between the lender and borrower that includes the details of the loan
and its payments. A bond has an end date when the principal of the loan is due to
be paid to the bond owner and usually includes the terms for variable or fixed
interest payments that will be made by the borrower. Bonds are used by

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companies, municipalities, states, and sovereign governments to finance projects

and operations. Owners of bonds are debtholders, or creditors, of the issuer.

Varieties of Bonds

Bonds that make a coupon payment are called “coupon bonds”. There are also
other types of bonds issued by borrowers.

Zero-coupon bonds do not pay coupon payments and instead are issued at a
discount to their par value that will generate a return once the bondholder is paid
the full face value when the bond matures. U.S. Treasury bills are a zero-coupon
bond. For example, the U.S. Treasury sold 26-week bills with $100 face value for
$98.78 on October 18th, 2018. That equates to a total annual yield of 2.479% once
the bondholder is repaid the entire $100 at the maturity date.

Convertible bonds are debt instruments with an embedded option that allows
bondholders to convert their debt into stock (equity) at some point, depending on
certain conditions like the share price. For example, imagine a company that
needs to borrow $1 million to fund a new project. They could borrow by issuing
bonds with a 12% coupon that matures in 10 years. However, if they knew that
there were some investors willing to buy bonds with an 8% coupon that allowed
them to convert the bond into stock if the stock’s price rose above a certain value,
they might prefer to issue those.

The convertible bond may the best solution for the company because they would
have lower interest payments while the project was in its early stages. If the
investors converted their bonds, the other shareholders would be diluted, but the
company would not have to pay any more interest or the principal of the bond.

The investors who purchased a convertible bond may think this is a great solution
because they can profit from the upside in the stock if the project is successful.
They are taking more risk by accepting a lower coupon payment, but the potential
reward if the bonds are converted could make that trade-off acceptable.

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Callable or Puttable bonds also have an embedded option but it is different than
what is found in a convertible bond. A callable bond is one that can be “called”
back by the company before it matures. Assume that a company has borrowed $1
million by issuing bonds with a 10% coupon that mature in 10 years. If interest
rates decline (or the company’s credit rating improves) in year 5 when the
company could borrow for 8%, they will call or buy the bonds back from the
bondholders for the principle amount and reissue new bonds at a lower coupon
rate.

A callable bond is riskier for the bond buyer because the bond is more likely to be
called when it is rising in value. Remember, when interest rates are falling, bond
prices rise. Because of this, callable bonds are not as valuable as bonds that aren’t
callable with the same maturity, credit rating, and coupon rate.

A puttable bond allows the bondholders to put or sell the bond back to the
company before it has matured. This is valuable for investors who are worried
that a bond may fall in value, or if they think interest rates will rise and they want
to get their principal back before the bond falls in value.

 Bond futures, options (exchange traded derivatives):

Bond futures are financial derivatives which obligate the contract holder to
purchase or sell a bond on a specified date at a predetermined price. A bond future
can be bought in a futures exchange market and the prices and dates are
determined at the time the future is purchased.

 Interest rate swaps, IR options, IR caps and floors (OTC derivatives):

Swaptions are helpful in managing possible interest rate risk occurring at some
time in the future.
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An Interest Rate Swaption gives you the right (but with no obligation), as a
borrower of substantial funds, to enter into an Interest Rate Swap at an agreed
interest rate on a set date in the future.

Swaptions are intended for borrowers who want the option to take forward cover
on interest rates or the option to obtain forward cover on the rollover of an
existing loan facility.

They are a useful tool when there is uncertainty as to the timing or need to
borrow, and movements in interest rates are an important component of the
potential transaction. Alternatively, a borrower who has purchased an asset on
extended terms may use a Swaption to obtain flexibility in their future financing
requirements.

 T-bills (cash or securities instrument):

Treasury bills, or T-bills, are short-term debt instruments issued by the U.S
Treasury. T-bills are issued for a term of one year of less. T-bills are considered
the world’s safest debt as they are backed by the full faith and credit of the United
States government.

Although T-bills can be bought by individual investors, primary dealers, such as

banks and broker-dealers, are the biggest purchasers of T-bills at the various
auctions

Other major auction participants include investment funds, pension plans and
retirement funds, insurance companies and other large institutional managers.

 Commercial Papers:

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Commercial Paper (CP) is an unsecured money market instrument issued in the form
of a promissory note. It was introduced in India in 1990 with a view to enable highly
rated corporate borrowers/ to diversify their sources of short-term borrowings and to
provide an additional instrument to investors. Subsequently, primary dealers and
satellite dealers were also permitted to issue CP to enable them to meet their short-
term funding requirements for their operations. CP can be issued in denominations of
Rs.5 lakh or multiples thereof. Amount invested by a single investor should not be
less than Rs.5 lakh (face value). It will be issued foe a duration of
30/45/60/90/120/180/270/364 days. Only a scheduled bank can act as an Issuing and
Paying Agent IPA for issuance of CP.

 Certificate of Deposit:

certificate of deposit or CD is a time deposit, a financial product commonly offered to

consumers by banks, thrift institutions, and credit unions. CDs are similar to savings
accounts in that they are insured and thus virtually risk-free; they are “money in the
bank”. They are different from savings accounts in that the CD has a specific, fixed
term (often 3 months, 6 months, or 1 to 5 years), and, usually, a fixed interest rate. It
is intended that the CD be held until maturity, at which time the money may be
withdrawn together with the accrued interest.

 Interest rate futures (exchange traded instrument):

An interest rate future is a futures contract with an underlying instrument that pays
interest. An interest rate future is a contract between the buyer and seller agreeing to
the future delivery of any interest-bearing asset. The interest rate future allows the
buyer and seller to lock in the price of the interest-bearing asset for a future date.

An interest rate future can be based on underlying instruments such as Treasury bills
in the case of Treasury bill futures traded on the CME or Treasury bonds in the case

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of Treasury bond futures traded on the CBT. Other products such as CDs, Treasury
notes and Ginnie Mae are also available to trade as underlying assets of an interest
rate future. The most popular interest rate futures are the 30-year, 10-year, five-year
and two-year Treasuries, as well as the Eurodollar. Interest rate futures are used for
hedging purposes

and speculation purposes.

 Government Securities :

In India Government securities (G-secs) are supreme securities which are issued by
the Reserve Bank of India on behalf of Government of India in lieu of the Central
Government’s market borrowing program.

The term Government Securities includes :Central Government Securities – State

Government Securities Treasury bills. The Central Government borrows funds to
finance its ‘fiscal deficit’. The market borrowing of the Central Government is
increased through the issue of dated securities and 364 days treasury bills either by
auction or by floatation of loans. In addition to the above, treasury bills of 91 days are
issued for managing the temporary cash mismatches of the Government. These do not
form part of the borrowing program of the Central Government.

 National Savings Certificate

National Savings Certificate (NSC) is a fixed interest, long term instrument for
investment. NSCs are issued by the Department of Post, Government of India. Since
they are backed by the Government of India, NSCs are a practically risk free avenue
of investment. They can be bought from authorized post offices. NSCs have a
maturity of 6 years. They offer a rate of return of 8% per annum. This interest is
calculated every six months, and is merged with the principal. That is, the interest is
reinvested, and is paid along with the principal at the time of maturity. For every Rs.
100 invested, you receive Rs. 160.10 at maturity.

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NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act).
Even the interest earned every year qualifies under Sec 80C. This means that
investments in NSCs and the interest earned on it every year, upto Rs. 1 Lakh, are
deductible from the income of the investor. There is no tax deducted at source
(TDS).

 Forward rate agreements (OTC derivatives):

Forward rate agreements (FRA) are over-the-counter contracts between parties that
determine the rate of interest to be paid on an agreed upon date in the future. An FRA
is an agreement to exchange an interest rate commitment on a notional amount.

The FRA determines the rates to be used along with the termination date and notional
value. FRAs are cash-settled with the payment based on the net difference between
the interest rate of the contract and the floating rate in the market called the reference
rate. The notional amount is not exchanged, but rather a cash amount based on the
rate differentials and the notional value of the contract.

1.5.2 Equity based instruments

Defining equity instrument:

An equity instrument refers to a document which serves as a legally applicable evidence

of the ownership right in a firm, like a share certificate. Equity instruments are, generally,
issued to company shareholders and are used to fund the business. It is, however, not

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necessary that the issued equity must return a dividend for it is based on profits and the
terms of business.

Categories of equity instrument:

The equity instruments can be divided into numerous categories, the most common ones
being:

Common stock is one of the equity instruments issued by a public company to raise
funds from the public. The shareholders have the privilege of being entitled to co-
ownership of the company in addition to having the right to vote at the shareholders
meeting as per the proportion of shares. Besides, they also have rights to take decision in
important issues like raising capital to pay dividends and merging business. Moreover,
the shareholders can also apply for new shares when the company has increased capital or
issues a new allocation to the shareholders.

Convertible debenture is another type of equity instrument which is similar to common

bonds, the only difference being that a convertible debenture can be converted into
common stock during the particular rates and prices mentioned in the prospectus.
Convertible debentures are quite popular for profitable returns from converted stock are
higher than those form common bonds.

Preferred stock, another equity instrument, involves shareholders’ participation as a

business owner as in common stock. The variation lies in that the preferred shareholders
are entitled to receive repayment of capital prior to the common shareholders.

Depository receipt is an equity instrument which entitles the rights to reference common
bonds, ordinary debentures, and convertible debentures. Investors holding a depository

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receipt get benefits as shareholders of listed companies in every respects, be it the voting
rights or financial rights in the listed companies.

Transferable Subscription Rights (TSR) is an equity instrument issued by a company

to all shareholders in proporti8on numbers of shares already held by them. This
instrument is used as evidence in shares of the company. The existing shareholders can
sell/transfer their rights to others if they do not want to exercise their shares.

1.5.3 FX instruments:

When you are discussing the forex market, the following six entities are designated as
financial instruments:

Exchange-traded Fund – referred to as ETF’s. These are open-ended investment

companies that have the characteristic of being traded at any time throughout the day.
These will oftentimes attempt duplicating stock market indices such as the S&P 500. The
ETF’s gain strength as the United States Dollar (USD) weakens against a different
currency and therefore replicate currency market investments. Certain funds can track the
price fluctuations of the various world currencies as they compare to the USD, and will
oftentimes increase in value to counter the direction that the USD moves in. This creates
increased interest in the USD for investors and speculators.

Forward – the agreement established between two parties wherein they purchase, sell, or
trade an asset at a pre-agreed upon price is called a forward or a forward contract.
Normally, there is no exchange of money until a pre-established future date has been
arrived at. Forwards are normally performed as a hedging instrument used to either deter
or alleviate risk in the investment activity.

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Future – a forward transaction that contains standard contract sizes and maturity dates
are considered futures. Futures are traded on exchanges that have been created for that
purpose exclusively. Just like with commodity markets, a future in the forex market
normally designates a contract length of 3 months in duration. Interest amounts are also
included in a futures contract.

Option – commonly shortened to FX option from foreign exchange option. Options are
derivatives (financial instruments whose values fluctuate based on underlying variables)
wherein the owner has the right to, but is not necessarily obligated to, exchange one
currency for another at a pre-agreed upon rate and a specified date. When you talk about
options in any form (stock market, forex, or any other market), the forex market is the
deepest and largest, as well as the most liquid market of any options in the world.

Spot – where futures contracts normally employ a 3-month timeframe, spot transactions
encompass a 48-hour delivery transaction period. There are four characteristics that all
spot transactions have in common, namely:

1. A direct exchange between two currencies

2. Involves only cash, never contracts

3. No interest is included in the agreed upon transaction

4. Shortest of all transaction timeframes

Swap – currency swaps are the most common type of forward transactions. A swap is a
trade between two parties wherein they exchange currencies for a pre-determined length
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TYBAF FINANCIAL INSTRUMENTS

of time. The transaction then is reversed at a pre-agreed upon future date. Currency swaps
can be negotiated to mature up to 30 years in the future, and involve the swapping of the
principle amount. Interest rates are not “netted” since they are denominated in different
currencies.

1.6 UNDERLYING VERSUS DERIVATIVE INSTRUMENTS:

Two fundamental classes of financial instruments:

1. Underlying instruments/ Cash Instrument:

 Underlying instruments are used by savers/lenders to transfer resources directly to
investors/borrowers.
 This improves the efficient allocation of resources.
 Examples: stocks and bonds.

2. Derivative instruments:
 Derivative instruments are those where their value and payoffs are “derived” from
the behavior of the underlying instruments.
 Examples are futures and options.
 The primary use is to shift risk among investors

1.7 BREAKING DOWN Financial Instrument:

Financial instruments can be real or virtual documents representing a legal agreement

involving any kind of monetary value. Equity-based financial instruments represent
ownership of an asset. Debt-based financial instruments represent a loan made by an
investor to the owner of the asset. Foreign exchange instruments comprise a third, unique
type of financial instrument. Different subcategories of each instrument type exist, such
as preferred share equity and common share equity.

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TYBAF FINANCIAL INSTRUMENTS

For most traders who are just starting to venture into trading, forex crops up as the first
trading instrument or product. This has to do with the fact that retail forex trading is
relatively straightforward. Being a highly leveraged product and the existence of a
decentralized exchange, makes it easy for the average Joe to transfer funds to a forex
broker and start trading. So aside from Forex, what are the different types of financial
instruments?

However, when it comes to the financial markets, there are many types of products that
you can trade. Most commonly, traders might have heard about stocks, ETF’s, mutual
funds, bonds, futures, spot forex, options trading to name a few. Dig a bit deeper and you
will recognize a plethora of financial products to trade.

Curious to know? Well, some of the ‘not so common to the retail trading arena’ include;
Non-deliverable forwards, Credit default swaps, Credit link notes and many more.

Financial instruments are legal agreements that require one party to pay money or
something else of value or to promise to pay under stipulated conditions to a counterparty
in exchange for the payment of interest, for the acquisition of rights, for premiums, or for
indemnification against risk. In exchange for the payment of the money, the counterparty
hopes to profit by receiving interest, capital gains, premiums, or indemnification for a
loss event.

A financial instrument can be an actual document, such as a stock certificate or a loan

contract, but, increasingly, financial instruments that have been standardized are stored in
an electronic book-entry system as a record, and the parties to the contract are also
recorded. For instance, United States Treasuries are stored electronically in a book-entry
system maintained by the Federal Reserve.

Some common financial instruments include checks, which transfer money from the
payer, the writer of the check, to the payee, the receiver of the check. Stocks are issued
by companies to raise money from investors. The investors pay for the stock, thereby
giving money to the company, in exchange for an ownership interest in the company.
Bonds are financial instruments that allow investors to lend money to the bond issuer for
a stipulated amount of interest over a specified period.

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Financial instruments can also be used by traders to either speculate about future prices,
index levels, or interest rates, or some other financial measure, or to hedge financial risk.
The 2 parties to these kinds of instruments are speculators and hedgers. Speculators
attempt to predict future prices or some other financial measure, then buying or selling
the financial instruments that would yield a profit if their view of the future should be
correct. In other words, speculators bet about future prices or some other financial
measure. For instance, if a speculator thought that the price of XYZ stock was going to
go up, then he could buy a call option for the stock, which would be profitable if the
stock does go up. If the option expires worthless, then the loss to the speculator is less
than the loss that would have been incurred from actually owning the stock. Hedgers
attempt to mitigate financial risk by buying or selling the financial instruments whose
value would vary inversely with the hedged risk. For instance, if the owner of XYZ stock
feared that the price might go down, but didn’t want to sell before a specific time for tax
purposes, then she could buy a put on the stock that would increase in value as the stock
declined in value. If the stock goes up, then the put expires worthless, but the loss of the
put premium would probably be less than the loss incurred if the stock declined.

1.8 Money Market Instrument V/S Capital Market Instruments

Financial Market plays a very important role in development of any country because it is
place where liquidity requirement who needs money like industries to meet their
expansion plans and those who want to earn better rate of interest on the surplus funds are
met .Individuals and financial institution having surplus money come to earn better rate
of interest Financial market is a platform where buyers and sellers are involved in sale
and purchase of financial products like shares, mutual funds, certificate of deposit ,bonds
and so on.

Any industry like reliance, Tata’s or government needs money to meet liquidity
requirement come to financial market .Financial market act as intermediary between
those who need money and who want to invest their money to earn better rate of interest.

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Financial market are divided in two types depends on duration for which they need
money.

There are two types of financial market:

1. Money Market

2. Capital Market

Figure 1.3

Money Market

It is one part of financial market where instruments like securities ,bonds having short
term maturities usually less than one year are traded is know as Money market
.Organization or Financial institutions having short term money requirement less than one
year to meet immediate needs like buying inventories, raw material ,paying loans come to
Money Market. It involves lending and borrowing of short term funds. Money market
instruments like treasury bills, certificate of deposit and bills of exchange are traded their

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having maturity less than one year .Investment in money market is safe but it gives low
rate of return.

Money Market is regulated by R.B.I in India and instrument having maturity less than
one year usually traded in money markets

Major Players in Money Market:-

1. RBI

2. Central Government

3. State Governments

4. Banks

5. Financial Institutions

6. Micro Finance Institutions

7. Foreign Institutional Investors (FII)

8. Mutual Funds

Money Market Instruments

1. Treasury Bills

2. Commercial Papers

3. Certificate of Deposit

4. Bankers Acceptance

5. Repurchase Agreement

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1. Treasury Bills:

Treasury Bills are also know as T-Bills. This is one of safest instrument to invest .T-bills
are issued by RBI backed by government security. RBI issue treasury bills on the behalf
of central government to meet the short term liquidity needs of central government bills
are issued at a discount to face value, on maturity face value is paid to holder.

At present , the Government of India issues three types of treasury bills through auctions,
for 91-day, 182-day and 364-day. Treasury bills are available for a minimum amount of
Rs.25,000 and in multiples of Rs. 25,000.

Treasury bills are also issued under the Market Stabilization Scheme (MSS).In this if RBI
want to absorb excess liquidity it can issue T-bills .

2. Commercial Papers (CP):

Commercial papers are issue by private organizations or financial institutions having

strong credit rating to meet short term liquidity requirements. These are unsecured
instruments as these are not backed by any security. The return on commercial papers is
usually higher than T-bills. Different rating agencies ,rate the commercial paper before
issue by any organization .If commercial paper carrying good rating means it is safe to
invest and carrying lower risk of default .

All corporate are not eligible to issue CP, only who met certain defined criteria by RBI
are eligible to issue CP.

CP can be issued for maturities between a minimum of 7 days and a maximum of up to

one year from the date of issue and can be issued not less than 5 lakhs and multiples
thereafter.

3. Certificate Of Deposit:

Certificate of Deposit (CD) is a money market instrument. CDs can be issued

by scheduled commercial banks and select All-India Financial Institutions (FIs) that
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have been permitted by RBI to raise short-term resources. Minimum amount of a CD

should be Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single
subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter. The
maturity period of CDs issued by banks should not be less than 7 days and not more than
one year, from the date of issue. CDs may be issued at a discount on face value.

In this a person invest his money in COD and after the end of maturity period he
receives money along with interest.

4. Bankers Acceptance:

Bankers Acceptance is also a money market instrument to meet short term liquidity
requirement .In this company provides bank guarantee to seller to pay amount of good
purchased at agreed future date . In case buyer failed to pay on agreed date , seller can
invoke bank guarantee . It is usually used to finance export and import.

5. Repurchase Agreement:

Repurchase agreement is also know as Repo .It is money market instrument .In this one
party sell his asset usually government securities to other party and agreed to buy this
asset on future agreed date . The seller pays an interest rate, called the repo rate, when
buying back the securities. This is like a short term loan given by buyer of security to
seller of security to meet immediate financial needs.

Major Players in Money Market:-

1. S.E.B.I

2. Central and State Government

3. Financial Institutions like L.I.C.

4. Financial intermediaries like stock brokers

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5. Individuals

6. Corporate houses

7. Insurance companies

Capital Market

Capital market is also very important part of Indian financial system .This segment of
financial market meant to meet long term financial needs usually more than one year or
more .Companies like manufacturing , infrastructure power generation and governments
which need funds for longer duration period raise money from capital market.

Individuals and financial institutions who have surplus fund and want to earn higher rate
of interest usually invest in capital market .

S.E.B.I. regulate the capital market in India .It set the transparent mechanism rules
and regulations for investors and borrowers .It task is to protect the interest of investors
and promote the growth of capital market.

Capital market can be primary market and secondary market . In primary market new
securities are issued where as in secondary market already issue securities are traded.

Capital market is divided into two:

1. Equity

2. Bond

Capital Market Instruments

1. Shares

2. Debentures

3. Bonds

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Equities

Equity market generally know as stock .In this company want to raise money issue
shares in share market like B.S.E. or N.S.E.to individual or financial institutions who
want to invest their surplus money

Shares can be issued in two ways:

If company issuing share for first time that it is know as I.P.O.(Initial Public Offering
).IPO of any company issued in primary market and if company issuing shares for
second or third time than it is know as FPO(Follow on Public Offering ) and trading of
already issued shares take place in secondary market.

Share gives ownership right to individuals who subscribe to it ,in this way company has
to dilute his ownership right Same way public sector undertakings dilute up to 49 percent
of their ownership and keep remaining 51 percent with them so that they have majority
control.

A person earns from shares is company make profit which is distributed among share
holders know as dividend and if company make loss value of share also falls so shares
are high risk instruments

Bond or Debt

Bond market is also known as Debt market. A debt instrument is used by government or
organization to generate funds for longer duration. The relation between persons who
invest in debt instrument is of lender and borrower .This gives no ownership right .A
person receives fixed rate of interest on debt instrument.

If any company or organization want to raise money for long term purpose without
diluting his ownership that it is known as Debentures. These are backed by security so
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there is no risk involves but return on these instrument is low as compared to shares
.Company pay fixed rate of interest on debentures.

If government want to generate funds to meet long term needs like infrastructure it
issue bonds know as sovereign bonds which are backed by government security so there
is no risk

1.9 Financial Instruments of India

In this Topic we will discuss about the various financial instruments, for example, G-
secs, Commercial Papers, Certificate of Deposits, Preference Shares, Call Money Market
etc, available in the Indian financial markets. This paper provides a brief description of
all of these.
Several financial instruments are available in the Indian money market. These are
government securities, or G-sec, preference shares, commercial papers, equity shares,
certificate of deposits, call money market and industrial securities.

These are discussed below.

 Government Securities:
In India, mainly the institutional investors buy the government securities. The
government, both State and Central, and the government authorities, for example, state
electricity boards, municipalities etc. issue it.
Commercial banks are the biggest investors who buy the G-secs. The government
collects money through the G-secs to finance its several new infrastructure development
projects or to meet its present needs. The government itself issues the risk of default for
G-sec, for it.

 Preference Shares:
These carry a fixed dividend rate and a special right to dividends over the private equity
holders. Currently, all the preference shares in the Indian market are `redeemable &

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rsquo, that is, they have a fixed period of maturity. Therefore, sometimes they are termed
as `hybrid variety’ –

 Commercial Papers (CP):

These are issued mainly by the corporate businessmen to fund their working capital
needs. Commercial Papers are issued generally for short-term maturities. Commercial
papers are not secure and subject to market risks, so those corporate bodies that have a
good credit history will only be able to use this financial instrument.

 Equity Shares:
It is a “high return risk” instrument. Equity shares don’t have any fixed return rate and
thereby, no period of maturity.

 Certificate of Deposits (CD):

These are very similar to the Commercial papers. But the CDs are issued mainly by the
commercial banks.

 Call Money Market:

The loans made in the call money market are mainly short term in nature. Call money
market mainly deals with the interbank markets. Those banks that are suffering from a
short-term cash deficit borrow cap from the call money market. The interest rate varies
with the market rate and depends upon the banking system.

 Industrial Securities:
Normally the big corporate bodies are used to issue this to fulfill their long-term
requirements regarding working capital. The • debentures, • equity shares fall under this
category.

1.10 The Instruments of Foreign Exchange market

All the diversity of world currencies, as well as various derivative instruments of
currencies existing today can be attributed to the instruments of Foreign Exchange
market. The main trading instruments of Foreign Exchange market are the currencies of
various countries. Currency rates, that is to say their relation to the U.S. dollar (or to other
36
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currencies) are formed by the supply and demand of the market and also by various
fundamental factors. As a rule, the most liquid and freely converted currencies are
involved in trading on the Forex market.

The instruments of Foreign Exchange market can be divided into the following two
categories:

Currency agreements
Spot - the exchange of currencies no later than the second working day after the date of
agreement. These kind of transactions are also referred to as cash. Transactions based on
the conditions of spot are made on Over-the-Counter (OTC) interbank market on the
basis of the establishment of currency exchange rates (quotes). Speculative currency
transactions of banks, hedge funds, financial companies and other participants of Foreign
Exchange market are made on spot conditions. Up to 65% of the overall turnover of the
Foreign Exchange market falls on trading with the delivery of currencies on the spot
conditions.

Outright forwards – the exchange of currencies at the rate of “forward” within a range of
days strictly established by parties of the transaction. Such transactions are beneficial in
case of instable exchange of currency rates.

Currency swap – the simultaneous buying and selling of currencies with different value
dates.
Outright forwards and currency swap form Forward Exchange market, where the
exchange of currencies takes place in the future.

Derivatives
– financial instrument derived from the underlying asset (the main product). Any product
or service can be an underlying asset.

Synthetic Agreement for Foreign Exchange (SAFE) – these are derivatives of the Over-
the-Counter (OTC) market, which function as an agreement on the future rate of interest
(FRA) in case of currency forward transactions. In other words, this is a guarantee of the
exchange rate for a specific period of time, which starts in the future.

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Currency futures – these transactions provide the exchange of currencies on a specific

date in the future at the predetermined rate.

Interest Rate Swap – an agreement between two parties on the exchange of obligations
for one currency to the obligations of the other one, in which they pay each other interest
rates on the loans in different currencies. In case of the realization of obligations,
currencies are being exchanged to original.

Currency Options – an agreement between a buyer and a seller, granting a buyer the
right, but not the obligation to buy a certain amount of currencies on a predetermined
price within a specific period of time, regardless of the market price of the currency.

1.11 Case study:

Financial Instruments
Rationale
A securitizations undertaking established under the Luxembourg Law may securities
many types of underlying assets including the risks linked to any type of Financial
Instruments by issuing shares/bonds which yield and value are linked with the Financial
Instruments.

Over the last decades securitizations has become an interesting alternative to more
traditional forms of financing, credit enhancement such as bank loans, debt issuance, etc.

Securitization transfers the risk to the investors and effectively removes part or all of the
risk from the promoter/originator and/or credit institution.

Types of Financial Instruments

Assuming that the securitizations undertaking is not creating its own risk, there are many
categories of instruments which may be securitized, among which:
 Shares: this category includes any type of shares of companies, rights in
Partnership, in personal or company of capital, shares in other undertaking,
private equities, transparent or non-entities.
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 Bonds: Any type of bonds can be securitized, the ones issued by companies, by
any entities, funds or other SPVs, yielding a fixed or variable interest, notes
linked with an underlying asset, participating bonds, etc. This can also include
Structured Notes.
 Derivatives: Warrants, options, swaps, futures and any other types of derivative
instruments or contract, being listed or not, over the counter, etc.
 Funds: This category includes any shares of funds, being a Sicav, a FCP, mutual
fund, SPV, private equity fund, real estate fund, ETN/ETF, etc.
 Loans: Though a loan is not a Financial Instrument, if the conditions are known in
advance and the subscription rights for bonds have only been transferred to the
undertaking, the securitization of (pre-existing) loans are also eligible. This would
encompass the shareholders loans, current account, etc.

Functioning
The Securitization Undertaking will acquire the risk or the rights on the Financial
Instrument which will become the underlying assets.

The Securitization Undertaking will then issue one or different securities which have a
yield or a value directly linked with the underlying assets (i.e. Financial Instruments).

Investors
The Securitisation Undertaking may issue securities of different types, among which:

Units :
Equivalent to a share in the equity of the Securitisation Undertaking, it gives right to the
dividend distributed and to the proceed of liquidation.

Certificates:
Directly linked to the underlying asset.

Bonds:
Debt instrument issued by the undertaking with a fixed or variable coupon which may be
redeemable periodically or at the end of the securitization process.

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CHAPTER 2. RESEARCH AND METHODOLOGY

Introduction:
Research in general refers to the search of knowledge. One can also define research as a
scientific & systematic collection of information. In simple words research is the careful
investigation or enquiry of markets especially through search for new facts in any branch
of knowledge. The Research Methodology section is inclusive of all those techniques that were
adopted in course of the research. The research was conducted mainly to understand the various
kinds of financial instruments.

 Nature of Research;
The study is descriptive and analytical in nature. It is descriptive as it describes the
existing financial instruments available in the market. It is analytical as it analyses the
perception of the investors.

 Universe and Sample Size:

Mira – bhayandar region have been taken as universe of study. Convenient sampling
technique is used and a sample of 30 investors has been taken for purpose of the study.

 Data Collection and Sources:

The study is based on both primary and secondary data. Following are the sources of
secondary data.

Primary Data:
The data are collected directly from the universe by conducting interviews, etc.
these are the original sources from which the researcher directly gathers data which
are not previously referred. All the people from different profession were
personally visited and interviewed. They were the main source of primary data. The
method of collection of primary data was personal direct interview through a
structured questionnaire.

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TYBAF FINANCIAL INSTRUMENTS

The primary data was collected by means of survey. Questionnaires were prepared and
general people were approached to fill up these questionnaires. The filled up information
was later analyzed to obtain the required information.
Secondary Data:

The data are collected from the secondary sources such as magazines, journals, etc.
These sources consist of already variable data in the form of statements, and
reports, which may include sensory reports, financial statements of the company,
reports of governments departments, etc.

It was collected from internal sources. The secondary data was collected on the
basis of organizational file, official records, newspapers, magazines, management
books, preserved information in the company‘s database and the website of the
company.

Both Primary and Secondary sources was used for data collection.

For primary source, Questionnaire was used. For secondary source Internet,
Magazines, and Newspaper etc. were

 Research Instruments:
Interview and questionnaire have been used to conduct the study. A structured
questionnaire consisting close-ended questions have been made, which is filled by the
trainee during direct interaction with the respondents.

Analytical Tools
Microsoft Excel (PivotChart Reports). A PivotChart Report is an interactive chart that
quickly combines and compares large amounts of data from tables in excel. PivotChart
report was used here to analyze related totals, because there was a long list of figures to
sum and there was a need to compare several facts about each figure. Because a PivotChart
report is interactive, it has flexibility to change the view of the data to see more details or
calculate different summaries, such as counts or averages. Drop fields feature was
extensively used for the report creation. Essentially it is an area in a PivotChart report
where we can drop fields from the Field List dialog box to display the data in the field.

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 Analysis pattern:
Critical examination of various investments have been done and a comparison is made,
based on their merits and demerit.
The data collected form questionnaire is edited, tabulated and analyzed. Various
graphical techniques have been used to present the data in more meaningful way.

2.2 Objectives of Study:

1. To study the various financial opportunities available for investment.
2. To study about the investors perception regarding various investment
opportunities available in the market.
3. To analyze the investment patterns of the investment.
4. To examine the investors changing behavior regarding various investment
opportunities.

2.3 Significance of the study:

The present financial market is flooded with a lot investments, viz, Shares, Bonds,
Mutual funds, Insurance plans, Fixed deposits, other money and capital market
instruments and also various options of investment in Real Estate and commodity market
etc. Sometimes people refer to these options as “investment vehicles” which is just
another way of saying “a way to invest”. Each of these vehicles has its own positive and
negatives and ultimate decision of investment is influenced by the individual investor’s
perception regarding the risk and return of concerned investment opportunity available in
the market.

Further, the investment decision is full of complexity because of volatility of market

conditions. Inflation rate fluctuations, impact of Global environment. Cash reserve ratio,
and repo rate. Therefore, it is imperative to analyze these factors while taking an
investment decision.

Keeping above in the mind, the study has been done to see the perception of investors
which provides understanding to reader about the various factors which should be keep in
mind at the time of investment. The study is useful to company in providing the
understanding about the investor’s perception to devise the suitable products/marketing
strategies, which would help it in making their policies or strategies in order to attract
them. Further financial planner get advent to make portfolio according to response given
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by respondents, which belong to different occupations, having different income level,

different age level or which instrument is most like by the investors for investment.

The study would also helpful for reader in understanding about the various investment
opportunities available in the market.

2.4 Conceptualization:
The money you earn is partly spent and the rest is saved for meeting future expenses.
Instead of keeping the saving idle you may like to use savings in order to get return on it
in the future. This is called investment. Investment is ‘the act of committing money or
capital to an endeavor with the expectation of obtaining an additional income or profit.’
There are ample financial instruments available in the market for investment; each
instrument has its own features. To invest money in financial instruments is not so easy.
It needs depth study where to invest so that their investment could be safe along with
growth of money. In present scenario everyone wants to invest his money but having
their own different objectives which creates confusion of where to invest, which
influence their investment decision, how to plan their investment portfolio and to whom
to prefer for taking that all decision.
So that study is based on investor’s perception regarding their investment. It includes
what they think at the time of investment, what are the various factors they keep in mind
at investment or affects their decisions regarding investment. The investment decision
very typical to take, as it need proper planning. So the concept of financial planning has
to be taken in this study.

2.5 Focus of the problems:

The present financial environment provides ample opportunities of investment to the
investors. The decision to invest in right instrument is too complex which can meet their
expectations perfectly. So a study has been done which explain about the perception of
respondents what they exactly see at the time of investment which includes their
tendency, preference and factors through which an investor influenced. The study also
focus on analyzing the investment pattern of the investment.

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2.6 Limitation of the study:

 The study is restricted to Mira-Bhayandar.

 The sample size comprised of 30 respondents from different fields and income
group and their responses are presumed to represent the wealth management
market.
 The time period of the study is less.

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CHAPTER 3 REVIEW OF LITERATURE

Various studies have been done to know investors perception regarding various financial
opportunities available in market for investment. The different studies tell the perception
of investors i.e. where they want to invest and what they see at the time of investment.
Large costs associated with evaluating market conditions. Even individual savers may not
have the ability to collect process and produce information on possible investments. High
information cost may prevent capital to flow to its highest value use. So financial
intermediaries undertake the costly process of researching investment possibilities for
others. Savers do not like risk; but high-return projects are riskier; financial systems that
ease risk diversification induce a portfolio shift towards higher return project.
 Banks, mutual funds, securities markets provide vehicles for trading, pooling and
diversifying risk
 Risk diversification  saving rate  resource allocation  economic growth

The various studies done by various researcher which tells about the tendency which is
followed by investors at the time of investment are as follows:
 Gurley and shaw (1955)
 Greenwood and Jovanovic (1990)
 Saint-Paul (1192)
 Patrick (1966)

 Greenwood and Jovanovic (1990):

This study points out the effective information processing (entrepreneurs /

projects) induces higher growth. It captures the link between risk-sharing, capital
accumulation and growth that how more risk increases capital accumulation and
growth. It points out effective information processing and captures the dynamic
interaction between finance and growth. Intermediaries plays crucial role in
improving resource allocation and foster growth.
- Growth  more individuals can afford to join intermediaries  improves
efficiency of intermediaries.

 Acemoglu and Zilibotti (1997):

This study points out to captures the interaction between risk-diversification,

capital accumulation and growth. It tells risk diversification like to invest in
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different instruments accumulate growth in capital. It emphasizes endogenous risk

generation in the growth process. It also points out financial systems allow agents
to hold a diversified portfolio of risk like to invest in various instruments.
According to that
- More investment in high return project
- Higher growth

 Allen and Gale(1997):

Long-lived intermediaries can facilitate intergenerational risk sharing, invest with

a ling run prospective; according to this study which instruments offer returns that
are relatively low in boom times and high in slack times.

 Diamond and Dybvig(1983):

According to this study, the investors or savers choose between an illiquid, high
return project and a liquid, low-return project. A fraction of savers receive shocks,
access theirs savings before illiquid project products produces. Prohibitive
information (verification) cost creates incentives for financial market to emerge.

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CHAPTER 4. DATA COLLECTION AND

INTERPRETATION

4.1 Sample details:

50 people belonging to different fields, who do investment were asked to fill the
questionnaire, on the basis of which an attempt is made to study the prospects of financial
planning in the market. The sample unit consists of those people who are trading in
secondary markets, mutual funds, initial public offer, insurance, debt instruments as they
can give the accurate information about financial planning. A sampling frame has been
develop so that everyone in the target population has in equal chance of being sampled.

4.2 Personal Information:

1. Sex Ratio:
From the total 50 respondents 26 were females and 24 were males. Shows in figure 4.1

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Figure 4.1

3. Geographical Distribution:
Majority of the respondents were from Mira-bhayandar.

4. Occupational Structure:
Samples include responses from businessmen and good number of service class which
includes banker, Accountant, investment banker.

5. Age of Investors:
The survey includes the people having different age levels from 18 to above 40. The
younger investor which is between 18-30 are more likely to take risk and generally
interested in investing in financial instruments. In fig.4.2

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Figure 4.2

6. Income Levels:
Income levels were classifies into 4 levels, namely no income, below 1,20,000, 1,20,000-
2,00,000 and above 2,00,000. As the survey has been also conducted between people of
age level of 18-30 who usually don’t have much annual income, so just because of that
percentage of respondent having income below than 1,20,000 is higher i.e.36.7%
followed by income group of above 2,00,000 (Income are measured in INR)
In figure 4.3, We get clear scenario of income level of respondents.

Fig.4.3

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7. Education of the investors:

The survey includes the people having different qualification from HSC to Post
Graduation. In fig., 4.5 ,
1.Graduate 2. Undergraduate 3. Post graduate 4. HSC

Figure 4.4

4.3 Analysis of the Response:

Given below are the graphical representation of the responses received on questions
asked through the questionnaire. The interpretation derived and the model adopted will
be explained in detail in the later part of the report. On asking following questions, the
replies were received accordingly:

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Q 1. Are you interested in investing your money in financial instruments or in

financial market?
As we can see from the below figure most of the respondents are interested in investing
their money in financial market or in financial instruments.
90% i.e.45 respondents are interested in investing their money in financial instruments
which shows that now a day’s people are more aware of the benefits of investing their
money in financial instruments.
10% i.e.5 respondents are not interested in investing their money in financial instruments,
it can be due to lack of knowledge of financial markets and their instruments.

Figure 4.5

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Q 2. If yes, then what type of investors are you?

If the respondents are interested in investing their money in financial market then what
type of investment they are can be understand by following figure 4.6
Long term investors are more in this survey with highest 42% i.e. 21 respondents are
preferring long term investment followed by 32% i.e.16 respondents who are short term
investors.
15% investors preferring mix of any of short term, long term and medium term
investments.

Figure 4.6

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Q 3. what is the purpose of the investment?

Investing is a conscious decision to set money aside for a long enough periods in an
avenue that suits your risk profile. The questionnaire asked the respondents to reveal their
purpose behind investments.

The research has highlighted that returns on investment is the most important factor
which they consider while investing as evident by the response of 74% of the respondents
voted for the same. However, it can also be seen that 36% of the investors prefer safety to
their capital as their secondary objective which depicts that investors give greater
emphasis to the returns and willing to adjust with safety of capital.

Figure 4.7

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Q 4. What do you prefer for investments?

The surveyed people give priority top to the government bank for their investment, as for
their point of view government banks are more secure and profitable.

Preference:
 Government banks 70%
 Public sector 26%
 Private bank 24%
 Private sectors 14%

Figure 4.8

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Q 5. What attracts you to invest in financial market?

As per response of the respondents, high returns attract the people more to invest in
financial market as 82% people invest their money in financial market to get high return
followed by dividend with 42% respondents.

Responses are as follows:

 High returns 82%
 Speculations 6%
 Dividend 42%
 Liquidity of invested funds 16%

Figure 4.9

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Q 6. Which of the following investment opportunity you are aware of?

As per responses by respondents most of the people are aware of below investment
opportunities.
Most of the people are aware of mutual funds with 74% response followed by bank fixed
deposits and shares with 60% and 54% responses of investors.
Responses are as follows:
 Mutual funds 74%
 Post office savings 42%
 Bank fixed deposits 60%
 Bonds/ debentures 46%
 Shares 54%
 PPF, ULIP, GOLD SCHEME ETC.

Figure 4.10

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Q 7.What do you think which saving option is more profitable?

Respondents thinks that mutual funds is more profitable option for investments as 66%
respondents choose mutual first as theirs 1 st priority as more profitable investment
followed by bank fixed deposits and shares with 36% and 30% respectively.
The least profitable form of investment as revealed by respondents is investment in post
office saving.
Responses are as follows:
 Mutual funds 66%
 Post office savings 8%
 Bank fixed deposits 36%
 Bonds/ debentures 14%
 Shares 30%

Figure 4.11

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Q 8. How your investment decision are influence by the following?

On enquiring from the respondents about how they take their financial decision, majority
of the resopondents take their financial decision by general discussion with friends and
collegeous by 40% and it is followed by business news in tv and own judgement with
38% and 36% response of respondents.
Responses are as follows:
 Business news in tv 38%
 Newspapers 28%
 Dividend 24%
 General discussion with friends and collegeous 40%
 Own judgement 36%

Figure 4.12

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Q 9. what sources of funds do you utilise to invest or trade in stock?

Response from investors discloses thatbthey are wants to invest in financial market, so
frrom where they would manage funds to invest in instruments.
96% respondents discloses that they want to invest in financial instrument through their
savings. 18% respondents wants to invest through taking loan.
Responses are as follows:
 Savings 96%
 Loan 18%
 Pledging 2%

Figure 4.13

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CHAPTER 5 CONCLUSION

Conclusion:
As it could be seen from the above factors that investors are having low saving potential,
growth of capital acts as a primary objective behind investment, investors taking financial
decisions independently, which depicts that there is need of financial planner to approach
these investors in a proper manner so as to provide value addition to the saving potential
and portfolio.

Recommendations and Suggestion:

On studying the peculiarities of wealth management industry and analyzing the response
of the investor on their perception, the following points are recommended which a
general financial advisor should consider while approaching the people.
India is seeing as a maturing financial environment. Options to attract savings exist
through a spate of financial products and services that have differing risk/growth and
asset accretion propositions. It is becoming increasingly obvious to people that their
money, on real terms, would fall in value if they were to keep their money in the bank.
And hence the keenness to find out the right avenue that would help grows their savings
or assets.
While this is becoming a universally undeniable desire, the fact is that some people don’t
have the knowledge and inclination to understand the financial markets and others don’t
have the time to follow them. This then leads to financial decision being taken by
individual based on either relationship hearsay or the sales call of a vendor.

Unbiased advisory:
Investment advisory service are in this business of managing the assets of individuals and
corporations. However, the distinct model of services should enable the advisors to offer
unbiased advice on the entire spectrum of personal finance. I’d like to add here that the
financial advisory should not only be unbiased with respect to an asset class but it should
also be independent of biases across manufacturer within an asset class.

Investment in foreign markets:

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A recent pioneering initiative is to facilitate for the clients investment in foreign markets,
adding to the advisory capability that spreads across the widest range of assets classes in
the country. One needs to be cautious while investing and it is now important to hire a
financial planner to plan your wealth better.

Financial planning should be encouraged:

One of the myths regarding financial planning is that only rich individuals and HNIs can
undertake this. This perception exists because most players in the market target these
people, as they are very profitable customers. However, anyone can use financial
planning. In fact individuals should use effective financial planning to build their wealth
over the years.

Awareness of the benefits of planning early for retirement:

Anyone who will retire needs to plan for it. There is more than one reason to save
retirement.
The all-important reason is the rising cost of living. It’s called inflation. If you start
planning for retirement early on, you can bridge the gap between what you have in your
hand today and what you would like to have when you retire.
The people should come out of the concept of just keeping their money in banks and
should concentrate on doing financial planning to maximize their returns by taking proper
guidance from financial planner.

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BIBLIOGRAPHY

Website:
www.scribd.com
www.linkedIn.com
www.slideshare.net
www.investopedia.com

URL:

 https://www.edupristine.com/blog/financial-instruments
 https://www.scribd.com/doc/18499093/Microsoft-Word-Financial-Instruments-project-
report
 https://www.slideserve.com/alika/characteristics-of-financial-instruments
 https://www.eqsis.com/types-of-financial-instruments-in-india/
 https://www.edupristine.com/blog/financial-instruments

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APPENDIX

Financial Instrument survey

Financial Instruments

*Required

Survey to understand peoples point of view towards

financial instrument.

1. Name: *

2. Age: *

3. Gender: *

Mark only one oval.

Male

Female

4. Your education
qualification: * Mark
only one oval.

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Graduate

Undergraduate

Post graduate

HSC

1. What is your Annual

Income? * Mark only
one oval.

No income

Below 1,20,000

1,20,000-2,00,000

Above 2,00,000

4. Occupati
on * Mark
only one
oval.

STUDENT

WORKING

Other:

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5. Are you interested in investing your money in financial instrument or financial

market? * Mark only one oval.

YES

NO

6. If yes, what type of investor are

you ? * Tick all that apply.

Short term

Medium tem

Long term

Mix of any of two

Other:

7. What is the purpose of the

investment? * Tick all that apply.

Safety

Returns

Retirement planning

Tax benefit

Liquidity

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Other:

8. What do you prefer for

investment * Tick all that apply.

Government banks

Private banks

NBFC'

Public sectors

Private sectors

Other:

9. What attracts you to invest on financial

market? * Tick all that apply.

High returns

Speculation

Dividend

Liquidity of invested funds

Other:

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10. Which of the following investment opportunity

you are aware of? * Tick all that apply.

Mutual funds

Post office saving

Bank fixed deposit

Bonds/debenture

Shares

Other:

11. What do you think which saving option is

more Profitable? * Tick all that apply.

Mutual funds

Post office savings

Bank fixed deposit

Bonds/debenture

Shares

Other:

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12. How your investment decision are influence

by the following? * Tick all that apply.

Business news in tv

Newspaper

Dividend

General discussion with friends and colleagues

Own judgement

13. What sources of fund do you utilise to invest or

trade in stock? * Tick all that apply.

Savings

Loan

Pledging

Other:

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