competitive advantage of investment avenue in reliance money-a mathematical view

GURGAON

A REPORT

ON

Competitive Advantage of Investment Avenue in

Reliance Money

Submitted By

VIPIN MITTAL

09BS0002723

RELIANCE MONEY Batch 2011

09BS0002723 VIPIN MITTAL Page | 2

A REPORT

ON

COMPETITVE ADVANTAGE OF INVESTMENT AVENUE IN RELIANCE

MONEY

Submitted by:

VIPIN MITTAL

09BS0002723

for:

RELIANCE MONEY

A report submitted in partial fulfillment of the

requirements of MBA program of the ICFAI University-Dehradun

Distribution List:

Faculty Guide Company Guide

Prof O.P.GUPTA DEVESH MANI

Date of Submission: 14th May 2010


AUTHORIZATION

This is to certify that the work entitled, “Competitive Advantage of Investment Avenue in

Reliance Money” submitted by Vipin Mittal (0901202723) in fulfillment for the award of degree

of Master of Business Administration from ICFAI University-Dehradun has been carried out

under my supervision. This work has not been submitted partially or wholly to any other

University or Institute for the award of this or any other degree or diploma.

Supervisors:

Prof. O.P. Gupta Devesh Mani Dhaundiyal

Director Center Manager

IBS-G Reliance Money

Gurgaon New Delhi


ACKNOWLEDGEMENT

This report bears the imprint of many people. I am indeed very happy to acknowledge the

numerous personalities involved in lending their help to make my summer project a successful

one.

Firstly, I would like to thank Reliance Money Ltd. for providing me the opportunity to work on

this project.

I would like to thank my corporate guide Mr. Devesh Mani and all other staff of Reliance Money

including Mr. Nitin, Mr. Ravish & Mr. Vipin for helping me in learning the lessons of

professional management. Their able guidance and valuable inputs have helped me a lot in

successfully completing this project, not only on paper but also in real life.

I express my sincere gratitude to my faculty guide Prof. O. P. Gupta who took a lot of personal

interest in supervising this project and guiding me. His overly enthusiasm and his view for

providing ‘Only high quality work and not less’ has made a deep impression on me. He has been

a constant source of motivation with his valuable enlightening guidance.

This acknowledgement would not be completed without extending my thanks to my friends

specifically Aman, who did their summer internship along with me at Reliance Money Ltd, who

helped me clear any doubts that arose during my internship and for extending their support to me

during my period of internship.

Last, but not the least, I would like to thank everyone who has contributed for successful

completion of this project.

Vipin Mittal


TABLE OF CONTENTS

AUTHORIZATION………………………………………………………………………………………………………………………….………..3

ACKNOWLEDGEMENT……………………………………………………………………………………………….…………………………..4

EXECUTIVE SUMMARY…………………………………………………………………………………………………………………………..6

LIST OF ILLUSTRATIONS…………………………………………………………………………………………………………….…………8

1. INTRODUCTION………………………………….…………………………………………………………………………..…………9

1.1. PURPOSE OF PROJECT………………………………………………………………………………………………………9

1.2. LIMITATIONS OF STUDY……………………………………………………………………………………………...…..10

1.3. LITERATURE SURVEY……………………………………………………………………………………………………...10

1.4. INVESTMENT AVENUES & ALTERNATIVES………………………………………………………………………11

2. COMPANY PROFILE…………………………………………………………………………………………………………………15

3. FINANCIAL MARKETS…………………………………………………………………………………………………………..….16

3.1. MONEY MARKET……………………………………………………………………………………………………………..16

3.2. CAPITAL MARKET……………………………………………………………………………………………………..…….17

4. TRADING PORTAL……………………………………………………………………………………………………………….….19

5. FINANCIAL PRODUCTS……………………………………………………………………………………………………………22

5.1. MUTUAL FUNDS……………………………………………………………………………………………………….……..22

5.2. LIFE INSURANCE………………………………………………………………………………………………………….…27

5.3. GENERAL INSURANCE………………………………………………………………………………………………….…30

6. SAVING, INVESTMENT & ASSET ALLOCATION…………………………………………………………………..……32

7. WEALTH MANAGEMENT & PRIVATE BANKING…………………………………………………………………..….34

8. OFFSHORE INVESTMENT……………………………………………………………………………………………………….35

9. COMMODITY MARKET…………………………………………………………………………………………………………...36

FINDINGS……………………………………………………………………………………………………………………………………….…..39

CONCLUSION & RECOMMENDATIONS…………………………………………………………………………………………………51

REFERENCES……………………………………………………………………………………………………………………………..……….54

APPENDICES……………………………………………………………………………………………………………………………………….55


EXECUTIVE SUMMARY

The project is about getting an in depth knowledge of various financial products of the market and

to learn how to minimize the risk involved in these instruments. It involves marketing and

customer handling which lead to an improvement in communication skills. Conducting

presentations and seminars in corporate as an essential part of this project enhances the overall

personality & self confidence and prepares me for my upcoming corporate life. Introduction to

various softwares like Super-trade aims to provide real time exposure with the financial products.

Finally apart from technical and social expertise, implementation of this project in real life

scenario also teaches how to handle other Human factors like stress, fatigue, ethics, teamwork &

grievance. Thus this project eventually leads to an overall personality development and would be

a real life learning experience.

This report does a Comparative Analysis of different Financial Products of the company with its

nearest competitor and develops a Hypothesis for the same to check if there is any advantage of

Investment Avenue in Reliance Money.

The Descriptive Research Methodology was used for Data collection purpose which included

Personal Interviewing, Telephonic Interviewing, Survey Methods Combinations and Closed-

Response Questionnaires. Some Survey Errors like Nonresponse errors due to Refusals,

Inaccuracy in Response and Interviewer Error were also observed. E- Data providing services like

Custom Search Service, Agents & Free Information Providers also helped a lot in gathering

information.

Financial Products & Services in R-Money can be broadly segmented into three domains namely

Equity, Insurance (Life Insurance & General Insurance) and Mutual Funds.

1. Equity:

In Equity Trading, the nearest competitor of Reliance Money is ICICI. The methodology

employed for comparison is Factorial Design (Two-way ANOVA) under Statistical

Hypothesis.

Here, the Null Hypothesis (H01) is accepted which states that Profits generated using Tips

& Techniques of Reliance Money in equity market are equal to the profits generated


using Tips & Techniques of ICICI Securities. It signifies an excellent performance of the

company in this competitive market.

2. Insurance:

In Insurance schemes, the nearest competitors of Reliance are TATA and LIC. The

methodology employed for comparison is Chi-Square Test of Independence under

Statistical Hypothesis.

Here, the Null Hypothesis (H01) is accepted which states that Investment tendency of

customers in Insurance is independent of company. A Low value of Contingency

Coefficient (C=0.0000575) which measures the strength of Association further verifies

the Independence.

When Product Differentiation is taken into account, the result is again the same.

3. Mutual Funds:

In Mutual Funds, the nearest competitor of Reliance is ICICI Prudential. The

methodology employed for comparison is Factorial Design (Two-way ANOVA) under


Here the Null Hypothesis (H02) is accepted which states that Returns from investment in

Mutual Funds of Reliance Securities is greater than the returns from investment in Mutual

Funds of ICICI Prudential in fluctuating market scenario.

Also using Multiple Regression, we find out that Sharpe ratio is the most important

parameter for observing Expected Returns. Higher the sharpe Ratio, Better would be the

expected returns.

Thus, for sure Reliance Money enjoys a competitive advantage over its rivals as it provides cheap

& superior services to its investors in addition to customer satisfaction and better returns.

This project will be useful for the organization as various new marketing strategies and

calculators are coming into existence on the advancement of every step which is helpful for the

company in generating more revenue.


LIST OF ILLUSTRATIONS

Figure1: Investment Alternatives………………………………………………………………………………………….…….11

Figure2: Reliance ADA Group…………………………………………………………………………………………….……….15

Figure 3: Concept of Mutual Fund…………………………………………………………………….………………………...22

Figure 4: Classification of Mutual Funds…………………………………………………….……………………………….23

Figure 5: Snapshot of Equity Worksheet……………………………………………………………………………………..39

Figure 6: ANOVA Table for Equity Worksheet…….....................................................................................................40

Figure 7: Snapshot of MF Worksheet-1……………………………………………………………….………………………41

Figure 8: ANOVA Table for MF Worksheet-1……………………………………………………………………………….42

Figure 9: Snapshot of MF Worksheet-2…………………………………………………………….…………………………42

Figure 10: Regression Table MF…………………………………………………………………….…………………………...43

Figure 11: Snapshot of Insurance Worksheet-1………………………………………………..…………………………45

Figure 12: Snapshot of Insurance Worksheet-2…………………………………………………………..………………46

Figure 13: Preference of Investment………………………………………………………………………….……………….47

Figure 14: Awareness on online Share Trading……………………………………………………………………………48

Figure 15: Awareness of Reliance money as a Brand…………………………………………………………………...48

Figure 16: Awareness of Reliance Money Facilities………………………………………………..…………………….49

Figure 17: Customer Satisfaction with Current Broker……………………………………………...………………….49

Figure 18: Frequency of Trading…………………………………………………………………………………………………50

Figure 19: Percentage of Earnings Invested in Share Trading……………………………………….………………50


INTRODUCTION

Purpose of Project

The project is about getting an in depth knowledge of various financial products of the market and

to learn how to minimize the risk involved in these instruments. It involves marketing and

customer handling which will lead to an improvement in communication skills. Conducting

presentations and seminars in corporate as an essential part of this project will enhance the overall

personality & self confidence and will prepare me for my upcoming corporate life. Introduction to

various softwares like Super-trade aims to provide real time exposure with the financial products.

Finally apart from technical and social expertise, implementation of this project will also teach

how to handle other Human factors like stress, fatigue, ethics, teamwork & grievance. Thus this

project will eventually lead to an overall personality development and would be a real life

learning experience.

Scope of Project

The findings of this project can be utilized by the company for analyzing and comparing the

consumer behavior towards Reliance and its competitors. The critical thresholds can be derived

through the findings and generated Excel sheets.

Source of Database

All the data was being provided by the company itself. References given by the clients also add

up to the existing database. E- Data providing services like Custom Search Service, Agents &

Free Information Providers also helped a lot in gathering information.

Data Collection Methods

The Descriptive Research Methodology was used for Data collection purpose which included

Personal Interviewing, Telephonic Interviewing, Survey Methods Combinations and Closed-

Response Questionnaires.


Limitations of Study

i. The right time to call a customer cannot be decided, as the customer may in a different

mood at the time of calling.

ii. Population involves only those persons who have purchased at least one financial

instrument from any company.

iii. All mutual funds are broadly classified in three major groups namely Equity Funds, Debt

Funds & Liquid Funds.

iv. Insurance is inclusive of Life Insurance & General Insurance.

v. The effect of Riders is excluded from the study.

vi. The source of entire database is Delhi & NCR region only.

vii. January 2010 is taken as the base for all calculations.

Literature Survey

According to the Webster’s dictionary, literature is “the writings that pertain to a particular branch

of learning, and printed matter”. And review means “to examine again, to study carefully”.

Therefore literature review is the printed matter which we study very carefully during our work.

This project is also a collection of insight into the different printed material.

As this project is specifically related to sales of financial products, so books on investments was

one of the most important study materials.

The main source of data through which this project has taken its shape is the circulars of SEBI

and IRDA. These circulars give description of existing market.

The insurance institute of India has published books which give an insight into the life insurance

products and general insurance products.

Books like “Marketing Management” by “Philip Kotler” and “Financial Management” by “ICFAI

University” provided an in depth knowledge at various stages of learning.

“Marketing Research” by “Aaker”, “Business Statistics” by “Ken Black” helped in developing

various mathematical concepts.


Last but not the least, the practical experiences of reliance money has given the best ever

exposure on the actually market works in financial products and services.

Investment Avenues & Alternatives

Whether it’s retiring early, saving for children’s education, paying off a loan or to live a secured

and satisfied life everyone has dreams they can achieve by investing their savings. However, the

question that arises is that, should one leave his money tucked away in the bank or plough it into

the stock market where the potential for higher returns is greater but the chances of losing money

is higher? Deciding where to invest depends on one`s attitude towards risk (one`s capacity to take

risk and one`s tolerance towards risk) and the investment horizon and non-availability of

guaranteed-return investment products.

In such a scenario, investing in equity, which offers returns that are higher than the inflation rate,

help to build wealth and to improve the standard of living. It is fine that stock market fluctuates

over time. At present as far as the world economy is concerned it is on a boom. As soon as

globalization and liberalization has come into act it has well shaped the economy. India has

turned out to be the hot destination for the money investors and this has resulted growth in the

sensex .It was never hoped before that BSE will ever touch the mark of 16000 points. But only

due to the new economic opportunities and the confidence of people in India’s economic future it

has been successful .Investing in equity is the way to earn money and to fulfill the dreams. The

risk involved with investing in equity can be moderated by careful stock selection and close

monitoring. Figure1: Investment Alternatives


Non-marketable Financial Assets - A good portion of financial assets is represented by non-

marketable financial assets. These can be classified into the following broad categories:

• Bank deposits

• Post office deposits

• Company deposits

• Provident fund deposits

Equity Shares - Equity shares represent ownership capital. As an equity shareholder, you have an

ownership stake in the company. This essentially means that you have a residual interest in

income and wealth. Perhaps, the most romantic among various investment avenues, equity shares

are classified into the following broad categories by stock market analysts:

• Blue chip shares

• Growth shares

• Income shares

• Cyclical shares

• Speculative shares

Bonds - Bonds or debentures represent long-term debt instruments. The issuer of a bond promises

to pay a stipulated steam of cash flow. Bonds may be classified into the following categories:

• Government securities

• Government of India relief bonds

• Government agency securities

• PSU bonds

• Debentures of private sector companies

• Preference shares


Money Market Instruments - Debt instruments which have a maturity of less than one year at

the time of issue are called money market instruments. The important money market instruments

are:

• Treasury bills

• Commercial paper

• Certificates of deposits

Mutual Funds - Instead of directly buying equity shares and/or fixed income instruments, you

can participate in various schemes floated by mutual funds which, in turn, invest in equity shares

and fixed income securities. There are three broad types of mutual fund schemes:

• Equity schemes

• Debt schemes

• Balanced schemes

Life Insurance - In a broad sense, life insurance may be viewed as an investment. Insurance

premiums represent the sacrifice and the assured sum the benefit. The important types of

insurance policies in India are:

• Endowment assurance policy

• Money back policy

• Whole life policy

• Term assurance policy

Real Estate - For the bulk of the investors the most important asset in their portfolio is a

residential house. In addition to a residential house, the more affluent investors are likely to be

interested in the following types of real estate:

• Agricultural land

• Semi-urban land


• Time share in a holiday resort

Precious Objects - Precious objects are items that are generally small in size but highly valuable

in monetary terms. Some important precious objects are:

• Gold and silver

• Precious stones

• Art objects

Financial Derivatives - A financial derivative is an instrument whose value is derived from the

value of an underlying asset. It may be viewed as a side bet on the asset. The most important

financial derivatives from the point of view of investors are:

• Options

• Futures

Since every individual would like to earn return on their investment but where to invest has

always been a problem. There has always been confusion as to which instrument to invest, which

instrument will give me higher returns, etc. In such a scenario, one need to think as to how he will

take care of all his future needs and build up a corpus that will not only take care of routine

expenses but also provide for extra costs, especially of health care. One need to have a corpus of

funds, post-retirement, which will give him close to 100% of the salary to preserve the lifestyle he

has grown to enjoy.


COMPANY PROFILE

Reliance Money is promoted by 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.

Thus, 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 market

and avails financial services. Reliance Money offers a single window facility, enabling you to

access amongst others, Equities, Equity and Commodity derivatives, Offshore Investments,

IPO’s, Mutual Funds, Life Insurance and General Insurance products.

The main activity of Reliance Money is Equity Trading and cross selling of Mutual Funds and

Insurances. Offshore Investments and Commodities are also traded by the company but the focus

is not much in these two.

Figure2: Reliance ADA Group


FINANCIAL MARKETS

A financial market can be defined as the market in which financial assets are created or

transferred. Financial assets represent a claim to the payment of a sum of money sometime in the

future and/or periodic payment in the form of interest or dividend. Financial markets are classified

as Money Markets and Capital Markets. Money market deals with all transactions in short term

instruments (with a period of maturity of 1 year or less) whereas Capital Market deals with

transactions related to long term instruments (with a period of maturity of above 1 year).

Money Market

One of the important functions of a well developed money market is to channel savings into

short-term productive instruments like working capital. The important money markets are:

a. CALL MONEY MARKET

ü Day-to-day surplus funds, mostly of banks, are traded

ü Call money loans are of very short duration ranging from 1 to 15 days.

ü Banks borrow in call markets to meet CRR and to meet sudden demands for funds.

b. TREASURY BILLS MARKET

ü Raised to meet short term funds required by the Government of India.

ü High liquidity, assured returns , no default risk & no capital depreciation.

ü Issued for a minimum amount of Rs. 25,000 in the form of a promissory note.

c. MARKETS FOR COMMERCIAL PAPER

ü Unsecured instrument issued in the form of a promissory note at a discount.

ü Transferable by endorsement and delivery, maturity period is 15 days to 1 year.

ü Issued in denominations of Rs. 5 lakh or multiples thereof.

ü Minimum credit rating should be P-2 of CRISIL.

ü Stamp duty on a primary issue of CP is 0.25% for all investors, with a concession

rate of 0.05% for banks. All expenses borne by the issuers.

d. MARKETS FOR CERTIFICATE OF DEPOSITS

ü Lowest risk category investment option and stands next to T-bills.

ü Negotiable promissory note, secure and short term in nature.

ü Issued in denomination of Rs. 1 lakh or multiples thereof.


ü Maturity period is 7 days to 1 year.

ü Issued only in dematerialized form with no lock-in period.

ü Issuance of CDs will attract stamp duty.

e. MONEY MARKET MUTUAL FUNDS

ü Mutual funds that invest primarily in money market instruments of very high

quality & of very short maturities.

ü Can be set up by commercial banks, RBI and public financial institutions.

ü Minimum lock-in period of 15 days with a minimum size of Rs. 50 crore.

Capital Market

The capital market provides the resources needed by medium and large scale industries for

investment purposes. The capital market consists of following markets:

a. PRIMARY MARKET

ü Creates long term instruments, shares and debentures.

ü Methods of Issue include Public Issue, Rights Issue, Bonus Issue, Private

Placement & Bought-out Deals.

ü Key players include Companies, Intermediaries & Investors.

b. SECONDARY MARKET

ü Also called Stock Market.

ü Provides liquidity and marketability to outstanding instruments.

ü 3 functions include Listing, Trading and Practices of settlements & clearing.

Some other types of markets include:

a. GOVERNMENT SECURITIES MARKET

ü Gilt-edged securities as repayments of principal as well as interest are totally

secured, being the first charge on nation’s purse.

ü Classified as Long-dated, Medium-dated & Short-dated.

ü 3 forms include Stock Certificates, Promissory Notes and Bearer Bonds.

b. INTERNATIONAL CAPITAL MARKETS

ü Consists of Bond Market (Foreign Bonds & Euro bonds) and Equity Market

(Foreign Equity & Euro Equity).


ü Key Players include Borrowers/Issuers, Lenders/Investors and Intermediaries

(Lead Managers, Underwriters & Custodian).

c. FOREX MARKET

ü International trade using Foreign Exchange (A method of converting one currency

to the other) with a specified Exchange rate quoted in direct or indirect way.

d. DERIVATIVES MARKET

ü Used to minimize the risk arising from the underlying assets.

ü Allow the participants (Hedgers, Speculators and Arbitrageurs) to hedge, speculate

or arbitrage in the markets.

ü All derivatives can be classified into two categories based on the nature of contract

such as Futures and Options or a combination of the two.

ü A futures contract is a form of forward contract which conveys an agreement to

buy or sell a specific amount of a commodity or financial instrument at a particular

price on a stipulated future date.

ü Option is a contract that confers the right, but not an obligation to the holder to buy

(Call option) or to sell (Put option) an underlying asset at a price agreed on a

specified date or by a specific expiry date.


TRADING PORTAL

Online trading refers to buying and selling of the shares/stocks/contracts/bonds with the use of

internet. In this shares are not issued in physical form rather they are transferred in the

dematerialized form in the Demat account directly.

Online trading portal is one of essential parts of online trading. Let's define first what online

trading portal or in other words financial portal is. Online portal is a website system which gives

both traders and brokers an access to a great variety of financial news and information which

enable traders to take their decisions. These various financial services are provided by a great

number of different companies. That's why choosing a reliable and appropriate online trading

portal is no less important than choosing online trading software on online trading platform. No

matter whether we are going to occupy ourselves with forex online trading, stock option online

trading, currency online trading or any other kind of online trading; we'll certainly need a good

online trading portal. Online trading portals provide their visitors with articles, quotes, analyst

recommendations and research. Some of such portals have also useful links to different relevant

sites, chat rooms, discussion online forums and e-mail accounts.

Reliability is an extremely important point which should be carefully considered. All types of

online trading are based on thorough monitoring and analysis, that's why every trader needs a

reliable and in-time information, because they have to trust this data and take their decisions

accordingly.

Reliance Securities Limited as a SEBI registered Trading Member of NSE and BSE offers

Internet trading on the URL, www.reliancemoney.com. To trade online the customer is provided

with a user id, password and also a security token which flashes a dynamic password number.

This security token displays a new 6 digit number every 36 seconds.

To facilitate trading the following frontend screens have been made available:

Easy Trade , Insta Trade, Fast Trade, & Super Trade

The trading system is totally secured and is SSL (Secure Socket Layer) enabled. All interactions

on the trading system are encrypted using industry standard encryption algorithms.


EQUITY INVSTMENTS

Equity shares represent ownership capital. As an equity shareholder, you have an ownership stake

in the company. This essentially means that you have a residual interest in income and wealth.

Perhaps, the most romantic among various investment avenues, equity shares are classified into

the following broad categories by stock market analysts:

• Blue chip shares

• Growth shares

• Income shares

• Cyclical shares

• Speculative shares

The equities held by private individuals are often held via mutual funds or other forms of pooled

investment vehicle, many of which have quoted prices that are listed in financial newspapers or

magazines; the mutual funds are typically managed by prominent fund management firms (e.g.

Schroder’s, Fidelity Investments or the Vanguard Group). Such holdings allow individual

investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund

managers in charge of the fund(s). An alternative, usually employed by large private investors and

pension funds, is to hold shares directly; in the institutional environment many clients who own

portfolios have what are called segregated funds as opposed to, or in addition to, the pooled e.g.

mutual fund alternative.

STOCK MARKET

A stock market or equity market is a public market (a loose network of economic transactions not

a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed

price; these are securities listed on a stock exchange as well as those only traded privately.

Participants in the stock market range from small individual stock investors to large hedge fund

traders, who can be based anywhere. Their orders usually end up with a professional at a stock

exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a

method known as open outcry. This type of auction is used in stock exchanges and commodity


exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of

stock exchange is a virtual kind, composed of a network of computers where trades are made

electronically via traders.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and

sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading

information on the listed securities, facilitating price discovery.

IMPORTANCE

The stock market is one of the most important sources for companies to raise money. This allows

businesses to be publicly traded, or raise additional capital for expansion by selling shares of

ownership of the company in a public market. The liquidity that an exchange provides affords

investors the ability to quickly and easily sell securities. This is an attractive feature of investing

in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics of

economic activity, and can influence or be an indicator of social mood. An economy where the

stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock

market is often considered the primary indicator of a country's economic strength and

development. Rising share prices, for instance, tend to be associated with increased business

investment and vice versa. Share prices also affect the wealth of households and their

consumption. Therefore, central banks tend to keep an eye on the control and behavior of the

stock market and, in general, on the smooth operation of financial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and

deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an

individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and

enterprise risks promote the production of goods and services as well as employment. In this way

the financial system contributes to increased prosperity.


FINANCIAL PRODUCTS

MUTUAL FUNDS

A mutual fund represents a vehicle for collective investment. When you participate in a scheme

of a mutual fund, you become a part-owner of the investments held under that scheme. The most

important characteristic of a mutual fund is that the contributors and the beneficiaries of the fund

are the same class of people, namely the investors. The term “MUTUAL” means that investors

contribute to the pool, and also benefit from the pool.

The money held in the trust is divided into shares of equal value called “UNITS”. Investors

become “unit-holders” and are allocated units based on the amount of their investment. The

income earned through these investments and the capital appreciation realized is shared by its unit

holders in proportion to the number of units owned by them.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time. Mutual fund issues units to the investors in

accordance with quantum of money invested by them. Investors of mutual funds are known as

unit holders.

Thus a mutual fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a relatively

low cost.

Figure 3: Concept of Mutual Fund

09BS0002723 VIPIN MITTAL

TYPES OF MFs

• Portfolio classification of MFs

Mutual Funds differ from other types of investments because

the objectives of different types of investors.

• Functional classification of MFs

Mutual Funds are classified based on basic characteristics of mutual fund schemes.

• Geographical classification of MFs

Mutual Funds are classified o

Figure 4: Classification of Mutual Funds

In Open-ended MFs; on reselling the shares, holders will receive the Net Assets Value (NAV) of

the shares. The company can buy or sell its own shares. These companies sell new shares at NAV

plus a loading or management fee and redeem shares at NAV.

NAV is calculated as:

Closed-ended funds channelize funds in secondary market in acquisition of corporate securities.

The NAV & the price at which units of MFs are traded in the market

the unit may sell for the current NAV of the share.

Portfolio

• Bond Funds• Stock Funds• Income Funds• Money Market

Funds• Specialized Funds• Leveraged Funds• Balanced Funds• Growth Funds• Performance Funds• Real Estate Funds


o classification of MFs

Mutual Funds differ from other types of investments because they are designed to meet

the objectives of different types of investors.

Functional classification of MFs


Geographical classification of MFs

Mutual Funds are classified on the basis of frontiers of investment.

Figure 4: Classification of Mutual Funds

ended MFs; on reselling the shares, holders will receive the Net Assets Value (NAV) of


plus a loading or management fee and redeem shares at NAV.

ended funds channelize funds in secondary market in acquisition of corporate securities.

The NAV & the price at which units of MFs are traded in the market need not always be equal,

the unit may sell for the current NAV of the share.

Performance Funds

Functional

• Open-ended MF• Closed-ended MF

Geographical

• Domestic MF• Offshore MF

Page | 23

they are designed to meet


ended MFs; on reselling the shares, holders will receive the Net Assets Value (NAV) of


ended funds channelize funds in secondary market in acquisition of corporate securities.

need not always be equal,

Geographical

Domestic MFOffshore MF


There is one another classification of Mutual Funds:

• An EQUITY FUND invests mainly in stocks and shares of companies. EQUITY FUNDS

typically aim to generate long term growth in the unit capital. There are a variety of ways

in which an equity portfolio can be created for investors.

Target market:

They are ideal for investors having a long term perspective, Speculative outlook- the

equity cult, who would like to make gains in the shortest period of time and investors in

their prime earning years-specifically the young who have a decent earning and can take

some kind of risk.

• A DEBT FUND invests mainly in debt instruments like bonds and debentures, with high

and consistent dividend payout. These funds give decent returns but the capital

appreciation is not much. There are a variety of ways in which a debt portfolio can be

created for investors.

Target market:

Retired people and others with a need for stability and regular income and the investors

who need some income to supplement their earnings.

• A BALANCED FUND invests in both equity and debt instruments. It aims to generate

growth and income by periodically distributing its assets over both types of securities.

Target market:

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

ADVANTAGES OF MUTUAL FUNDS

• Reduced Risk: Mutual fund provides small investors access to reduced investment risk

resulting from diversification, economies of scale in transaction cost, and professional

finance management.

• Diversified Investment: Small investors participate in larger basket of securities and share

the benefits of efficiently managed portfolio by experts, and are freed of keeping any

records of share certificates, etc. of various companies, tax rules, etc.


• Botheration-free investment: Investors get freedom from emotional stress involved in

buying or selling securities as experts manage mutual funds and they act scientifically

with right innings in buying and selling for their clients.

• Revolving Type of Investment: Automatic reinvestment of dividends and capital gains

provides relief to the members of Mutual Funds.

• Selection and Timings of Investment: Expertise in stock selection and timing is made

available to investors so that invested funds generate higher returns to them.

• Wide Investment Opportunities: Availment of wider investment opportunities that create

an increased level of liquidity for the funds holders becomes possible because of package

of more liquid securities in the portfolio.

• Investment Care: Mutual Funds provide the care for securities thereby relieving the

investors botheration of taking care of various rules and regulations.

MUTUAL FUND SERVICES

• Saving Scheme: A voluntary saving plan can be added to Mutual Funds through which an

investor can save on monthly or quarterly basis. The amount thus saved will be added to

purchase the units in the Mutual Funds.

• Automatic Reinvestment Plan: The amount of dividend and other income accrued on

mutual fund investments is automatically reinvested in purchasing additional units or

shares in the open-ended funds.

• Regular Income Plan: Systematic withdrawal is allowed to investors of their money

locked in mutual fund investments in the form of regular income by way of monthly or

quarterly installments to meet their regular financial needs.

• Shifting Advantage or Conversion Privileges: Mutual funds may provide the investors

with the facility within the family of the plans to shift or convert or exchange them

afterwards from one plan to another at nominal costs or at no costs subject to tax

advantages, if any, available.

• Retirement Pension Plans: Mutual Funds are now very much linked with retirement

pension plans. They facilitate setting up by individuals and companies, the tax deferred

retirement plans for self or their employees respectively.


PARTIES TO MUTUAL FUND TRUST

• Sponsors: One or more public and private limited companies can jointly sponsor a mutual

fund. The following are the requirements of a competent sponsor. The sponsor has to

locate and appoint both the trustees and the fund managers or the asset management

company.

• Mutual Fund Trust or Trustee: The main functions of Mutual Fund Trust are – planning

and formulating mutual fund schemes, seeking SEBI’s approval and authorization to the

schemes, marketing the schemes for public subscription, etc.

• Fund Managers or the Asset Management Company (AMC): AMC has to discharge

mainly three functions. They are: taking investment decisions and making investments of

the funds through market dealer/brokers in the secondary market securities, realizing fund

position by taking account of all receivables and realizations, moving corporate actions

involving declaration of dividends, etc. to compensate investors for their investments in

units; and maintaining proper accounting and information for pricing the units and

arriving at Net Assets Value (NAV).

CUSTODIANS FOR MUTUAL FUNDS

The institutions, which are acting as professional custodians, are Stock Holding

Corporation of India (SHCI), Citibank, Industrial Investment Trust Ltd., (IITL), Hong

Kong Bank, ABN Amro, ICICI Bank, Citi Bank, and Bank of India Shareholdings Ltd.

In addition to attending to shareholders’ transactional activities viz., to issue, transfer,

exchange, redeem, maintain detailed records of transactions, receipt of dividends,

reimbursement of dividend and purchase of securities, etc custodians also maintain

records of confirmations of transactions, cheque registers, certificates, files, commission

reports, tax reporting, etc.

Securities will be delivered on receipt of cash, and payment will be made only on receipt

of securities. Any discrepancies arising out of the trade settlements are resolved at the end

by the custodian.


LIFE INSURANCE

Life insurance or life assurance is a contract between the policy owner and the insurer, where the

insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured

individual's or individuals' death or other event, such as terminal illness or critical illness. In

return, the policy owner agrees to pay a stipulated amount at regular intervals or in lump sums.

Life policies are legal contracts and the terms of the contract describe the limitations of the

insured events. Specific exclusions are often written into the contract to limit the liability of the

insurer; for example claims relating to suicide, fraud, war, riot and civil commotion.

Special provisions may apply, such as suicide clauses wherein the policy becomes null if the

insured commits suicide within a specified time. Any misrepresentations by the insured on the

application are also grounds for nullification.

The face amount on the policy is the initial amount that the policy will pay at the death of the

insured or when the policy matures, although the actual death benefit can provide for greater or

lesser than the face amount. The policy matures when the insured dies or reaches a specified age

(such as 100 years old).

TYPES OF LIFE INSURANCE

Life insurance may be divided into two basic classes – temporary and permanent or following

subclasses - term, universal, whole life and endowment life insurance.

Term Insurance

Term assurance provides life insurance coverage for a specified term of years in exchange for a

specified premium. The policy does not accumulate cash value. Term is generally considered

"pure" insurance, where the premium buys protection in the event of death and nothing else.

There are three key factors to be considered in term insurance:

Face amount (protection or death benefit),

Premium to be paid (cost to the insured), and


Length of coverage (term).

Various insurance companies sell term insurance with many different combinations of these three

parameters. The face amount can remain constant or decline. The term can be for one or more

years. The premium can remain level or increase. Common types of term insurance include Level,

Annual Renewable and Mortgage insurance.

Permanent Life Insurance

Permanent life insurance is life insurance that remains in force (in-line) until the policy matures

(pays out), unless the owner fails to pay the premium when due (the policy expires OR policies

lapse). The policy cannot be canceled by the insurer for any reason except fraud in the

application, and that cancellation must occur within a period of time defined by law (usually two

years). Permanent insurance builds a cash value that reduces the amount at risk to the insurance

company and thus the insurance expense over time.

Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in the policy

guaranteed by the company. The primary advantages of whole life are guaranteed death benefits,

guaranteed cash values, fixed and known annual premiums, and mortality and expense charges

will not reduce the cash value shown in the policy. The primary disadvantages of whole life are

premium inflexibility, and the internal rate of return in the policy may not be competitive with

other savings alternatives. Also, the cash values are generally kept by the insurance company at

the time of death, the death benefit only to the beneficiaries. Riders are available that can allow

one to increase the death benefit by paying additional premium. The death benefit can also be

increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher

or lower than historical rates over time. Premiums are much higher than term insurance in the

short-term, but cumulative premiums are roughly equal if policies are kept in force until average

life expectancy.

Universal life coverage

Universal life insurance (UL) is a relatively new insurance product intended to provide permanent

insurance coverage with greater flexibility in premium payment and the potential for a higher


internal rate of return. There are several types of universal life insurance policies which include

"interest sensitive" (also known as "traditional fixed universal life insurance"), variable universal

life insurance, and equity indexed universal life insurance.

Endowments

Endowments are policies in which the cash value built up inside the policy, equals the death

benefit (face amount) at a certain age. The age this commences is known as the endowment age.

Endowments are considerably more expensive (in terms of annual premiums) than either whole

life or universal life because the premium paying period is shortened and the endowment date is

earlier.

Endowment Insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15

years) or a specific age (e.g. 65).

Tax Benefits of Insurance

The tax breaks that are available under our various insurance and pension policies are described

below:

• Life insurance plans are eligible for deduction under Sec. 80C.

• Pension plans are eligible for a deduction under Sec. 80CCC.

• Health insurance plans/riders are eligible for deduction under Sec. 80D.

• The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D),

subject to norms prescribed in that section.


GENERAL INSURANCE

Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General

Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as

Accident and Health Insurance, and liability insurance which covers legal liabilities. There are

also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied perils,

flood storm and inundation, earthquake and so on. There are products that cover property against

burglary, theft etc. The non-life companies also offer policies covering machinery against

breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy

covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against

damages and theft forms a major chunk of non-life insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual value of

the property to avoid being imposed a penalty should there be a claim. Where a property is

undervalued for the purposes of insurance, the insured will have to bear a ratable proportion of the

loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a

loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of

the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite

often not understood by most insured.

Personal insurance covers include policies for Accident, Health etc. Products offering Personal

Accident cover are benefit policies. Health insurance covers offered by non-life insurers are

mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is

offered through Third Party Administrators who have arrangements with various service

providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement

claims. Sometimes the insurers themselves process reimbursement claims.

Accident and health insurance policies are available for individuals as well as groups. A group

could be a group of employees of an organization or holders of credit cards or deposit holders in a

bank etc. Normally when a group is covered, insurers offer group discounts.


Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s

Compensation Policy etc offer cover against legal liabilities that may arise under the respective

statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some of the covers such

as the foregoing (Motor Third Party and Workmen’s Compensation policy ) are compulsory by

statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many

industries insure against Public liability. There are liability covers available for Products as well.

There are general insurance products that are in the nature of package policies offering a

combination of the covers mentioned above. For instance, there are package policies available for

householders, shop keepers and also for professionals such as doctors, chartered accountants etc.

Apart from offering standard covers, insurers also offer customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family. It is important to protect one’s

property, which one might have acquired from one’s hard earned income. A loss or damage to

one’s property can leave one shattered. Losses created by catastrophes such as the tsunami,

earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating

but insurance could help mitigate them. Property can be covered, so also the people against

Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing

medical treatment whether due to a disease or an injury.

Industries also need to protect themselves by obtaining insurance covers to protect their building,

machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance.

So, most industries or businesses that are financed by banks and other institutions do obtain

covers. But are they obtaining the right covers? And are they insuring adequately are questions

that need to be given some thought. Also organizations or industries that are self-financed should

ensure that they are protected by insurance.

Most general insurance covers are annual contracts. However, there are few products that are

long-term.

It is important for proposers to read and understand the terms and conditions of a policy before

they enter into an insurance contract. The proposal form needs to be filled in completely and

correctly by a proposer to ensure that the cover is adequate and the right one.


SAVING, INVESTMENT & ASSET ALLOCATION

SAVING

Saving is income not spent, or deferred consumption. Methods of saving include putting money

aside in a bank or pension plan. Saving also includes reducing expenditures, such as recurring

costs. "Saving" differs from "savings." The former refers to an increase in one's assets, an increase

in net worth, whereas the latter refers to one part of one's assets, usually deposits in savings

accounts, or to all of one's assets. Saving refers to an activity occurring over time, a flow variable,

whereas savings refers to something that exists at any one time, a stock variable.

Saving is closely related to investment. By not using income to buy consumer goods and services,

it is possible for resources to instead be invested by being used to produce fixed capital, such as

factories and machinery. Saving can therefore be vital to increase the amount of fixed capital

available, which contributes to economic growth.

However, increased saving does not always correspond to increased investment. If savings are

stashed in a mattress or otherwise not deposited into a financial intermediary like a bank there is

no chance for those savings to be recycled as investment by business. This means that saving may

increase without increasing investment, possibly causing a short-fall of demand (a pile-up of

inventories, a cut-back of production, employment, and income, and thus a recession) rather than

to economic growth. In the short term, if saving falls below investment, it can lead to a growth of

aggregate demand and an economic boom. In the long term if saving falls below investment it

eventually reduces investment and detracts from future growth. Future growth is made possible

by foregoing present consumption to increase investment. However savings kept in a mattress

amount to an (interest-free) loan to the government or central bank, who can recycle this loan.

INVESTMENT

Investment is the commitment of money or capital to purchase financial instruments or other

assets in order to gain profitable returns in form of interest, income, or appreciation of the value

of the instrument. It is related to saving or deferring consumption. Investment is involved in many

areas of the economy, such as business management and finance. An investment involves the

choice by an individual or an organization such as a pension fund, after some analysis or thought,


to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock,

bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign

currency, that has certain level of risk and provides the possibility of generating returns over a

period of time.

Investment comes with the risk of the loss of the principal sum. The investment that has not been

thoroughly analyzed can be highly risky with respect to the investment owner because the

possibility of losing money is not within the owner's control. The difference between speculation

and investment can be subtle. In the case of investment, rather than store the good produced or its

money equivalent, the investor chooses to use that good either to create a durable consumer or

producer good, or to lend the original saved good to another in exchange for either interest or a

share of the profits. In the first case, the individual creates durable consumer goods, hoping the

services from the good will make his life better. In the second, the individual becomes an

entrepreneur using the resource to produce goods and services for others in the hope of a

profitable sale. The third case describes a lender, and the fourth describes an investor in a share of

the business. In each case, the consumer obtains a durable asset or investment, and accounts for

that asset by recording an equivalent liability. As time passes, and both prices and interest rates

change, the value of the asset and liability also change.

ASSET ALLOCATION

Asset allocation is the strategy used in choosing between the various kinds of possible

investments, in other words, the strategy used in choosing in what asset classes such as stocks and

bonds one wants to invest. A large part of financial planning consists of finding an asset

allocation that is appropriate for a given person in terms of their appetite for and ability to

shoulder risk.

A fundamental justification for asset allocation is the notion that different asset classes offer

returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of

the variability of returns for a given level of expected return. Therefore having a mixture of asset

classes is more likely to meet the investor's wishes in terms of amount of risk and possible

returns. The examples of asset classes include: Cash, Bonds, Stocks, Real Estate, Foreign

Currency, Metals, Luxuries, REITs, Life Settlements, Offshore Investments etc.


WEALTH MANAGEMENT & PRIVATE BANKING

WEALTH MANAGEMENT

Wealth management is an investment advisory discipline that incorporates financial planning,

investment portfolio management and a number of aggregated financial services. High net worth

individuals, small business owners and families who desire the assistance of a credentialed

financial advisory specialist call upon wealth managers to coordinate retail banking, estate

planning, legal resources, tax professionals and investment management.

Wealth managers can be independent certified financial planners, MBAs, CFA Charter holders or

any credentialed professional money manager who works to enhance the income, growth and tax

favored treatment of long-term investors. Wealth management can also be provided by large

corporate entities, independent financial advisers or multi-licensed portfolio managers whose

services are designed to focus on high-net worth customers. Large banks and large brokerage

houses create segmentation marketing-strategies to sell both proprietary and nonproprietary

products and services to investors designated as potential high net-worth customers. Independent

wealth managers use their experience in estate planning, risk management,and their affiliations

with tax and legal specialists, to manage the diverse holdings of high net worth clients. Banks and

brokerage firms use advisory talent pools to aggregate these same services.

PRIVATE BANKING

Private banking is a term for banking, investment and other financial services provided by banks

to private individuals investing sizable assets. The term "private" refers to the customer service

being rendered on a more personal basis than in mass-market retail banking, usually via dedicated

bank advisers. It should not be confused with a private bank, which is simply a non-incorporated

banking institution.

An institution's private banking division will provide various services such as wealth

management, savings, inheritance and tax planning for their clients. A high-level form of private

banking (for the especially affluent) is often referred to as wealth management.

JPMorgan took the top spot in Euromoney's 2010 poll for "Best private bank for ultra high net

worth ($35m+) 2010."


OFFSHORE INVESTMENT

Offshore investment is the keeping of money in a jurisdiction other than one's country of

residence. Offshore jurisdictions are a commonly accepted solution to reducing tax burdens levied

in most countries to both large and small scale investors alike. Selected offshore domiciles may

serve as havens for tax evasion, money laundering, or to conceal or protect illegally acquired

money from law enforcement in the investor's country. They also allow legitimate investors to

take advantage of higher rates of return or lower rates of tax on that return offered by operating

via such domiciles. The advantage to offshore investment is that such operations are both legal

and less costly than the solutions offered in the investor's country - or "onshore". Locations

favored by investors for low rates of tax are known as offshore financial centers or (sometimes)

tax havens.

Offshore solutions are accessible to anyone who can meet the minimum investment amount or

pay the obligatory fees required to open such an entity and are widely used.

Tax is the driving force behind most 'offshore' activity. Due to offshore solutions investors are

able to conduct investment activities in a more profitable fashion. Often, taxes levied by an

investor's home country are critical to the profitability of any given investment. Using offshore

domiciled special purpose vehicles an investor may reduce this burden, allowing the investor to

achieve greater profitability overall.

Another reason why 'offshore' investment is considered superior to 'onshore' investment is

because it is less regulated, and the behavior of the offshore investment provider, whether he be a

banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated

environment.

Reasons for Offshore Investment:

• Tax Advantage

• Investment Diversification

• Lower Levels of Regulation

• Money Laundering

• Tax Evasion


COMMODITY MARKET

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

Commodities are tangible goods that can be used for various purposes. Commodities include all goods and articles except financial assets. Commodity trading in its most simple form involves two persons, a buyer and a seller; besides, it may contain three persons including a middleman to bring producers (sellers) and consumers (buyers) together. Commodities are traded in both the organized and unorganized markets.

Commodity markets can be divided into the following three groups:

• Agricultural Market • Metal Market • Energy Market

AGRICULTURAL COMMODITY MARKET

Agricultural commodity market includes livestock and so-called soft commodities: Cocoa, coffee, sugar, cotton etc. This market is quite large. There are also different grades of commodities. Contract months generally revolve around the harvest cycle. More actively traded commodities usually have more contract months available. Every month, a new type of contract appears to meet the needs of a continuously growing corporate and institutional market. Agricultural commodities are traded in every country in different denominations and at different prices.

METAL MARKET

Metals fall into one of the two classifications of commodities: Precious or Industrial. Precious metals are those, which are in relatively short supply and retain their value irrespective of the condition of the economy. An industrial material value is closely attached to the demand for and supply of the metal, which depends mainly on the health of the particular sector of the economy. Industrial metals like copper, aluminum, zinc, lead, nickel and iron are purchased and used exclusively for the purpose of relevant industry requirements. Industrial metal prices fluctuate in an unpredictable manner, and there are no apparent seasonal cycles. As primary inputs to industrial production, industrial metal prices are related to the strength of the general economy and to the pace of inflation.

Energy Market

Some of the leading exchanges that deal in these commodities are New York Mercantile Exchange, Intercontinental Exchange, and Tokyo Commodity Exchange, In India, Multi Commodity Exchange and National Commodity Exchange deal in energy commodities.


Globally commodity exchanges have existed for a long time. The Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME) are the oldest commodity exchanges in the world.

FUNCTIONING OF COMMODITY MARKETS

The functioning of commodities markets is based on three important steps - Trading, Clearing, and Settlement.

Trading: Any person who wants to trade in futures has to contact a Futures Commission Merchant (FCM) or a broker. There are two methods of trading – i) Open outcry, and ii) Electronic trading.

Clearing house:

• In case of futures, both the contracting parties are required to pay variation margins depending on the price of the underlying asset in the market.

• A buyer of options contract need not make any payments irrespective of the underlying asset’s price in the market.

Settlement Procedure

• Trading in contract month opens every month on the twenty-first day, three months prior to the contract month. Once the buyer opts to take the delivery of the commodity, a transferable receipt from the warehouse where goods are stored, is issued in favor of the buyer. On producing the receipt, the buyer can claim the commodity from the warehouse.

• The clearing house has a number of members (mostly financial institutions) who are responsible for the clearing and settlement of commodities traded on the exchange. The margin accounts for the clearing house members are adjusted for gains and losses at the end of each day. Thus, depending on a day’s transactions and price movements, the members either need to add funds or can withdraw funds from their margin accounts at the end of the day.

• National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX.

Difference between Commodity and Financial Derivatives

In case of financial derivatives, most of the positions (contracts) are cash-settled whereas in commodity derivatives, there is a possibility of physical settlement. Financial derivatives do not need any special facilities for storage whereas commodity derivatives have the need for warehousing. The concept of ‘varying quality of asset’ does not actually exist in the case of financial underlying. However, in case of commodities, the quality of the asset underlying a contract can vary largely. The process of taking physical delivery in commodities is quite different from the process of taking physical delivery in financial assets. In all commodity exchanges, delivery notice is required to be supported by a warehouse receipt whereas in underlying assets it is not required.


Hedging with the help of Commodity Futures

• Hedging in the futures market involves a two-step process. Depending upon the cash market position, a hedger initially either will buy or sell futures. For example, a firm that owns or plans to purchase or produce a cash commodity will sell futures to hedge his cash position. A long hedge involves the firm purchasing futures to protect itself against a price increase in a commodity prior to purchasing it in either the spot or forward market.

• In the second stage, once the cash market transaction materializes, the futures position is no longer required and hence the hedger will close his futures position, i.e., if he has gone long on a contract, he will sell it.

• Alternatively, if he has initially sold a futures contract, he will buy one. It should be noted that both the opening and closing positions must be for the same commodity, same number of contracts and delivery month.

Commodity Futures Contracts

• A futures contract is an agreement for buying or selling a commodity for a predetermined delivery price at a specific future time.

• Futures are standardized contracts that are traded on organized futures exchanges that ensure performance of the contracts, and thus remove the default risk.

• The major function of futures markets is to transfer price risk from hedgers to speculators.

Commodity Options Contracts

• The commodity option holder has the right, but not the obligation, to buy (or sell) a specific quantity of a commodity at a specified price on or before a specified date. Option contracts involve two parties.

• The seller of the option writes the option in favor of the buyer (holder) who pays a certain premium to the seller as a price for the option.

• There are two types of commodity options: A ‘call’ option gives the holder a right to buy a commodity at an agreed price, and

• A ‘put’ option gives the holder a right to sell a commodity at an agreed price on or before a specified date (called expiry date).

Forward Markets Commission (FMC) is a regulatory authority of commodity markets. It works under the supervision of Ministry of Consumer Affairs and Public Distribution, Government of India.


FINDINGS

EQUITY TRADING

In Equity Trading, the nearest competitor of Reliance Money is ICICI. In order to check

which company provides the better trading platform, we did a Hypothesis Testing of the

same. Here we took the database of those customers who were having their DMAT

accounts with both the companies. The sample size taken was 697. The methodology

employed for comparison is Factorial Design (Two-way ANOVA) under Statistical

Hypothesis.

The required Hypothesis Statements are:

• H01: Profits generated using Tips & Techniques of Reliance Money in equity

market are equal to the profits generated using Tips & Techniques of ICICI Securities.

• Ha1: Profits generated using Tips & Techniques of Reliance Money in equity

market are not equal to the profits generated using Tips & Techniques of ICICI

Securities.

• H02: All Means of Investment-range/month are equal.

• Ha2: Not all means are equal.

• H03: There is no interaction effect.

• Ha3: Interaction effect is present.

Here is a snapshot of the Excel sheet:

Sr. No. ARN RM ARN ICICI Name Address Contact No.(R) Contatct No.(O) Investment range/Month Profits with Reliance Money Profits with ICICI1 9829 8035 Sansari Lal Mahajan"B-I/32,(G F) Malviya Nagar,"26689956/26689957 9810512456 0-5L 800 60002 9565 20619 Shive Prasad Gupta"455, Sector-A,Pocket-C,Vasant Kunj"1126894650 0-5L 12000 -40003 9352 7949 TCP Mutual Funds & Investments"W-50,G.K-II," 41436196/41638238 0-5L 4000 80004 8503 7948 Hans Raj Seth"7-R,Model Town,Bosa Ram Chowk" 2651784 0-5L -2000 20005 8499 7946 Bansi Lal Ahuja"H. No. 115,Virat Nagar,Model Town"0180-2651176 4011333 0-5L 7000 5006 8417 7944 D.L. Aneja "J/8D,Sheikh Sarai-II," 65728467 29258817 0-5L 3000 -10007 8239 7943 Usha Gupta "F 6/8, Model Town,," 1127111677 9818620431 0-5L 22000 120008 8089 76302 Krishan Kumar Mohindroo"203,Prasad Nagar,Karol Bagh"011 25713033 011 23721925 0-5L 4000 90009 76993 75276 Sudesh Kumar Gupta"Flat No 280 Ea. Aptt Block A-3,Paschim Vihar,"1125270027 9818727888 0-5L 2000 150010 7680 7475 D.Roy "A-300A,Sushant Lok I," 98107-83318 0-5L 5000 120011 76705 74542 Naveen Adlakha"76-D Pkt-C Sithartha,Extension Behind Librarg," 9810021223 0-5L 2000 -400012 76036 74258 Pradeep Kumar Kansal"208, Sector-3, Pocket-16,SFS DDA Flats,Dwarka" 0-5L 10000 750013 75408 73036 Simply Wealth "C-3/11, Basement,Janakpuri," 9811204192 0-5L -6000 30014 74946 73021 Ankit Chaudhary"G-19A School Road,Near Dispensary Uttam Nagar,"011 28563644 9990989895 0-5L 2000 300015 74812 7237 Nitin Ohri"A 52 Second Floor Lane No 14 Indra,Park Krishna Nagar,"[email protected] 22025037 0-5L 14000 750016 74725 72165 Fame Event Management Pvt Ltd"A-3, Jangpura-B Near Rajdoot Hotel,,"[email protected] 0-5L 7000 800017 74711 71424 Faisal Noor"G-17, Shaheen Bagh Abulfazal Enc-II,,Jamla Nagar Okhla,"[email protected] 9871526645 0-5L 3000 500018 74639 71011 Rahul Khewal"Flat No 606, Sargodha Apartments,Plot No 13, Sector-7,Dwarka"[email protected] 1145542410 0-5L 5000 550019 74638 74557 Subodh Kumar "32/61 (FF) West Patel Nagar,,"[email protected] 0-5L 1000 -160020 74637 70809 Huneet Sethi"#84, Masjid Moth, DDA Flats,Phase-II,"[email protected] 29222208 0-5L 5000 300021 74538 69711 Kapil Kumar Goyal"C/o Harish Sharma MCD, 3 A Masjid Moth, II rd Floor ,Near Uday Park Market, Ndse II"[email protected] 9350907462 0-5L 11000 1000022 74449 69708 Subhash Hooda"HM-181/30 Daryao Nagar Near Medical,Mor,"[email protected] 9215599449 0-5L 500 1000

Figure 5: Snapshot of Equity Worksheet


The observed ANOVA table is:

ANOVA TABLE

ANOVASource Sum of Square df Mean Square Fcal Fcritical(FINV)

SST 4448061700 1 4448061700 0.000542484738225765 3.848345832SSB 3.30724E+13 20 1.46536E+13 1.78715252876778 1.57831309SSI 1.45E+13 20 723929702802.21 0.088290325495825 1.57831309SSE 1.11E+16 1352 8199422742375.58

Total 1.11332E+16 1393Figure 6: ANOVA Table for Equity Worksheet

Findings:

i. The observed F value for interaction effect is 0.0883. Because this value is less

than the critical table value (1.578), no significant interaction effects are evident.

Thus it is possible to examine the main effects.

ii. The critical value of F at 0.05% significance level is 3.85 for H01 which is more

than the observed F value (1.07); so we accept the NULL Hypothesis (H01). Thus,

Profits generated using Tips & Techniques of Reliance Money in equity market

are equal to the profits generated using Tips & Techniques of ICICI Securities.

iii. The critical value of F at 0.05% significance level is 1.56 for H02 which is less

than the observed F value (398.11); so we reject the NULL Hypothesis (H02).

Thus Reliance Money provides satisfactory Tips & Techniques and thus generates

acceptable revenue for its customers which is atleast equal to the competitors.

The approximately equal value in profits for the customers of both companies confirms

the hypothesis.


MUTUAL FUNDS

In Mutual Funds, the nearest competitor of Reliance is ICICI Prudential. Since there are a

large number of funds, we broadly classify them into 3 types namely Equity funds, Debt

Funds & Liquid Funds. The returns for 1, 3 & 5 years are taken with January 2010 as the

calculating month. Entire database including returns is provided on the homepages of the

two companies. The methodology employed for comparison is Factorial Design (Two-

way ANOVA) under Statistical Hypothesis.


• H01: Returns of both companies are equal i.e. µreliance = µicici

• Ha1: Returns of both companies are not equal i.e. µreliance ≠ µicici

• H02: Returns in Mutual Funds of Reliance Securities is greater than returns in

Mutual Funds of ICICI Securities in fluctuating market scenario.

• Ha2: Returns in Mutual Funds of Reliance Securities is less than returns in Mutual

Funds of ICICI Securities in fluctuating market scenario.

• H03: There is no interaction effect.

• Ha3: Interaction effect is present.

Here is a snapshot of the Excel sheet:

Returns Returns

Sr. No. Fund Type RELIANCE MF 1 yr( % ) 3 yrs( % ) 5 yrs( % ) Sr. No. Fund Type ICICI PRUDENTIAL MF 1 yr( % ) 3 yrs( % ) 5 yrs( % )1 Equity Growth Fund 111.39 25.62 25.32 1 Equity Child Care Plan (GIFT) 58.94 20.44 15.282 Equity Vision Fund 94.58 20.5 20.62 2 Equity Discovery Fund 74.78 37.45 24.593 Equity NRI Equity 102.44 24.16 22.98 3 Equity Dynamic Plan 48.48 22.87 21.664 Equity Banking Fund 102.95 31.96 27.63 4 Equity Emerging S.T.A.R. Fund 71.27 20.78 14.95 Equity Diversified Power Sector Fund 96.27 30.79 36.84 5 Equity Growth Plan 34.73 17.3 16.816 Equity Pharma Fund 178.66 46.86 33.13 6 Equity Diversified Power Fund 39.87 17.79 16.247 Equity Media Fund 96.95 11.92 14.15 7 Equity Tax Plan 64.52 28.24 18.768 Equity Equity Opportunities Fund 139.26 27.19 22.62 8 Equity FMCG Fund 40.03 16.46 14.439 Equity Regular Savings Fund 114.72 30.02 27.67 9 Equity Infrastructure Fund 27.7 15.8 19.79

Average 115.2467 27.66889 25.66222 10 Equity Technology Fund 72.71 21.46 13.1810 Debt Monthly Income Plan 26.92 12.53 12.88 11 Equity Index Fund 27.67 15.62 16.7211 Debt Income Fund 16.59 9.96 8.02 12 Equity Balanced Fund 32.43 12.9 11.5112 Debt NRI Income Fund 0.78 2.93 3.61 Average 49.4275 20.5925 16.9891713 Debt Regular Savings Fund 6.06 5.14 4.5 13 Debt Income Multiplier Fund 11.27 10.66 9.8614 Debt Medium Term Fund 7.56 7.03 5.76 14 Debt Monthly Income Plan 7.53 9.28 8.8415 Debt Short Term Fund 14.01 10.39 8.65 Average 9.4 9.97 9.3516 Debt Gilt Securities Fund 4.31 5.39 6.11 15 Liquid Sweep Plan 5.05 5.25 5.54

Average 10.89 7.624286 7.075714 16 Liquid Liquid Plan 5.74 5.53 5.3217 Liquid Flexible Income Plan 6.39 7.7 7.64

17 Liquid Treasury Plan 7.11 7.53 6.57 18 Liquid Floating Rate Plan 5.82 5.96 5.9218 Liquid Cash Plan 4.28 5.53 5.32 19 Liquid Long Term Floating Rate Plan 7.2 8.89 7.9619 Liquid Liquidity Fund 7.37 7.98 7.45 20 Liquid Long Term Plan 5.87 7.49 7.68

Average 6.253333 7.013333 6.446667 21 Liquid Income Plan 6.94 6.46 6.9822 Liquid Gilt Fund 4.79 5.19 4.96

Average 5.975 6.55875 6.5 Figure 7: Snapshot of MF Worksheet-1


The observed ANOVA table is:

ANOVASource of Variation SS df MS F P-value F crit

Sample 4876.343 2 2438.171 4.980449 0.0266187 3.885293835Columns 347.7607 1 347.7607 0.71037 0.4158044 4.747225336Interaction 762.8562 2 381.4281 0.779143 0.4806831 3.885293835Within 5874.582 12 489.5485

Total 11861.54 17 Figure 8: ANOVA Table for MF Worksheet-1

The snapshot for Excel Worksheet containing the Volatility Indicators is:

Rf=0.037 VOLATILITY INDICATORS 0.037

Sr. No. Fund Type RELIANCE MF Returns Beta S.D. R Squared Sharpe Ratio Treynor Ratio P.T. Ratio1 Equity Growth Fund 0.40280691 0.8452 4.4233 0.8601 0.0827 0.432805147 0.582 Equity Vision Fund 0.29409968 0.8552 4.3429 0.9122 0.0592 0.300631057 2.283 Equity NRI Equity 0.3408124 0.9612 4.9002 0.9052 0.062 0.316076155 1.54 Equity Banking Fund 0.61295275 0.9566 5.3577 0.75 0.1075 0.602083159 0.45 Equity Diversified Power Sector Fund 0.57976726 0.8498 4.4709 0.8498 0.1214 0.6387 0.56 Equity Pharma Fund 0.60868041 0.6202 4.0747 0.5457 0.1403 0.921767833 0.77 Equity Media Fund 0.23342728 0.8213 5.0109 0.6319 0.0392 0.239166297 0.358 Equity Equity Opportunities Fund 0.29909755 0.8581 4.4803 0.863 0.0585 0.305439401 1.019 Equity Regular Balanced Fund 0.37828919 0.6701 3.4861 0.8735 0.0979 0.509310834 7.0810 Equity Tax Saver ELSS Fund 0.22414092 0.7885 4.2244 0.8207 0.0443 0.237337882 1.6911 Equity Regular Savings Fund 0.486334 0.8977 4.77 0.8371 0.0942 0.500539156 1.6112 Equity Investment Equity Fund 0.24208272 0.7628 3.8768 0.9121 0.0529 0.268855165 1.8313 Equity Long Term Equity Fund 0.25303498 0.6964 3.9066 0.7484 0.0553 0.310216801 0.5814 Equity Equity Advantage Fund 0.26645825 0.9077 4.8307 0.9729 0.0475 0.252790845 1.5615 Equity Quant Plus Fund 0.25715425 0.8792 4.7345 0.961 0.0465 0.250402923 1.2216 Equity Equity Linked Saving Fund 0.2596354 0.7985 6.4532 0.876 0.0345 0.278817032 1.1217 Equity Natural Resources Fund 0.12625568 0.7575 4.3328 0.8517 0.0206 0.117829281 1.7618 Equity Banking Exchange Traded Fund 0.29321071 0.9892 7.4697 0.9917 0.0343 0.259007996 0.05

CORRELATION Returns Beta S.D. R Squared Sharpe Ratio Treynor Ratio P.T. RatioReturns 1Beta 0.04198231 1S.D. -0.046272188 0.628056509 1R Squared -0.4016362 0.53604331 0.28207246 1Sharpe Ratio 0.944832252 -0.223910399 -0.334556832 -0.465737722 1Treynor Ratio 0.935106768 -0.281713109 -0.20708423 -0.559112739 0.969221745 1P.T. Ratio -0.103861226 -0.389137313 -0.461480425 0.210662899 0.1000259 0.010753883 1

Figure 9: Snapshot of MF Worksheet-2


The observed Regression table is:

Regression Statistics BETA Regression Statistics SHARPE RATIORegression Statistics TREYNOR RATIOMultiple R 0.04198231 Multiple R 0.944832252 Multiple R 0.935106768R Square 0.001762514 R Square 0.892707985 R Square 0.874424668Adjusted R Square -0.060627329 Adjusted R Square 0.886002234 Adjusted R Square 0.866576209Standard Error 0.146338081 Standard Error 0.047976009 Standard Error 0.051903015Observations 18 Observations 18 Observations 18

SUMMARY OUTPUT MULTIPLE REGRESSION

Regression StatisticsMultiple R 0.996151967R Square 0.992318742Adjusted R Square 0.988128964Standard Error 0.015481757Observations 18

ANOVAdf SS MS F Significance F

Regression 6 0.340605779 0.05676763 236.8428381 5.63844E-11Residual 11 0.002636533 0.000239685Total 17 0.343242312

Coefficients Standard Error t Stat P-value Lower 95%Intercept -0.189711452 0.052374172 -3.622232945 0.004010765 -0.304986228Beta 0.188904085 0.101203952 1.866568265 0.088826179 -0.033844311S.D. 0.034658274 0.011544286 3.002201566 0.012032401 0.009249471R Squared -0.088197771 0.056434464 -1.562835276 0.146384321 -0.212409187Sharpe Ratio 5.109169028 1.161834591 4.397501216 0.001067617 2.551988336Treynor Ratio -0.128843611 0.199649878 -0.645347807 0.53193187 -0.568270029P.T. Ratio -0.004430398 0.003581746 -1.236938034 0.241866989 -0.012313768

Figure 10: Regression Table MF

Findings:

i. The observed F value for interaction effect is 0.779143. Because this value is less

than the critical table value (3.885294), no significant interaction effects are

evident. Thus it is possible to examine the main effects.

ii. The critical value of F at 0.05% significance level is 3.885294 for H01 which is less

than the observed F value (4.980449); so we reject the NULL Hypothesis (H01).

Thus, Returns are not equal for both the companies.

iii. The critical value of F at 0.05% significance level is 4.747225 for H02 which is

more than the observed F value (0.71037); so we accept the NULL Hypothesis

(H02). Thus, Returns in Mutual Funds of reliance Securities are greater than returns

in Mutual Funds of ICICI Securities in fluctuating market scenario.


Thus returns given by the Mutual Funds of Reliance are better than that given by

ICICI.

iv. On comparing different Volatility Parameters with Returns, it is found that

Correlation Coefficient is approximately equal to zero for β, S.D. and Portfolio

Turnover Ratio. It implies that there is no correlation between returns and these

figures. Also Returns are highly positively correlated with Sharpe Ratio and

Treynor Ratio. This fact is further verified by R2 value (Coefficient of

determination).

v. The high value of R square (0.99) for multiple regression signifies high positive

correlation between Returns and variables.

vi. The Regression equation is:

��

��

��

Here we see that Sharpe Ratio is the most important parameter for determining

Expected Returns.


INSURANCE

In Insurance schemes, the nearest competitors of Reliance are TATA and LIC. It was

being observed that the choice of the Insurance Scheme by the customers is not dependent

on the company. Each company was having some unique products. So in order to check if

the investment in Insurance Schemes is independent of company, we did Hypothetical

Testing. We observed that a total of 154 policies were being sold by R-Money in the

month of January 2010 and the customers invested in Reliance, TATA & LIC policies.

The methodology employed for comparison is Chi-Square Test of Independence under



H01: Investment tendency of customers in Insurance policies is independent of company.

Ha1: Investment tendency of customers in Insurance policies is dependent of company.

Here is a snapshot of the Excel Sheet:

n=154 No. of persons invested in:-INVESTMENT(in Rs.) VALUE RELIANCE TATA LIC Row Total pA

≤ 30,000 Observed,O 8 22 19 49 0.318181818181818Expected,E 17.5 17.8181818181818 13.6818181818182

30T - 50T Observed,O 24 9 7 40 0.25974025974026Expected,E 14.2857142857143 14.5454545454546 11.1688311688312

50T - 1Lakh Observed,O 7 10 11 28 0.181818181818182Expected,E 10 10.1818181818182 7.81818181818182

>1 Lakh Observed,O 16 15 6 37 0.24025974025974Expected,E 13.2142857142857 13.4545454545455 10.3311688311688

Column Total Observed,O 55 56 43 154 1Expected,E

pL 0.357142857142857 0.363636363636364 0.279220779220779 1

CALCULATIONS CHI OBSERVED Degrees of freedom CHI Table(0.05,6)

RELIANCE TATA LIC 0.000713772 6 12.6Observed,O 8 22 19Observed,O 24 9 7Observed,O 7 10 11 Contingency Coefficient Value CalculationObserved,O 16 15 6Expected,E 17.5 17.81818 13.681818 chi square 5.09470973549914E-07Expected,E 14.285714 14.545455 11.16883 chi square + n=154 154.000000509471Expected,E 10 10.181818 7.818181 value1 3.3082530640549E-09Expected,E 13.2142857 13.454545 10.3311688 C 0.0000575174153109726

Figure 11: Snapshot of Insurance Worksheet-1


The snapshot considering product differentiation is:

n=467 No. of persons invested in:-PLANS VALUE RELIANCE TATA LIC,GIC Row Total pA

Whole Life Insurance Observed,O 5 8 6 19 0.0406852248394004Expected,E 6.75374732334046 6.83511777301927 5.41113490364025

Endowment Observed,O 32 28 25 85 0.182012847965739Expected,E 30.2141327623127 30.5781584582442 24.2077087794433

Child Observed,O 19 16 18 53 0.113490364025696Expected,E 18.8394004282655 19.0663811563169 15.0942184154176

Term Observed,O 8 6 10 24 0.051391863Expected,E 8.53104925053533 8.6338329764454 6.83511777301927

Retirement Observed,O 23 30 28 81 0.173447537Expected,E 28.7922912205567 29.1391862955032 23.06852248394

Annuity Observed,O 7 11 9 27 0.057815846Expected,E 9.59743040685224 9.71306209850107 7.68950749464668

Money back Observed,O 6 5 5 16 0.034261242Expected,E 5.68736616702355 5.7558886509636 4.55674518201285

Fire Insurance Observed,O 13 15 6 34 0.072805139Expected,E 12.085653104925 12.2312633832976 9.6830835117773

Marine Insurance Observed,O 12 10 7 29 0.062098501Expected,E 10.3083511777302 10.4325481798715 8.25910064239829

Motor Insurance Observed,O 27 22 10 59 0.12633833Expected,E 20.9721627408993 21.2248394004283 16.8029978586724

Miscellaneous Observed,O 14 17 9 40 0.085653105Expected,E 14.2184154175589 14.389721627409 11.3918629550321

Column Total 166 168 133 467 1

pL 0.355460385438972 0.359743040685225 0.284796573875803 1

CALCULATIONS CHI OBSERVED Degrees of freedom CHI Table(0.05,20)

RELIANCE TATA LIC 0.71672218 20 31.41Observed,O 5 8 6 Contingency Coefficient Value CalculationObserved,O 32 28 25 chi square 0.513690683630525Observed,O 19 16 18 chi square + n=154 154.513690683631Observed,O 8 6 10 value1 0.00332456419465324Observed,O 23 30 28 C 0.0576590339379116Observed,O 7 11 9Observed,O 6 5 5Observed,O 13 15 6Observed,O 12 10 7Observed,O 27 22 10Observed,O 14 17 9Expected,E 6.75 6.84 5.41Expected,E 30.21 30.58 24.21Expected,E 18.84 19.07 15.1Expected,E 8.53 8.64 6.84Expected,E 28.79 29.14 23.07Expected,E 9.6 9.71 7.69Expected,E 5.69 5.76 4.56Expected,E 12.09 12.23 9.69Expected,E 10.31 10.43 8.26Expected,E 20.98 21.23 16.81Expected,E 14.22 14.39 11.39

Figure 12: Snapshot of Insurance Worksheet-2


Findings:

i. Here in first snapshot, the Critical value of Chi variable is 12.6 at 0.05

significance level which is more than the observed value (0.000713772). Thus,

the NULL Hypothesis is accepted. Thus, tendency of cu

policies is independent of company.

ii. The Low value of Contingency Coefficient (C=0.00005751742), which measures

the strength of Association, further verifies the independence.

iii. When Product Differentiation is taken into account, the cri

Variable is 31.41 at 0.05 significance level which is again more than the observed

value (0.7167). Thus, again as shown in 2

of customers in Insurance is still independent of company.

Thus, customers are indifferent for the company. All they need is just a good policy

meeting their requirements.

PREFERENCE OF INVESTMENT

Figure 13

Interpretation: This shows that keeping in mind about the market volatility, people want to play

safe; so are investing more in Mutual Funds.


Here in first snapshot, the Critical value of Chi variable is 12.6 at 0.05


the NULL Hypothesis is accepted. Thus, tendency of customers in Insurance

policies is independent of company.

The Low value of Contingency Coefficient (C=0.00005751742), which measures

the strength of Association, further verifies the independence.

When Product Differentiation is taken into account, the critical value of Chi


value (0.7167). Thus, again as shown in 2nd snapshot, we can say that the tendency

of customers in Insurance is still independent of company.

customers are indifferent for the company. All they need is just a good policy

meeting their requirements.

PREFERENCE OF INVESTMENT

Figure 13: Preference of Investment

keeping in mind about the market volatility, people want to play

safe; so are investing more in Mutual Funds.

Page | 47

Here in first snapshot, the Critical value of Chi variable is 12.6 at 0.05


stomers in Insurance

The Low value of Contingency Coefficient (C=0.00005751742), which measures

tical value of Chi


snapshot, we can say that the tendency

customers are indifferent for the company. All they need is just a good policy

keeping in mind about the market volatility, people want to play


AWARENESS ON ONLINE SHARE TRADING

Figure 14

Interpretation: With the increase in cyber education, the awareness towards online share trading

has increased by leaps and bounds. This awareness is expected to increase further with the

increase in Internet education.

AWARENESS OF RELIANCE MONEY AS A BRAND

Figure 15: Awareness of Reliance money as a Brand

Interpretation: This pie-chart shows that reliance money has a reasonable amount of Brand

awareness in terms of a premier Retail stock broking company. This brand image should be

further leveraged by the company


AWARENESS ON ONLINE SHARE TRADING

Figure 14: Awareness on online Share Trading

With the increase in cyber education, the awareness towards online share trading


AWARENESS OF RELIANCE MONEY AS A BRAND

: Awareness of Reliance money as a Brand

chart shows that reliance money has a reasonable amount of Brand


further leveraged by the company to increase its market share over its competitors.

Page | 48

With the increase in cyber education, the awareness towards online share trading


chart shows that reliance money has a reasonable amount of Brand


to increase its market share over its competitors.


AWARENESS OF RELIANCE MONEY FACILITIES

Figure 16

Interpretation: Although there is sufficiently high brand equity among the target audience yet, it is

to be noted that the customers are not aware of the facilities provided by the company meaning

thereby, that, the company should concentrate more towards promotional too

focus on product awareness rather than brand awareness.

SATISFACTION OF CUSTOMERS WITH CURRENT BROKER

Figure 17: Customer Satisfaction with Current Broker

Interpretation: This pie-chart corroborate the fact that Strategic

beyond only meeting Sales targets and generating profit volumes. It shows that all the competitors

are striving hard not only to woo the customers but also to make them Brand loyal by generating

customer satisfaction.


AWARENESS OF RELIANCE MONEY FACILITIES

Figure 16: Awareness of Reliance Money Facilities

Although there is sufficiently high brand equity among the target audience yet, it is


thereby, that, the company should concentrate more towards promotional tools and increase its

focus on product awareness rather than brand awareness.

SATISFACTION OF CUSTOMERS WITH CURRENT BROKER

: Customer Satisfaction with Current Broker

chart corroborate the fact that Strategic marketing, today, has gone



Page | 49

Although there is sufficiently high brand equity among the target audience yet, it is


ls and increase its

marketing, today, has gone




FREQUENCY OF TRADING

Figure 18

Interpretation: In spite of the huge returns that the share market promises, we see that there is still

a dearth of active traders and investors. This is because of the non

Indian share market and the skepticism of the target audience that is generated by the volatility of

the stock market. It requires efficient bureaucratic intervention on the part of the Government.

PERCENTAGE OF EARNINGS INVESTED IN SHARE TRADING

Figure 19: Percentage of Earnings Invested in Share Trading

Interpretation: This shows that people invest only upto 10% of their earnings in the stock market,

again reiterating the volatile and non

effective and efficient steps should be undertaken to woo the customers to invest more in the

lucrative stock market.


Figure 18: Frequency of Trading

In spite of the huge returns that the share market promises, we see that there is still

a dearth of active traders and investors. This is because of the non – transparent structure of the

ian share market and the skepticism of the target audience that is generated by the volatility of


PERCENTAGE OF EARNINGS INVESTED IN SHARE TRADING

: Percentage of Earnings Invested in Share Trading

This shows that people invest only upto 10% of their earnings in the stock market,

again reiterating the volatile and non-transparent structure of the Indian stock market. Hence,

ffective and efficient steps should be undertaken to woo the customers to invest more in the

Page | 50

In spite of the huge returns that the share market promises, we see that there is still

transparent structure of the

ian share market and the skepticism of the target audience that is generated by the volatility of


This shows that people invest only upto 10% of their earnings in the stock market,

transparent structure of the Indian stock market. Hence,

ffective and efficient steps should be undertaken to woo the customers to invest more in the


CONCLUSION & RECOMMENDATIONS

SWOT ANALYSIS

Weakness

• Inexperienced Staff • Low awareness due to lack of

advertisement. • Lack of loyal clientage • Developing product.

Strength • Co-operative and Experienced

Branch Managers • Good Database • Reliance Brand • Low pricing

Opportunity • Untapped Market • Increased spending power • Changing Mindset of

Customers • Unpredictable Sensex

Threat • Reach • Stiff competit ion from existing

players in the market • Better products

CUSTOMER ACQUISITION PROCESS

• Educate the prospects on the products and services.

• Customize the approach to each of the different customers involved in the sales process.

• Establish a knowledge base for sales people, resellers and partners.

• Ramp up the new salespeople more quickly and keep them on road.

• Track the prospects as they move through the sales process.

• Harvest other types of information from your market to help the company close business

more quickly. The data of the prospects can be used for research and development

purpose.

• Enabling the consistent flow of information to the customer and encouraging feedback

from them.

• Helping the customers do the Financial Planning for future.

Based on the above SWOT analysis and study of the available data I have come to the following

conclusions:


HUGE POTENTIAL:

• All though relatively new entrants in the market, Reliance is slowly but surely gaining a

strong hold because it is finally able to grasp the investment climate in Delhi. Secondly

the branch managers at all the branches are very knowledgeable with a lot of experience in

the financial markets so under their leadership can definitely expand its base

• The entire workforce consists of mostly youngsters, which means they can be encouraged

and motivated to do good work because they have a long way to go and most of them are

eager to climb the ladder.

• Right now Reliance is at its nascent stage and will surely grab the major market under its

belt very soon like in other fields.

Huge investments taking place:

• The Stock Market has been very buoyant until now especially in the past 3 years. This

particular trend is very favorable because a soaring SENSEX means higher returns, which

encourages the investors to invest their money in the market.

• So in order to make the best the only thing required is to recruit more field staff who

should be trained in a proper way to get better results.

• In case of insurance, it requires push selling because people always associate it with

emergencies and unpleasant situations like death and they don’t want to think about such

situation let alone prepare for them, which means it requires a lot of conviction on part of

the executives.

Large untapped market:

• People have just opened up to the idea of ULIPs because till now they knew only two

kinds of insurance plans, endowment and term plans so the concept of high returns with

protection is very new to them and slowly and slowly these are becoming popular so there

is a huge market waiting to be tapped.

• In the past few years there has been a tremendous inflow of funds in the Indian market

which has lead to the sky rocketing SENSEX. In fact there has been a tremendous

response from the investors not only in shares but mutual funds as well. The Rs5700Cr


infused in the market through the Reliance Equity mutual Funds is an example of the

growing trust of investors who earlier shied from such investments due to stock market

fiascos like the Harshad Mehta scam or the US64 disaster in which investors lost huge

amounts of money as well as their trust in financial instruments.

• With the FDI limits being relaxed, a lot of avenues will open up in the insurance sector

and insurance companies are expected to come up with new plans with a great deal of

customization and flexibility.

RECOMMENDATIONS

Based on the findings of our project I would like to suggest the following:-

• After sales services and follow up calls are important for getting new references so trained

telesales should be appointed for this purpose whose sole work should be to make

feedback calls.

• Reliance is having too many financial products right from Demat account to General

Insurance and not all the salespeople are familiar with each and every product so the work

force should be segregated each group dealing in a specific product and the sales target

should be given likewise.

• While interacting with the investors I found that most of the customers are unaware about

the Mutual fund. Some of the people look upon mutual funds and equity trading as

gambling. Thus a mutual fund awareness program can help to increase the penetration of

mutual funds in the market.

• Rs750 account opening charges are too high when targeting a corporate so the company

should be flexible on this amount.

• Reliance should provide periodic training for updating the product knowledge of various

financial advisors.

• Company should have a scheme of rewards and recognition to employees and the field

persons to boost their motivation.

Thus, overall we can say that Reliance Money enjoys a competitive advantage over its rivals

as it provides cheap and superior services to its investors in addition to customer satisfaction

and better returns.


REFERENCES

i. Aaker D.A. & Day G.S., 2002, 7th Edition Marketing Research John Wiley & Sons

(Asia) Pte. Ltd

ii. Bhatt, V. V. An Appraisal Of Some Recent Estimates Of Savings and Investments,

ICRNI, Vol. 5, 1963

iii. Icfai University, 2005 Quantitative Methods ICFAI University Press, Hyderabad

iv. Agarwal, J.D. Security Analysis & Portfolio Management: A Review, Finance

India, Vol. II No. 1, March 1989.

v. Douglas A. Hayes and W. Scott Bauman Investments: Analysis and Management",

III Ed., 1976, MacMillan

vi. Malhotra, Naresh Marketing Research and Applied Orientation IV Ed., 2005,

Pearson

vii. http://www.reliancemutual.com/KnowledgeCentre/KnowledgeCentre.aspx

viii. http://www.reliancemutual.com/KnowledgeCentre/Content.aspx?ReportID=65c05

e26-ef22-4dbf-a046-223cce8b71d7

ix. http://www.moneycontrol.com

x. http://www.reliancemoney.com/knowledge-center.aspx?page=knowledge-

center/knowledge-center

xi. http://www.amfiindia.com

xii. http://www.reliancelife.com/rlic/index.aspx

xiii. http://www.reliancegeneral.co.in/pages/index.aspx

competitive advantage of investment avenue in reliance money-a mathematical view

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