47677313 stock market trends and investment pattern

7/31/2019 47677313 Stock Market Trends and Investment Pattern

1/112

PROJECT REPORT ON

INVESTMENT

PATTERNS IN

INDIAN STOCK

MARKET

1


2/112

ACKNOWLEDGEMENT

It plunge me in exhilaration in taking privilege in expressing our heart feltappreciation to Ms Shabnam Bano, Branch Manager India Infoline, Kota Branchfor her admirable and valuable guidance, keen interest, encouragement and

constructive suggestions during the course of the project.

I would like to express our gratitude to Mr. Pramod Vijay, Sr. RelationshipManager, India Infoline, Kota for providing us an opportunity to take this projectwork & under whose supervision & guidance whole of the project has got itsshape.

I would also like to express thanks to Mr. Prateek Saxena and Ms Garima Arora,India Infoline Limited, who was closely associated with the project right from the

beginning.

I consider my proud privilege to express deep sense of gratefulness to Dr. K.C.Goyal, Head of Department, Department of commerce and ManagementUniversity Of Kota, who is the strength and an encouragement behind me.

My sincere appreciation also go to those clients, investors and persons in IndiaInfoline Ltd. who altruistically revealed important information regarding the Indianstock market and how they trade and invest with the intense help of their respective

relationship managers and investment guides.I am very grateful to my parents, family members and friends for their enthusiasticsupport.

Last but not least; report was completed successfully because of the grace of theAlmighty God.

ALKA SHARMA

2


3/112

EXECUTIVE SUMMARY

The project which is taken by me with the help of my Faculty and industry Guidemainly focused on Indian Stock Market. The main focus of my project is to gainknowledge about the core areas in which stock market works and what are the

trends and investment patterns available in it.

Working with India Infoline Limited I really had a learning experience basicallyrelated with the stock market the how various components like, equities, stocks,IPOs, derivatives (Future and options), Commodities and the Mutual Funds. Theseall are important aspects of stock market. Other thing which has I learned that thestock market is divided into two segments Primary market & Secondary market. Inthe Primary market those companies who are unlisted and who want capital fromthe public they issue their shares for the first time in the market which is calledPrimary Market .Secondary market includes Equity shares, Right issues, Bonusshares, Preference shares, Cumulative Preference Shares, Cumulative ConvertiblePreference Shares, Bonds. The share market which I had seen the guidance of myIndustry Guide is the most volatile market.

So, the whole project was directed towards how the stock markets work in Indiaand what are the core areas of functioning of the stock market in order tomaximum out of the minimum so that the profile of mine and the project topic

should match and more and more learning can be done from them.

3


4/112

CONTENTS Page No.

CHAPTER 1- INTRODUCTION 1-2

Need of the study 1

Objectives 1

Scope 2

CHAPTER 2- PROFILE OF INDIAINFOLINE LIMITED 3

CHAPTER 3- INVESTMENT AVENENUES 14 - 90

Overview 14

Investment alternative: A Choice Galore 17

Risk return good and bad 32

Securities analysis and valuation 36

Derivatives 50

Portfolio management 66

CHAPTER 4- RESEARCH METHODOLOGY 91

CHAPTER 5- DATA ANALYSIS AND INTERPRETATION 93

CHAPTER 6- CONCLUSION, SUGGESTION AND LIMITATION OF THE STUDY 109

BIBLIOGRAPHY 111

WEBSITES

ANNEXURE

CHECKLIST

ABBREVIATIONS

4


5/112

Table No Descriptions Page No

3.1 Return probability chart 72

3.2 Return probability chart 74

3.3 Return probability char 75

3.4 Expected return on stock 80

3.5 Expected Return on stock 81

5.1 Age of the investor 93

5.2 Occupation of the investor 94

5.3 Income Group of the investor 95

5.4 Type of investment you prefer 96

5.5 Type of the Investment Alternatives 97

5.6 Expected rates of return 98

5.7 Dependent factor of investment 99

5.8 The main purpose of your investment 100

5.9 D-Mat account 101

5.10 Depository participant) you prefer 102

5.11 Market condition while investing 103

5.12 Trading motive 104

5.13 Your investment advisor 105

5.14 Awareness about portfolio management 106

5.15 Portfolio can give better return 107

5.16 Takes help while managing portfolio 108

5


6/112

Figure No Descriptions Page No

3.1 Investment avenues 14

3.2 Interest chart of different companies 21

3.3 Housing finance companies accepting deposits 22

3.4 Call option graph 59

3.5 Call option graph 60

3.6 Buy option graph 63

3.7 Risk free rate of return 69

3.8 Risk returns trade off 79

3.9 Expected return graph 80

3.10 Expected return graph 82

3.11 Determination of market port folio 84

3.12 optimal portfolio strategy 86

5.1 Age of the investor 93

5.2 Occupation of the investor 94

5.3 Income Group of the investor 95

5.4 Type of investment you prefer 96

5.5 Type of the Investment Alternatives 97

5.6 Expected rates of return 98

5.7 Dependent factor of investment 99

5.8 The main purpose of your investment 100

5.9 D-Mat account 101

6


7/112

5.10 Depository participant) you prefer 102

5.11 Market condition while investing 103

5.12 Trading motive 104

5.13 Your investment advisor 105

5.14 Awareness about portfolio management 106

5.15 Portfolio can give better return 107

5.16 Takes help while managing portfolio 108

INTRODUCTION TO INVESTMENT7


8/112

Investment may be defined as an activity that commits funds in any financial form in the present

with an expectation of receiving additional return in the future. The expectations bring with it a

probability that the quantum of return may vary from a minimum to a maximum. This possibility

of variation in the actual return is known as investment risk. Thus every investment involves a

return and risk.

Investment is an activity that is undertaken by those who have savings. Savings can be

defined as the excess of income over expenditure. An investor earns/expects to earn additional

monetary value from the mode of investment that could be in the form of financial assets.

The three important characteristics of any financial asset are:

Return-the potential return possible from an asset.

Risk-the variability in returns of the asset form the chances of its value going down/up.

Liquidity-the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual

preference pattern of investments. Each financial asset will have a certain level of each of these

characteristics.

NEED OF THE STUDY

8


9/112

We believe that our investors are better served by a disciplined investment approach, which

combines an understanding of the goals and objectives of the investor with a fine tuned strategy

backed by research.

Stock specific selection procedure based on fundamental research for making sound

investment decisions.

Focus on minimizing investment risk by following rigorous valuation disciplines.

Capital preservation.

Selling discipline and use of Derivatives to control volatility.

Overall to enhance absolute return for investors.

The need of the study is to identify the different types of investment alternatives available in the

market and analyze their risk and return.

OBJECTIVES OF THE STUDY

Before starting a project, we should keep in mind the clear objective of the project because in the

absence of the objective one cant reach the conclusion or the end result of the project. Research

objective answer the question Why this study is being conducted

For every problem there is a research. As all the research is based on some objective, ourresearch has also some objectives which are as follows:

To identify and study the demand and supply scenario.

To determine and understand dynamics of stock exchange and different Investmen

alternative.

Primary Objective

To identify and analyze the portfolio management strategies in Indian Sock market. To measure customers preference towards dealing in derivative market segment The perception held by investors about the financial derivatives Giving conclusion and recommendation.

Secondary Objective

To study which class mostly invest in stock market Evaluate the various investment opportunities for investors

9


10/112


11/112

CORPORATE PROFILE

COMPANY STRUCTURE

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the StockExchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of boththe exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services andPortfolio Management Services. It offers broking services in the Cash and Derivatives segmentsof the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSLas a depository participant, providing a one-stop solution for clients trading in the equitiesmarket. It has recently launched its Investment banking and Institutional Broking business.

INDIA INFOLINE GROUP

The India Infoline group, comprising the holding company, India Infoline Limited and itswholly-owned subsidiaries, straddle the entire financial services space with offerings rangingfrom Equity research, Equities and derivatives trading, Commodities trading, PortfolioManagement Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other smallsavings instruments to loan products and Investment banking. India Infoline also owns andmanages the websites www.indiainfoline.com and www.5paisa.com

The company has a network of 976 business locations (branches and sub-brokers) spread across365 cities and towns. It has more than 800,000 customers.

INDIA INFOLINE LTD

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the StockExchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of boththe exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services andPortfolio Management Services. It offers broking services in the Cash and Derivatives segmentsof the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSLas a depository participant, providing a one-stop solution for clients trading in the equitiesmarket. It has recently launched its Investment banking and Institutional Broking business.

11
http://www.indiainfoline.com/http://www.5paisa.com/http://www.indiainfoline.com/http://www.5paisa.com/


12/112

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. Theseservices are offered to clients as different schemes, which are based on differing investmentstrategies made to reflect the varied risk-return preferences of clients.

INDIA INFOLINE MEDIA AND RESEARCH SERVICES LIMITED.

The content services represent a strong support that drives the broking, commodities, mutualfund and portfolio management services businesses. Revenue generation is through the sale ofcontent to financial and media houses, Indian as well as global.

It undertakes equities research which is acknowledged by none other than Forbes as 'Best of theWeb' and 'a must read for investors in Asia'. India Infoline's research is available not just overthe internet but also on international wire services like Bloomberg (Code: IILL), Thomson FirstCall and Internet Securities where India Infoline is amongst the most read Indian brokers.

INDIA INFOLINE COMMODITIES LIMITED.

India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Ourexperience in securities broking empowered us with the requisite skills and technologies to allowus offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy

memberships with the MCX and NCDEX, two leading Indian commodities exchanges, andrecently acquired membership of DGCX. We have a multi-channel delivery model, making itamong the select few to offer online as well as offline trading facilities.

INDIA INFOLINE MARKETING & SERVICES

India Infoline Marketing and Services Limited is the holding company of India InfolineInsurance Services Limited and India Infoline Insurance Brokers Limited.

12


13/112

(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the InsuranceRegulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICIPrudential Life Insurance Co Limited, which is India's largest private Life Insurance Company.India Infoline was the first corporate agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newlyformed subsidiary which will carry out the business of Insurance broking. We have applied to

IRDA for the insurance broking licence and the clearance for the same is awaited. Post the grantof license, we propose to also commence the general insurance distribution business.

INDIA INFOLINE INVESTMENT SERVICES LIMITED

Consolidated shareholdings of all the subsidiary companies engaged in loans and financingactivities under one subsidiary. Recently, Orient Global, a Singapore-based investmentinstitution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services.This will help focused expansion and capital raising in the said subsidiaries for various lendingbusinesses like loans against securities, SME financing, distribution of retail loan products,consumer finance business and housing finance business. India Infoline Investment Services

Private Limited consists of the following step-down subsidiaries.

(a) India Infoline Distribution Company Limited (distribution of retail loan products)

(b) Moneyline Credit Limited (consumer finance)

(c) India Infoline Housing Finance Limited (housing finance)

IIFL (ASIA) PTE LIMITED

IIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated in Singapore topursue financial sector activities in other Asian markets. Further to obtaining the necessaryregulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

13


14/112

14


15/112

PRODUCTS AND SERVICES

India Infoline is a one-stop financial services shop, most respected for quality of its advice,personalized service and cutting-edge technology. It provide a bouquet of products to itscustomer such as-

EQUITIES

India Infoline provided the prospect of researched investing to its clients, which was hithertorestricted only to the institutions. Research for the retail investor did not exist prior to IndiaInfoline leveraged technology to bring the convenience of trading to the investors location ofpreference (residence or office) through computerized access. India Infoline made it possible forclients to view transaction costs and ledger updates in real time. Over the last five years, IndiaInfoline sharpened its competitive edge through the following initiatives:

MULTI-CHANNEL DELIVERY MODEL

The Company is among the few financial intermediaries in India to offer a complement of onlineand offline broking. The Companys network of branches also allows customers to place orderson phone or visit our branches for trading.

INTEGRATED MIDDLE AND BACK OFFICE

The customer can trade on the BSE and NSE, in the cash as well as the derivatives segment allthrough the available multiple options of Internet, phone or branch presence.

MULTIPLE-TRADING OPTIONS

The Company harnessed technology to offer services at among the lowest rates in the businessmembership: The Company widened client reach in trading on the domestic and internationalexchanges.

TECHNOLOGY

The Company provides a prudent mix of proprietary and outsourced technologies, whichfacilitate business growth without a corresponding increase in costs.

CONTENT

15


16/112

The Company has leveraged its research capability to provide regular updates and investmentpicks across the short and long-term.

SERVICE

Clients can access the customer service team through various media like toll-free lines, emailsand Internet- messenger chat for instant query resolution. The Companys customer serviceexecutives proactively contact customers to inform them of key changes and initiatives taken bythe Company. Business World rated the Companys customer service as Best in their survey ofonline trading sites carried out in December 2003.

KEY FEATURES

Membership on the Bombay Stock Exchange Limited (BSE ) and the National Stock

Exchange (NSE) Registered with the NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market

Broking services in cash and derivative segments, online as well as offline. Presence across 350 cities and towns with a network of over 850 business locations

Equity client base of over 500,000 clients Provision of free and world-class research to all clients

PMS (PORTFOLIO MANAGEMENT SERVICE)

Our Portfolio Management Service is a product wherein an equity investment portfolio is createdto suit the investment objectives of a client. We at India Infoline invest your resources intostocks from different sectors, depending on your risk-return profile. This service is particularlyadvisable for investors who cannot afford to give time or don't have that expertise for day-to-daymanagement of their equity portfolio.

RESEARCH

Sound investment decisions depend upon reliable fundamental data and stock selectiontechniques. India Infoline Equity Research is proud of its reputation for, and we want you to findthe facts that you need. Equity investment professionals routinely use our research and models asintegral tools in their work. They choose Ford Equity Research when they can clear your doubts.

COMMODITIES

India Infolines extension into commodities trading reconciles its strategic intent to emerge as aone-stop solutions financial intermediary. Its experience in securities broking has empowered itwith requisite skills and technologies. The Companys commodities business provides a contra-

16


17/112

cyclical alternative to equities broking. The Company was among the first to offer the facility ofcommodities trading in Indias young commodities market (the MCX commenced operationsonly in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34bn to Rs 20.02 bn. The commodities market has several products with different and non-correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations in thebusiness.

MORTGAGES

During the year under review, India Infoline acquired a 75% stake in Moneytree ConsultancyServices to mark its foray into the business of mortgages and other loan products distribution.The business is still in the investing phase and at the time of the acquisition was present only inthe cities of Mumbai and Pune. The Company brings on board expertise in the loans businesscoupled with existing relationships across a number of principals in the mortgage and personalloans businesses. India Infoline now has plans to roll the business out across its pan-Indiannetwork to provide it with a truly national scale in operations.

HOME LOANS and PERSONAL LOANS

Loan against residential and commercial propertyExpert recommendationsEasy documentationQuick processing and disbursalNo guarantor requirement

ONLINE INVESTMENT

India Infoline has made investing in Mutual funds and primary market so effortless. All have todo is register with us and thats all. No paperwork no queues and No registration charges.

INVEST IN MUTUAL FUNDS

India Infoline offers a host of mutual fund choices under one roof, backed by in-depth researchand advice from research house and tools configured as investor friendly.

APPLY IN INITIAL PUBLIC OFFERS (IPO)

Client could also invest in Initial Public Offers (IPOs) online without going through the hasslesof filling ANY application form/ paperwork.

STOCK MESSAGING SERVICE (SMS)

Stay connected to the market remotely. The trader of today, you are constantly on the move.But how to stay connected to the market while on the move? Simple, subscribe to India Infoline's

17


18/112

Stock Messaging Service and get Market on the Mobile of client! There are three productsunder SMS Service:

Market on the move.

Best of the lot.

VAS (Value Added Service)

INSURANCE

An entry into this segment helped complete the clients product basket; concurrently, itgraduated the Company into a one-stop retail financial solutions provider. To ensure maximumreach to customers across India, we have employed a multi pronged approach and reach out tocustomers via our Network, Direct and Affiliate channels. Following the opening of the sector in1999-2000, a number of private sector insurance service providers commenced operationsaggressively and helped grow the market.

The Companys entry into the insurance sector derisked the Company from a predominantdependence on broking and equity-linked revenues. The annuity based income generated frominsurance intermediation result in solid core revenues across the tenure of the policy.

WEALTH MANGEMENT SERVICE

Imagine a financial firm with the heart and soul of a two-person organization. A world-leadingwealth management company that sits down with you to understand your needs and goals. Weoffer you a dedicated group for giving you the most personal attention at every level.

NEWSLETTERS

The Daily Market Strategy is your morning dose on the health of the markets. Five intra-dayideas, unless the markets are really choppy coupled with a brief on the global markets and anyother cues, which could impact the market. Occasionally an investment idea from the researchteam and a crisp round up of the previous day's top stories. That's not all. As a subscriber to theDaily Market Strategy, you even get research reports of India Infoline research team on a prioritybasis.

The India Infoline Weekly Newsletter is your flashback for the week gone by. A weekly outlookcoupled with the best of the web stories from India Infoline and links to important investmentideas, Leader Speak and features is delivered in your inbox every Friday evening.

18


19/112

BUSINESS & OPERATIONS

BUSINESS

Over a period of time RSL has recorded a healthy growth rate both in business volumes and

profitability as it is one of the major players in this line of business. The business thrust has been

mainly in the development of business from Financial Institutions, Mutual Funds and Corporate.

OPERATIONSThe operations of the company are broadly organized along the following functions.

Research & Analysis

This group is focused on doing daily stock picks and periodical scrip segment specific research

They provide the best of analysis in the industry and are valued by both our Institutional and

Retail clientele.

Marketing

This group is focused on tracking potential business opportunities and converting them into

business relationships. Evaluating the needs of the clients and tailoring products to meet thei

specific requirements helps the company to build lasting relationships

Dealing

Enabling the clients to procure the best rates on their transactions is the core function of this

group.

Back Office

This group ensures timely deliveries of securities traded, liaison with stock exchange authorities

on operational matters, statutory compliance, handling tasks like pay-in, pay-out, etc. This

section is fully automated to enable the staff to focus on the technicalities of securities trading

and is manned by professionals having long experience in the field

19


20/112

INFRASTRUCTURE

Offices

The company has offices located at prime locations in Mumbai, New Delhi, Kolkata and

Chennai. The offices are centrally located to cater to the requirements of institutional and

corporate clients and retails clients, and for ease of operations due to proximity to stock

exchanges and banks.

Communications

The company has its disposal, an efficient network of advance communication system and intend

to install CRM facility, besides this it is implementing interactive client information

dissemination system which enables clients to view their latest client information on web. It hasan installed multiple WAN to interconnect the branches to communicate on real time basis.

The company is equipped with most advanced systems to facilitate smooth functioning of

operations. It has installed its major application on IBM machines and uses latest state of art

financial software.

20


21/112

MANAGEMENT TEAM

Mr. Nirmal Jain

Chairman & Managing Director

India Infoline Ltd.

Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded Indiasleading financial services company India Infoline Ltd. in 1995, providing globally acclaimedfinancial services in equities and commodities broking, life insurance and mutual fundsdistribution, among others. Mr. Jain began his career in 1989 with Hindustan Leverscommodity export business, contributing tremendously to its growth. He was also associatedwith Inquire-Indian Equity Research, which he co-founded in 1994 to set new standards inequity research in India.

Mr. R Venkataraman

Executive Director

India Infoline Ltd.

R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech(Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA (IIMBangalore). He joined the India Infoline board in July 1999. He previously held senior

managerial positions in ICICI Limited, including ICICI Securities Limited, their investmentbanking joint venture with J P Morgan of USA and with BZW and Taib Capital CorporationLimited. He was also Assistant Vice President with G E Capital Services India Limited in theirprivate equity division, possessing a varied experience of more than 16 years in the financialservices sector.

The Board of Directors

21


22/112

Apart from Mr. Nirmal Jain and Mr. R Venkataraman, the Board of Directors of India InfolineLtd. comprises:

Mr Nilesh Vikamsey

Independent Director

India Infoline Ltd.

Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant andpartner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLBInternational, headed the audit department till 1990 and thereafter also handles financialservices, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI studygroup member for Proposed Accounting Standard 30 on Financial InstrumentsRecognition and Management, Finance Committee of The Chamber of Tax Consultants(CTC), Law Review, Reforms and Rationalization Committee and Infotainment and MediaCommittee of Indian Merchants Chamber (IMC) and Insurance Committee and Legal

Affairs Committee of Bombay Chamber of Commerce and Industry (BCCI). Mr. Vikamseyis a director of Miloni Consultants Private Limited, HLB Technologies (Mumbai) PrivateLimited and Chairman of HLB India.

Mr Sat Pal Khattar

Non Executive Director

India Infoline Ltd.

Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority Rightsmember, Chairman of the Board of Trustee of Singapore Business Federation, is also a lifetrustee of SINDA, a non profit body, helping the under-privileged Indians in Singapore. Hejoined the India Infoline board in April 2001. Mr Khattar is a Director of public and privatecompanies in Singapore, India and Hong Kong; Chairman of Guocoland Limited listed inSingapore and its parent Guoco Group Ltd listed in Hong Kong, a leading property company ofSingapore, China and Malaysia. A Board member of India Infoline Ltd, Gateway DistriparksLtd both listed and a number of other companies he is also the Chairman of the KhattarHolding Group of Companies with investments in Singapore, India, UK and across the world.

Mr Kranti Sinha


India Infoline Ltd.

Mr. Kranti Sinha Board member since January 2005 completed his masters from the AgraUniversity and started his career as a Class I officer with Life Insurance Corporation of India. He servedas the Director and Chief Executive of LIC Housing Finance Limited from August 1998 to December2002 and concurrently as the Managing Director of LICHFL Care Homes (a wholly owned subsidiary

22


23/112

of LIC Housing Finance Limited). He retired from the permanent cadre of the Executive Director ofLIC; served as the Deputy President of the Governing Council of Insurance Institute of India and as amember of the Governing Council of National Insurance Academy, Pune apart from various other suchbodies. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen & ToubroLimited, LICHFL Care Homes Limited, Gremach Infrastructure Equipments and Projects Limited andCinemax (India) Limited.

Mr Arun K. Purvar


India Infoline Ltd.

Mr. A.K. Purvar Board member since March 2008 completed his Masters degree in commerce fromAllahabad University in 1966 and a diploma in Business Administration in 1967. Mr. Purwar joined theState Bank of India as a probationary officer in 1968, where he held several important and criticalpositions in retail, corporate and international banking, covering almost the entire range of commercialbanking operations in his illustrious career. He also played a key role in co-coordinating the work for

the Bank's entry into the field of insurance. After retiring from the Bank at end May 2006, Mr. Purwaris now working as Member of Board of Governors of IIM-Lucknow, joined IIMIndore as a visitingprofessor, joined as a Hon.-Professor in NMIMS and he is also a member of Advisory Board forInstitute of Indian Economic Studies (IIES), Waseda University, Tokyo, Japan. He has now taken overas Chairman of IndiaVenture Advisors Pvt. Ltd., as well as IL & FS Renewable Energy Limited. He isalso working as Independent Director in leading companies in Telecom, Steel, Textiles, Autoparts,Engineering and Consultancy.

Shabnam Bano

Branch Manager, Kota Branch

India Infoline Ltd.

Ms. Shabnam Bano, Branch Manager India Infoline Limited, Kota Branch. She started hercareer from ICICI Personal Loans DST as a Sales Executive, After that she joined India BullsSecurities Ltd. As Assistant Relationship Manager. In Jan 2007, she join India Infoline Ltd. asRelationship Manager. Then she promoted as Branch Manager for Kota Branch of India InfolineLtd. She had diploma in Civil Engineering, and MBA in Finance. She is an excellent TeamManager for her team. She is Mentor and guide in this project.

Pramod Vijay

Senior Relationship Manager,

India Infoline Ltd. Kota

23


24/112

Mr. Pramod Vijay Sr. Relation Manager, working at Kota Branch of India Infoline Ltd. He joinIndia Infoline as Marketing Executive in the year of 2006. After joining he continuously upgradehimself and got promoted to the designation of Sr. Relation Manager. He got his graduation fromMDS University, Ajmer with flying colors. He always ready to lend a hand to his colleagues andteam members. He provides excellent guidance in the accomplishment of the project report.

COMPETITIVE ADVANTAGES

OF INDIA INFOLINE LTD.

24


25/112


26/112

INDIA INFOLINE LTD. PORTFOLIO MANAGEMENT SERVICE

India Infoline Ltd. offers PMS to address varying investment preferences. As a focused service,

PMS pays attention to details, and portfolios are customized to suit the unique requirements of

investors.

India Infoline Ltd. PMS currently extends five portfolio management schemes - Panther,Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping in mind the varying

tastes, objectives and risk tolerance of our investors

INVESTMENT AVENUES

There are a large number of investment avenues for savers

in India. Some of them are marketable and liquid, while others are

26


27/112

non-marketable. Some of them are highly risky while some others

are almost risk less.

Investment avenues can be broadly categorized under the

following heads:

Corporate securities

Equity shares.

Preference shares.

Debentures/Bonds.

Derivatives.

Others.

Corporate Securities

Joint stock companies in the private sector issue corporate

securities. These include equity shares, preference shares, and

debentures. Equity shares have variable dividend and hence

belong to the high risk-high return category; preference shares

and debentures have fixed returns with lower risk.

The classification of corporate securities that can be chosen as

investment avenues can be depicted as shown below:

27


28/112

Equity shares

By investing in shares, investors basically buy the ownership

right to the company. When the company makes profits,

shareholders receive their share of the profits in the form ofdividends. In addition, when company performs well and the

future expectation from the company is very high, the price of the

companys shares goes up in the market. This allows shareholders

to sell shares at a profit, leading to capital gains.

Investors can invest in shares either through primary market

offerings or in the secondary market.

The primary market has shown abnormal returns to

investors who subscribed for the public issue and were allotted

shares.

Stock Exchange:

In a stock exchange a person who wishes to sell his security

is called a seller, and a person who is willing to buy the particular

stock is called as the buyer. The rate of stock depends on the

simple law of demand and supply. If the demand of shares of

28

Equity

Preferenc

e shares

Bonds Warrant

s

Derivative

s


29/112

company x is greater than its supply then its price of its security

increases.

In Online Exchange the trading is done on a computer

network. The sellers and buyers log on to the network and

propose their bids. The system is designed in such ways that at

any given instance, the buyers/sellers are bidding at the best

prices.

The transaction cycle for purchasing and selling shares

online is depicted below:

29

Client

Member/

Broking

firm.

Stock

Exchange

Member/

Broking

firm.

Client

Tra

nsaction Cycle


30/112

Equity Shares

Precious Objects

Life Insurance Policies

Money Market Instruments

Mutual Fund Schemes

Real Estate

Financial Derivatives

Investment avenues

Non-marketable FinancialAssets

Bonds

Figure: INVESTMENT AVENUES

Non Marketable Financial Assets:A good portion of financial assets is represented by

non marketable financial assets. These can be classified in to the following broad categories.

Bank Post office Company deposit Provident fund deposit

Equity share: Equity share represent the ownership capital. As an equity share holder, youhave an ownership stake in the company. This essentially means that you have an residual

interest in income and wealth. Perhaps the most romantic among various investment avenues,equity share are classified in to the following broad categories by stock market analyst.

Blue chip shares Growth shares Income shares Cyclical shares Speculative shares

30


31/112

Bonds: Bonds or debenture represent long term debt instruments. The issuer of bonds promisesto pay a stipulated stream of cash flow bond may be classified in to following securities

Government securities. Government of India relief bonds PSU bonds Debenture of private sector companies

Preference Shares

Money market instruments: Debt instruments which have a maturity of less than one yearat the time of issue are called money market instrument. The important money marketinstruments are:

Treasury bills Commercial papers Certificate of deposit

Mutual funds: Instead of directly buying the equity shares and fixed income securities, youcan participate in various schemes floated by mutual funds which invest in equity shares andfixed income securities. There are three broad types of mutual fund scheme are

Equity scheme Debt scheme Balance scheme

Life insurance: in a broad sense, life insurance may be viewed as an investment. Insurancepremium represent the sacrifice and the assured sum the benefit.

The important types of insurance policies in India are

Endowment insurance policy Money back policy Team assurance policy

Real Estate: for the bulk of the investor the most important assets in their portfolio is a

residential house. in addition to residential house, the most affluent investor likely to beinterested in the following type of real estate.

Agriculture land Semi urban land Time share in a holiday resort

31


32/112

Precious object: Precious object are the item that are generally small in size but highlyvaluable in monetary terms. Some important precious objects are

Gold and silver Precious stones Art object

Financial derivative: AFinancial derivative is an instrument whose value is derived fromthe value of an underline asserts. It may be viewed as a side bet on the asset. The most importantfinancial derivatives from the point of view of the investor are

Option Future

INVESTMENT ALTERNATIVE: CHOICE GALORE

A confuse range of investment alter native is available. They fall in to broad categories. viz.financial assets and real assets. Financial assets are paper or electronic claim on such issuer suchas government or the corporate body. The important financial assets are equity share, corporatedebenture, government securities, deposit wit policy, bank, mutual funds, shares insurancepolicy, and derivative instrument, real assets are represented by tangible assets like a residentialhouse, a commercial property, an agricultural farm, gold precious stone and art object.

Although discussion is fairly up to date, the rapid change in the world of investment leads to thecreation of new investment alternatives. if you understand the basis characteristic of majorinvestment alternative currently available , you will have the background to understand new

alternative as they appear

NON MARETABLE FINANCIAL ASSETS

Bank Deposits:

A Bank account (SB account) is meant to promote the habit of saving among the people. It alsofacilitates safekeeping of money. In this scheme fund is allowed to be withdrawn wheneverrequired, without any condition. Hence a savings account is a safe, convenient and affordableway to save your money. Bank deposits are fairly safe because banks are subject to control of theReserve Bankof India with regard to several policy and operational parameters. Bank also paysyou a minimal interest for keeping your money with them. the interest rate of savings bankaccount in India varies between 2.5% and 4%.

32
http://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htmhttp://www.webindia123.com/finance/bank/sb.htm


33/112

Post office term deposit:

A popular scheme of post office, deposits meant to provide regular month income to thedepositors .The silent features of this scheme are as follows:

1. Duration 8 years 7 months

2. Rate of Interest 8.25%

3. Who can invest ? i). An individual (above 18 years)

(ii). Two / three individuals in joint names.

(iii). A guardian on behalf of a minor.

(iv). A Trust for Denomination of certificates .

4. Withdrawal i). On maturity (8 years and 7 months)

(ii). Premature after 2 years and 6 months.

5..tax exemption with in certain limit u/s sol of income tax

Kisan Vikas Patra:

A scheme of post office has the following feature:

Minimum Investment Rs. 500/- No maximum limit.

Rate of interest 8.40% compounded annually.

Money doubles in 8 years and 7 months.

Two adults, Individuals and minor through guardian can purchase.

Companies, Trusts, Societies and any other Institution not eligible to purchase.

Non-Resident Indian/HUF are not eligible to purchase. Patras can be pledged as security against a loan to Banks/Govt. Institutions.

Patras are transferable to any Post office in India.

Patras are transferable from one person to another person before maturity

Nomination facility available.

33


34/112

Facility of purchase/payment of Kisan vikas Patras to the holder of Power of attorney.

Rebate under section 80 C not admissible.

Interest income taxable but no TDS

National Savings Certificate: issued at post office:

National Savings Certificates (NSC) are certificates issued by department of post, Governmentof India and are available at all post office counters in the country It is a long term safe savingsoption for the investor. The scheme combines growth in money with reductions in tax liability asper the provisions of the Income Tax Act, 1961.

Features of this scheme are

Interest rate of 8% per annum payable monthly.

Maturity period is 6 years.

Minimum investment amount is Rs.1000/- or in multiple thereof.

Maximum amount is Rs. 3 lacs in single account and Rs. 6 lacs in a joint account

Account can be opened by an individual, 2/3 adults jointly and a minor through aguardian.

Facility of premature closure of account after one year @ 3.50% discount.

No deduction of 3.5% if account is closed on completion of three years.

Rebate under section 80 C not admissible.

Interest income is taxable, but no TDS .

Deposits are exempt from Wealth

Public Provident Fund:

The Public Provident Fund Scheme is a statutory scheme of the Central Government of India.Feature of this scheme are

The Scheme is for 15 years.

The rate of interest is 8% compounded annually.

The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year.

34
http://www.webindia123.com/finance/post/nsc.htmhttp://www.webindia123.com/finance/post/nsc.htm


35/112

The deposit can be in lumpsum or in convenient installments, not more than 12Installments in a year or two installments in a month subject to total deposit ofRs.70,000/-.

A Power of attorney holder can neither open or operate a PPF The grandfather/mother cannot open a PPF behalf of their minor grand son/daughter.

Pre-mature closure of a PPF Account is not permissible except in case of death.

PPF account can be extend for any period in a block of 5 years on each time.

Account is transferable from one Post office to another and from Post office

Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.

The interest on deposits is totally tax free. And deposits are exempt from wealth tax

COMPANY DEPOSIT

1. Non-banking Financial Company:

In terms of section 45 - I subsection (f) of Reserve Bank of India Act, 1934, Non Banking

Financial Company is defined as

(i) a financial institution which is a company;

(ii) a non-banking institution which is a company and which has as its principal business the

receiving of deposits, under any scheme or arrangement or in any other manner, or lending in

any manner ;

(iii) such others non-banking institution or class of such institutions as the RBI may, with the

previous approval of the Central Government and by notification in the Official Gazette, specify)

Interest chart of different companies

Name of the Companies Rate of Interest %

Durations 12M 24M 36M 48M 60m

BAJAJ AUTO FINANCE LTD. - - 6.00 - -

CHOLAMANDALAM FIN. LTD. 6.00 6.50 7.00 - -

35


36/112

ESCORTS FINANCE LTD. 8.25 8.75 9.00 - -

FIRST LEASING COMPANYOFINDIA LTD.

6.50 7.50 8.00 8.00 8.00

2. Finance Company:

Finance companymeans a company engaged in the business of financing, whether by makingloans or advances or otherwise, of any industry, commerce or agriculture and includes anycompany engaged in the business of hire-purchase, lease financing and financing of housing.

HOUSING FINANCE COMPANIES ACCEPTING DEPOSITS

Debenture:

36


37/112

They are securities of fixed interests that are issued for long terms with an amortization period of

five or more years Non-financial private companies issue them although on certain occasions

banks, saving banks and government institutions will also issue them. The objective they go after

with the emission for the market of these securities is to attract great amounts of capital sums a

a less cost that if using other financial sources as is to go to banking institutions to ask for a loan.

MONEY MARET INSTRUMENT:

The Debt instruments which have the maturity of less than one year at the time of issue are calledMoney market instruments. The important Money market Instrument are Treasury bills ,Commercial paper, Certificates of deposits etc.

Treasury Bills:

The Treasury bills are short-term money market instrument that mature in a year or less thanthat. The purchase price is less than the face value. At maturity the government pays theTreasury Bill holder the full face value. The Treasury Bills are marketable, affordable and riskfree. The security attached to the treasury bills comes at the cost of very low returns.

Certificate of Deposit:

The certificates of deposit are basically time deposits that are issued by the commercial banks

with maturity periods ranging from 3 months to five years. The return on the certificate of

deposit is higher than the Treasury Bills because it assumes a higher level of risk.

Advantages of Certificate of Deposit as a money market instrument

Since one can know the returns from before, the certificates of deposits are

considered much safe.

One can earn more as compared to depositing money in savings account.

They are very safe since the financial situation of the corporation can be anticipated

over a few months.

Banker's Acceptance: I

It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker'sAcceptance is traded in the Secondary market. The banker's acceptance is mostly used to financeexports, imports and other transactions in goods. The banker's acceptance need not be held tillthe maturity date but the holder has the option to sell it off in the secondary market whenever hefinds it suitable.

37


38/112

REPO:

The Repo or the repurchase agreement is used by the government security holder when he sellsthe security to a lender and promises to repurchase from him overnight. Hence the Repos haveterms raging from 1 night to 30 days. They are very safe due government backing

BONDS

A bond is a debtsecurity, in which the authorized issuer owes the holders a debt and is obligedto repay the principal and interest (thecoupon) at a later date, termedmaturity. Bonds andstocks are bothsecurities, but the major difference between the two is that stock-holders are theowners of the company (i.e., they have anequity stake), whereas bond-holders are lenders to theissuing company. Another difference is that bonds usually have a defined term, or maturity, afterwhich the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a

consol bond, which is aperpetuity (i.e., bond with no maturity). Bonds are issued by public

authorities, credit institutions, companies and supranational institutions in theprimary markets.The most common process of issuing bonds is through underwriting. In underwriting, one ormore securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuerand re-sell them to investors.

There are various types of bonds which are available in the market.

Convertible Bond

This lets a bondholder exchange a bond to a number of shares of the issuers common stock.

Exchangeable BondThis allows for exchange to shares of a corporation other than the issuer.

Fixed Rate Bonds

which have a coupon that remains constant throughout the life of the bond

Zero Coupon Bonds

The bonds which do not pay any interest. They trade at a substantial discount from par value.

The bond holder receives the full principal amount as well as value that has accrued on theredemption date. An example of zero coupon bonds are Series E savings bonds issued by theU.S. government Zero coupon bondsmay be created from fixed rate bonds by financialinstitutions by "stripping off" the coupons. In other words, the coupons are separated from thefinal principal payment of the bond and traded independently. .

Bearer Bond

38
http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Coupon_(bond)http://en.wikipedia.org/wiki/Coupon_(bond)http://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Consolshttp://en.wikipedia.org/wiki/Consolshttp://en.wikipedia.org/wiki/Perpetuityhttp://en.wikipedia.org/wiki/Supranationalhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Convertible_bondhttp://en.wikipedia.org/wiki/Exchangeable_bondhttp://en.wikipedia.org/wiki/Fixed_rate_bondhttp://en.wikipedia.org/wiki/Zero_coupon_bondhttp://en.wikipedia.org/wiki/Par_valuehttp://en.wikipedia.org/wiki/Par_valuehttp://en.wikipedia.org/wiki/Zero_coupon_bondhttp://en.wikipedia.org/wiki/Zero_coupon_bondhttp://en.wikipedia.org/wiki/Bearer_bondhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Coupon_(bond)http://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Consolshttp://en.wikipedia.org/wiki/Perpetuityhttp://en.wikipedia.org/wiki/Supranationalhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Convertible_bondhttp://en.wikipedia.org/wiki/Exchangeable_bondhttp://en.wikipedia.org/wiki/Fixed_rate_bondhttp://en.wikipedia.org/wiki/Zero_coupon_bondhttp://en.wikipedia.org/wiki/Par_valuehttp://en.wikipedia.org/wiki/Zero_coupon_bondhttp://en.wikipedia.org/wiki/Bearer_bond


39/112

The bonds which are an official certificate issued without a named holder. In other words, theperson who has the paper certificate can claim the value of the bond. Often they are registered bya number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very riskybecause they can be lost or stolen.

Bonds Issued By Foreign Company

Some companies, banks, governments, and other sovereign entities may decide to issue bonds inforeign currencies as it may appear to be more stable and predictable than their domesticcurrency. Issuing bonds denominated in foreign currencies also gives issuers the ability to accessinvestment capital available in foreign markets. The proceeds from the issuance of these bondscan be used by companies to break into foreign markets, or can be converted into the issuingcompany's local currency to be used on existing operations. Foreign issuer bonds can also beused to hedge Foreign exchange rate risk. Some of these bonds are called by their nicknames,such as the "samurai bond."

RBI Relief Bonds

RBI Relief Bonds are instruments that are issued by the RBI, and currently carry an 8.5 per cent

rate of interest, which was reduced from 9 per cent early this year. The interest is compounded

half-yearly. Maturity period of RBI Bonds is five years, and interest received is tax-free in the

hands of the investor. you can opt to receive interest either on a half-yearly basis or on maturity

of the instrument, along with the principal invested. If you opt for the first option, i.e., to receive

interest on a half-yearly basis, you will receive interest every six months from the date of issue of

the bond up to 30th June or 31st December, whichever is earlier. Interest is paid on 1st July and

1st January each year.

The RBI Relief Bond continues to be one of the most popular investment instruments in the

country today. It is very attractive for a variety of reasons:

The Relief Bond comes closest to being risk free among all investment instruments.

Attractive interest rate of 8% pa for 5 years (as compared to a 10 year G-Sec which offers only

about 6.5%).The interest income is totally tax free.

Examples of relief bonds are:

a) Infrastructure Bonds under Section 88 of the Income Tax Act, 1961

b) Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961

c) RBI Tax Relief Bonds

MUTUAL FUND:

39


40/112

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 tofigure out which stocks or bonds to buy. The ne t asset value of the fund is the cumulative

market value of the assets fund net of its ies. In other words, if the fund is dissolved or

liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would

collectively own. This gives rise to the concept of net asset value per unit, which is the value,

represented by the ownership of one unit in the fund.

It is calculated simply by dividing the net asset value of the fund by the number of units.

However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit".

Calculation Of NAV:

The most important part of the calculation is the valuation of the asset owned by the fund.Once it is calculated, the NAV is simply the net value of assets divided by the number of unitsoutstanding. The detailed methodology for the calculation of the asset value is given below.

Asset value = sum of market value of shares/debentures

+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

Details on the above items for liquid shares/debentures, valuation is done on the basis of the lastor closing market price on the principal exchange where the security is traded. Interest ispayable on debentures/bonds on a periodic basis say every 6 months. But, with every passingday, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the

periodic interest payment with the number of days in each period. Thus, accrued interest on aparticular day is equal to the daily interest rate multiplied by the number of days since the lastinterest payment date.

Usually, dividends are proposed at the time of the Annual General meeting and become due onthe record date. There is a gap between the dates on which it becomes due and the actualpayment date. In the intermediate period, it is deemed to be "accrued". Expenses includingmanagement fees, custody charges etc.

40


41/112

BENEFITS OF INVESTING IN MUTUAL FUNDS:

Professional management:

Mutual Funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects of companies

and selects suitable investments to achieve the objectives of the scheme.

Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of industries and

sectors. This diversification reduces the risk because seldom do all stocks decline at the same

time and in the same proportion. You achieve this diversification through a Mutual Fund with far

less money than you can do on your own.

Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad

deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save

your time and make investing easy and convenient

Return Potential:

Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they

invest in a diversified basket of selected securities.

Low Costs

Mutual Funds are a relatively less expensive way to invest compared to directly investing in the

capital markets because the benefits of scale in brokerage, custodial and other fees translate into

lower costs for investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at net asset value related prices

from the Mutual Fund. In closed-end schemes, the units can be the units can be sold on a stock

exchange at the prevailing market price or the investor can avail of the facility of direct

repurchase at NAV related prices by the Mutual Fund.

Transparency

41


42/112

You get regular information on the value of your investment in addition to disclosure on thespecific investments made by your scheme, the proportion invested in each class of assets andthe fund manager's investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans, you can systematically invest or withdraw funds according to your needs and

convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund

because of its large corpus allows even a small investor to take the benefit of its investment

strategy.

Choice Of Schemes

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of strict

regulations designed to protect the interests of investors. The operations of Mutual Funds are

regularly monitored by SEBI

Types of Mutual Fund

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure: they are two types of Mutual Funds

Open-ended Funds:

An open-end fund is one that is available for subscription all through the year. These do not have

a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV")

related prices. The key feature of open-end schemes is liquidity.

.The fund is open for subscription only during a specified period. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or sell the units of the

scheme on the stock exchanges where they are listed. In order to provide an exit route to the

investors, some close-ended funds give an option of selling back the units to the Mutual Fund

42


43/112

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one

of the two exit routes is provided to the investor.

Closed-ended Funds:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.

The fund is open for subscription only during a specified period. Investors can invest in thescheme at the time of the initial public issue and thereafter they can buy or sell the units of the

scheme on the stock exchanges where they are listed. In order to provide an exit route to the

investors, some close-ended funds give an option of selling back the units to the Mutual Fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one

of the two exit routes is provided to the investor.

Interval Funds:

Interval funds combine the features of open-ended and close endedschemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective:

Different types of funds are available in the market some of them are discussed over here

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such

schemes normally invest a majority of their corpus in equities. It has been proven that returns

from stocks, have outperformed most other kind of investments held over the long term. Growth

schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and Government

securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income

43


44/112

securities in the proportion indicated in their offer documents. In a rising stock market, the NAV

of these schemes may not normally keep pace, or fall equally when the market falls. These are

ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and moderateincome. These schemes generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes

may fluctuate depending upon the interest rates prevailing in the market. These are ideal for

Corporate and individual investors as a means to park their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or

sell units in the fund, a commission will be payable. Typically entry and exit loads range from

1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no load fund

is that the entire corpus is put to work.

MEASURING EXPECTED RETURN AND RISK

Risk premiums

Investor assume risk so that they are rewarded in the form of higher return. Hence risk premiummay be defined as the additional return investor expect to get , investor earned in the past, forassuming additional risk . risk premium may be calculated between two classes of securities that

differ in their risk level.

There are three well known risk premiums:

Equity Risk Premium: equity stocks as a class and the risk free rate represented commonly

by the return on treasury bills.

44


45/112

Bond Origin Premium:This is the difference between the return on long term government

bonds and the return on treasury bills.

Bond Default Premium: This is the difference between the return on long term scorporate

bonds (which have some probability of default) and the return on long term government bonds

(which are free from default risk) .

SECURITY ANALYSIS AND VALUATIONS

1. FUNDAMENTAL ANALYSIS

A method of evaluating a security by attempting to measure its intrinsic value by examiningrelated economic, financial and other qualitative and quantitative factors. Fundamental analysts

attempt to study everything that can affect the security's value, including macroeconomic factors

(like the overall economy and industry conditions) and individually specific factors (like the

financial condition and management of companies).

The end goal of performing fundamental analysis is to produce a value that an investor can

compare with the security's current price in hopes of figuring out what sort of position to take

with that security (under priced = buy, overpriced = sell or short).

For example, an investor can perform fundamental analysis on a bond's value by looking at

economic factors, such as interest rates and the overall state of the economy, and information

about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this

method uses revenues, earnings, future growth, return on equity, profit margins and other data to

determine a company's underlying value and potential for future growth. In terms of stocks,

fundamental analysis focuses on the financial statements of a the company being evaluated.

The biggest part of fundamental analysis involves delving into the financial statements. Also

known as quantitative analysis, this involves looking at revenue,expenses, assets, liabilities and

all the other financial aspects of a company. Fundamental analysts look at this information to

gain insight on a company's future performance. A good part of this tutorial will be spent

learning about the balance sheet, income statement, cash flow statement and how they all fit

together.

45
http://www.investopedia.com/terms/r/revenue.asphttp://www.investopedia.com/terms/e/expense.asphttp://www.investopedia.com/terms/a/asset.asphttp://www.investopedia.com/terms/l/liability.asphttp://www.investopedia.com/terms/c/cashflow.asphttp://www.investopedia.com/terms/r/revenue.asphttp://www.investopedia.com/terms/e/expense.asphttp://www.investopedia.com/terms/a/asset.asphttp://www.investopedia.com/terms/l/liability.asphttp://www.investopedia.com/terms/c/cashflow.asp


46/112

When talking about stocks, fundamental analysis is a technique that attempts to determine a

securitys value by focusing on underlying factors that affect a company's actualbusiness and its

future prospects. On a broader scope, you can perform fundamental analysis on industries or the

economy as a whole. The term simply refers to the analysis of the economic well-being of a

financial entity as opposed to only its price movements.

Why fundamental analysis :

Is the companys revenue growing?

Is it actually making aprofit?

Is it in a strong-enough position to beat out its competitors in the future?

Is it able to repay its debts?

Is management trying to "cook the books"?

Fundamentals: Quantitative and Qualitative

The various fundamental factors can be grouped into two categories: quantitative and

qualitative. The financial meaning of these terms isnt all that different from their regular

definitions.

Qualitative It is related to or based on the quality or character of something, oftenas opposed to its size or quantity.

These are the less tangible factors surrounding a business - things such as the quality of a

companys board members and key executives, its brand-name recognition,patents or

proprietary technology

Quantitative Quantitative fundamentals are numeric, measurable characteristics

about a business. Its easy to see how the biggest source of quantitative data is thefinancial statements. You can measure revenue, profit, assets and more with great

precision.

QUALITATIVE FACTORS :

The Industry

46
http://www.investopedia.com/terms/i/industry.asphttp://www.investopedia.com/terms/e/economy.asphttp://www.investopedia.com/terms/p/profit.asphttp://www.investopedia.com/terms/d/debt.asphttp://www.investopedia.com/terms/c/cookthebooks.asphttp://www.investopedia.com/terms/p/patent.asphttp://www.investopedia.com/terms/p/proprietarytechnology.asphttp://www.investopedia.com/terms/i/industry.asphttp://www.investopedia.com/terms/e/economy.asphttp://www.investopedia.com/terms/p/profit.asphttp://www.investopedia.com/terms/d/debt.asphttp://www.investopedia.com/terms/c/cookthebooks.asphttp://www.investopedia.com/terms/p/patent.asphttp://www.investopedia.com/terms/p/proprietarytechnology.asp


47/112


48/112

want to sell to Wal-Mart, you have little, if any, pricing power.

Regulation

Certain industries are heavily regulated due to the importance or severity of the industry's

products and/or services. As important as some of these regulations are to the public, they can

drastically affect the attractiveness of a company for investment purposes.

GDP

The monetary value of all the finished goods and services produced within a country's

borders in a specific time period, though GDP is usually calculated on an annual basis. It

includes all of private and public consumption, government outlays, investments and exports less

imports that occur within a defined territory.

GDP = C + G + I + NX

where:

"C" is equal to all private consumption, or consumer spending, in a nation's economy

"G" is the sum of government spending

"I" is the sum of all the country's businesses spending on capital

"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX

= Exports - Imports)

Inflation:

The rate at which the general level of prices for goods and services is rising, and, subsequently,purchasing power is falling. As the inflation rises, every dollar will buy a smaller percentage ofa good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.

Most countries' central banks will try to sustain an inflation rate of 2-3%.

QUANTITATIVE FACTORS :

Financial Statements

48


49/112

Financial statements are the medium by which a company discloses information concerning its

financial performance. Followers offundamental analysis use the quantitative information

gleaned from financial statements to make investment decisions. Before we jump into the

specifics of the three most important financial statements - income statements,balance sheets

and cash flow statements - we will briefly introduce each financial statement's specific function,

along with where they can be found.

The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities and equity at a particular

point in time. The balance sheet is named by the fact that a business's financial structure balances

in the following manner:

Assets = Liabilities + Shareholders' Equity

Assets represent the resources that the business owns or controls at a given point in time. This

includes items such as cash, inventory, machinery and buildings. The other side of the equation

represents the total value of the financing the company has used to acquire those assets.

Financing comes as a result ofliabilities orequity. Liabilities represent debt (which of course

must be paid back), while equity represents the total value of money that the owners have

contributed to the business - including retained earnings, which is the profit made in previous

years.

The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income

statement measures a company's performance over a specific time frame. Technically, you could

have a balance sheet for a month or even a day, but you'll only see public companies report

quarterly and annually.

The income statement presents information about revenues, expenses and profit that was

generated as a result of the business' operations for that period.

Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over a

49
http://www.investopedia.com/terms/f/fundamentalanalysis.asphttp://www.investopedia.com/terms/q/quantitativeanalysis.asphttp://www.investopedia.com/terms/i/incomestatement.asphttp://www.investopedia.com/terms/b/balancesheet.asphttp://www.investopedia.com/terms/c/cashflow.asphttp://www.investopedia.com/terms/l/liability.asphttp://www.investopedia.com/terms/e/equity.asphttp://www.investopedia.com/terms/f/fundamentalanalysis.asphttp://www.investopedia.com/terms/q/quantitativeanalysis.asphttp://www.investopedia.com/terms/i/incomestatement.asphttp://www.investopedia.com/terms/b/balancesheet.asphttp://www.investopedia.com/terms/c/cashflow.asphttp://www.investopedia.com/terms/l/liability.asphttp://www.investopedia.com/terms/e/equity.asp


50/112

period of time. Typically, a statement of cash flows focuses on the following cash-related

activities:

Operating Cash Flow (OCF): Cash generated from day-to-day business operations

Cash from investing (CFI): Cash used for investing in assets, as well as the

proceeds from the sale of other businesses, equipment or long-term assets

Cash from financing (CFF): Cash paid or received from the issuing and borrowing

of funds

The cash flow statement is important because it's very difficult for a business to manipulate its

cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's

tough to fake cash in the bank. For this reason some investors use the cash flow statement as a

more conservative measure of a company's performance.

Balance Sheet's Main Three

Assets, liability and equity are the three main components of the balance sheet. Carefully

analyzed, they can tell investors a lot about a company's fundamentals.

Assets

There are two main types of assets: current assets and non-current assets. Current assets are

likely to be used up or converted into cash within one business cycle - usually treated as twelvemonths. Three very important current asset items found on the balance sheet are: cash,

inventories and accounts receivables.

Investors normally are attracted to companies with plenty of cash on their balance sheets. After

all, cash offers protection against tough times, and it also gives companies more options for

future growth. Growing cash reserves often signal strong company performance. Indeed, it

shows that cash is accumulating so quickly that management doesn't have time to figure out how

to make use of it

Liabilities

There are current liabilities and non-current liabilities. Current liabilities are obligations the firm

must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile,

represent what the company owes in a year or more time. Typically, non-current liabilities

represent bank and bondholder debt.

You usually want to see a manageable amount of debt. When debt levels are falling, that's a good50
http://www.investopedia.com/terms/o/operatingcashflow.asphttp://www.investopedia.com/terms/c/currentassets.asphttp://www.investopedia.com/terms/c/cash.asphttp://www.investopedia.com/terms/i/inventory.asphttp://www.investopedia.com/terms/a/accountsreceivable.asphttp://www.investopedia.com/terms/g/growthrates.asphttp://www.investopedia.com/terms/c/currentliabilities.asphttp://www.investopedia.com/terms/o/operatingcashflow.asphttp://www.investopedia.com/terms/c/currentassets.asphttp://www.investopedia.com/terms/c/cash.asphttp://www.investopedia.com/terms/i/inventory.asphttp://www.investopedia.com/terms/a/accountsreceivable.asphttp://www.investopedia.com/terms/g/growthrates.asphttp://www.investopedia.com/terms/c/currentliabilities.asp


51/112

sign. Generally speaking, if a company has more assets than liabilities, then it is in decent

condition. By contrast, a company with a large amount of liabilities relative to assets ought to be

examined with more diligence. Having too much debt relative to cash flows required to pay for

interest and debt repayments is one way a company can gobankrupt.

Equity

Equity represents what shareholders own, so it is often called shareholder's equity. As described

above, equity is equal to total assets minus total liabilities.

Equity = Total Assets Total Liabilities

The two important equity items arepaid-in capital and retained earnings. Paid-in capital is the

amount of money shareholders paid for their shares when the stock was first offered to the

public. It basically represents how much money the firm received when it sold its shares. In other

words, retained earnings are a tally of the money the company has chosen to reinvest in the

business rather than pay to shareholders. Investors should look closely at how a company puts

retained capital to use and how a company generates a return on it.Most of the information about debt can be found on the balance sheet - but some assets and debt

obligations are not disclosed there. For starters, companies often possess hard-to-measure

intangible assets. Corporate intellectual property (items such aspatents, trademarks, copyrights

and business methodologies), goodwill andbrand recognition are all common assets in today's

marketplace. But they are not listed on company's balance sheets.

There is also off-balance sheet debt to be aware of. This is form of financing in which large

capital expenditures are kept off of a company's balance sheet through various classification

methods. Companies will often use off-balance-sheet financing to keep the debt levels low. Ther

some fundamental ratios to analysis the investment. Some of them are follows.

Profitability Ratios:

51
http://www.investopedia.com/terms/b/bankruptcy.asphttp://www.investopedia.com/terms/p/paidincapital.asphttp://www.investopedia.com/terms/r/retainedearnings.asphttp://www.investopedia.com/terms/i/ipo.asphttp://www.investopedia.com/terms/i/intellectualproperty.asphttp://www.investopedia.com/terms/p/patent.asphttp://www.investopedia.com/terms/t/trademark.asphttp://www.investopedia.com/terms/g/goodwill.asphttp://www.investopedia.com/terms/b/brandawareness.asphttp://www.investopedia.com/terms/o/obsf.asphttp://www.investopedia.com/terms/b/bankruptcy.asphttp://www.investopedia.com/terms/p/paidincapital.asphttp://www.investopedia.com/terms/r/retainedearnings.asphttp://www.investopedia.com/terms/i/ipo.asphttp://www.investopedia.com/terms/i/intellectualproperty.asphttp://www.investopedia.com/terms/p/patent.asphttp://www.investopedia.com/terms/t/trademark.asphttp://www.investopedia.com/terms/g/goodwill.asphttp://www.investopedia.com/terms/b/brandawareness.asphttp://www.investopedia.com/terms/o/obsf.asp


52/112

A class of financial metrics that are used to assess a business's ability to generate earnings as

compared to its expenses and other relevant costs incurred during a specific period of time. For

most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a

previous period is indicative that the company is doing well.

ratio of profitability calculated as net income divided by revenues, or net profits divided by sales.

It measures how much out of every dollar of sales a company actually keeps in earnings.

Profit margin

Profit margin is very useful when comparing companies in similar industries. A higher profit

margin indicates a more profitable company that has better control over its costs compared to its

competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means

the company has a net income of $0.20 for each dollar of sales.

Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are

good, but an increase does not mean that the profit margin of a company is improving. For

instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower

profit margin. This is an indication that costs need to be under better control.

Price-Earnings Ratio - P/E Ratio

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:

For example, if a company is currently trading at rs.43 a share and earnings over the last 12

months were Rs.1.95 per share, the P/E ratio for the stock would be 22.05 (Rs.43/ Rs 1.95).

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the

estimates of earnings expected in the next four quarters (projected or forward P/E). A third

52


53/112

variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

It would not be useful for investors using the P/E ratio as a basis for their investment to compare

the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has

much different growth prospects.

The P/E is sometimes referred to as the "multiple", because it shows how much investors are

willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of

20, the interpretation is that an investor is willing to pay Rs. 20 for Rs 1 of current earnings

Return on Equity ROE

A measure of a corporation's profitability that reveals how much profit a company generates with

the money shareholders have invested.

Calculated as:

The ROE is useful for comparing the profitability of a company to that of other firms in the

same industry.

There are several variations on the formula that investors may use:

1. Investors wishing to see the return on common equity may modify the formula above by

subtracting preferred dividends from net income and subtracting preferred equity from

shareholders' equity, giving the following: return on common equity (ROCE) = net income -

preferred dividends / common equity.

2. Return on equity may also be calculated by dividing net income by average shareholders'equity. Average shareholders' equity is calculated by adding the shareholders' equity at the

beginning of a period to the shareholders' equity at period's end and dividing the result by two.

Earnings per Share EPS

53


54/112

The portion of a company's profit allocated to each outstanding share of common stock. EPS

serves as an indicator of a company's profitability.

Calculated as:

In the EPS c

47677313 stock market trends and investment pattern

Documents