RESEARCH PROJECT

ON
INVESTMENT AVENUES IN FINANCIAL
MARKET OF RELIANCE MONEY
 DECLARATION

I hereby, declare that the project work entitled ”INVESTMENT AVENUES IN

FINANCIAL MARKET” is a genuine work done by me, and all the information
collected is authentic to the best of my knowledge. The work done by others
referred has been properly acknowledged.
 ACKNOWLEDGEMENT

It has been rightly quoted that each milestone turned over, is an outcome of man’s
sincere endeavors. Though, at the start of any ambitious project, one always
encounters certain difficulties. However, overcoming those difficulties, completing
the project as well as making it a success, greatly depends on the encouragement,
inspiration and help given by many people. We too, without the encouragement,
inspiration and by taking help of others, would not have been able to complete our
research project, successfully.

This research project was a great source of learning and a good experience as it
gives us an opportunity to correlate the theoretical knowledge which we had gained
from our teachers and well wishers, with practical facts and aspects. Though
fulfilling the ambitions one always encounters with certain difficulties, however
overcoming these difficulties and making the project a success entirely depends
upon the encouragements, inspirations and help rendered by the staff members of
the organization.

All that what we gain through this research project is just because of Prof. Pankaj
Upadhyaya, HOD (MBA-IB), who had given us a chance to express our creative
ideas in front of all in the shape of this research project. We would like to express
our sincere gratitude to him for his valuable assistance and for his frothier valuable
suggestions that have greatly improved the quality of the research project and
helping us to complete the project to the satisfaction of all. He had given us full
liberty to do this research and guided us from the initial stage till completion of
project with his whole hearted involvement and guidance.

We would also like to express our sincere gratitude to Dr. S.S. Vernekar, Director,
for giving us an opportunity to be a member of Bharati Vidyapeeth University
Institute Of Management And Research and giving me their continuous aspiration
and valuable suggestions that has helped us in every respect.

We could not possibly name everyone who has contributed significantly to our
research project, but, I would like to thank all the individuals who have assisted us
in one way or the other by providing their positive cooperation to complete our
research project in a significant manner. Without their support and encouragement,
it will be difficult to complete the undertaken research project.

Our apologies if we have inadvertently omitted anyone to whom acknowledgement

is due. Though we had taken care of each and every fact but if any shortcomings,
omissions, and over simplifications arises, then for that we will take absolute
responsibility. Any deficiency or inaccuracy likely to attract your attention may
kindly be brought to the notice for improvement. Constructive suggestions are
always welcome

In the need, I would like to thank that my supreme authority which rests above all-
THE ALL MIGHTY God who has blessed me with opportunity to work with such a
good people. I sincerely pray to God to give me courage and will, to work harder &
harder all through my life.
 PREFACE
Practical knowledge is an important suffix of theoretical knowledge. One cannot
rely merely on theoretical knowledge. Classroom lectures clarify the fundamental
concepts of management, but, classroom lectures must be correlated with the
practical training situations. It is in this sense that the practical training is made
compulsory for the curriculum and has a significant role to play in the field of
business management. The importance of practical training can be realized from the
following phrase:

“You give a fish to a man,

He has a meal for a day.
You train him to catch a fish,
He will have the meals for the
lifetime.”

The project in the shape of research project has been undertaken as part of partial
fulfillment requirement of MBA (Masters Of Business Administration). The aim of
this project Lies in the fact that:

“If you have more money than you need for the current consumption, you are a
potential investor. You may deposit your surplus in a bank account to earn a fixed
rate of interest or purchase a speculative share on the stock market or buy gold or
contribute to a provident fund account or buy a piece of art or invest in some other
form. Whatever your decision, you are essentially making a sacrifice in the present
in the hope of deriving benefits in the future. Every investment decision has two key
aspects: time and risk. While the sacrifice occurs in the present and is certain, the
benefits come in future and may be uncertain.

Your economic well being in the long run depends significantly on how wisely or
foolishly you invest. Let us then get on with the task by first obtaining a broad
overview of the field in terms of the following.

 Spectrum of investment avenues

 Investment attributes
 How various investment avenues compare
 Financial markets
 Sources of investment risk
 Portfolio management process
 Approaches to investment decision making
 Qualities for successful investing
 Common errors in investment management
 Proverbial investment wisdom.”

The project is based on the research covering various aspects, information and facts
derived, after having a survey on the investment avenues in financial market of
reliance money. The work was divided into a series of steps; the first being setting
of objectives of preparing the project and on the basis of that survey was conducted.
The survey was done personally by meeting with the people belonging to and
investing in reliance money and from the broking firms and brokers . Through those
people, research data was collected, organized and analyzed.

I have tried my level best to make an appraisal of all data and drawn conclusions on
that basis with a view to make the undertaken research project a fruitful one. I have
tried my level best to make this research project, a real success, by taking adequate
care to avoid mistakes or confusion, but in spite of that, any inconvenience caused to
the readers on account of any mistake is regretted.

I am sure that the research project will be liked by the readers.

Thanking you
 TABLE OF CONTENTS

1) EXECUTIVE SUMMARY
2) RESEARCH METHODOLOGY
3) INTRODUCTION TO RELIANCE MONEY
4) COMPANY PROFILE
5) MAN BEHIND RELIANCE MONEY
6) ABOUT BOARD OF DIRECTORS
7) ORGANISATIONAL STRUCTURE OF RELIANCE MONEY
8) BASICS OF SUCCESSFUL INVESTOR
• Wealth protection
• Wealth accumulation
• Wealth distribution

9) SAVINGS AND INVESTING AND THEIR DIFFERENCE

10) INVESTMENT RETURN
11) RISK
12) THE RISK/ RATE OF RETURN RELATIONSHIP
13) DIVERSIFICATION (General view)
14) HOW TIME AFFECTS THE VALUE OF MONEY
15) ASSET ALLOCATION
16) FINDING MONEY TO INVEST
17) STRATEGIES FOR SAVING MONEY TO INVEST
18) STEPS TO BREAK MONEY HABITS
19) OWNERSHIP INVESTMENTS
20) COMMON STOCKS
21) REAL ESTATE
22) EQUITY UNIT INVESTMENT TRUSTS
23) COLLECTIBLES
24) BUSINESS
25) COMMODITIES (As regards investment risk pyramid)
26) BUYING AND SELLING EQUITY INVESTMENTS
27) DIVERSIFICATION
28) RELIANCE MONEY FEATURES
29) SOFTWARE OF RELIANCE MONEY
30) RELIANCE CAPITAL
31) ABOUT MUTUAL FUNDS
32) ABOUT RELIANCE MUTUAL FUNDS
33) RELIANCE INSURANCE
34) RELIANCE MONEY
35) DEMAT ACCOUNT
36) DERIVATIVES
37) IPO’S
38) COMMODITY
39) FOREX
40) EQUITY VERSUS OTHER INVESTMENT ATTRIBUTE
41) COMMON MISTAKE IN INVESTMENT
42) STOCK SELECTION GUIDELINES
43) WHY INVESTING IN INDIA?
44) LIMITATION OF PROJECT
45) SURVEY
46) FINDINGS
47) BIBLIOGRAPHY
48) GLOSSARY
49) ANNEXURES AND APPENDIX
 EXECUTIVE SUMMARY

Doing this research project has been of immense benefit to me as I had the
opportunity of getting involved in the research on the issue concerning the company
that is of high interest to me i.e. RELIANCE MONEY. The experience was very
satisfying. While working on this research project, I was confronted with many such
issues of RELIANCE MONEY which provided me a deeper insight of it.

Today, I perceive myself as a person who has better knowledge of company as

compared to what I had before this project commenced. This project work included -
how to deal in share market, what is the right strategies to invest in market, how to
invest in mutual fund & many more……

In today’s competitive and dynamic world, with every business providing the same
kind of product or service, only that firm which comes up with an innovative idea
can hope to survive in the long run, by attracting and luring customers.

Reliance Money is an endeavor to change the way India transacts in Equity market
and avails financial services. While other companies charging brokerage on volume
of transactions, Reliance Money show its presence with a new strategy to charge a
flat brokerage and provide different validity and turnover limit for the transactions
of financial customers. Reliance Money provided extra safety to their customers
with the help of security token or we can say that we get a dynamic password
generating by security token. This token produces a new set of 6 digit number every
32 seconds which acts as the 3rd level dynamic password, giving your transaction
account that much required extra security. The research is based on providing
awareness to the consumers about Reliance concepts and find out the effect on the
consumers by this new strategy and services. People like it or not and which kind of
improvement reliance is required to meet customer satisfaction and sustain in
already exists competition like India bulls, Religare, Sharekhan etc. The result will
tested by using statistical techniques and experts consultation.
 INTRODUCTION TO RELIANCE MONEY

What is Reliance Money?

Reliance Money is the electronic transaction platform associated with Reliance
Capital; one of the India’s leading and fastest growing private sector financial
services companies, ranked amongst the top 3 private sector financial services and
banking companies, in term of net worth, Reliance Capital is a part of the Reliance-
Anil Dhirubhai Ambani Group.

Reliance Money provides a comprehensive platform, offering an investment avenue

for a wide range of asset classes. Its endeavor is to change the way India transacts in
financial markets and avails financial services.

Reliance Money offers a single window facility, enabling you to access, amongst
others Equity, Equity & Commodity, Derivatives, Offshore Investments, IPOs,
Mutual Funds, Life Insurance and General Insurance products.

Why Reliance Money?

Reliance Money is the most cost-effective, convenient and secure way to transact in
a wide range of financial products and services.

Highlights of Reliance Money’s offering are:

Cost-effective: The fee charged by the affiliates of Reliance Money, through whom
the transactions can be placed, is among the lowest charged in the present scenario.
As an introductory offer, pay a flat fee of just Rs. 500/- valid for 2 months or
specified transactional value*.
Convenience:
You have the flexibility to access Reliance Money services in multiple ways:
through the Internet, Transaction Kiosks, Call & Transact (Phone) or seek assistance
through our Business Partners.

Security:
Reliance Money provides secure access through an electronic token that flashes a
unique security number every 32 seconds (and ensures that the number used for the
earlier transaction is discarded). This number works as a third level password that
keeps you account extra safe.

Single window for multiple products:

Reliance Money, through its affiliates/partners, facilitates transactions in Equity,
Equity & Commodity Derivatives, Offshore Investments**, Mutual Funds, IPOs.
Life Insurance and General Insurance products.

3 in 1 integrated access:
Reliance Money offers integrated access to your banking, trading and demat
account. You can transact without the hassle of writing cheques.

Demat Account with Reliance Capital:

Through Reliance Money, you get a hassle-free demat account with Reliance
Capital. The Annual Maintenance Charge for the Demat Account is just Rs. 50/- per
annum.

Other Services:
Through the portal www.reliancemoney.com, reliance Money provides:
1) Reliable research, including views of external experts with an enviable track
record.

2) Live news from Reuters and Dow Jones.

3) CEOs’ / experts’ views on the economy and financial markets.

4) The Personal Finance section provides tools that helps you plan your
investments, retirement, tax, etc.

5) Analyse your risk profile through the Risk Analyser.

6) Get a suitable investment portfolio using the Asset Allocator

COMPANY PROFILE
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 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.

RCL is registered as a depository participant with National Securities Depository

Ltd (NSDL) and Central Depository Services Ltd (CDSL) under the Securities and
Exchange Board of India (Depositories and Participants) Regulations, 1996. RCL
has sponsored the Reliance Mutual Fund within the framework of the Securities and
Exchange Board of India (Mutual Fund) Regulations, 1996.RCL primarily focuses
on funding projects in the infrastructure sector and supports the growth of its
subsidiary companies, Reliance Capital Asset Management Limited, Reliance
Capital Trustee Co. Limited, Reliance General Insurance Company Limited and
Reliance Life Insurance Company Limited. As of March 31, 2005, the company’s
investment in infrastructure projects stood at Rs. 1071 Crores. The investment
portfolio of RCL is structured in a way that realizes the highest post-tax return on its
investments.

MAN BEHIND RELIANCE MONEY

Anil Dhirubhai Ambani is the Chairman of all listed GroupCompanies, namely:
Reliance Communications, Reliance Capital (Reliance money), Reliance Energy
and Reliance Natural Resource Limited.

He is also Chairman of the Board of Governors of Dhirubhai Ambani Institute of

Information and Communication Technology, Gandhi Nagar, Gujarat.

Till recently, he also held the post of Vice Chairman and Managing Director in
Reliance Industries Limited (RIL), India’s largest private sector enterprise.

Anil D Ambani joined Reliance in 1983 as Co-Chief Executive Officer, and was
centrally involved in every aspect of the company’s management over the next 22
years.

He is credited with having pioneered a number of path-breaking financial

innovations in the Indian capital markets. He spearheaded the country’s first forays
into the overseas capital markets with international public offerings of global
depositary receipts, convertibles and bonds. Starting in 1991, he directed Reliance
Industries in its efforts to raise over US$ 2 billion. He also steered the 100-year
Yankee bond issue for the company in January 1997.

He is a member of:
• Wharton Board of Overseers, The Wharton School, USA
• Central Advisory Committee, Central Electricity Regulatory Commission
• Board of Governors, Indian Institute of Management, Ahmedabad
• Board of Governors Indian Institute of Technology, Kanpur

In June 2004, he was elected for a six-year term as an independent member of the
Rajya Sabha, Upper House of India’s Parliament a position he chose to resign
voluntarily on March 25, 2006.

Awards and Achievements

• Conferred the ‘CEO of the Year 2004’ in the Platts Global Energy Awards
• Rated as one of ‘India’s Most Admired CEOs’ for the sixth consecutive year in
the Business Barons – TNS Mode opinion poll, 2004
• Conferred ‘The Entrepreneur of the Decade Award’ by the Bombay Management
Association, October 2002

Awarded the First Wharton Indian Alumni Award by the Wharton India Economic
Forum (WIEF) in recognition of his contribution to the establishment of Reliance as
a global leader in many of its business areas, December 2001

Selected by Asia week magazine for its list of ‘Leaders of the Millennium in
Business and Finance’ and was introduced as the only ‘new hero’ in Business and
Finance from India, June 1999

ABOUT BOARD OF DIRECTORS

 Amitabh Jhunjhunwala, Vice-Chairman
Amitabh Jhunjhunwala, an FCA, has over 23 years of experience in
finance and the capital markets. Amitabh is also the Director of
Reliance Capital Asset Management Limited.

Rajendra Chitale, Independent Director

Rajendra P. Chitale, an eminent Chartered Accountant, is the
Managing Partner of M/s M. P. Chitale & Co. He is a Director on
Boards of the National Stock Exchange of India (NSE), Asset
Reconstruction Company (India) Ltd, Hinduja TMT Ltd and
Gujarat Ambuja Cements Ltd. He is also a member of the Advisory
Group on Derivatives and the Takeover Panel, Securities and
Exchange Board of India, as well as the Company Law Advisory Committee of the
Government of India. He has also served on the boards of Life Insurance
Corporation of India, Unit Trust of India, SBI Capital Markets Ltd and Small
Industries Development Bank of India.

Shri C. P. Jain
Shri C.P. Jain, aged 60 years, is the former Chairman and
Managing Director of National Thermal Power Corporation
(NTPC). Shri Jain has an illustrious career spanning over four
decades of contribution in the fields of financial management,
general management, strategic management and business
leadership. He is a fellow member of the Institute of Chartered Accountants of India
with an advanced diploma in Management and is a law graduate. Shri C.P. Jain
joined the Board of NTPC in 1993 as Director (Finance) and was elevated as
Chairman & Managing Director in September 2000. He was Chairman of the Global
Studies Committee of World Energy Council (WEC), world’s largest energy NGO
with nearly hundred member-nations. He has been on several important committees
of the Government of India, latest being the ‘Adhoc Group of Experts on
Empowerment of CPSEs’. He was Chairman of Standing Conference of Public
Enterprises (SCOPE) between April 2003 and March 2005.
ORGANISATIONAL STRUCTURE OF
RELIANCE MONEY
 Reliance Money
Bombay(main Head
Quarter

Reliance Money Delhi

Nehru Pitampur Connaught

place a Place

Central Manager

Central Manager
Trainee

Remisar Franchise
BDE
s s

Direct Customer
Dealing

OBJECTIVES
The Notion behind carrying out this research is focused on having an in-depth
analysis of the prevailing investment options in Indian financial market

The major objective behind carrying on this research study was:

• To study the Indian investment Industry i.e. how it works, how people judge
about investing in particular sector

• To pen down the strengths and weaknesses of each of the leading instrument in
the market on the basis of product, price, service and value proposition.

• To know the degree of risk attached to a particular investment

• Mind set of the investor with respect Indian prospective

• Difficulty and competition among players in formation of new innovative

financial products

• Reasons behind the success of reliance money over other competitive outlays of
investment intermediaries.

RESEARCH METHODOLOGY
Research methodology is a way to the systematic solution of a research problem. It
focuses on the various steps adopted in studying the research problem along with the
logic behind using them.

RESEARCH DESIGN:
The highly effective research methodology used can both be Quantitative and
Qualitative in comparing the various online broking firms. It is necessary to ensure
that correct methodology is used for the type of research to be conducted.The
research study covers the data collected through observations, questionnaires, and
interviews of people who have already invested and looking to invest somewhere
etc. All the data for the study was collected through responses received directly from
the financial intermediaries. The insights have been arrived at through an analysis
on various parameters, pertinent to the equity, mutual fund, insurance broking
industry, such as region, terminal, relationship managers, advisory base, branches,
sub brokers, products and growth areas

RESEARCH OBJECTIVE:
To know various facts and details about investment avenues in financial market of
reliance money

TYPE OF RESEARCH:
Type of research was a combination of both techniqual( observations, surveys etc.)
and functional (descriptive, causal and exploratory) in nature.

DATA AND INFORMATION SOURCE:

Data used for research work was mainly derived through primary sources but
secondary data has also been used as regards profile of the company, board of
directors etc.

TOOLS OF DATA COLLECTION

Primary methods
(a) Observational methods: Observation is away to look at the things, as they exist.
It involves the use of various senses and drawing meanings to the things we see or
hear. There are a number of things that can be observed by an evaluation.
These may be classified under the following categories
 Meetings, discussion and other transactions with the Relationship Managers of
various firms.
 Forms and formats, reports, manuals etc provided by the firms.
In this research also various observations were made during a visit to
reliance money.

(b) Interview methods

Interview method is quick and adequate for comprehensive collection of
information. Interviewing the various executives can give considerable data about
the services provided, brokerage charged etc by the various firms in which they are
working. The main advantage of the interviews is its capacity to capture the primary
concern of the people under study. Interview makes the assessment dynamic. In this
research, various interviews were taken from the people presented in relainace
money and from the people of broking firms.

(c)Questionnaire method
The critical scientific study lies in framing the questions rather than in finding the
answers. Thus to reach the correct perspective, it is imperative to go through the
right way. A questionnaire was prepared in which almost all the parameters
regarding the
- Products
- Brokerage
- Services
- Website: Ease of use
- Pace of transaction execution
- Trading Terminal facility
- Tie up with banks
- Branch network
- Customer service
were formulated. The purpose of preparing a questionnaire was to collect concrete
information, which may give the best possible results to fulfill my objective of the
report.

Secondary methods
Analysis of secondary data can give a lot of insights into the detailed understanding
of the topic i.e. published literature of the company such as annual report, marked
handouts issued also provided valuable information
RESEARCH APPROACH:
Personal interviews and surveys through questionnaires were conducted to collect
the data.

RESEARCH INSTRUMENTS:
Questionnaire

TYPE OF QUESTINNAIRES:
The questionnaire prepared for study was structured which consisted of open ended
questions. Only one type of questionnaire is used for surveying the investors.

TYPE OF QUESTIONS:
The questionnaire mainly consists of open ended questions. The questions were
designed in such a way that the accurate and desired information about the
investment avenues in financial market of reliance money can be obtained.

SAMPLING TECHNIQUES AND METHODS:

Random sampling techniques and methods were used during the surveys. People
related to and dealing in broking firms who were surveyed were chosen at random.

SAMPLE PLAN:
DEFINING POPULATION

ESTABLISHING FRAME FOR POPULATION

DETERMINING SAMPLE SIZE

CHOOSING THE METHOD FOR SELECTING THE SAMPLE UNIT

PROBABILITY AND NON PROBABILITY

WRITING THE INSTRUCTIONS FOR IDENTIFYING AND SELECTING

ACTUAL MEMBERS OF THE SAMPLE

SAMPLE SIZE:
Personal interviews were taken from 10 people working in reliance money and
survey was conducted through 200 people dealing in broking firms.

ANALYTICAL TOOLS:
The data was analyzed statiscally by frequency distribution, tally method and in the
analyzed data was interpreted through pie diagrams and tables.

DATA COLLECTION AREA:

Data collected, personal interviews and surveys were confined to the geographical
boundaries of New Delhi.
 BASIC OF SUCCESSFUL INVESTOR
Investing is an important part of the financial planning process. Yet, information
overload and busy lives make managing finances successfully a challenge for almost
everyone at some point. This unit is designed to help you understand the basic
building blocks of sound financial management–the steps you need to complete, or
at least consider, before you begin an investment program.
Visualizing the financial management building blocks in a pyramid, the wealth
protection blocks on the bottom of the pyramid form a strong, secure foundation and
provide crucial stability for the wealth accumulation and distribution blocks on top.
Each building block relies upon the strength and stability of the personal finance
strategies used in the blocks below it. Decisions for one building block may have a
definite impact on options available in adjacent blocks. For example, if you overuse
credit, you may not qualify for a mortgage on a home. As you move up the pyramid,
your financial life becomes more complex.
 WEALTH PROTECTION

CASH MANAGEMENT
Cash management strategies include budgeting, keeping financial records,
maximizing the interest earned on checking and savings accounts, and regularly
preparing financial statements, such as net worth and cash flow. One of the soundest
pieces of financial advice is to spend less than you earn. It sounds simple, but if you
are not fully aware of how you spend money, you may be spending more than you
realize. After you track your income and expenses, following a budget that is
adjusted to your individual situation and goals is an excellent strategy to plan your
spending.

To estimate the value of your assets and chart your financial progress, each year you
should add together everything you own (assets), then subtract everything you owe
(debts), including your mortgage and credit card debt. This summary of assets and
debts is called a net worth statement or balance sheet. It will help you analyze the
way you currently manage your finances and make decisions to improve your
financial situation.

You want your net worth to increase each year. During the early stages of your life,
when you’re establishing yourself at work and accumulating the necessities of life,
your net worth may rise slowly. It will probably grow the most right before
retirement when you are at the peak of your career and accumulating assets to
ensure a secure retirement. Plan to review and update your net worth annually. The
actual date of your review is not important. It might be your birthday, New Year’s,
right after you do your taxes, or some other important date. It is more important that
you remember the date and complete your annual checkup. It also is important to
regularly reconcile bank and other financial statements with your own records.

A vital aspect of the cash management building block is financial record keeping.
An effective record-keeping system should be convenient and not too complicated
to maintain. A number of systems are available commercially, or you can design
your own (e.g., with file folders). It is important that the system makes sense to you
and that you use it consistently.

EMERGENCY CASH RESERVE

Setting aside money to meet unexpected expenses provides a financial safety net and
allows you to take advantage of financial opportunities as they arise. Most experts
recommend an emergency fund equal to 3 to 6 months living expenses; however,
you do not need to set aside this total amount in a low-yielding passbook, certificate
of deposit, or money market account. The amount of your emergency fund depends
upon your age, health, job outlook, and personal financial situation (e.g., amount
and kind of insurance coverage). An emergency fund might be adequate with
enough to cover 3 to 6 months of expenses using a combination of cash and credit if
you have a source of low-cost borrowing (e.g., home equity credit-line loan, cash-
value life insurance, or retirement plan). If your household has multiple sources of
income or dual earners, you can count on those other sources of income in an
emergency.

You might want a larger emergency fund if you are in business for yourself, your
work is seasonal, your job is uncertain, or you rely heavily on commissions. If your
health is questionable (e.g., you foresee long-term disability or extensive medical
expenses), you anticipate a large expenditure for the care of a relative in the near
future, or your child is about to enter college, you may also need a larger cash
reserve.

Your emergency cash reserve can be subdivided to minimize penalties for early
withdrawal of large amounts of funds at one time and to maximize interest earned
on accounts should an emergency occur. Money that would be needed within 3
months of a financial emergency is best placed in an interest-bearing checking
account, passbook savings, money-market deposit account, or money market mutual
fund. Funds needed 4 to 6 months after an emergency could be placed in short-term
certificates of deposit (CDs) as well as 3- and 6-month Treasury bills. Money that
would not be needed for 7 months to 2 years could be placed in a money market
mutual fund and longer term CDs (12-, 18-, and 24-month). Money you can avoid
withdrawing for 2 to 5 years during a financial emergency could be placed in
Treasury notes, short-term bond funds, or 3- to 5-year CDs.

RISK MANAGEMENT
Every day we are exposed to many risks, which can cause a financial loss.
Accidents, property damage, illness, and death are risks we often consider.
However, other risks, such as the possibility of being sued or becoming disabled and
unable to work, are also important. We each have to decide how we will protect
ourselves should a risk become a reality. If you do not have a plan, you might have
to go into debt or use funds set aside for other financial goals in the event of
financial disaster.

Appropriate risk management strategies protect against catastrophic financial losses,

regardless of the cause. Good comprehensive insurance coverage against severe
setbacks is essential. Areas for coverage include life, health, homeowner’s or
renters, auto, disability, and liability. Smart consumers can obtain this coverage at a
cost that allows them to move up the pyramid to accomplish other goals without
being insurance poor. Note that this type of risk management should not be confused
with investment risk, which is a different financial concept.

To determine when you need to purchase insurance, consider the best way to handle
each of your risks. Because your risks change over a lifetime, evaluate your
situation every few years and make appropriate changes. Can your savings cover a
financial loss so that you don’t need to buy insurance? Increasing the deductibles
(the portion of a loss that you pay) on your policy usually saves you money as well.
However, when self-insuring or carrying high deductibles on policies, you must set
aside the necessary funds in your emergency cash reserve to pay for those expenses
in case of a loss.

Risk management strategies can be combined with savings and investments to

achieve financial goals (e.g., buying cash value life insurance). However, be careful
to ensure that your strategies provide the best return on the money involved.
Determine if insurance protection can be purchased less expensively so that you can
invest the savings for a greater overall return.

TAX MANAGEMENT
The goal for taxpayers is to pay no more than the least possible tax owed. Avoiding
taxes through legal tax strategies is not to be confused with illegal tax evasion.
Legally avoiding taxes means using effective financial record keeping, decision-
making, and planning strategies to reduce your total income tax. One example of
good tax management is adjusting the amount of federal income tax withheld from
your paycheck. If you receive a big income tax refund (over $500) each year, you
are giving the federal government an interest-free loan. Evaluate the amount you
have withheld and determine if you could use this money more effectively
throughout the year to manage cash flow or invest for financial goals.

Tax laws continue to dictate how we structure our financial plans. As laws favor or
disallow certain strategies, we need to make adjustments. Two examples of this
phenomenon are Individual Retirement Accounts (IRAs) and home equity credit-
line loans. When everyone was allowed a tax deduction for a Traditional IRA, this
strategy was widely encouraged and used. Since tax laws restricted IRA deductions,
many people automatically either turn to Roth IRAs or eliminate IRAs completely
as a viable alternative. Now that tax deductions for non-mortgage consumer interest
are not allowed, many people have turned to home equity credit-line loans to finance
large purchases and deduct the resulting interest.
As tax laws change, adjust your financial plans to use strategies, which are most
favorable to your situation. Most of us are aware of the tax advantages of tax-
deferred savings. The idea, of course, is to put off paying income taxes on money
until you withdraw it in retirement when, possibly, your tax bracket may be lower.
However, you have no guarantee that this will happen, especially if you are very
successful at saving for retirement and accumulating assets. In addition, the tax laws
are constantly changing. You should seek the advice of a Certified Public
Accountant (CPA), Certified Financial

Planner (CFP), or tax professional to gain insight into how tax laws will affect you.
For example, under a tax law effective May 7, 1997, up to $250,000 of profit from
the sale of a primary residence is tax-free if you file an individual tax return; up to
$500,000 if you and your spouse file jointly. To qualify for this tax-free benefit, you
must own and live in your home for 2 of the 5 years prior to the sale. Only one
spouse is required to own the home, but both need to have lived there to qualify for
the larger $500,000 capital-gain tax exclusion. Further, you can use this new
exclusion even if you have previously claimed the old $125,000 exclusion. How
often you use this new exclusion is unlimited, but generally you can qualify only
once in any 2-year period. If you must sell a home because of ill health, a job-related
move, or unforeseen circumstances prior to meeting the 2-year test, you can claim a
prorated exclusion.
 WEALTH ACCUMULATION

FINANCIAL GOALS
To get where you want to go in life, it is important to decide in advance how you
will get there. Goals are signposts on the highway to the future. They serve as your
guide to personal, career, and financial success. By keeping specific goals in view,
you can direct your energies toward achieving your goals.

Financial goals are important because they help us to organize and direct our
financial lives, providing a framework for decision-making. They can help us cope,
provide some control in an environment where many things seem out of control, and
help us visualize our financial future.

CREDIT MANAGEMENT
When is the best time to stop a growing debt burden? Before it gets out of hand, of
course. You can spot a debt problem early by looking at indicators, such as the
number of bills coming in each month. Is the number increasing steadily? This could
signal an increasing reliance on the use of credit. Cut back on credit buying now;
you will be ahead of the game. Are you consistently paying only the minimum each
month on your credit cards or other debts? This habit can be a critical "red flag." If
you can pay only the minimum now, do not increase your debt load. Also, keep in
mind that, when you pay only the minimum amount each month, you are paying
high finance charges on the unpaid balance. This costs money and delays the
achievement of financial goals.

Periodically, get a copy of your credit report and check it for accuracy and
completeness. This is especially important before making large purchases where you
plan to use credit, such as for a car loan or a mortgage. In many cases credit reports
have minor inaccuracies that need to be corrected. Sometimes there are errors that
might result in your being turned down for a loan (to correct an incorrect credit
report, use the form provided by the credit reporting agency).

HOME OWNERSHIP
Home ownership is a financial goal for many people. A home is often the largest
investment, and sometimes the only investment, that many people make. Given the
low appreciation rate of real estate in some areas, it is probably better to think of
purchasing a home as buying shelter, not as an investment that you expect to rapidly
appreciate (increase in value). Home equity, the dollar value of a home in excess of
the mortgage owed on it, is considered an asset against which you can borrow. This
strategy must be used with extreme caution, however; you could lose your home if
you do not repay the amount borrowed.

INVESTMENTS
You don’t have to be a big-time, high-income investor to have an investment plan.
Even if you have only a small savings account, investments can become part of a
long-term strategy to achieve specific goals.

A diversified investment portfolio can be developed after building the blocks of a

firm financial foundation. Until adequate cash management, an emergency fund,
insurance plans, tax management, and credit usage are under control and functioning
effectively, it is probably unwise to begin an aggressive investment program.

A diversified investment plan begins with a well-defined philosophy and

encompasses strategies designed to specifically accomplish financial goals (e.g.,
children’s education and funding retirement) without having to sacrifice one goal for
the other.

CHILDREN'S EDUCATION
Are you planning to provide your child or children with a college education? If so,
do you know how much it will cost? Do you know how you will finance this goal?

Meeting the financial costs of educating children is a financial goal for many people.
The strategies to help you meet this goal may differ from other saving and
investment strategies, however. Always investigate the tax and financial aid
implications of your college-saving strategies.

The earlier you start planning for a college education for your child, the more time
you will have to accumulate funds. Consider and plan for the cost of the entire
college education. However, because saving ahead for the total cost may be
unrealistic for parents, other possibilities need to be explored, including
scholarships, grants, loans, and work-study programs. Learn the details about each
one.

RETIREMENT PLANNING
Planning for retirement is a challenge for everyone. Again, the earlier you begin, the
longer you will have to accumulate funds and capitalize on compound interest. A
plan designed to meet specific retirement goals may be separate from or part of the
investment building block.

Some people have given a great deal of thought to retirement. About 37% of
working Americans have made a retirement savings calculation, according to the
2003 Retirement Confidence Survey. About two-thirds (68 percent) of Americans
have already begun to save for retirement. Unfortunately, this means that about one-
third have not yet begun saving. Most experts believe that regular, systematic
savings is a habit that is best established early and maintained not only throughout
the working years, but also into the early stages of retirement since people are living
much longer. Today, many people spend as many years in retirement as they spent
in the workforce.

Financial experts have long described sources of retirement income as the three-
legged stool: Social Security, company pension, and personal savings. Now with the
growing concern over the future of Social Security, the reduction in benefits offered
by employers, and the low personal savings rate, many see the three legs of the
retirement income stool becoming shaky. Many say that the stool may need a fourth
leg—paid work after retirement.
 WEALTH DISTRIBUTION

ESTATE PLANNING
If you successfully implement the strategies outlined in the financial management
pyramid, you are much more likely to have assets left over at the end of your
lifetime and will need a plan for how your accumulated wealth is to be distributed.
A will is a necessity if you want to direct the distribution of possessions after death.
Yet, almost 70% of the adults in the United States do not have wills. Many people
think they do not need to prepare a will because they have so little, or it costs too
much, or they will do it later when they have more time or get older. Dying without
a will is called dying "intestate" and means that state regulations will determine the
distribution of assets. By having a carefully written legal will, you can provide for
your family and others in a manner consistent with your desires.

In addition, a variety of other important legal documents can make provisions for
crises other than your death including the following: General Durable Power of
Attorney, Health Care Power of Attorney, and a Living Will. These documents are
best completed before a crisis occurs and can ease a difficult period for your family.
These components of an estate plan are not directly linked to the financial
management pyramid, but can protect assets and insure that your financial strategies
and health care decisions are respected.
SAVING AND INVESTING AND THEIR
DIFFERENCE

Even though the words "saving" and "investing" are often used interchangeably,
there are differences between the two.

Saving provides funds for emergencies and for making specific purchases in the
relatively near future (usually three years or less). Safety of the principal and
liquidity of the funds (ease of converting to cash) are important aspects of savings
dollars. Because of these characteristics, savings dollars generally yield a low rate of
return and do not maintain purchasing power.

Investing, on the other hand, focuses on increasing net worth and achieving long-
term financial goals. Investing involves risk (of loss of principal) and is to be
considered only after you have adequate savings.

Saving $$ Investment $$

Safe
Involve risk

Easily accessible
Volatile in short time periods

Low return
Offer potential appreciation

Used for short-term goals For mid- & long-term goals

 INVESTMENT RETURN

Total return is the profit (or loss) on an investment. It is a combination of current

income (cash received from interest, dividends, etc.) and capital gains or losses (the
change in value of the investment between the time you bought and sold it). The
published rate of return for a selected investment is usually expressed as a
percentage of the current price on an annual basis. However, the real rate of return
is the rate of return earned after inflation, which is further reduced by income taxes
and transaction costs.

Illustration of "Total Return" and "Rate of Return"

Current Income + Capital Gain (or loss) = Total RETURN
Example: $2 + $1 = $3
Annual return ÷ Current price of security = Rate Of RETURN
Example: $3 ÷ $24 (per share) = .125 or 12.5%
 RISK

ALL investments involve some risk because the future value of an investment is
never certain. Risk, simply stated, is the possibility that the ACTUAL return on an
investment will vary from the EXPECTED return or that the initial principal will
decline in value. Risk implies the possibility of loss on your investment.

Factors, which affect the risk level of an investment, include:

• Inflation
• Business failure
• Changes in the economy
• Interest rate changes
THE RISK / RATE-OF-RETURN RELATIONSHIP

Generally speaking, risk and rate of return are directly related. As the risk level of
an investment increases, the potential return usually increases as well. The pyramid
of investment risk (Figure 2) illustrates the risk and return associated with various
types of investment options. As investors move up the pyramid, they incur a greater
risk of loss of principal along with the potential for higher returns.
 DIVERSIFICATION

You can do several things to offset the impact of some types of risk. Diversifying
your investment portfolio by selecting a variety of securities is one frequently used
strategy. Done properly, diversification can reduce about 70% of the total risk of
investing. Think about it. If you put all of your money in one place, your return will
depend solely on the performance of that one investment. Alternatively, if you
invest in several assets, your return will depend on an average of your various
investment returns. Here are three basic ways to diversify your investments:

• By choosing securities from a variety of asset classes, e.g. a mix of stock,

bonds, cash and real estate
• By choosing a variety of securities or funds within one asset class, e.g.
stocks from large, medium, small and international companies in different
industries
• By choosing a variety of maturity dates for fixed-income (bond)
investments.

By diversifying, you won’t lose as much as if you invested in just one security right
before its market value goes down. However, if the market goes straight up from the
time you started, you won’t make as much in a diversified portfolio either. However,
historically, most people are concerned about protection from dramatic losses.
HOW TIME AFFECTS THE VALUE OF MONEY

Investor A invests $2,000 a year for 10 years, beginning at age 25. Investor B waits
10 years, then invests $2,000 a year for 31 years. Compare the total contributions
and the total value at retirement of the two investments. This example assumes a 9
percent fixed rate of return, compounded monthly. All interest is left in the account
to allow interest to be earned on interest.

Investor A Investor B
Age Years Year End
Contributions Contributions Year End Value
Value
25 1 $ 2,000 $2,188 $0 $0
26 2 2,000 4,580 0 0
27 3 2,000 7,198 0 0
28 4 2,000 10,061 0 0
29 5 2,000 13,192 0 0
30 6 2,000 16,617 0 0
31 7 2,000 20,363 0 0
32 8 2,000 24,461 0 0
33 9 2,000 28,944 0 0
34 10 2,000 33,846 0 0
35 11 0 37,021 2,000 2,188
36 12 0 40,494 2,000 4,580
37 13 0 44,293 2,000 7,198
38 14 0 48,448 2,000 10,061
39 15 0 52,992 2,000 13,192
40 16 0 57,963 2,000 16,617
41 17 0 63,401 2,000 20,363
42 18 0 69,348 2,000 24,461
43 19 0 75,854 2,000 28,944
44 20 0 82,969 2,000 33,846
45 21 0 90,752 2,000 39,209
46 22 0 99,265 2,000 45,075
47 23 0 108,577 2,000 51,490
48 24 0 118,763 2,000 58,508
49 25 0 129,903 2,000 66,184
50 26 0 142,089 2,000 74,580
51 27 0 155,418 2,000 83,764
52 28 0 169,997 2,000 93,809
53 29 0 185,944 2,000 104,797
54 30 0 203,387 2,000 116,815
55 31 0 222,466 2,000 129,961
56 32 0 243,335 2,000 144,340
57 33 0 266,162 2,000 160,068
58 34 0 291,129 2,000 177,271
59 35 0 318,439 2,000 196,088
60 36 0 348,311 2,000 216,670
61 37 0 380,985 2,000 239,182
62 38 0 416,724 2,000 263,807
63 39 0 455,816 2,000 290,741
64 40 0 498,574 2,000 320,202
65 41 0 545,344 2,000 352,427
Value at Retirement $545,344 $352,427
Less Total Contributions ($20,000) ($62,000)
Net Earnings $525,344 $290,427
 ASSET ALLOCATION
In the final analysis, your overall investment return will be closely associated with
the asset categories and allocations that you select. An investor’s group of
investments, frequently called an investment portfolio, can be divided in numerous
ways among stocks, bonds and cash management options. You might choose a
20/40/40 portfolio . . .20% stocks, 40% bonds and 40% cash options. Or . . . a
75/20/5 ratio . . . 75% stocks, 20% bonds, and 5% cash.

Asset Allocation Options

S = Stocks B = Bonds C = Cash

Several factors will impact the exact rate of return that you receive on your
investment portfolio. Studies show that the most important one, asset allocation, will
account for about 90% of your return. The selection of individual securities and
market timing will account for the remaining 10% or so.

The critical question, of course, is: "What is the ideal asset allocation for you?"
Here are several factors to consider as you make this decision.
 Your Investment Goals:
Goals are specific things (e.g., buy a car) that people want to do with their money.
As discussed in Unit 1, as people move through various life stages, their needs and
financial goals change. Your selection of investments should relate closely to your
financial goals; each goal will define the amount and liquidity of the money needed
as well as the number of years available for the investment to grow.

Your Risk Tolerance

Risk tolerance is a person’s emotional and financial capacity to ride out the ups and
downs of the investment market without panicking when the value of investments
goes down. Risk tolerances vary widely. Some are associated with personality
factors, while others are based on changing needs dictated by your stage in the life
cycle. If you won’t sleep well at night when the principal value of your investment
goes down, you should select saving and investment options with lower risk. On the
other hand, it’s important to realize that investments which guarantee the safety of
principal will not grow your money quickly and may not maintain purchasing power
in times of inflation or over a long time span. In reality it’s necessary to take some
risk just to maintain purchasing power. The question is: "What kind of risks are you
willing to take?"

Your Time Horizon

As discussed earlier, time is a very important resource to investors. For example,
young investors with a long time horizon may choose investments that exhibit wide
price swings, knowing that time is available for fluctuations to average out. Families
investing for a specific mid-life goal (e.g., funding a child’s education or purchasing
a home) may choose a more moderate course, which has opportunity for growth, but
provides more safety for the principal. Individuals nearing retirement and those with
the need to depend on investment income to cover daily expenses may wish to select
investments that lock in gains and provide a guaranteed income stream.

Time and Skill to Manage Your Portfolio

Some investments require little or no time commitment or special knowledge.
Others, such as rental property, or a portfolio of high-risk individual stocks may
require constant monitoring and management. How much time are you willing and
able to spend?
In a nutshell, the asset allocation, which you select, must be customized to your
situation, needs and temperament. Spend a few minutes completing the "What are
Your Investment Preferences" exercise to help you further clarify and summarize
your investing preferences.

What are Your Investment Preferences?

Consider each pair of words below as a continuum. Place an "x" on each line of the
continuum to indicate how important each of these features is to you. Marking the
middle of a line would therefore mean that the features were of equal importance.

Low risk (Safety) High-risk

Low rate of return High rate of return

Low capital growth High capital growth

High capital preservation Low capital preservation

Not very liquid Highly liquid

Short-term maturity Long-term maturity

Taxable Tax-exempt

No minimum investment High minimum investment

Low costs and fees High costs and fees

Little or no management required Much management required

Present income Capital growth

Conservative Aggressive
 FINDING MONEY TO INVEST

Are You Satisfied with the Amount You Save?

This unit is designed to help you "find" money to fund your investment plans. We
will suggest tools for success, but you have to supply the desire, self-discipline, wise
decisions, and good planning to be successful.

Review your financial status by answering these questions:

• I have 3 to 6 months income in an emergency fund?

• I save regularly?
• I know how much I need to save to achieve future goals?
• I save to purchase big-ticket items instead of buying on credit?
• When I use credit, do I save to make as large a down payment as
possible?
• I save at least 10% of my personal disposable income?
• I know how much I need to save for retirement?

The more times you answer "yes" to these questions, the more likely you are a
prudent saver. A "no" can help you identify areas where you could do better. Once
you have a sound savings program in place, you are ready to invest surplus funds.
Unfortunately, many people feel their savings are not sufficient, and they see no
way to meet their immediate needs and have extra funds to invest.
STRATEGIES FOR SAVING MONEY TO INVEST

ESTABLISH A REGULAR SAVINGS PROGRAM

The first strategy is to set up a regular savings program if you do not already have
one. Saving means putting money aside from present earnings to provide for a
known or unexpected need in the future. It is an integral part of family and
personal financial planning. Having a specific goal provides motivation to save.
You probably will not get very far saving for the sake of saving.

NEEDS VERSUS WANTS

Individuals and families save to satisfy their needs and wants. Needs are items that
are necessary for survival such as food, shelter, clothing, and medical care. Wants
are all the other things we think we need, but could do without. If we spend our
money to satisfy wants before we meet our needs, we will probably experience
financial difficulties. The pressure to acquire present wants is often greater than the
willingness to provide for future needs or even future wants.
Generally speaking, four major financial needs require planning for in the near and
distant future:

1. Emerge
2. ncies from the normal course of living such as car repairs or replacing a major
appliance
3. Loss of income as a result of death, divorce, disability, or unemployment
4. Other family goals such as education for your children or a special vacation
5. Retirement

Once goals have been set, a major thought in most people’s minds is "How am I
going to reach this goal? There is no way I can save that much money!" However,
most people find that, if they really put their minds to it and they have set realistic
goals, they can save the necessary money.

As we noted earlier, a regular savings program is critical to a family’s immediate

well-being as well as their long-term security. To adequately fund a savings
program and begin an investment program, you must identify a specific amount to
save from each paycheck and honor that commitment. Regular savings in small
amounts is generally more effective than setting aside larger sums at sporadic
intervals. As your salary increases, increase the amount you commit to savings
 PAY YOURSELF FIRST
Another important concept for your savings program is to "pay you first." Make
your "savings bill" a part of your spending plan, just like rent or mortgage
payments, utility bills, clothing, car payments and upkeep, child care, or any other
bill that you normally incur. When you pay your other bills, pay your savings bill
by depositing the money into a savings account or other financial instrument. One
painless way to accomplish this is payroll deduction if it is available. Your
employer deposits your savings directly from your paycheck into a credit union,
bank account, or a money market fund for a higher interest rate. If you never see
the money, you won’t miss it or be tempted to use it for something else before it
reaches your savings account. Note how quickly small amounts of money can grow
with time

Table showing how $10.00 a Month Will Grow*

Year 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

1 $122 $122 $123 $124 $125 $125 $126 $127 $127 $128 $129 $130 $130
2 247 249 253 256 258 261 264 267 270 272 275 278 281
3 376 382 389 359 402 408 415 421 428 435 442 449 457
4 509 520 532 544 555 567 580 592 605 618 632 646 660
5 646 665 683 701 720 740 760 781 802 825 848 872 897
6 788 812 841 868 897 926 957 989 1,023 1,058 1,094 1,132 1,171
7 933 968 1,008 1,046 1,086 1,129 1,173 1,220 1,268 1,320 1,374 1,430 1,490
8 1,083 1,129 1,182 1,234 1,289 1,348 1,409 1,474 1,543 1,615 1,692 1,773 1,859
9 1,238 1,297 1,366 1,435 1,507 1,585 1,667 1,755 1,849 1,948 2,054 2,168 2,288
10 1,397 1,472 1,559 1,647 1,741 1,842 1,850 2,066 2,190 2,323 2,467 2,621 2,787
15 2,270 2,461 2,684 2,923 3,188 3,483 3,812 4,279 4,589 5,046 5,557 6,129 6,769
20 3,283 3,668 4,128 4,644 5,240 5,929 6,729 7,657 8,736 9,991 11,455 13,163 15,160
25 4,460 5,141 5,980 6,965 8,148 9,574 11,295 13,379 15,906 18,976 22,714 27,273 32,841
30 5,827 6,940 8,357 10,095 12,271 15,003 18,445 22,793 28,302 35,299 44,206 55,571 70,098

The table can be used to find out how long it will take to reach your financial goals.
It shows the growth of monthly $10 deposits invested at various interest rates. Put
aside $10 a month for five years at 10%, for example, and you’ll have $781- the
figure at the intersection of the year five and 10% interest columns. If you can invest
$50 each month, you will have five times $781, or $3,905.
 SAVE BONUS MONEY
Saving "bonus" money is also an easy strategy. Bonus money is money earned or
received that was not expected, such as tax refunds, gift money; overtime pay,
rebates, and refunds. Saving this money over time will boost your saving dollars and
provide a larger balance on which to earn interest for the future. (Note: if you
consistently receive a large tax refund, you may want to adjust your withholding. A
tax refund means that the government has had your money interest-free during the
year; you were losing the use of the money to fund your financial goals.)

SAVE COUPON MONEY

Another strategy to boost your savings is to save coupon money. Many people use
coupons to reduce their grocery and personal care bills, but few think of actually
saving the money they saved! To make this strategy a reality, put aside the amount
you "saved" by using coupons at the grocery store or drugstore. The amount saved is
probably printed on each receipt. Put the "savings" (the money you did not spend) in
a special "coupon saving jar." Every month or so add this cash to your savings
account. Saving just $2 a week for 52 weeks gives you a savings total of $104 which
could be your "seed" money to open an investment account. However, remember
that you aren’t saving if you buy something that you don’t need or that costs more
than a comparable product even with the coupon.

CONTINUE INSTALLMENT LOAN REPAYMENTS

Most of us have one or more installment loans that we are repaying. Once you pay
off an installment loan (assuming other loans are not overdue), continue to make
"payments" to your savings account. For example, when you pay off your car loan,
continue writing a check for the same amount, but make the check payable to your
savings account. You were able to get along without this money for the duration of
the car loan, so continue to live at the same level and save the "car payment." This is
a good way to save for the down payment on your next car when the old car needs to
be replaced. It also adds a substantial amount of money to your savings account on a
regular basis. This same strategy can be used when other household expenses end
(e.g., childcare).
 COLLECT LOOSE CHANGE
Another painless strategy is to collect loose change. At the end of each day, empty
out your pockets and wallet and put the change in a special container. Every other
week or once a month, deposit the change in your savings account. Don’t cheat on
yourself by "stealing" change that has been collected. Take it all to the bank. Some
people even go so far as to keep all their change. They only pay for cash purchases
with bills and save all their coins. Develop a plan that works for you and stick to it.

SAVE LUNCH MONEY

Saving lunch money is another way you and your family can save money. Get up 10
minutes earlier and make your own lunch. Save the money you would have spent on
lunch. If all family members do this, the family can realize a nice sum that they can
add to their savings. Working together to reach a family goal, such as a new TV or a
summer vacation, can be an excellent family activity.

SHOP FOR SALE PRICES

Another strategy that can work for all family members on a wide variety of
purchases is to save the money you "save" when you buy items on sale. When you
buy an item on sale, save the difference between the sale price you paid and the
"full" price you would have paid if the item had not been on sale. Put this money in
a safe place and on a regular basis deposit it into your savings or investment
account. Using this strategy can add large amounts to your savings program. The
key is that you actually save this difference and apply it to your savings or
investment program.

PLAN A "NOTHING WEEK"

Once in a while, have a "Nothing Week," an entire week when you and your family
agree not to spend any more money than is absolutely necessary. You would not go
to the movies, out to eat, bowling, etc. Plan to do special activities, but save the
money instead of spending it. Add this money to your savings program. Another
similar strategy is to use a crash budget approach. A crash budget works like a crash
diet -- you try to cut out all unnecessary spending and save as much as possible in a
given period of time, say two weeks or a month. Add all the savings to your savings
or investment program. If the "Crash Budget" sounds unbearable, consider a "Cut-
Back Week." During this week, do what the family would normally do, but think of
ways to make it less expensive and save the difference. For example, rent a movie
instead of going to the theater, make long-distance phone calls on the weekend when
the rates are lower, write a letter or send an e-mail instead of calling, drink mix-
your-own lemonade instead of soft drinks, etc.

AVOID PAYING CREDIT CHARGES

A critical savings strategy to consider is avoiding the use of credit. Unless credit
purchases are paid off in full each month, interest consumes dollars that could be
spent funding your saving and investing goals. Suppose that you have a balance of
$1,000 on a credit card that carries a 19.8% interest rate and a full grace period. If
you make no more charges against the account and only pay the minimum payment
of 3% per month, you will pay approximately $165 in interest over one year. If you
continue making only minimum monthly payments for the rest of the $1,000 with
no additional charges, you will take eight years and three months to pay it off, and
you will have paid $843 in interest.

Carefully evaluate all spending decisions, especially those being paid with credit.
Make every spending decision on the basis of how it will satisfy your goals.
Eliminate spending for items that have little or no value relative to your goals. Also
be aware of your needs and wants as you make purchases.
 STEPS TO BREAK MONEY HABITS

By following these six easy steps, you can gain better control of your financial
resources and increase the money available for investing. Put this six-step plan to
work for you and your family.

STEP 1. IDENTIFY THE HABIT, DETERMINE FREQUENCY, AND

CALCULATE TOTAL COST
Using Worksheet 1, "So Where’s The Money?," think of some habits you might be
able to adjust. Select from the products or services listed or add your own choices to
the list. Then determine how often you purchase the product or service. Next,
calculate the total cost of enjoying the product or service for one year. Armed with
this information, you are ready to advance to Step 2 in your quest to break habits
and collect funds for investing.

STEP 2. MAKE A DECISION TO CHANGE

The second step to breaking habits involves looking for alternatives and choosing a
different way of spending your money. This action step demands that you take
control of the situation. One way to do this is to review your money habits and
where you spend money, then identify how you can make changes. For example,
have you ever stopped to consider how much you and other family members are
spending for hair and nail care? If you spend $15.00 per week each month for hair
care, that’s $60.00 per month or $720.00 per year. Add a nail care bill of $15.00 per
month or $180.00 per year. That is a lot of money

STEP 3. ACT IMMEDIATELY

Now that you have all these great ideas to keep more of your money, how will you
keep yourself motivated? Writing down your new desired behavior is one strategy.
By recording the change, you are committing yourself to a new behavior. It is
necessary to start your new behavior immediately. For best results, begin within 24
hours after making the decision to change or adjust spending. The sooner you begin
a new behavior, the sooner the new behavior will become a habit. Step 4 will further
assist you in adopting new behaviors.
STEP 4. SHARE YOUR PLAN
To further establish a new behavior, share your plan with others. Tell family,
friends, and co-workers about your plan. By giving others the opportunity to support
you, you boost your determination to succeed. If your behavior change involves the
entire family, all family members must work together for the family to succeed.
Refer back to the worksheet, "So Where’s The Money?" Go over the chart with the
entire family. Together, decide ways the family can break habits and develop a
savings plan. Now is also a good time to make a family "piggy bank." The "bank"
can be an empty jar or a small box. Once the family decides on their family financial
goal, they can put a picture identifying the goal on the "bank."

STEP 5. STICK WITH YOUR PLAN TO CHANGE

Step 5 is a critical step toward breaking habits and increasing family savings. You
and family members must always look for new ways to reduce spending and
increase savings. It is important to reinforce the fact that you can change your
attitudes and break habits. Stay focused on your goal. It takes about 30 days for a
new behavior to become a habit.

Here are some specific activities for you and your family that will help you gain
control of your finances, but still have fun as a family. By engaging in activities
such as these, we are changing our attitudes and choosing activities that are more
"money friendly." Changing attitudes and lifelong habits will serve you well
immediately and over a lifetime and set an example for your children by instilling
the value of saving.

STEP 6. CELEBRATE YOUR SUCCESS

The last step to breaking habits is to celebrate your success. Once you have reached
your initial goals, let others know of your success. Enjoy the fruits of your savings.
Then continue with your new behaviors that are now habits. You have the tools
necessary to be successful. Remember to trim all unnecessary expenses and keep
your needs and wants in perspective. Watch the pennies you save grow into money,
which can be used to fund your saving and investment programs
 OWNERSHIP INVESTMENTS

When there are earnings, you share them. There are no guarantees about what the
price of the investment will be should you want to sell it in the future. The price may
be higher than it was when you bought the investment but it could be lower.
Likewise, there are no guarantees that there will be earnings (such as dividends) or
of how much they will be. Price and earnings may be affected by the management of
a company or by outside factors such as political changes, weather, and the national
or world economy.

On the other hand, when you have a loaner ship investment, you simply loan your
money to someone (e.g. a bank) and get an agreed upon return. Generally, when you
invest larger sums of money and invest for longer periods of time, you earn more. If
you want to learn more about these investments please refer Unit 5 "Fixed – Income
Investing" in this home study series.

The focus of this unit is ownership investments. These investments, equities, can
either be owned outright or purchased on credit. Examples of equities include stock,
growth mutual fund shares, real estate, collectibles, commodities, and businesses.
This unit will provide you with an overview of investment products available for
purchase. If you are interested in investing in any of these products, you should
learn more about their characteristics, as well as about the particular company or
product, before investing.

Most ownership investments are found fairly high in the Pyramid of Investment
Risk pyramid. In other words, with the increasing potential for a high rate of return
comes a high potential for loss of principal. The specific investments you make can
influence how high that risk is. For example, owning a speculative stock has more
risk than owning a home in an established neighborhood.
 COMMON STOCKS

When a company wants to raise money, it offers investors a share of ownership in

the company in the form of stock in exchange for that money. As a partial owner of
the company, each investor shares in the success or failure of the business. There is
no guarantee of return on the investment. Investors become part owners of a
business and have no guarantee that they will receive any income for the use of their
money or that they will get back any or all of their money in the future.

However, historically, common stocks have outperformed all other investments.

According to the Chicago investment research firm Ibbotson Associates, the average
annual return on U.S. large company stocks from 1926 to through 2001 was 10.7%
versus 12.5% for small company stocks, 5.3% for long-term government bonds, and
3.8% for U.S. Treasury bills.

If the company makes money in a given time period, its board of directors may
decide to reward its owners by distributing dividends or may choose to reinvest the
money in the company. If you own a stock that pays dividends, you may have the
option of reinvesting them in more stock instead of receiving a cash dividend. The
dividends are still taxable but dividend reinvestment plans (also known as DRIPs)
are an easy way to increase your investment holdings.

As owners of the business, stockholders elect directors who select the people who
manage the company on a day-to-day basis. Depending upon the business and the
way in which it is set up to operate, stockholders may have the opportunity to
influence other decisions as well. Typically, this happens at an annual business
meeting and stockholders can cast proxy votes if they are unable to attend the
meeting in person.
 REAL ESTATE

This very popular investment alternative includes land, the permanent structures on
land and accompanying rights and privileges, such as crops and mineral rights. A
home is generally the single largest asset that most people have. They often think of
it as just shelter, not realizing that it is also a major investment. Other ways to invest
in real estate include owning rental houses and land for potential housing or
commercial development. You can also invest in real estate indirectly by purchasing
units in a real estate limited partnership or shares in a real estate investment trust.
Since direct ownership of real estate is so common, we will begin by discussing it.

When you purchase real estate, the costs of purchase include:

• Real estate commissions (which may technically be paid by the seller, but do
influence the total cost of the property)
• Transfer and recordation fees charged by the state and/or local government
• Attorney fees
• Title search fees
• Appraisal fees
• Surveying fees
• Inspection fees (these may be optional).

Home ownership is encouraged through our income tax system, which provides an
income tax deduction for mortgage interest and property taxes and through generous
tax exemptions on the increase in value realized when homes are sold. However, tax
benefits of ownership should not be the only reason for buying a house.

Real estate is fairly high in the investment risk pyramid. It is not a liquid investment.
Although real estate can sometimes be quickly turned into cash, it can also take a
long time to find the right buyer at the right price. Nor can you control the condition
of the property next door. A public change, such as a power line or road, or some
other change, may also increase or decrease the value of your property.

You may receive regular or intermittent income from real estate including rent for
structures or the land itself, income from sales of crops such as timber or from
gravel or minerals in the land. Costs are associated with each form of income. You
can also make money on the sale of real estate if you can sell it for more than you
paid for it and the costs of the sale. Real estate agents often say that the key to
success in real estate investing is "location, location, location." Where your
investment is and what is near it will greatly influence its value.
 EQUITY UNIT INVESTMENT TRUSTS

Unit investment trusts are an unmanaged portfolio of professionally selected

securities that are held for a specified period of time. They were first issued in the
1960s as a way to "package" and sell portfolios of professionally selected bonds,
especially tax-exempt municipal bonds.

Unlike mutual funds, that are professionally managed, equity units is a "buy-and-
hold" investment. Securities in the portfolio are held for a pre-determined time to
generate dividends and capital gains for investors. at maturity, investors can take
their cash and invest elsewhere or can "roll over" their balance into a new unit.

Like their bond counterparts, equity units are an unmanaged portfolio of stocks that
usually remains unchanged throughout the life of the trust. Some equity units follow
a specific investment strategy such as investing in the five or ten highest yielding
stocks among the 30 stocks included in the down Jones industrial average or only in
stocks listed on foreign stock exchanges. Like mutual funds, an increasing number
of equity units also select stocks from a particular industry sector (e.g., technology)
or companies located in a particular state or region of the country.

Like individual stocks, unit dividends and capital gains are taxable, whether
earnings are distributed in cash or reinvested in additional unit units. if the value of a
unit portfolio increases, that capital gain is taxed. Most equity units have maturities
of six years or less. Shares can be sold prior to the trust’s maturity at a price
determined by market conditions. two advantages of equity units are not having to
worry about changes in portfolio holdings or management and tax efficiency (low
taxes because stocks in a unit portfolio are rarely traded). a major disadvantage is
their up-front cost. Equity units typically charge a front-end load (commission) of
3% to 5% of the amount invested.
 COLLECTIBLES

People collect just about anything-stamps, coins, art, cars, and autographs. To be
financially successful with collectibles as an investment, however, a high level of
knowledge is required. Some people collect as a hobby and enjoy spending their
time this way.

To make money with this type of investment, you need a collection of items in top
condition. You probably cannot regularly use or touch the collectible and will need
to safely store them in a protective environment. Keep documented evidence of the
value of your collection, (e.g. an appraisal of antiques). Regular maintenance and
insurance may be necessary, too and there could be storage costs. The specific needs
and the type of collectible will determine costs.

Generally, collectibles do not provide a regular or periodic income. When you sell
an item, you see the gain in value. When you want to sell, you may take a while to
find the buyer willing to pay what you think your collectible is worth. A
professional appraiser or auction house may also be required to sell items to other
investors. As you make investment decisions about collectibles, it is important to be
sure that you are truly focusing on the value of the investment and that you are not
unduly influenced by the psychological pleasure you receive from owning it.
 BUSINESS

Ownership of a business is another investment option. There are many different

kinds of businesses and many ways to be involved. You may own and operate a
business yourself or hire someone to operate it. You can start your own business or
purchase a franchise of a larger business. While businesses certainly offer
opportunity for income, they also have many risks. Careful attention must be given
to the financing, cash flow needs, and reserves. It is important to separate businesses
from the family budget. You want to avoid putting your shelter, for example, at risk
because your business has difficult financial times.

In many states Cooperative Extension offers education on micro- and home-based

businesses. The Small Business Administration offers assistance. Other
organizations in communities and in state government have valuable resources. If
you are considering such an investment, search widely for information. The failure
rate of small businesses is very high. Planning, especially development of a business
plan is critical.
 COMMODITIES

At the very top of the investment risk pyramid are commodities. These include pork,
grain, coffee, sugar, etc. Financial expert Andrew Tobias says that since 90% of the
people who speculate in commodities lose (and 98% may be a more accurate
figure), the key is how to be among the 10% or (2%) who win. He simply compares
investing in commodities to gambling. At the top of the investment risk pyramid,
you have high potential for return, but also high risk. To invest there, you need to be
able to afford to lose your entire investment.

Costs include brokerage fees. You also need considerable knowledge of the
commodity in question and the markets in which it is created and sold as well as the
changing situations of the buyers.
BUYING AND SELLING EQUITY INVESTMENTS

There are many ways to purchase equity investments. The specific type of
investment you select will affect your choices. For example, you may trade
collectibles and real estate directly with other buyers and sellers. When you
purchase stock or REITs, you may work with a broker. Full-service brokers
generally provide more assistance with research and advice and charge higher
commissions than discount brokers. Use the "Rule of Three"-compare the costs of
buying and selling with at least three firms.
 DIVERSIFICATION

Whatever investments you make, remember to diversify. You can either select
investments, such as mutual funds that invest in a variety of securities or you can
purchase a variety of securities yourself. If you do it yourself, be sure to invest in
different sectors of the market (e.g. energy, financial services, technology) as well as
in different specific investments.

Equity investing means becoming a partial owner of a company or piece of property

through the purchase of investments such as stock, equity mutual funds, and real
estate. Capital appreciation over time is the primary objective, although some equity
investments, such as REITs and equity-income mutual funds, also provide
dependable dividend income. This unit has reviewed general characteristics of
equity investments and "nitty gritty" details such as how to purchase them.
Diversification and asset allocation, as they relate to equity investing, were also
discussed. The unit concluded with a discussion of specific equity investments. Now
you need to consider appropriate equity investments that will mesh with your
personal financial goals.
 RELIANCE MONEY FEATURES

A SINGLE WINDOW FOR ALL YOUR FINANCIAL TRANSACTION NEEDS

Reliance Money is the most cost-effective, convenient and secures way to transact
in a wide range of financial products and services.

Reliance Money provides four accounts with single life time charge, i.e.
1. Demat Account
2. Trading Account
3. Commodity Account
4. Forex Account

The highlights of Reliance Money’s offering are:

 Cost-effective: The fee charged by the affiliates of Reliance Money,
through whom the transactions can be placed, is among the lowest charged in the
present scenario.

Illustrative table depicting fee structure and validity limits.

Currently Reliance Money introduced a special offer i.e. by just paying 500/-, valid
for 1 year or specified transactional value is 5 lacks.

 Convenience: You have the flexibility to access Reliance Money services in

multiple ways: through the internet, transaction kiosks, call & transact (phone) or
seek assistance through our business partners.

 Security: Reliance Money provides secure access through an electronic token

that flashes a unique security number every 32 seconds (and ensures that the number
used for earlier transaction is discarded). This number works as a third level
password that keeps your account extra safe.

 Single window for multiple products: Reliance Money, through its

affiliates/partners, facilitates transactions in Equity, Equity & Commodity
Derivatives, Offshore investments, Mutual Funds, IPOs, Life Insurance and General
Insurance products.

 3 in 1 integrated access: Reliance Money offers integrated access to your

banking, trading and demat account. You can transact without the hassle of writing
cheques.

 Demat Account with Reliance Capital: Hassle-free demat account with Reliance
Capital. The annual maintenance charge for the demat account is just Rs.50/- per
annum.

 Other Services: Through the portal www.reliancemoney.com, Reliance Money

provides: -- Reliable research, including views of external experts with an enviable
track record. – Live news from Reuters and Dow Jones. – CEOs / experts’ views on
the economy and financial markets. – The Personal Finance section provides tools
that help you plan your investments, retirement, tax, etc. – Analyse your risk profile
through the Risk Analyser. – Get a suitable investment portfolio using the Asset
Allocator.

The software provided by Reliance money is of two types ; Insta trade for all
consumers and power trade which is provided only for franchises which act as the
agent in share market.
 SOFTWARE OF RELIANCE MONEY

INSTA TRADE SOFTWARE OF RELIANCE MONEY.

POWER TRADE SOFTWARE OF RELIANCE MONEY

 RELIANCE CAPITAL

Reliance Money is a group company of Reliance Capital; one of India's leading

and fastest growing private sector financial services companies, ranking among the
top 3 private sector financial services and banking companies, in terms of net worth.
Reliance Capital is a part of the Reliance Anil Dhirubhai Ambani Group.

Reliance Money is a comprehensive electronic transaction platform offering a wide

range of asset classes. Its endeavour is to change the way India transacts in financial
markets and avails financial services. Reliance Money is a single window, enabling
you to access, amongst others in Equities, Equity & Commodities Derivatives,
Mutual Funds, IPOs, Life & General Insurance products, Offshore Investments,
Money Transfer, Money Changing and Credit Cards.

 Reliance Mutual Fund (RMF)

 Reliance Life Insurance
 Reliance General Insurance
 Reliance Credit Card
 Reliance Personal/Car/Home/Household loans
 Ipo’s ,Nfo’s , Derivatives , commodities, Primary&secondary market
 Reliance Money Currency Exchanger
 ABOUT MUTUAL FUNDS

HISTORY OF MUTUAL FUND

The origin of mutual fund industry in India is with the introduction of the concept
of mutual fund by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the industry. In the
past decade, Indian mutual fund industry had seen a dramatic imporvements, both
qualitywise as well as quantitywise. Before, the monopoly of the market had seen an
ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private
sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till
April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual
Funds Industry into comparison, the total of it is less than the deposits of SBI alone,
constitute less than 11% of the total deposits held by the Indian banking industry

WHAT IS MUTUAL FUND ?

A mutual fund is simply a financial intermediary that allows a group of investors to
pool their money together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the pooled money
into specific securities (usually stocks or bonds). When you invest in a mutual fund,
you are buying shares (or portions) of the mutual fund and become a shareholder of
the fund. Mutual funds are one of the best investments ever created because they are
very cost efficient and very easy to invest in (you don't have to figure out which
stocks or bonds to buy). If you would like to know the history of mutual funds, By
pooling money together in a mutual fund, investors can purchase stocks or bonds
with much lower trading costs than if they tried to do it on their own. But the
biggest advantage to mutual funds is diversification.

HOW IT WORKS ?
A mutual fund is a collection of stocks, bonds, or other securities owned by a group
of investors and managed by a professional investment company. For an individual
investor to have a diversified portfolio is difficult. But he can approach to such
company and can invest into shares. Mutual funds have become very popular since
they make individual investors to invest in equity and debt securities easy. When
investors invest a particular amount in mutual funds, he becomes the unit holder of
corresponding units. In turn, mutual funds invest unit holders money in stocks,
bonds or other securities that earn interest or dividend. This money is distributed to
unit holders. If the fund gets money by selling some stocks at higher price the unit
holders also are liable to get capital gains. A mutual fund is quite simply a collection
of stocks, bonds, or other securities owned by a group of investors and managed by
a professional investment company. Thus the mutual funds are not the depositing
instrument that has guarantee of getting certain amount but it is like any other
securities where the investor can have capital gains or loss.

TYPES OF MUTUAL FUNDS

1) Open Ended mutual funds
2) Close Ended mutual funds

ADVANTAGES OF MUTUAL FUND

 Professional Management - The primary advantage of funds (at least

theoretically) is the professional management of your money. Investors purchase
funds because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a
full-time manager to make and monitor investments.

 Diversification - By owning shares in a mutual fund instead of owning

individual stocks or bonds, your risk is spread out. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is
minimized by gains in others. In other words, the more stocks and bonds you own,
the less any one of them can hurt you (think about Enron). Large mutual funds
typically own hundreds of different stocks in many different industries. It wouldn't
be possible for an investor to build this kind of a portfolio with a small amount of
money.
 Economies of Scale - Because a mutual fund buys and sells large amounts of
securities at a time, its transaction costs are lower than you as an individual would
pay.

 Liquidity - Just like an individual stock, a mutual fund allows you to request
that your shares be converted into cash at any time.

 Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line
of mutual funds, and the minimum investment is small. Most companies also have
automatic purchase plans whereby as little as Rs 1000 can be invested on a monthly
basis.
RELIANCE MUTUAL FUND

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group (R-
ADAG) is one of the fastest growing mutual funds in the country.

Reliance Mutual Fund offers investors a well rounded portfolio of products to meet
varying investor requirements. Reliance Mutual Fund has a presence in over 115
cities across the country, an investor base of over 3.1 Million and manages assets
over Rs. 39019 crore as on 31st Jan 2007.

Reliance Mutual Fund constantly endeavours to launch innovative products and

customer service initiatives to increase value to investors.
 Reliance Mutual Fund schemes are managed by Reliance Capital Asset
Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd.

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 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 financial services.

You can invest in reliance mutual fund in two ways :

1) Lumsum payment - minimum 5ooo Rs
2) SIP (Sysyematic Investment Plan ) – as per your choice minimum 100 Rs.

RELIANCE INSURANCE

Reliance Life Insurance is an associate company of Reliance Capital Ltd., which

alongwith its associates has acquired 100% shares in AMP Sanmar Life Insurance Co
Ltd. Reliance Life Insurance has a pan presence and a range of products catering to
individual as well as corporate needs. A total of 16 products covering savings, protection
& investment requirements

Reliance Life Insurance would strive hard to achieve the following goals:-
 Emerge as transnational Life Insurer of global scale and standard.
 Achieve impeccable reputation and credentials through best business
practices.
 Vision : Empowering everyone live their dreams.
 Mission : Create unmatched value for everyone through dependable,
effective,
transparent and profitable life insurance and pension plans.

Guiding Principles
1) CustomerCare and Satisfaction
2) Corporate Governance
3) Creativity and Innovation
4) Competitiveness
 INDIVIDUAL MEDICLAIM INSURANCE POLICY

INTRODUCTION
This policy covers hospitalisation and domiciliary hospitalisation expenses incurred by
the Insured (including family members) for illness / disease or accidental injury and
shall include hospital charges (room & boarding and operation theatre), fees of surgeon,
anesthetist, nurses, cost of medicine, oxygen, blood, cost of appliances like pacemaker,
artificial limbs and cost of organs.

SCOPE OF COVER

• The Policy offers the feature of Third Party Administrator services.

• The Policy covers illness / disease or accidental injury leading to expenses of
various types referred to above.
• Hospitalization expenses and domiciliary hospitalisation expenses referred to
above shall be subject to a maximum of the sum insured at inception of the
policy.
• The Policy covers individuals aged between 5 and 75 years. However, children
aged between 3 months and 5 years can be covered if one or both parents are
covered concurrently.
• Exemption under section 80 (D) of the Income Tax Act, 1961 is presently
available for premium paid by cheque.
• The Insured is entitled to reimbursement of the cost of medical check-up once at
the end of a block of every four underwriting years provided there were no claims
reported during the block. The cost so reimbursable shall not exceed an amount
equal to 1% of the average sum insured during the block of four underwriting
years.
• The sum insured under the policy shall be progressively increased by 5% in
respect of each claim free year of insurance subject to a maximum accumulation
of 10 claim free years of insurance. In the event of a claim under the policy in
respect of an Insured Person who has earned any cumulative bonus, the increased
sum insured will be reduced by 10 % at the time of renewal. However, the basic
sum insured will be maintained at all times.

EXCLUSION
The policy will not cover expenses relating to-

o Treatment of asthma, chronic nephritis and nephritis syndrome,

gastro-enteritis, diabetes mellitus and insipidus, epilepsy, hypertension, influenza,
cough and cold, all psychiatric or psychosomatic disorders, pyrexia of unknown
origin for less than 10 days, tonsillitis and URTI, arthritis, rheumatism (as far as
domiciliary hospitalisation is concerned).
o Any treatment relating to any illness / disease already in existence at
the time of proposal.
o Any disease / injury during first 30 days of commencement of policy
(accidental injury is not an exclusion).
o Treatment of cataract, benign prosthetic hypertrophy, hysterectomy
for menorrhagia on fibromyoma, hernia, bydorcele, congenital internal disease,
fistula in anus, sinusitis and related disorders during first year of cover.
o Vaccination, inoculation, circumcision or change of life or cosmetic
or aesthetic treatment, plastic surgery unless necessitated due to accident or as a
part of any illness.
o Dental treatment or surgery of any kind unless requiring
hospitalisation.
o Cost of spectacles contact lenses and hearing aids.
o Convalescence, general debility. “run-down” condition, sterility,
venereal disease, intentional self-injury, use of drugs and and intoxicants.
o Any variation of deficiency syndrome or AIDS.
o Hospital / nursing home charges not consistent with or incidental to
the diagnosis and treatment: vitamins, tonics not forming part of any treatment.
o Treatment arising from or traceable to pregnancy or child birth.
 o Voluntary medical termination of pregnancy within first 12 weeks of
confinement.
o Nuclear perils and war group of perils.
o Naturopathy treatment.

PERSONAL ACCIDENT INSURANCE (INDIVIDUALS)

POLICY

INTRODUCTION
The policy provides for payment of compensation in the event of accidents leading to
death or disablement of the insured person. The disablement may be of permanent total
or permanent partial or temporarily total in nature. This policy can be issued to persons
in the age group of 5 years to 70 years and can be extended to cover persons beyond the
age of 70 years and upto 80 years on payment of suitable additional premium. The cover
provided is worldwide.

Policy also provides for reimbursement of expenses incurred for carriage of dead body
and education grant for children (upto a maximum of two children) of the primary
insured person, subject to terms and limits.

This policy can be extended to cover actual medical expenses arising out of the accident
upto an amount not exceeding 40% of the compensation paid in settlement of a valid
claim under this Policy or 20% of the relevant Capital Sum Insured whichever is less, on
payment of 20% of extra premium.

CUMULATIVE BONUS

The sum insured under the Policy stands increased by 5% for each completed claim free
year of insurance (subject to a maximum of 50 % ). The earned cumulative bonus will
not be lost if the policy is renewed within 30 days of its expiry.

EXCLUSIONS:

The policy will not compensate for death or disablement due to

 pregnancy or related consequence.
 intentional self-injury, suicide or attempted suicide,
 influence of intoxicating liquor or drugs
 whilst engaging in aviation or ballooning whilst mounting into,
 dismounting from or travelling in any aircraft or balloon other than as a passenger
 venereal diseases, AIDS or insanity.
 Insured committing any breach of law with or without criminal intent.
 War and nuclear perils

RELIANCE HEALTHWISE PLAN

INTRODUCTION

Seeing your family in the pink of health ranks highest in priority for you. Yet, despite
your best efforts, illnesses do occur. With the spiraling cost of health care, these
unforeseen circumstances can take a toll on your savings. To ensure that you don’t need
to spend your hard earned money on treatment of any such illness; we have a Policy that
offers you all the financial support that you need.

KEY ADVANTAGE

For the first time in India, Critical Illnesses are also covered as part of your Health
Insurance Policy.

1) A separate Double Sum Insured is automatically available as soon as any of

the listed critical illnesses is diagnosed.
2) 24 hours cashless facility at more than 3000 network hospitals.
 3) Income Tax benefits under Section 80 D.
4) Options in duration of coverage – 1 year/2 year policies available.
5) Family Floater benefit giving comprehensive protection to your family
members under one single Policy.
6) Discount on renewal premium for claim free policy.
7) Coverage of pre-existing conditions after 2 years/4 years as per plan opted.

WHAT DOES THIS POLICY COVER?

Depending on the Plan opted by you, your Reliance HealthWise Policy covers:

Hospitalisation Expenses - Expenses incurred towards-

• Hospital (room, boarding and operation theatre)

• Doctors & nurses
• Medical tests
• Medicines, blood, oxygen, appliances etc.

Day Care Treatment - Medical expenses towards specific technologically advanced

day care treatments/surgeries where 24 hours of hospitalisation is not required.

Domiciliary Hospitalisation - All expenses related to a medical treatment, which is

being administered at home, subject to specific conditions applicable.

Pre and Post Hospitalisation - Medical expenses related to your treatment before and
after hospitalisation for a specified number of days.

Pre-Existing Diseases - Coverage of pre-existing diseases after two/four continuous

renewals with us.

Critical Illness - Your Sum Insured is automatically doubled separately for treatment of
Cancer, Coronary artery bypass surgery, First heart attack, Kidney failure, Multiple
sclerosis, Major organ transplant, Stroke, Aorta graft surgery, Paralysis and Primary
pulmonary arterial hypertension.

Donor Expenses - All hospitalisation expenses incurred by the Donor in case of major
organ transplant are covered.

WHAT ARE THE VALUE ADDED BENEFITS AVAILABLE?

Your Reliance HealthWise Policy offers a host of value added benefits, depending on
the Plan opted by you. These include:

1) Daily Hospitalisation Allowance for a maximum period of seven days.

2) Nursing Allowance for a maximum period of five days, on recommendation
of the treating Medical Practitioner.
3) Reimbursement of charges towards Local Road Ambulance Services.
4) Recovery Benefit of Rs. 10,000/- in case of hospitalisation for more than ten
consecutive days.
5) Expenses of an Accompanying Person at the Hospital/Nursing Home for a
maximum of five days.
6) Cost of Health Check up at the end of a block of four years, provided there
were no claims reported.

WHAT ARE THE ADDITIONAL FEATURES OF THIS POLICY?

1) Family Floater - Covers your family on a floater basis applicable to a maximum of

four persons comprising of you, your spouse and two dependent children under the age
of 21 years. Example- If Mr. Sharma and his family choose a regular health insurance
plan with Rs. 1 lakh Sum Insured each; they would have to pay individual premiums for
each member of the family. In addition, the cover for each Insured member would be
only up to one lakh, even if the treatment costs beyond Rs. 1 lakh. But, if they take a
Policy of Rs. 3 lakhs for the entire family under a floater Plan offered by Reliance
HealthWise Policy, anyone from the family can claim up to Rs. 3 lakhs.

2) Renewal Discounts - Equivalent to 5% of renewal premium, if there are no claims in

the previous year.

3) Income Tax Benefit - Premium eligible for deduction under Section 80 D of the
Income Tax Act.

WHO ARE COVERED UNDER THE POLICY?

1) Children above the age of three months and adults below the age of 65 years.

2) Children between three months and five years can be covered only if one or both the
parents are covered.

3) Maximum age to enter the Plan is 65, 60 and 55 for Standard, Silver and Gold Plan
respectively.
 Particulars Standard Silver Gold
Hospitalisation
Domiciliary Hospitalisation
Pre Hospitalisation 30 days 60 days 60 days
Post Hospitalisation 60 days 90 days 90 days
Basic
Feature Pre-Existing Diseases Coverage after 4th year after 2nd year after 2nd year
Critical Illness (with separate Double
x x
Sum Insured)
Donor Expenses x
Day Care Treatment
Daily Hospitalisation Allowance x x
Nursing Allowance (per day amount) x Rs. 250/- Rs. 300/-
Local Road Ambulance Service
Value Rs. 500/- Rs. 750/- Rs. 1000/-
Added (maximum of)
Feature Recovery Benefit x x
Expenses on accompanying person
Rs. 200/- Rs. 250/- Rs. 300/
(per day amount)
Cost of Health Check up

POLICY OPTIONS

Choose your plan -You may choose any of the following plans

• Reliance HealthWise Policy - Standard

• Reliance HealthWise Policy - Silver
• Reliance HealthWise Policy - Gold
•

Two-Year Policy - Continuous coverage for two years without the hassles of annually
renewing your Policy.

Wide range of Sum Insured

• Standard - 1 lakh to 5 lakhs

• Silver - 1 lakh to 5 lakhs
• Gold - 1 lakh to 5 lakhs
WHAT DOES THE POLICY NOT COVER?

At Reliance General Insurance, we would like our Policy to be as transparent as

possible. To ensure that you do not face any unpleasant surprises when you make a
claim, we would like you to know some of the major exclusions under the Policy.

1) Certain ailments are not covered in the first year of the inception of the Policy.
However, they are covered from the second year onwards. These are Cataract, Benign
Prostatic Hypertrophy, Congenital Internal Diseases, Fistula in Anus, Piles,
Hysterectomy for Menorrhagia or Fibromyoma, Hernia, Sinusitis and related disorders.
This exclusion will not be applicable for roll over cases and renewals.

2) Pre-existing illness will not be covered for the first two/four years, as per the Plan
opted.

3) Any disease contracted during the first 30 days of inception of Policy. This exclusion
will not be applicable for roll over cases and renewals.

4) Treatment of pregnancy & childbirth-related complications.

5) Suicide, self inflicted injury or illness, mental disorder, anxiety, stress or depression,
use of alcohol or drugs.

6) Diseases such as HIV or AIDS.

7) Cost of spectacles, contact lenses and hearing aids.

8)Dental treatment or surgery of any kind unless requiring hospitalisation.

9)Expenses on vitamins and tonics unless forming part of treatment for disease/injury.

10)Naturopathy treatment or obesity related treatment.

11)War, terrorism and nuclear weapons induced hospitalisation.

HOW CAN I GET THIS POLICY?

All you need to do is fill in the necessary details in the Proposal Form and hand it over
along with your cheque to your Insurance Advisor. You will instantly get a Health Kit,
containing among other things your Policy and Health Card.

HOW DO I CLAIM MY INSURANCE?

You can claim your insurance through the cashless and/or reimbursement facility.
To avail our cashless facility at more than 3000 of our network hospitals across the
country, contact our Third Party Administrators (TPA) on the helpline numbers given
on your health card. Once you submit the required documents, the TPA would arrange
for cashless facility to be made available at the Hospital/Nursing Home, provided the
disease/illness/injury, for which you are admitted in the hospital, is covered under your
Policy. In case of an admission in a non-network hospital, inform the details to our TPA
on the helpline numbers given on your health card. After you get discharged from the
hospital, submit all your original bills to our TPA and claim for the reimbursement. To
ensure that finances never interfere with your family’s healthcare, apply for the
Reliance HealthWise Policy, today!

RELIANCE GENERAL INSURANCE

Reliance General Insurance, a Subsidiary of Reliance Capital, is one of the first non-life
companies to get the license from the IRDA. RGICL offers an exhaustive range of
insurance products that covers most risks including Property, Marine, Casualty and
Liability.

VISION
To be an insurer of World Standards and the most preferred choice for clientele at the
domestic and global level.

MISSION
Our Mission is to keep the customer satisfaction as focal point of all our operations,
adopt the best international practices in underwriting, claims and customer service, be
the most innovative in product development, establish presence all over India, ensure
sustained value addition to all stake holders and to uphold Corporate Value &
Corporate Governance.
OBJECTIVES
 Make affordable insurance accessible to all
 Keep customer as focal point for all operations
 Protect policy holders interests
 Adopt best international practices in claims, underwriting and policy servicing
 Be the most innovative in product development
 Establish Pan India presence

VALUE PROPOSITIONS
Risk Evaluation: Provide expertise in risk evaluation and risk mitigation leading to the
most appropriate risk transfer solution.

Post sales services: Differentiate on service parameters by ensuring prompt and correct
documentation& fair, transparent, speedy claims settlement.

New products: Introduce innovative products suited to specific market segments

Training: Extensive training to the employees involved in underwriting and claims to

ensure availability of a varied experienced and competent team to cater to the customer
needs.
Technology: Use IT as a means to provide for a far superior customer experience in
terms of access, speed and simplicity

Reinsurance backing: Apart from using capacity of the national reinsurer, establish
relationships with the best reinsurers across the world.

PRIVATE CAR COMPREHENSIVE INSURANCE POLICY

The policy can be issued to cover all types of private cars

THE POLICY COVERS :All accidents including earthquake, flood, riot, strike and
malicious acts.
Section I: It covers the legal liability of insured towards third party personal injury and
property damage arising out of an accident involving the insured vehicle.

Section II: Undertakes to reimburse the expenses incurred :

- Towards repair/replacement of parts of the vehicle, or

- To pay the market value of the vehicle in case of a total loss, provided that the
originating cause of such damage is an accident, including theft.

THE POLICY DOES NOT COVER

The liabilities can emanate from numerous sources -

Customers and clients.

Shareholders
Suppliers.
Competitors.
Employees.
Members of public.
Government – income tax, excise, etc.
Regulatory Bodies
Any accidents outside the geographical area.
Consequential loss, normal wear and tear.
Driving without valid licence for that class of vehicle. Driving under the influence
of liquor / drugs.
Vehicle not being used as per the regulations of registration.

YOU CAN OPT FOR THE FOLLOWING EXTENSIONS

• Loss of accessories
• Legal liability to the paid driver, cleaner or any workman
• Personal accident to the occupants
• Unlimited Legal liability towards property damage of Third Party

YOU SHOULD KNOW

1) For claims free experience, discount available on subsequent renewal. Likewise
loading applicable for claims made.

2) Discount available if excess is opted for.

3) Discount available for membership with approved Automobile Association.

4) Depreciation, for the parts needing replacement in the accident is defined.

RELIANCE MONEY

Reliance Money is an endeavour to change the way India trades in financial markets
and avails of various financial services. Reliance Money ensures maximum security
with a unique security token to keep your online account safe. Even there are some
questions stuck in the minds of consumers, Reliance Money tries to resolve all
questions, some basic questions and answers are given below:-

EQUITY:

Some basic information on equity investing

Investing in equity involves purchasing shares of a company listed on a stock

exchange. You can acquire these shares in two ways - either through the Primary
Market, i.e., when a company makes an offer to issue its equity for the first time (this is
called Initial Public Offering (IPO)) or through the secondary market, i.e. via a stock
exchange. When you trade in equity through a stock exchange, you have to make use
of the services of a brokerage firm, which acts as your agent whenever you buy or sell.

Equity is considered a high risk-high return investment avenue. This is because there is
scope for considerable appreciation or loss of the capital that you invest, depending on
various factors such as the performance of the company that you have invested in,
general market conditions, the state of the economy, etc. However, it forms an integral
part of any well-balanced portfolio, since it is at one end of the risk-return spectrum.

2) How should it be decided whether equity investing is right for me?

Equity is a must for any well-balanced portfolio. So, irrespective of whether you are a
high net worth investor or a small retail investor and irrespective of whether you have a
large or timid appetite for risk, you must hold some portion of your assets in equity.
This is because it is the only instrument that has the ability to truly deliver a high
return, when held over a long period of time.

However, the amount of equity that you hold in your portfolio is a very subjective
decision and will depend upon various factors. These include your investment
objectives, time horizon and risk appetite. But as a general guideline, there’s a rule of
thumb that states that to decide upon the proportion of your assets that should go into
equities, reduce your age from 100 and that’s the proportion of your money which
should be put in equities. The remaining can be invested in fixed income securities

3) How should stocks be studied before selection?

Every investor must do some homework before investing money in equities…

1)While recommendations and tips received from your broker, a friend, etc. may be the
starting point of your selection, let it not be the only reason that makes you purchase a
particular stock, even if these tips have come from ‘market experts’. Short list the
shares that you want to buy on the basis of your investment objective, risk profile and
the stock’s fundamentals.

2) If you feel that the price of a stock is high, don''t purchase it. Buy stocks that you
believe still have scope for appreciation.

3) Don''t try to time your purchases. That could turn you into a speculator instead of an
investor.

4) Lastly, once you have purchased shares, if the business prospects of the company
change to its detriment, get rid of the stock. Don''t hesitate to liquidate your portfolio
before your target time horizon if circumstances lead you to believe that it’s necessary.
4) How do it be know that whether the investor is paying the right price for the
stock?

There are various factors that determine the value of a stock. Understanding these will
help you to pay a price that reflects the true value of a stock.

Demand and Supply: In the short term, the basic economic theory of demand and
supply determines a stock’s worth. So, when the demand for a stock exceeds its supply
(that is, there are more buyers than sellers), its price tends to rise. And, when supply
overtakes demand (that is, sellers exceed buyers), the stock loses value. However,
these are short-term market trends, which tend to get evened out over a period of time.
In the medium to long-term, a stock is driven by the company’s fundamental strength
i.e. business potential, past performance, competence and credibility of its promoters
and management, etc.

Growth potential: Investors are willing to pay a premium for stocks of companies that
have the potential to increase their revenues and net profits. The greater this growth
potential, the higher the premium given to the stock. If a company proves that it is
capable of sustaining growth, the market will continue to give it high valuations. And,
that’s likely to be the major driver for stock valuations.

Fundamentals: A company’s growth outlook is linked to its business prospects and

how well its management is capitalising on the existing opportunities. The quality of a
company’s management is crucial. So, pay attention to the management practices of a
company and its level of corporate governance.

5). When should an investor buy to minimise the costs and sell to maximise the
profits?

Buy low and sell high is the ultimate guide to successful stock investing. It is also the
reverse of what many investors do, although they don’t intend to. They tend to buy
high and sell low because they use price, and in particular, the price movement, as their
only signal to buy or sell.

Investors are tempted to buy stocks that have shot up and are basking in the media
spotlight just to get a part of the action. They jump at a stock that is already trading at a
premium… that’s how they buy high. Ironically, if a stock has had a good run up it
may be time to sell, not buy (sell high).
On the flip side, when a stock price is falling, most investors may want to sell in a
panic, although the company has not lost any intrinsic value and still remains a sound
investment…that’s how they sell low. In fact, when a stock’s price has fallen, it’s a
great time to buy (buy low), if your research on the company suggests that it is a good
long term buy.

Experienced traders can make money jumping in and out of a stock that’s caught the
public’s attention, but it’s not a game for the inexperienced and it can definitely not be
called ‘investing’, in the true sense of the word. There are risks involved and tax
consequences that apply to such trading, along with other issues, which means that
most investors should leave this tricky activity to short-term traders.

6). What are the risks involved in equity investing?

There are various risks that companies are exposed to and when you invest in equity,
your returns are affected by these risks. These are business risks (i.e. the risks
associated with the prosperity of a business and the demand for its products), financial
risks (the skill with which a company’s finances are managed to ensure that it has an
optimum level of debt, equity, reserves, etc.), industry risk (changes in technology,
regulations, fashions, etc., affect the performance of an industry), management risks
(the level of corporate governance, management skills and vision), political, economic
and exchange rate risks (these factors affect a company but are outside its control).
There are other risks, such as market risks (the risk that the market will collapse, or
that you have invested at the peak), which determine your returns on your equity
investment.

7). How do an investor go about investing in equity?

Before you start investing in equity, you need to open the following accounts:

- A broking account with a stock broker

- A demat account with a depository participant

- A bank account for cash payments and receipts (you can use one of your
existing bank accounts for this purpose)

An investor then need to decide whether you want to invest by making

purchases/taking delivery of shares or by undertaking margin trading (in this case you
pay only a portion of the cost for purchases and your broker funds the balance and you
don’t take delivery of the shares. You simply book your profit or loss).

8). What are the costs of investing in equity?

An investor will have to pay a nominal one-time account opening fee and brokerage
charges for every purchase and sale transaction undertaken. Presently, brokerage
charges range between 0.25 per cent and 0.85 per cent.

9)How is income from equity investing taxed?

The dividends that you receive on shares are not taxable in your hands. You are,
however, required to pay short term capital gains tax on any short-term capital gains
that you make from transacting in shares. These are gains that arise from selling
equity shares that have been purchased and sold within a period of less than 1 year.
The rate of tax payable on such gains is 11.22 per cent (10 per cent tax + 2 per cent
education cess + 10 per cent surcharge, if applicable). There is no tax on long-term
capital gains. Further, while transacting, you are required to pay Service Tax at the
rate of 12.24 per cent on the brokerage charges that you pay. In addition, you have
to pay Securities Transaction Tax (STT) on certain types of sale and purchase
transactions of shares. The STT rate for delivery-based transactions is 0.125 per cent
of the transaction value for both buyers and sellers. For non-delivery based
transactions, STT of 0.025 per cent of the transaction value is payable

10). What is the grievance redressal facility available for equity investing?
If you have grievances against a listed company/ intermediary registered with SEBI,
you should first approach the concerned company/ intermediary against whom you
have a grievance. Then, if you are not satisfied with their response you can approach
SEBI, who is the regulatory authority for such entities. SEBI takes up grievances
related to issue and transfer of securities, non-payment of dividend, etc. with listed
companies. In addition, this market regulator also takes up grievances against
various intermediaries that are registered with it. Visit http://www.sebi.gov.in/ for
more information.
 DEMAT ACCOUNT

DEMAT CHARGES
These are charges levied for maintaining your demat account. These charges include
periodical charges for maintenance of the account, transaction charges (for each
debit and credit of shares for sales and purchases respectively) and other incidental
charges.

1) Payment of Securities Transaction Tax (STT)

Investing in equity involves paying of Securities Transaction Tax (STT) while

buying as well as selling shares. Presently, STT rates are:

STT rate applicable while buying shares for delivery

0.125%
 STT rate applicable while selling shares for delivery
0.125%
STT rate applicable while trading in shares 0.025%

2) Payment of Service Tax (ST) and Education Cess (EC)

Service Tax (ST) and Education Cess (EC) are payable as a percentage of brokerage
due to the broker. ST and EC together are presently levied at the rate of 12.24 per
cent.

DERIVATIVES

1. What are Derivatives?

The term "Derivative" 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, livestock or anything else. In other words,
Derivative means a forward, future, option or any other hybrid contract of pre
determined fixed duration, linked for the purpose of contract fulfillment to the value
of a specified real or financial asset or to an index of securities.
With Securities Laws (Second Amendment) Act,1999, Derivatives has been included
in the definition of Securities. The term Derivative has been defined in Securities
Contracts (Regulations) Act, as:-

Derivative includes -

1) 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;
2) a contract which derives its value from the prices, or index of prices, of underlying
securities;

2. What is a Futures Contract?

Futures Contract means a legally binding agreement to buy or sell the underlying
security on a future date. Future contracts are the organized/standardized contracts in
terms of quantity, quality (in case of commodities), delivery time and place for
settlement on any date in future. The contract expires on a pre-specified date which is
called the expiry date of the contract. On expiry, futures can be settled by delivery of
the underlying asset or cash. Cash settlement enables the settlement of obligations
arising out of the future/option contract in cash.

3. What is an Option contract?

Options Contract is a type of Derivatives Contract which gives the buyer/holder of

the contract the right (but not the obligation) to buy/sell the underlying asset at a
predetermined price within or at end of a specified period. The buyer / holder of the
option purchases the right from the seller/writer for a consideration which is called
the premium. The seller/writer of an option is obligated to settle the option as per the
terms of the contract when the buyer/holder exercises his right. The underlying asset
could include securities, an index of prices of securities etc.

Under Securities Contracts (Regulations) Act, 1956 options on securities has been
defined as "option in securities" means a contract for the purchase or sale of a right to
buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi,
a teji mandi, a galli, a put, a call or a put and call in securities;

An Option to buy is called Call option and option to sell is called Put option. Further,
if an option that is exercisable on or before the expiry date is called American option
and one that is exercisable only on expiry date, is called European option. The price
at which the option is to be exercised is called Strike price or Exercise price.

Therefore, in the case of American options the buyer has the right to exercise the
option at anytime on or before the expiry date. This request for exercise is submitted
to the Exchange, which randomly assigns the exercise request to the sellers of the
options, who are obligated to settle the terms of the contract within a specified time
frame.
As in the case of futures contracts, option contracts can be also be settled by delivery
of the underlying asset or cash. However, unlike futures cash settlement in option
contract entails paying/receiving the difference between the strike price/exercise
price and the price of the underlying asset either at the time of expiry of the contract
or at the time of exercise / assignment of the option contract

4. What are Index Futures and Index Option Contracts?

Futures contract based on an index i.e. the underlying asset is the index, are known as
Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30
Index. These contracts derive their value from the value of the underlying index.

Similarly, the options contracts, which are based on some index, are known as Index
options contract. However, unlike Index Futures, the buyer of Index Option Contracts
has only the right but not the obligation to buy / sell the underlying index on expiry.
Index Option Contracts are generally European Style options i.e. they can be
exercised / assigned only on the expiry date.

An index in turn derives its value from the prices of securities that constitute the
index and is created to represent the sentiments of the market as a whole or of a
particular sector of the economy. Indices that represent the whole market are broad
based indices and those that represent a particular sector are sectoral indices.
In the beginning futures and options were permitted only on S&P Nifty and BSE
Sensex. Subsequently, sectoral indices were also permitted for derivatives trading
subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on
an index if 80% of the index constituents are individually eligible for derivatives
trading. However, no single ineligible stock in the index shall have a weightage of
more than 5% in the index. The index is required to fulfill the eligibility criteria even
after a derivative trading on the index has begun. If the index does not fulfill the
criteria for 3 consecutive months, then derivative contracts on such index would be
discontinued.

By its very nature, index cannot be delivered on maturity of the Index futures or
Index option contracts therefore, these contracts are essentially cash settled on
Expiry.
5. What is the structure of Derivative Markets in India?

Derivative trading in India takes can place either on a separate and independent
Derivative Exchange or on a separate segment of an existing Stock Exchange.
Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and
SEBI acts as the oversight regulator. The clearing & settlement of all trades on the
Derivative Exchange/Segment would have to be through a Clearing
Corporation/House, which is independent in governance and membership from the
Derivative Exchange/Segment

6. What is the regulatory framework of Derivatives markets in India?

With the amendment in the definition of ''securities'' under SC(R)A (to include
derivative contracts in the definition of securities), derivatives trading takes place
under the provisions of the Securities Contracts (Regulation) Act, 1956 and the
Securities and Exchange Board of India Act, 1992.
Dr. L.C Gupta Committee constituted by SEBI had laid down the regulatory
framework for derivative trading in India. SEBI has also framed suggestive bye-law
for Derivative Exchanges/Segments and their Clearing Corporation/House which
lay’s down the provisions for trading and settlement of derivative contracts. The
Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their
Clearing

Corporation/House have to be framed in line with the suggestive Bye-laws. SEBI has
also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing
Corporation/House. The eligibility conditions have been framed to ensure that
Derivative Exchange/Segment & Clearing Corporation/House provide a transparent
trading environment, safety & integrity and provide facilities for redressal of investor
grievances. Some of the important eligibility conditions are-

 Derivative trading to take place through an on-line screen based Trading System.
 The Derivatives Exchange/Segment shall have on-line surveillance capability to
monitor positions, prices, and volumes on a real time basis so as to deter market
manipulation.
 The Derivatives Exchange/ Segment should have arrangements for dissemination
of information about trades, quantities and quotes on a real time basis through atleast
two information vending networks, which are easily accessible to investors across the
country.
 The Derivatives Exchange/Segment should have arbitration and investor
grievances redressal mechanism operative from all the four areas / regions of the
country.
 The Derivatives Exchange/Segment should have satisfactory system of
monitoring investor complaints and preventing irregularities in trading.
 The Derivative Segment of the Exchange would have a separate Investor
Protection Fund.
 The Clearing Corporation/House shall perform full novation, i.e., the Clearing
Corporation/House shall interpose itself between both legs of every trade, becoming
the legal counterparty to both or alternatively should provide an unconditional
guarantee for settlement of all trades.
 The Clearing Corporation/House shall have the capacity to monitor the overall
position of Members across both derivatives market and the underlying securities
market for those Members who are participating in both.
 The level of initial margin on Index Futures Contracts shall be related to the risk
of loss on the position. The concept of value-at-risk shall be used in calculating
required level of initial margins. The initial margins should be large enough to cover
the one-day loss that can be encountered on the position on 99% of the days.
 The Clearing Corporation/House shall establish facilities for electronic funds
transfer (EFT) for swift movement of margin payments.

In the event of a Member defaulting in meeting its liabilities, the Clearing

Corporation/House shall transfer client positions and assets to another solvent
Member or close-out all open positions.

 The Clearing Corporation/House should have capabilities to segregate initial

margins deposited by Clearing Members for trades on their own account and on
account of his client. The Clearing Corporation/House shall hold the clients’ margin
money in trust for the client purposes only and should not allow its diversion for any
other purpose.
 The Clearing Corporation/House shall have a separate Trade Guarantee Fund for
the trades executed on Derivative Exchange / Segment.
 Presently, SEBI has permitted Derivative Trading on the Derivative Segment of
BSE and the F&O Segment of NSE.

7. What are the various membership categories in the derivatives market?

The various types of membership in the derivatives market are as follows:

 Trading Member (TM) – A TM is a member of the derivatives exchange and can

trade on his own behalf and on behalf of his clients.
 Clearing Member (CM) –These members are permitted to settle their own trades
as well as the trades of the other non-clearing members known as Trading Members
who have agreed to settle the trades through them.
 Self-clearing Member (SCM) – A SCM are those clearing members who can
clear and settle their own trades only.

8. What are the requirements to be a member of the derivatives exchange/

clearing corporation?

• Balance Sheet Net worth Requirements: SEBI has prescribed a net worth
requirement of Rs. 3 crores for clearing members. The clearing members are required
to furnish an auditor’s certificate for the net worth every 6 months to the exchange.
The net worth requirement is Rs. 1 crore for a self-clearing member. SEBI has not
specified any net worth requirement for a trading member.

 Liquid Net worth Requirements: Every clearing member (both clearing members
and self-clearing members) has to maintain at least Rs. 50 lakhs as Liquid Net worth
with the exchange / clearing corporation.
 Certification requirements: The Members are required to pass the certification
programme approved by SEBI. Further, every trading member is required to appoint
at least two approved users who have passed the certification programme. Only the
approved users are permitted to operate the derivatives trading terminal.

9. What are requirements for a Member with regard to the conduct of his
business?

The derivatives member is required to adhere to the code of conduct specified under
the SEBI Broker Sub-Broker regulations. The following conditions stipulations have
been laid by SEBI on the regulation of sales practices:

• Sales Personnel: The derivatives exchange recognizes the persons

recommended by the Trading Member and only such persons are authorized to act as
sales personnel of the TM. These persons who represent the TM are known as
Authorised Persons.
• Know-your-client: The member is required to get the Know-your-client
form filled by every one of client.
• Risk disclosure document: The derivatives member must educate his
client on the risks of derivatives by providing a copy of the Risk disclosure document
to the client.
• Member-client agreement: The Member is also required to enter into the
Member-client agreement with all his clients.

10. What derivative contracts are permitted by SEBI?

Derivative products have been introduced in a phased manner starting with Index
Futures Contracts in June 2000. Index Options and Stock Options were introduced in
June 2001 and July 2001 followed by Stock Futures in November 2001. Sectoral
indices were permitted for derivatives trading in December 2002. Interest Rate
Futures on a notional bond and T-bill priced off ZCYC have been introduced in June
2003 and exchange traded interest rate futures on a notional bond priced off a basket
of Government Securities were permitted for trading in January 2004.

11. What is the eligibility criterion for stocks on which derivatives trading may
be permitted?

A stock on which stock option and single stock future contracts are proposed to be
introduced is required to fulfill the following broad eligibility criteria:-

 The stock shall be chosen from amongst the top 500 stock in terms of average
daily market capitalisation and average daily traded value in the previous six month
on a rolling basis.
 The stock’s median quarter-sigma order size over the last six months shall be not
less than Rs.1 Lakh. A stock’s quarter-sigma order size is the mean order size (in
value terms) required to cause a change in the stock price equal to one-quarter of a
standard deviation.
 The market wide position limit in the stock shall not be less than Rs.50 crores.

A stock can be included for derivatives trading as soon as it becomes eligible.

However, if the stock does not fulfill the eligibility criteria for 3 consecutive months
after being admitted to derivatives trading, then derivative contracts on such a stock
would be discontinued.

12. What is minimum contract size?

The Standing Committee on Finance, a Parliamentary Committee, at the time of
recommending amendment to Securities Contract (Regulation) Act, 1956 had
recommended that the minimum contract size of derivative contracts traded in the
Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this
recommendation SEBI has specified that the value of a derivative contract should not
be less than Rs. 2 Lakhs at the time of introducing the contract in the market. In
February 2004, the Exchanges were advised to re-align the contracts sizes of existing
derivative contracts to Rs. 2 Lakhs. Subsequently, the Exchanges were authorized to
align the contracts sizes as and when required in line with the methodology
prescribed by SEBI.

IPO”S

1. What is an Initial Public Offering?

Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the
public.

2. What are the different kinds of issues?

Primarily, issues can be classified as a Public, Rights or preferential
issues (also known as private placements). While public and rights issues involve a
detailed procedure, private placements or preferential issues are relatively simpler. The
classification of issues is illustrated below: Public issues can be further classified into
Initial Public offerings and further public offerings. In a public offering, the issuer
makes an offer for new investors to enter its shareholding family. The issuer company
makes detailed disclosures as per the DIP guidelines in its offer document and offers it
for subscription.

The significant features are illustrated below:

1) Issues
2) Public Preferential Rights
3) Initial Public Offering
4) Fresh Issue Offer for sale

Initial Public Offering (IPO) is when an unlisted company makes either a

fresh issue of securities or an offer for sale of its existing securities or
both for the first time to the public. This paves way for listing and trading
of the issuer’s securities.

A follow on public offering (FPO) is when an already listed company makes either a
fresh issue of securities to the public or an offer for sale to the public, through an offer
document. An offer for sale in such scenario is allowed only if it is made to satisfy
listing or continuous listing obligations.

Rights Issue (RI) is when a listed company which proposes to issue fresh securities to
its existing shareholders as on a record date. The rights are normally offered in a
particular ratio to the number of securities held prior to the issue. This route is best
suited for companies who would like to raise capital without diluting stake of its existing
shareholders unless they do not intend to subscribe to their entitlements.

A preferential issue is an issue of shares or of convertible securities by listed companies

to a select group of persons under Section 81 of the Companies Act, 1956 which is
neither a rights issue nor a public issue. This is a faster way for a company to raise
equity capital. The issuer company has to comply with the Companies Act and the
requirements
Contained in Chapter pertaining to preferential allotment in SEBI (DIP)

3. What are the eligibility norms for making these issues?

SEBI has laid down eligibility norms for entities accessing the primary market through
public issues. There is no eligibility norm for a listed compaNy making a rights issue as
it is an offer made to the existing shareholders who are expected to know their company.
The main entry norms for companies making a public issue (IPO or FPO) are
summarized as under:

Entry Norm I (EN I): The company shall meet the following
requirements:
(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.

(b) Distributable profits in atleast three years

(c) Net worth of at least Rs. 1 crore in three years

(d) If change in name, atleast 50% revenue for preceding 1 year should be from the new
activity.

(e) The issue size does not exceed 5 times the pre- issue net worth
To provide sufficient flexibility and also to ensure that genuine companies do not suffer
on account of rigidity of the parameters, SEBI has provided two other alternative routes
to company not satisfying any of the above conditions, for accessing the primary
Market, as under:
Entry Norm II (EN II):
(a) Issue shall be through book building route, with at least 50% to be mandatory allotted
to the Qualified Institutional Buyers (QIBs).
(b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a
compulsory market-making for at least 2 years
OR
Entry Norm III (EN III):

(a) The “project” is appraised and participated to the extent of 15% by FIs/Scheduled
Commercial Banks of which at least 10% comes from the appraiser(s).
(b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a
compulsory market-making for at least 2 years.

In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy
the criteria of having at least 1000 prospective allotees in its issue

4. Is there any category of entities which are exempted from the aforesaid eligibility
norms?
Yes, SEBI (DIP) guidelines have provided certain exemptions from the eligibility
norms. The following are eligible for exemption from entry norms.

(a) Private Sector Banks

(b) Public sector banks

(c) An infrastructure company whose project has been appraised by a PFI or IDFC or
IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is
financed by any of these institutions.

(d) Rights issue by a listed company

5. What is SEBI’s Role in an Issue?

Any company making a public issue or a listed company making a rights issue of value
of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its
observations. The validity period of SEBI’s observation letter is three months only i.e
the company has to open its issue within three months period.

6. What is a Follow on Public Offering?

A Follow on Public Offering, FPO, is when an already listed company makes either a
fresh issue of securities to the public or an offer for sale to the public, through an offer
document. An offer for sale in such scenario is allowed only if it is made to satisfy
listing or continuous listing obligations.

7. What is a Fixed Price IPO?

It’s an issue where issuing company defines single price per share. After subscription,
company decides the basis of allotment depending upon under/over subscription. On this
basis an applicant may or may not get allotment of shares.

8. What is a Book Building IPO?

It’s an issue where issuing company defines a price range i.e floor (lower) price and Cap
(Upper) price. After subscription, company decides the basis of allotment depending
upon under/over subscription. On this basis an applicant may or may not get allotment of
shares.

9. How can an investor invest in an IPO?

At Reliance Money, investing in IPOs hassle-free i.e. without going through the tedious
process of filling the application form, signing cheque and finding location for
submitting form. All you need to do is fill in the requisite details in the online screens by
selecting IPO page of the main trading menu and then select desired issue. Required
paperwork will be done by us for you on the basis of the information provided by you.
10. What is a Cut Off Price?
In Book building issue, the issuer is required to indicate either the price band or a floor
price in the red herring prospectus. The actual discovered issue price can be any price in
the price band or any price above the floor price. This issue price is called “Cut Off
Price”. Only retail individual investors have an option of applying at Cut Off Price.

11. How is the Retail Investor defined as?

‘Retail Individual Investor’ means an investor who applies or bids for securities of or for
a value of not more than Rs.1,00,000/=.

12. Can an investor view his transactions?

Yes an investor can view your transactions by clicking IPO Order Book link on main
menu. An investor need to give the date range and all transactions for specified date
range will be displayed.

13. Can an investor Modify his transactions?

Yes he can modify your transaction by clicking Modify Order link from main menu of
IPO. Click the Modify link for desired IPO and follow the instruction.

14. How do an investor know if his application is accepted or rejected?

An investor will receive an email from Reliance Securities for the status of your
application

15. How do I know if I am allotted the shares?

You will receive an email from Reliance Securities about allotment of shares.
Alternatively you can also check up your demat account balance with your Depositary
Participant.
 COMMODITY

1. What is a commodity futures?

Futures market in commodity is a continuous auction market where buyers and sellers
meet to trade on futures contract of specific underlying commodity.

2. What is futures contract in commodity?

Futures contract is legally obligatory. Delivery period, quantity and quality of a contract
are standard. Buyers and sellers negotiate through an exchange to set a price.
3. How does futures trading work?
A future trading is trading of futures contract. The buyer of futures contract has a right
to purchase the commodity of same quality, quantity in specified time from the seller of
the contract.

4. What is the difference between spot and futures trading?

Say a jeweler requires 100 gms of gold 3 months from now. He goes to gold smith and
buys and takes delivery of the consignment (gold) at the quoted price. This is spot
transaction. If the same jeweler opts for a 3-month exchange traded future contract, he
buys a future contract in gold at a price decided today but agrees to take delivery at a
future date. This is called a futures transaction.

5. Who trades commodity futures?

Producers, processors, traders, stockists, hedgers, arbitrageurs, speculators are the
people who trade in commodities.

6. What is hedging?
A hedge is just a way of insuring an investment against risk. Hedger eliminates the
price risk of physical material he owns by taking an offsetting position in futures
market.

7. What is arbitrage?
A trading strategy that looks to take advantage of price differences of the same
commodity, trading on different exchanges. Arbitrage trading may also refer to trading
on price differences between physical commodity and the commodity futures.

8. What is speculating?
Speculating is taking a position based on expectations about whether prices will rise or
fall in the future hoping to profit from the price change.

9. Are commodity markets regulated?

Yes, Indian commodity markets are regulated by Forward Market Commission (FMC).

10. Prerequisites of trading

a) Resident Indian
b)PAN
c)Associated Bank savings Account / Reliance Mutual Fund (Liquid Scheme) &
Reliance trading Account
Demat a/c is not mandatory for trading purposes
• Mandatory for delivery based positions

• Commodity demat a/c is separate from equity demat a/c

Sales Tax no. is not mandatory for trading

• Mandatory for delivery based positions

11. Can a NRI trade in commodities in India?

No, NRIs are not allowed to trade as of now.

12. Who cannot trade in commodities futures at present?

Banks, Mutual funds, FIIs, and NRIs are not allowed to trade.

13. Which Commodities can be trade In?

The following commodities are actively traded in these two Exchanges:

MCX

• Bullion: Gold and Silver

• Metals: Aluminum, Copper, Zinc etc.
• Oil and Oil Seed: Refined Soy Oil, Soy Bean etc.
• Energy: Brent crude oil, Crude oil, etc
• Other commodities: Urad, Chana, Wheat, Guar Seed, Sugar, Potato etc.

NCDEX

• Bullion: Gold and Silver

• Metals: Aluminum, Copper, Nickel, Sponge iron and Zinc.
• Oil and Oil Seed: Castor oil, Crude Palm oil, Soy Oil, Soy Bean etc.
• Energy: Brent crude oil, and Furnace oil.
• Agro Commodities: Cotton, Chana, Masur, Tur, Urad, Basmati rice, Wheat, Maize,
Cashew Kernel, Guar seed, Sugar, Rubber, etc.

14. What are the exchange timings?

Both MCX and NCDEX provide trading facility from Monday to Saturday.
• Monday to Friday 10 am – 5 pm for agro-based commodities
• Monday to Friday 10 am – 11.30 pm for precious / base metals and energy
• Saturdays 10 am – 2 pm all commodities

15. Which exchange should be selected for trading?

Both the commodity exchanges have done exceedingly well over the years, in terms of
risk management, volumes or launching new & better commodity products.
Before choosing an exchange you need to check the following:
• The commodity you wish to trade is listed on that exchange
• Check the contract specifications of that commodity to ensure it suits you best
• There is enough liquidity i.e. price difference between the best buyer (bid) and best
seller (offer) should be minimal in the given commodity (i.e daily volumes are high &
you will be able to liquidate your position at will)
• Commodity price should be in sync with the physical market prices or its respective
benchmark prices
• The exchange that matches the above mentioned characteristics can be your choice.

16. Where will be the detailed contract specifications be founded?

It can find detailed contract specifications on the websites of the exchanges. Anybody
can log on to http://www.ncdex.com/ and check the product section or homepage of
Multi Commodity Exchange at http://www.mcxindia.com/

17. What is margin?

Margin is deposit money, which is required in advance to execute trades on the

exchanges.

18. What is initial margin?

Initial Margin is the amount of money deposited by both buyers and sellers of futures
contract to ensure the performance of trades executed.
19. What is maintenance margin?

Maintenance margin is an amount over and above the initial margin to ensure that the
balance in the margin account never becomes negative.

20. What is additional margin?

Additional margin is an amount imposed to remove unexpected volatility from the

market.

21. What is marked to market (MTM)?

On the day of entering into the contract, it is the difference of the entry value and
closing price for that day.

In case of carry forward position, MTM is the difference of the market price less
yesterday’s closing price.

22. What is ‘Go Long’?

It means buying a commodity in anticipation that the price will go up.

23. What is ‘Go Short’?

It means selling a commodity in anticipation that the prices will come down.

24. What is stop loss (SL)?

Stop loss is an order to limit an investor's loss on the position he holds. By placing a
Stop Order, Investor actually set a loss level which investor is willing to undertake.

25. Is there any limit to which, price of a commodity can rise or fall in a day?

Yes, there are circuit limits or daily price range (DPR) to safeguard the interests of
general investors from the extreme volatilities in markets for preventing any unexpected
fall or rise beyond a limit. When the circuit limit is hit, there is a cooling period of
fifteen minutes after which the trading will begin again with fresh circuit limits.
26. Is there any limit to the quantity an investor can trade/hold in any given
commodity at any point of time trading limit at client / member level?

Yes, there is a maximum permissible limit on holding a particular commodity for client
as well as member. It varies from commodity to commodity and exchange to exchange.

27. Will trade confirmation can be received?

Yes. As soon as the order is executed your trade book will also be updated
simultaneously. In future we would work towards providing other mediums of alert
such as SMS service.

FOREX

1. What is Foreign Exchange/Forex?

Foreign Exchange is the trading of one currency against another. Professionals refer to
this as foreign exchange, or use the acronyms Forex or FX. The financial asset
constituting Forex are “currency-pairs” like Euro and US Dollar, or US Dollar and
Japanese Yen, and so on.
2. Where does Forex Trade take place?

Forex Trade takes place in “Forex Market” which is chiefly an Over-The-Counter

market, meaning that transactions are conducted between any two counter parties that
agree to trade via the telephone or electronic network.

Ideally there would be an entity providing the structure which makes the trading
possible, such entities are called “Market-maker”. Market Makers assume the role of
counterparty in all trades that happen through their clients.

3. Where is the location of Forex Market?

There is no central location of the Forex Market. It’s an OTC market where trades are
conducted on phone or through Internet, so you can virtually put a trade from
anywhere and anytime.

4. What is the size of the FX market?

In terms of trading volume, the currency exchange market is the world’s largest
market, with daily trading volumes of nearly $2 trillion. For example, one of the largest
Stock Exchanges in the world the New York Stock Exchange has a daily trading
volume of approximately $60 billion.

5. Is the Forex Market as Liquid as Indian Equities or Commodities Market? Can

it be manipulated easily?

The Foreign exchange market is the most liquid market in the world today. Because of
the volume in trading, (nearly $2 Trillion) it is nearly impossible for a handful of
Market Players to have a lasting impact on exchange rates. In fact, even central banks
and governments find it increasingly difficult to affect the exchange rates of the most
liquid currencies, such as the US dollar, Japanese Yen, Euro, Swiss Frank, Canadian
Dollar or Australian Dollar.

6. What are the trading hours in FX Market?

The currency exchange market is a true 24-hour market, 5 days a week. There are
dealers in every major time zone. Forex trading begins each day in Sydney, and moves
around the globe as the business day begins in each financial center, first to Tokyo,
then London, and New York.
Unlike any other financial market, investors can respond to currency fluctuations
caused by economic, social and political events at the time they occur - day or night.

7. What are the most commonly traded/ most liquid currency-pairs in the FX
markets?
Today, over 85% of all currency exchange transactions involve a few major currencies:
the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), Swiss Frank (CHF), British
Pound (GBP), Canadian Dollar (CAD), and Australian Dollar (AUD).
The most Liquid currency-pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD and
USD/CHF. The most often traded or ''liquid'' currencies are those of countries with
stable governments, respected central banks, and low inflation.

8. Who regulates the Global Forex Market?

The Forex Market is regulated through the regulation of the entities offering Forex
Trading services.

For example, in USA, all the entities offering Forex Trading Services to its clients are
regulated by National Futures Association (NFA) and Commodities Futures Trading
Commission (CFTC).

In UK, entities offering Forex are governed by Financial Services Authority (FSA).

9. Can an Indian National invest/trade in the Forex Market?

Yes. After RBI’s circular dated November 04, 2004 on “Liberalized Remittance
Scheme of USD 25,000” Indian Individuals may freely remit up to $25,000 per
calendar year for any permissible current or capital account transaction or a
combination of both. This opens up a Window for Indian clients to remit funds abroad
to do Forex trading.

10. What are the requirements to be complied with by the remitter?

The individual will have to designate a branch of an AD through which all the
remittances under the Scheme will be made. He has to furnish an application-cum-
declaration in the specified format, called A2 Form, regarding the purpose of the
remittance and declare that the funds belong to him and will not be used for purposes
prohibited or regulated under the Scheme.

11. If an investment of USD 25,000 rises in value within the year, can one book
profits and invest abroad again?
The investor is free to book profit or loss abroad and to invest abroad again. He is
under no obligation to repatriate the funds sent abroad.

12. Can an individual, who has repatriated the amount, sent during the calendar
year, avail of the facility once again?
Once a remittance is made for an amount up-to USD 25,000 during the calendar year,
he would not be eligible to make any further remittances under this route, even if the
proceeds of the investments have been brought back into the country.

13. How are Forex rates quoted?

The rates of Currency-pairs are always quoted two-way, i.e. the quote would include
Both Buy and Sell Price for a Currency-pair. Rates would typically appear as:
EUR/USD = 1.2001/1.2003 (or just 1.2001/03)
EUR/USD refers to the two currencies Euro (the European currency) and U.S. Dollar.
The first is referred to as the base currency, while the second as the quote currency.
As a Trader you can buy or sell EUR/USD:
 Buying EUR/USD means Buying Euro by Paying in USD;
 Selling Euro and Getting USD
 If you are Buying EUR/USD, you will Buy it at the Offer/Ask Price on the Right
side, i.e. @ 1.2003 USD per Euro.
14. Who quotes the Forex Rates at which I trade?
The Tradable Forex Rates are quoted by the Market Maker. The Market Maker, in-
turn, gets these rates from the Banks they have tied up with. So, whenever you are
trading in a Forex Market, you are Buying From and Selling To the Market Maker.

15. What is the meaning of Bid/Ask?

Bid is the highest price that the market maker, is willing to pay for the particular
currency at the moment; Ask/Offer is the lowest price that the market maker, is willing
to accept for the particular currency. Together, the two prices constitute a quotation.
In our earlier example:

EUR/USD = 1.2001/1.2003 (or just 1.2001/03)

The Market Maker is willing to Pay, at the most, 1.2001 USD for every Euro you wish
to sell; while he will take from you at least 1.2003 USD for every Euro you wish to
buy.

16. What is Bid/Ask Spread?

Bid/Ask Spread is the difference between the Bid Rate and the Ask or Offer Rate.
Spread is determined by the breadth and depth of the market for the concerned
currency-pair as well as on the currency-pair’s volatility.
For currency-pairs, higher the Liquidity- Lower the Spread;

17. Is Retail Forex a Leveraged Product? Is Margin-trading allowed in Forex?

A typical Forex trading system will allow for a very high degree of leverage in its
margin requirements, up to 100:1. The system will automatically calculate the funds
necessary for current positions and will check for margin availability before executing
any trade.Reliance Forex offers a Leverage of 100-times to its clients

18. Are there any Risks/Rewards of trading on Margin/Leveraged Trading?

Margin-trading has its own risks and rewards. The good thing about margin is that, as
an investor you are not required to put down the full value of the trade you got into.
Instead, you are just required to put down a deposit known as “margin” which enables
you to gear up your trade size to institutional level. In typical sense margin works as
collateral with the broker through which your trade is getting executed. So, with a 1%
margin you can take a position worth a 1000 USD by just blocking $10 out of your
trading resources.The risk of trading on margin is that, you may lose your entire
deposit when the market moves against you, because, the leverage associated with the
margin magnifies your losses.
19. What are the Costs associated with Forex Trading?
Forex trading, per-se, involves no transaction costs. Clients are not charged any
Brokerage or Commission. Banking Costs are involved in Remittance of Money to a
foreign bank account and Bringing Money back to India. These costs would depend on
the Bank through which you do your remittance. Operational Costs associated with
Forex Trading is the “Roll-over Cost” or Carrying Forward Charges.

PREFERENCES AMONG AVAILABLE

ALTERNATIVES

Equity versus other investment avenues

Statistics have proven that in the Indian financial markets, equities have surpassed
other traditional forms of investments such as gold and fixed deposits.
As per the graph, equity has been the best performing investment when the holding
period is 5 years. For instance, during the period 2000-20005, whilst equity
delivered a return of 17.74 per cent per annum, bank fixed deposits gave a return of
6.49 per cent per annum.

RISKS ASSOCIATED WITH EQUITY INVESTING

This implies risk in the system. This risk applies to the entire market and includes
risks such as interest rate risk, inflation risk, exchange rate risk, political risk, etc.
Some of the important systematic risks are indicated below:
Interest rate risk : Interest rate risk can affect the overall market. Interest is the cost
of borrowing money. As interest rates rise, money become more expensive to
borrow, and companies that have lined up expansion plans may postpone their plans
due to the high interest cost they have to bear. Moreover, for consumers high
interest rates can alter their plans for purchasing a home or car due to high monthly
installments. This results in lower consumption and reduced economic activity.

Inflation risk : Inflation risk can influence all asset classes. Inflation is nothing but
the steady increase in prices of goods and services. With rising inflation,
manufacturers of goods incur higher raw material costs and see profit declines. Such
a risk is detrimental to the stock market and the overall economy.

Exchange rate risk : Exchange rate risk is the risk of an investment’s value
changing due to changes in currency exchange rates. This risk usually affects
businesses that export and/or import but can also affect the overall economy. For
example, if the rupee depreciates against the dollar then Indian exporters will benefit
since they will be able to get more rupees for every dollar. An appreciating rupee
against the dollar has the opposite effect.
However, a continuously falling currency does not always augur well for our capital
markets. FIIs are one of the main investors in our capital markets. If our currency
continuously depreciates, it will result in lower investment values when FII sell their
holdings and convert the sale proceeds back into the original currency.

Political risk : Political risk implies political instability, which can affect the
general economy. A stable and progressive government can influence the
investment climate in a country and have an effect on the overall market. Further,
war, riots, etc. can adversely affect the economy.

Industry risk : Industry risk implies risk that directly impacts a sector or industry.
For example, the tobacco industry is penalised with high duties due to the adverse
health factors associated with this sector.

Company-specific risks : Investing in a company which does not have good

business prospects or is owned and run by promoters with a questionable reputation
or is in a sector which is currently on a downward trend, will result in capital loss.

COSTS OF INVESTING IN EQUITY

Brokerage charge : When you open a broking account with a broker, you are
charged a nominal one-time fee. In addition, for every transaction undertaken,
your broker will levy a broking fee.
Demat charges : These are charges levied for maintaining your demat account.
These charges include periodical charges for maintenance of the account,
transaction charges(for each debit and credit of shares for sales and purchases
respectively) and other incidental charges.

Payment of Securities Transaction Tax (STT) : Investing in equity involves

paying of Securities Transaction Tax (STT) while buying as well as selling shares.
This is an indirect form of tax levied by the Government.Indicated below are the
STT rates applicable:

STT rate applicable while buying shares for delivery 0.125%

STT rate applicable while selling shares for delivery 0.125%
STT rate applicable while trading in shares 0.025%

Payment of Service Tax (ST) and Education Cess (EC) : Service Tax (ST) and
Education Cess (EC) are other indirect taxes levied by the Government. This is
payable as a percentage of brokerage due to the broker. These taxes are borne by the
investor.ST and EC together are levied at the rate of 12.24 percent of the brokerage
cost (ST of 12 percent + EC of 2 percent). For instance, if you incur a brokerage
cost of Rs 1000 on a transaction, you will have to pay ST-cum-EC of Rs 122.40.

5 COMMON INVESTMENT MISTAKES

If you are an investor who believes that getting invested is a simple 3-step process,
i.e. getting hold of an investment agent, filling up an application form and signing a
cheque; then you got it all wrong. Investing is a lot more 'sophisticated' than that. It
is an important activity that involves systematically short-listing your most
important investment objectives and preparing an investment plan to realize them in
best possible manner. Although this may sound a little difficult, it can be achieved
simply by avoiding some very common investment mistakes. Investors must note
that since the list of mistakes one must avoid is endless; we have highlighted the
five most common mistakes.

1. Investing without a plan

The first and most critical step while investing is to outline your investment
objectives. Setting an investment objective simply means prioritising your needs
into short, medium and long-term investment goals. For instance, planning for
vacation (short-term), planning to buy property (medium- to long-term), and
planning for retirement (long-term). Often investors stumble at the starting point
while defining investment objectives; this in turn gets their financial plan in a tizzy.

2. Not diversifying well enough

Diversification is one of the basic tenets of investing. At Personalfn, we regularly

meet clients who have invested a large portion of their monies in a single asset (like
real estate for instance) or a single investment (like a stock). While such investors
may do well during a run-up in that asset/market (like real estate or stocks), it takes
a downturn to underline how important it is to spread your eggs in more than one
basket. Investors, depending on their risk profile should diversify their portfolios
across asset classes like equities, fixed income, gold and real estate, among others.
Similarly, within an asset class, they should diversify across various avenues, for
instance within fixed income they should invest in fixed deposits, fixed maturity
plans and small savings schemes. More than anything else, diversification helps to
minimise/spread risk particularly during a downturn, as one investment can be a
backup for another.

3. Ignoring risk

Often investors select an investment avenue/scheme simply because it provides

better returns or is recommended by a friend, family member or investment advisor.
Investment decisions should not be influenced merely on the basis of performance
or a strong recommendation. Investors should understand that various investments
have varying risk profiles. For instance, stocks/equity funds have a higher risk
profile, while debt is relatively low risk. You must select an investment based on
whether it suits your risk profile. For instance, a 55-year-old who is headed for
retirement must avoid technology stocks, which can prove apt for a 30-year-old.

4. Getting married to your investments

Often investors have 'pet' investments and they can get attached to the same. So
despite a dismal show, some 'pet' investments manage to hold their ground in the
portfolio. Getting attached to your investments can prove detrimental to your
investment plan. Is that house/car/vacation more important or a non-performing
investment? The answer is obvious to any rational investor. Ensure that you review
your portfolio regularly and weed out the duds. If an investment is no longer
contributing to your investment objective, it has no business being in your portfolio.

5. Timing the markets

Some investors often delude themselves into believing that they are experts. So
more than investing, they are often engaged in 'pastimes' like timing the markets. To
be sure, even when market-timing works (which is rare since no one can predict
stock market movements accurately and consistently), it does not do significantly
better than regular investing regardless of market movements. Studies have shown
that even if an investor called the market bottom consistently and accurately over a
period of time, he would have done only slightly better than the investor who invests
(the same amount) regularly over the same time period. This is no magic; this is the
result of cost averaging and compounding (which incidentally Albert Einstein called
'the greatest mathematical discovery of all time'). Put simply, this implies that risk-
taking investors must abandon the temptation to get caught up with stock market
highs and lows. Instead, they must work at regularly setting aside a sum of money
and investing the same in line with their risk profiles regardless of stock market
fluctuations.

STOCK SELECTION GUIDELINES

There are more than 6000 companies listed on our stock exchanges. Selecting
companies whose equity shares you should invest in, becomes difficult due to this
wide choice. To narrow down your choice, follow these 5 stock selection guidelines.

1. Know the business

Warren Buffet, one of the world’s most successful investors, follows the philosophy
of buying stocks of only those businesses that he understands. Select companies in
businesses that you already have an idea of and find interesting. One of the
businesses that could be of interest to you would be the one, which you are affiliated
to because of your employment. For instance, if you are working in a pharma
company, you may understand this business well.

2. Assess the past performance

All companies present details of their financial performance in their annual reports.
In case of a company having its Initial Public Offering-IPO (when a company offers
its shares to the public for the first time, it is called Initial Public Offering), it is
required to publish its past performance in its IPO offer document. There are also a
vast number of research reports published by research and brokerage houses, and
company analysis done by the media, which is worth reading, to assess a company’s
past performance and future potential. Ratio Analysis is widely used to assess a
company’s past performance.

3. Know the promoters

The promoters and management team of accompany are the key people who drive
its business. Their integrity dictates whether the business benefits or they benefit
personally. Also, their experience and business competence is crucial for business
growth. Evaluate the company’s promoters and management on the basis of four Cs:
Competence, Credibility, Corporate governance and Concern for shareholders.

4. Assess the future prospects of the company

Although a company may have performed well in the past, it is not necessary that it
will continue performing well in the future. All companies go through business
cycles of ups and downs. It is important that you form a view on the future trends of
the business the company is a player in. This can be done by reading views of
experts in that business/industry and forming your own view by reading and
understanding economic trends and the impact of these trends on the company’s
business.

5. Assess the stock price

The share price of all companies continuously fluctuate on the stock markets with
investors buying and selling the shares. The price at which an investor is willing to
buy or sell a share of a company is the perceived value of the share of the company
taking into consideration the company’s present business and future business
growth. In addition to this, investor sentiment plays a large role in pricing of stocks.
It is important that before you buys a company’s share, you assess whether the price
of the share at which it is available for purchase, is adequately valued i.e. it is not
over-priced. Similarly, when you sell, you need to make sure that you are not selling
too cheap. To help you assess this, you could use a popular stock market ratio called
the Price/Earning ratio( P/E ratio).

To use the P/E ratio correctly, keep the following aspects in perspective:

• Compare the P/E ratio of a company with that of other companies in the
same business.
• Compare it with P/E ratios of the benchmark indices such as the P/E ratio
of the BSE Sensex, the NSE Nifty,etc.
• Compare the P/E ratio with the growth potential of the company and the
industry it is a part of. There could be a situation that even if the P/E ratio of a
company is high, it would be worthwhile to buy the stock if the growth potential is
significant.

To conclude, just because a company’s P/E ratio is high, it does not mean that it is
overpriced. Consider this ratio along with other factors such as past performance,
business potential, promoters, the company’s order book position, etc.

WHY INVESTING IN INDIA???

CAPITAL MARKET MATURE SYSTEM:
The Indian capital markets have witnessed a transformation over the last decade.
India is now placed among the mature markets of the world. Key progressive
initiatives in recent years include:

1) The depository and share dematerialisation systems that have enhanced the
efficiency of the transaction cycle

2) The infotech-driven National Stock Exchange (NSE) with a national presence

(for the benefit of investors across locations) and other initiatives to enhance the
quality of financial disclosures.

3) Indian capital markets have rewarded Foreign Institutional Investors (FIIs) with
attractive valuations and increasing returns

4) Many new instruments have been introduced in the markets, including index
futures, index options, derivatives and options and futures in select stocks. (Broking
industry consolidation has to be brought out)

INDIAN CAPITAL MARKETS-THE OPPORTUNITIES TODAY

• With over 20 million shareholders, India has the third largest investor
base in the world after the USA and Japan. Over 9,000 companies are listed on the
stock exchanges, which are serviced by approximately 7,500 stockbrokers. The
Indian capital market is significant in terms of the degree of development, volume of
trading and its tremendous growth potential. India's market capitalization was
amongst the highest among the emerging markets.
• Mutual fund industry has become a dominant player in the market. As of
end-December 2006, the assets under management by the Indian MF industry stood
at a staggering Rs 3,23,601 crore.
• There is a large presence of FIIs in the Indian capital market with over
1044 FIIs (as of 3rd January 2007). The cumulative investment of FIIs in the Indian
stock market stood at US$ 50 billion as on3rd January 2007.

INDIAN ECONOMY-HIGH GROWTH RATES, LOW INFLATION AND

SOARING FOREIGN INVESTMENTS.
• India has had robust economic growth since 1991 when the government
reversed its socialist-inspired policy of a large public sector with extensive controls
on the private sector and began to liberalize the economy. The economy has
responded well by posting strong growth in many sectors. A.T. Kearney in ‘The FDI
Confidence Index 2005’ has ranked India as the 2nd most attractive investment
destination after China, ‘World Investment Report, 2005’ has ranked India as the
2nd most attractive investment destination among Transnational Corporations and a
2003 report by Goldman Sachs predicts that India's economy would be the third
largest by 2050.
• With a GDP of $775 billion in 2005 ($3.6 trillion at PPP) India has the
world's 12th largest economy in US dollar terms and the 4th largest in PPP terms. A
large and growing middle class of 300 million has disposable income for consumer
goods

• India embarked on a series of economic reforms in 1991 in reaction to a

severe foreign exchange crisis. Those reforms have included liberalized foreign
investment and exchange regimes, significant reductions in tariffs and other trade
barriers, reform and modernization of the financial sector, and significant
adjustments in government monetary and fiscal policies.
• The reform process has had some very beneficial effects on the Indian
economy, including higher growth rates, lower inflation, and significant increases in
foreign investment. Real GDP growth in 2005-06 is expected to be at 8.1%, mainly
due to industrial resurgence reflected by IIP, pick-up in investment, modest
inflation, rapid growth in imports and exports, steps towards improving physical
infrastructure and progress in fiscal consolidation . Growth in 2006-2007 is expected
to be above 7%. Foreign portfolio and direct investment flows have risen
significantly since reforms began in 1991 and have contributed to healthy foreign
currency reserves ($151 billion in March- end 2006).

INDIAN FINANCIAL SECTOR - NEW OPPORTUNITIES

• The far-reaching changes in the Indian economy since liberalization in the

early 1990s have had a deep impact on the Indian financial sector. The financial
sector has gone through a complex restructuring, capitalising on new opportunities
as well as responding to new challenges.
• During the last decade, there has been a broadening and deepening of
financial markets. Several new instruments and products have been introduced.
Existing sectors have been opened to new private players. This has given a strong
impetus to the development and modernization of the financial sector. New players
have adopted international best practices and modern technology to offer a more
sophisticated range of financial services to corporate and retail customers. This
process has clearly improved the range of financial services and service providers
available to Indian customers. The entry of new players has led to even existing
players upgrading their product offerings and distribution channels. This is
particularly evident in the non banking financial services sector, such brokerage
industry, where innovative products combined with new delivery methods are
allowing the sector to achieve very high growth rates.
• Over the past few years, the sector has also witnessed substantial progress
in regulation and supervision. Financial intermediaries have gradually moved to
internationally acceptable norms for income recognition, asset classification, and
provisioning and capital adequacy. The past decade was an eventful one for the
Indian capital markets. Reforms, particularly the establishment and empowerment of
securities and Exchange Board of India (SEBI), market-determined prices and
allocation of resources, screen-based nation-wide trading, dematerialisation and
electronic transfer of securities, rolling settlement and derivatives trading have
greatly improved both the regulatory framework and efficiency of trading and
settlement. The National Stock Exchange (NSE) and the Bombay Stock Exchange
(BSE) are among the top five exchanges in the world with respect to the number of
transactions.
• India has made considerable progress in the post-1991 period. The
country's macroeconomic fundamentals have improved and external vulnerability
has been sharply reduced. Reforms in the financial sector have appropriately
addressed the pre-1991 weaknesses in the sector and improved its competitive
strength domestically as well as globally. Individual players now need to adopt
proactive competitive strategies that will enable them to capture the emerging
opportunities. Exposure to global practices has made the Indian customer more
discerning and demanding. There has been a clear shift towards those entities that
are able to offer products and services in the most innovative and cost efficient
manner. The financial sector will need to adopt a customer-centric business focus. It
will also have to create value for its shareholders as well as its customers, competing
for the capital necessary to fund growth as well as for customer market share.

OTHER FACTORS:

• With a GDP growth rate of more than 8% By 2010 India 's GDP growth
rate will be more than that of China 's. (BRICs)
 It took 57 years for India to grow its GDP to US $ 700 billion. In the
next 10 years this GDP will double to US $1400 billion.

 The demographic profile created by the baby boomers of the 70's and the
80's have become our greatest asset. Today (2006) 60% of our population is below
the age group of 35 years. By 2010 65% of the population will be in the working age
group of 15 to 60 years with 400 million people between the age group of 18 and 35
years

 A large and rapidly growing middle class consumer market. The middle
class will have 432 million people in 2007. The Indian Consumer is undergoing a
structural shift. By 2010 middle and upper class population of India will exceed the
total population of the USA

 A large percentage of the Indian population speaks English. By 2050, the

largest English-speaking nation in the world will neither be America nor England. It
will be India.

 Availability of a large pool of doctors, scientists, engineers, technicians

and managers financial analysts at very competitive and low wages . Skilled
manpower and professional managers are available at competitive cost. India adds
more skilled labor to its work force then even the U.S . By 2010 India will have the
highest number of people in the working population.

 India is a service led economy. The larger Software companies employ

more then 50,000 employees each and Bangalore is another name for out sourcing.
The google search engine lists the word “Bangalored” as a verb meaning some body
who loses his job due to outsourcing to this city.

 India has become of the largest outsourcing sectors in the world, spanning
almost all areas of manufacturing activities.

A very high degree of financial and corporate regulation. The Bombay Stock
Exchange is Asia's largest exchange. It is over 120 years old and the automated
trading platform boasts of a sophisticated T+2 trading system, which is not followed
by the Nasdaq even.

LIMITATIONS OF THE PROJECT

It is very difficult to implement one’s knowledge on small pieces of paper, still I
have tried to come at par the expectations of different set of people. By working on
this project, I gained a lot of knowledge about the financial avenues in INDIA.
However, there were many limitations or problems that I faced while working on
this project. The following are the limitations:

1) The are of operation was limited to the national capital and NCR only

2) Most of the contents / data I collected were difficult to understand because

they were new for me.

3) The time period was limited in terms of both data collection and repor
formation.

4) Finance instruments are more creative and innovative Products and its usage and
study is not easy to gain in one go.

5) Convincing the people to invest in a new product that affect their lives was a
tough job.

6) The answers of the customers could have been biased.

7) Lack of awareness among the customers force them to take an irrational decision
in number of time.

1) Are you currently investing in securities or share market?

(a) Yes (b) No

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 65% of people are making their earnings invest in the securities market
2) 35% of People are not making their earnings invest in the securities
market

2) Which type of trading do you prefer?

(a) Online (b) Offline (c) Not applicable

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 35% of people prefer online trading
2) 25% of people prefer offline trading
3) 35% of People are not making their earnings invest in the securities
market
3) How long you have been trading online?
(a) Under 6 months (b) 6- 12 months
(c) 1-2 years (d) 2-5 years
(e) More than five years
INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 13% of people have been trading online for about less than six months
2) 9% of people have been trading online from Six months to a year
3) 15% of people have been trading online from one to two years
4) 40% of people have been trading online from two to five years
5) 23% of people have been trading online for about more than five years

4) If you prefer online trading then the reasons for it are?

(a) Privacy (b) User friendly sites
(c) Time saving (d) Convenient
(e) All

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 16% of people have been trading online for maintaining privacy
2) 5% of people have been trading online because of user friendly sites
3) 26% of people have been trading online as it saves time
4) 16% of people have been trading online as they find it very convenient
5) 37% of people have been trading online for all the above reasons

5) Will your share of investments change in the future?

(a) Increase (b) Stay the same (c) Decrease
(d) Quit share investing (e) Other investment opportunities

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 8% of people will increase their investment in shares in future
2) 60% of people will stay on the same position i.e. they will neither increase
nor decrease their investment in shares in future
3) 7% of people will decrease their investment in shares in future
4) 13% of people will quit their investment in shares in future
5) 12% of people will start investing in other investment opportunities

6) In which products you invest into with the broking firms?

(a) Equity (b) Mutual funds (c) IPO’s
(d) Commodities (e) Derivatives
INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 40% of people have been investing in Equity
2) 25% of people have been investing in Mutual funds
3) 15% of people have been investing in IPO’s
4) 5% of people have been investing in Commodities
5) 15% of people have been investing in Derivatives

7) Which broking firm do you prefer?

(a) Kotak Securities Ltd.
(b) India bulls Financial Services Limited
(c) Share khan Ltd
(d) Reliance money Ltd
(e) ICICI Securities Ltd.
(f) HDFC Securities
(g) Any other

Results: Your online Share Graphical

% of the Responses No of Responses
Broker (Responses 198) presentation

Kotakstreet 10% 20

Indiabulls Sec. 22% 42

Sharekhan 11% 23

Reliance money 9% 19

ICICIdirect.com 33% 64

HDFC Sec 5% 10

Other local broker 10% 20

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 10% of the investors preferred Kotak securities as their preference of an
ideal broking firm
2) 22% of the investors preferred India bulls as their ideal broking firm
3) 11% of the investors preferred Share khan as their broking firm
4) 9% of the investors preferred Reliance money as their ideal broking firm
5) 33% of the investors preferred ICICI Direct
6) 5% of the investors preferred HDFC Securities
 7) 10% of the investors preferred the other broking firms that are prevalent
in the market.
8) What difference do you find in trading with your own
broking firm as compared to others?

(a) Brokerage (b) Research reports

(c) Dial n Trade (d) Exposure

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 45% of people prefer the brokerage as an additional point to trade with their
broking firm
2) 30% of people prefer the research reports as an additional point to trade with their
broking firm
3) 10% of people prefer the Dial n Trade facility as an additional point to trade with
their broking firm
4) 15% of people prefer the exposure that is being provided by their broking firm
9) How often you trade?
(a) Everyday (b) In about 2-3 weeks
(c) 2-3 Months (d) Long term investor

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 35% of people prefer intraday trading
2) 25% of people prefer trading within 2-3 weeks
3) 15% of people prefer trading within 2-3 months
4) 25% of people are long term investors
10) What was your experience regarding your investment?
(a) Good experience
(b) Negative
(c) Have some faith

INTERPRETATION:
The survey, which was made among the investors, resulted out with-
1) 50% of people had good experience regarding their investment
2) 20% of people had negative experience regarding their investment
3) 30% of people had faith in their investment
 BIBILOGRAPHY

WEBSITES
1. www.reliance money.com
2. www.indiabulls.com
3. www.sharekhan.com
4. www.kotaksecurities.com
5. www.icicidirect.com
6. www.hdfcsec.com
7. www.nse.com
8. www.moneycontrol.com
9. www.Finance-research.net

BOOKS
1. Money market operations in India by A.K.Sengupta and A.K. Aggarwal
2. The working of stock exchange in India by H.R. Machiraju
3. Managing Investments by Prasanna Chandra
 GLOSSARY

1. National Stock Exchange

National Stock Exchange of India (NSE) is India's largest Stock Exchange &
World's third largest Stock Exchange in terms of transactions. Located in Mumbai,
NSE was promoted by leading Financial Institutions at the behest of the
Government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993, NSE was recognized as a Stock exchange under the
Securities Contracts (Regulation) Act-1956. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. Capital Market (Equities)
segment of the NSE commenced operations in November 1994, while operations in
the Derivatives segment commenced in June 2000. NSE is set up on a demutualised
model wherein the ownership, management and trading rights are in the hands of
three different sets of people. This has completely eliminated any conflict of
interest.

2. Demat Trading
Trading in the dematerialised (demat) segment - paperless trading and transfer of
shares through electronic entries.

3. T + 2 Settlement system
It means Trading day + 2 days more. It happens in delivery. If the shares are
purchased on Monday, their delivery will be in t+2 days i.e. on Wednesday.

4. Depositories
A depository is an organization like a Central Bank where the securities of a
shareholder are held in an electronic form at the request of the shareholder through
the medium of a depository participant to utilize the services offered by a
Depository, the investor has to open an account with the depository through a
depository participant.

5. National Securities Depository Ltd

There are two depositories in India i.e. National Securities Depository Ltd (NSDL)
and Central Depository Services (India) Ltd (CDSL). They provide various services
to the investors and other participants in the capital market like account opening,
dematerialization, rematerialisation etc.
6. Margin Trading
It is an intra-settlement trading up to 3 to 4 times of the available funds, wherein the
investor take long buy/ short sell positions in stocks with the intention of squaring
off the position within the same day settlement cycle.

7. Spot Trading
This facility can be used only for selling the demat stocks which are already existing
in the demat account of the investor. When he is looking at an immediate liquidity
option, 'Cash on Spot' may work the best for him, On selling shares through "cash
on spot", money is credited to his bank a/c the same evening & not on the exchange
payout date.

8. BNST-G facility
Buy Today Sell Tomorrow (BTST) is a facility that allows the investor to sell
shares even on 1st and 2nd day after the buy order date, without having to wait for
the receipt of shares into his demat account.
 .

QUESTIONNAIRE
(FROM INVESTORS)

1) Are you currently investing in securities or share market?

(a) Yes
(b) No

2) If yes, which type of trading do you prefer?

(a) Online
(b) Offline
(c) Not applicable

3) How long you have been trading online?

(a) Under 6 months
(b) Six months to a year
(c) One to two years
(d) Two to five years
(e) Over five years

4) If you prefer online trading then the reasons for it are?

(a) Privacy
(b) User friendly sites
(c) Time saving
(d) Convenient
(e) All

5) Will your share of investments change in the future?

(a) Increase
(b) Stay the same
(c) Decrease
(d) Quit share investing
(e) Other investment opportunities

6) In which products you invest into with the broking firms?

(a) Equity
(b) Mutual funds
(c) IPO’s
(d) Commodities
(e) Derivatives

7) Which broking firm do you prefer?

(a) Kotak Securities Ltd.
(b) India bulls Financial Services Limited
(c) Share khan Ltd
(d) Reliance money Ltd
(e) ICICI Securities Ltd.
(f) HDFC Securities
(g) Any other

8) What difference do you find in trading with your own broking firm as
compared to others?
(a) Brokerage
(b) Research reports
(c) Dial n Trade
(d) Exposure

9) How often you trade?

(a) Everyday
(b) In about 2-3 weeks
(c) 2-3 Months
(d) Long term investor

10) What was your experience regarding your investment?

(a) Good experience
(b) Negative
(c) Have some faith

FINDINGS

1) Though people are investing in securities in a large number but still a large
population is not and are not willing to invest in securities as some of them
find it risky to invest and some people not because of there personal likings.

2) People generally deal in securities through online systems as they found it

more convenient, time saving process. Moreover, they think that privacy is
more maintained in online trading in securities.

3) Online trading is a popular practice and most of the people are using it from
2 to 5 years. Also it reflects that in future course of time, 100% people those
who are dealing and will deal in securities will use only online trading.
There will be no place left for other ways of trading in future.

4) Most of the people thinks and agrees that they will not changer their share of
investment. This reflects that people have full faith in securities trading and
moreover they found the security trading full of potential and high chances
of success.
5) People prefer ICICI SECURITIES the most reliable and safest.

6) Most of the people prefer to invest in EQUITY rather than going for other
options. They found equity as the most reliable, potential, safest and
desirable one.

7) Most of people (nearly 45%) prefer the brokerage as an additional point to

trade with their broking firm.

8) Generally people go for long term investment as compared to short term and
medium term. They hardly go for short term investment.

9) 50% people are happy with the investment whereas 20% have negative
experience. Rest 30% have an average experience.