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Transcript of Geojit BNP
Capital market reforms in India and the launch of the Securities and Exchange Board of India
(SEBI) accelerated the incorporation of the second Indian stock exchange called the National
Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest
stock exchange in India.
Three segments of the NSE trading platform were established one after another. The Wholesale
Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment
was opened at the end of 1994. Finally, the Futures and Options segment began operating in
2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior
Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50
stocks from 25 different economy sectors. The Indices are owned and managed by India Index
Page 1
Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard &
Poor's.
In 1998, the National Stock Exchange of India launched its web-site and was the first exchange
in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership
in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by
Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).
Scope Of The Study:
This study is not only based on theoretical data but also the awareness of the investing public
about futures and options to minimize risk and loss. This study gives a fair view about the
potential of the futures and options market.
Objective Of The Study:
The prime objective of this research study is to know the awareness among the retail
investors about futures and options.
The other Objectives:
To find out the satisfaction level of investors by investing through such derivatives
How well investors utilized derivatives in minimizing their investment risk.
Criteria for investment in the present scenario
How the unknown segment of futures and options want to know more about this tool.
To identify the potential of futures and options in the future.
Importance of study:
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Futures and options were started in India in November 1997 and is one of the integral
part of the stock market for hedging though India is overcoming the US market with respect to
the volumes it is to be seen how well this has been exposed to the retail segment.
RESEARCH METHODOLOGY
Type of project study:
It is a Freelance type study. Along with the study about the investors of different security
dealers it has a field study with general investor analysis.
Tool for collection of data:
Structured questionnaire
The secondary information is collected from various text books, news papers and web
sites.
Respondents Size:
This study is confined to 100 respondents, which includes clients of various broking
houses and investing public.
Sample Design:
Random sampling (investors)
Method of Analysis
Tabulation, graphical representation and logical analysis
Limitations:
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1. This study is mainly conducted with only a few clients of Geojit Securities, Integrated
Services, IL & FS investments and few other security dealers. Also with general public at few
areas of Chikamagalore and does not take the whole of the derivative investors in India.
2. This study is restricted to 100 respondents. As the numbers of respondents are only 100,
this may not give the clear picture about all the investors’ attitude towards the futures and
options.
3. This study is conducted bet January 2012, the respondents’ preference might be different
due to the changing conditions for different investment avenues.
Industry profile
Page 4
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning
three centuries in its 133 years of existence. What is now popularly known as BSE was
established as "The Native Share & Stock Brokers' Association" in 1875.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)
from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's
pivotal and pre-eminent role in the development of the Indian capital market is widely
recognized. It migrated from the open outcry system to an online screen-based order driven
trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and
demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to
the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and
Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges,
Deutsche Börse and Singapore Exchange, as its strategic partners
.
Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by
providing it with an efficient access to resources. There is perhaps no major corporate in India
which has not sourced BSE's services in raising resources from the capital market.
Today, BSE is the world's number 1 exchange in terms of the number of listed companies and
the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood
at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for
easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is
tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is
constructed on a 'free-float' methodology, and is sensitive to market sentiments and market
realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has
entered into an index cooperation agreement with Deutsche Börse. This agreement has made
SENSEX and other BSE indices available to investors in Europe and America. Moreover,
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Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has
created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables
investors in Hong Kong to take an exposure to the Indian equity market.
BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading
of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's
equity markets for the first time, without requiring American Depository Receipt (ADR)
authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on
BSE. It brings to the investors a trading tool that can be easily used for the purposes of
investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term
view of the market.
BSE provides an efficient and transparent market for trading in equity, debt instruments and
derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of
India. BSE has always been at par with the international standards. The systems and processes
are designed to safeguard market integrity and enhance transparency in operations. BSE is the
first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is
also the first exchange in the country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System
(BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock exchange
to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has
successfully launched a reporting platform for corporate bonds in India christened the ICDM or
Indian Corporate Debt Market and a unique ticker-***-screen aptly named 'BSE Broadcast'
which enables information dissemination to the common man on the street.
Page 6
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic
Reporting System) to facilitate information flow and increase transparency in the Indian capital
market. While the Directors Database provides a single-point access to information on the boards
of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their
corporate announcements.
BSE also has a wide range of services to empower investors and facilitate smooth transactions:
Investor Services: The Department of Investor Services redresses grievances of investors. BSE
was the first exchange in the country to provide an amount of Rs.1 million towards the investor
protection fund; it is an amount higher than that of any exchange in the country. BSE launched a
nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264
programmes were held in more than 200 cities.
The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen
based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located
across over 450 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based
Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world
to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the
price movements, volume positions and members' positions and real-time measurement of
default risk, market reconstruction and generation of cross market alerts.
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BSE Training Institute: BTI imparts capital market training and certification, in collaboration
with reputed management institutes and universities. It offers over 40 courses on various aspects
of the capital market and financial sector. More than 20,000 people have attended the BTI
programs.
Awards
The World Council of Corporate Governance has awarded the Golden Peacock Global CSR
Award for BSE's initiatives in Corporate Social Responsibility (CSR). The Annual Reports and
Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the
ICAI awards for excellence in financial reporting.
The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its
efforts in employer branding through talent management at work, health management at work
and excellence in HR through technology Drawing from its rich past and its equally robust
performance in the recent times, BSE will continue to remain an icon in the Indian capital
market.
Financial Services Industry
Financial services organizations are striving to achieve increasingly ambitious profit and
growth targets against a background of heightened risk, regulation and market pressures. As of
2004, the financial services industry represented 20% of the market capitalization of the S&P
500 in the United States.
Financial services refer to services provided by the finance industry. The finance industry
encompasses a broad range of organizations that deal with the management of money. Among
these organizations are banks, credit card companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored enterprises.
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Customer needs and expectations are evolving in the face of increasing personal wealth,
more private funding of pensions and healthcare and the desire for ever more accessible and
personalized financial products and services. In turn, intense competition has squeezed industry
margins and forced organizations to cut costs while still seeking to enhance the quality of client
choice and service. The battle for talent is also heating up as companies seek to enhance
innovation, customer loyalty and investment returns
The corollary of this market evolution is increasing risk as products become more complex,
organisations more diffuse and the business environment ever more uncertain. Regulation is also
tightening in the wake of public and government pressure for improved governance,
transparency and accountability.
In this environment, the winners will be companies that can turn the challenges into
opportunities to build stronger and more enduring customer relationships; sharpen process
efficiency; unlock talent and creativity; use improved risk management processes to deliver more
sustainable returns; and use new regulatory demands as a catalyst for strengthening the business
and enhancing market confidence.
Organizations will also need to identify and concentrate on core competencies where they can
exert maximum competitive advantage, be this a particular product, service, process or
geographical territory. For some this will require a strategic re-orientation towards becoming a
specialist niche provider. Even larger groups will need to differentiate their offering and by
implication the associated brand
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade)
financial securities (such as stocks and bonds), commodities (such as precious metals or
agricultural goods), and other fungible items of value at low transaction costs and at prices that
reflect the efficient market hypothesis. Financial markets have evolved significantly over several
hundred years and are undergoing constant innovation to improve liquidity.
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Both general markets (where many commodities are traded) and specialized markets (where only
one commodity is traded) exist. Markets work by placing many interested buyers and sellers in
one "place", thus making it easier for them to find each other. An economy which relies
primarily on interactions between buyers and sellers to allocate resources is known as a market
economy in contrast either to a command economy or to a non-market economy such as a gift
economy
In finance, financial markets facilitate--
The raising of capital (in the capital markets);
The transfer of risk (in the derivatives markets);
International trade (in the currency markets)
--and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These
receipts are securities which may be freely bought or sold. In return for lending money to the
borrower, the lender will expect some compensation in the form of interest or dividends.
Definition of financial market
The term financial markets can be a cause of much confusion.
Financial markets could mean:
1. Organizations that facilitate the trade in financial securities. i.e. Stock Exchanges facilitate
the trade in stocks, bonds and warrants.
2. The coming together of buyers and sellers to trade financial securities. i.e. stocks and shares
are traded between buyers and sellers in a number of ways including: the use of stock
exchanges; directly between buyers and sellers etc.
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Types of Financial Markets
The financial markets can be divided into different subtypes:
Capital Market which is the market for securities, where companies and governments
can raise long term funds. The capital market includes the stock market and the bond
market. Financial regulators, such as the U.S. Securities and Exchange Commission,
oversee the capital markets in their designated countries to ensure that investors are
protected against fraud. The capital markets consist of the primary market, where new
issues are distributed to investors, and the secondary market, where existing securities
are traded.
CAPITAL MARKETS WHICH CONSIST OF:
Stock Markets :- which provide financing through the issuance of shares or common stock,
and enable the subsequent trading thereof.
Bond Markets :- which provide financing through the issuance of Bonds, and enable the
subsequent trading thereof.
Commodity Markets:- which facilitate the trading of commodities.
Money Markets :- which provide short term debt financing and investment.
Derivatives Markets:- which provide instruments for the management of financial risk.
o Futures Markets, which provide standardized forward contracts for trading products
at some future date; see also forward market.
Insurance Markets :- which facilitate the redistribution of various risks.
Foreign Exchange Markets :- which facilitate the trading of foreign exchange.
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The capital markets consist of primary markets and secondary markets. Newly formed
(issued) securities are bought or sold in primary markets. Secondary markets allow investors to
sell securities that they hold or buy existing securities.
Raising Capital
To understand financial markets, let us look at what they are used for, i.e. what is their purpose?
Without financial markets, borrowers would have difficulty finding lenders themselves.
Intermediaries such as banks help in this process. Banks take deposits from those who have
money to save. They can then lend money from this pool of deposited money to those who seek
to borrow. Banks popularly lend money in the form of loans and mortgages.
More complex transactions than a simple bank deposit require markets where lenders and
their agents can meet borrowers and their agents, and where existing borrowing or lending
commitments can be sold on to other parties. A good example of a financial market is a stock
exchange. A company can raise money by selling shares to investors and its existing shares can
be bought or sold.
The following table illustrates where financial markets fit in the relationship between
lenders and borrowers:
Relationship between lenders and borrowers
Lenders Financial Intermediaries Financial Markets Borrowers
Individuals
Companies
Banks
Insurance Companies
Pension Funds
Mutual Funds
Interbank
Stock Exchange
Money Market
Bond Market
Foreign Exchange
Individuals
Companies
Central Government
Municipalities
Public Corporations
Page 12
Analysis Of Financial Markets
Much effort has gone into the study of financial markets and how prices vary with time. Charles
Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a
set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called
technical analysis method of attempting to predict future changes. One of the tenets of "technical
analysis" is that market trends give an indication of the future, at least in the short term. The
claims of the technical analysts are disputed by many academics, who claim that the evidence
points rather to the random walk hypothesis, which states that the next change is not correlated to
the last change.
The scale of changes in price over some unit of time is called the volatility. It was discovered by
Benoît Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather
modeled better by Levy stable distributions. The scale of change, or volatility, depends on the
length of the time unit to a power a bit more than 1/2. Large changes up or down are more likely
than what one would calculate using a Gaussian distribution with an estimated standard
deviation.
Page 13
Company profile
Stoke broker definition
“Broker who Deals primarily with transactions involving stock.”
A stock broker is a regulated professional broker who buys and sells shares and other securities through
market makers or Agency Only Firms on behalf of investors.
ABOUT GEOJIT BNP PARIBAS
A leading retail financial services player
Geojit BNP Paribas today is a leading retail financial services company in India with a growing
presence in the Middle East. The company rides on its rich experience in the capital market to
offer its clients a wide portfolio of savings and investment solutions. The gamut of value-added
products and services offered ranges from equities and derivatives to Mutual Funds, Life &
General Insurance and third party Fixed Deposits. The needs of over 460 000 clients are met via
multichannel services - a countrywide network of 500 offices, phone service, dedicated
Customer Care centre and the Internet.
Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE). In 2007, global banking major BNP Paribas joined the
company’s other major shareholders - Mr. C.J.George, KSIDC (Kerala State Industrial
Development Corporation) Strategic joint ventures and business partnerships in the Middle East
has provided the company access to the large Non-Resident Indian(NRI) population in the
region. Now, as a part of the BNP Paribas global network, Geojit BNP Paribas is well positioned
Page 14
to further expand its reach to NRIs in 85 countries. Barjeel Geojit Securities is the joint venture
with the Al Saud group in the United Arab Emirates that is headquartered in Dubai with branches
in Abu Dhabi, Ras Al Khaimah, Sharjah and Muscat. Aloula Geojit Brokerage Company
headquartered in Riyadh is the other joint venture with the Al Johar group in Saudi Arabia. The
company also has a business partnership with the Bank of Bahrain and Kuwait, one of the largest
retail banks in Bahrain and Kuwait.
At the forefront of the many fruitful associations between Geojit BNP Paribas and BNP Paribas
is their joint venture, namely, BNP Paribas Securities India Private Limited. This JV was created
exclusively for domestic and foreign institutional clients.
Expanding range of online products and Services.
Geojit BNP Paribas has proven expertise in providing online services. In the year 2000, the company was
the first stock broker in the country to offer Internet Trading. This was followed by integrating the first
Bank Payment Gateway in the country for Internet Trading, and many other industry firsts. Riding on this
experience, and harnessing BNP Paribas Personal Investors’ expertise as the leading online broker in
Europe, is helping the company to rapidly expand its business in this segment. Presently, clients can trade
online in equities, derivatives, currency futures, mutual funds and IPOs, and select from multiple bank
payment gateways for online transfer of funds.
Further, deployment of BNP Paribas’ state-of-the-art globally accepted systems and processes is already
scaling up the sales of Mutual Funds and Insurance.
Wide range of products and Services
Certified financial advisors help clients to arrive at the right financial solution to meet their individual
needs. The wide range of products and services on Equities | Derivatives | Currency Futures | Custody
Accounts | Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services |
Property Services | Margin Funding | Loans against Shares.
Page 15
A growing footprint
With a presence in almost all the major states of India, the network of 500 offices across 300 cities and
towns presently covers Andhra Pradesh, Bihar, Chattisgarh, Goa, Gujarat, Haryana, Jammu & Kashmir,
Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi, Orissa, Punjab, Rajasthan,Tamil Nadu &
Pondicherry, Uttar Pradesh, Uttarakhand and West Bengal.
Evolution of the Company
It all started in the year 1987 when Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a
partnership firm. In 1993, Mr.Ranajit Kanjilal retired from the firm and Geojit became the proprietary
concern of Mr. C .J. George. In 1994, it became a Public Limited Company named Geojit Securities Ltd.
The Kerala State Industrial Development Corporation Ltd. (KSIDC), in 1995, became a co-promoter of
Geojit by acquiring a 24 percent stake in the company, the only instance in India of a government entity
participating in the equity of a stock broking company. The year 1995 also saw Geojit being listed on the
leading regional stock exchanges. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year 2000.
Company’s wholly owned subsidiary, Geojit Commodities Limited, launched Online Futures Trading in
agri-commodities, precious metals and energy futures on multiple commodity exchanges in 2003. This
was also the year when the company was renamed as Geojit Financial Services Ltd. (GFSL). The Board
consists of professional directors; including a Kerala Government nominee. With effect from July 2005,
the company is also listed at The National Stock Exchange (NSE). Company is a charter member of the
Financial Planning Standards Board of India and is one of the largest Depository Participant(DP) brokers
in the country.
On 31st December 2007, the company closed its commodities business and surrendered its
membership in the various commodity exchanges held by Geojit Commodities Ltd. Global banking major
BNP Paribas took a stake in the year 2007 to become the single largest shareholder. Consequently, Geojit
Financial Services Limited has been renamed as Geojit BNP Paribas Financial Services Ltd.
Page 16
About BNP Paribas:
BNP Paribas (www.bnpparibas.com) is the Eurozone’s leading bank in terms of deposits, and
one of the 10 most important banks in the world in terms of net banking income, equity capital
and market value. Furthermore, it is one of the 6 strongest banks in the world according to
Standard & Poor's. With a presence in 85 countries and more than 205,000 employees, 165,200
of which in Europe, BNP Paribas is a global-scale European leader in financial services. It holds
key positions in its three activities: Retail banking, Investment Solutions and Corporate &
Investment Banking. The Group benefits from its four domestic markets: Belgium, France, Italy
and Luxembourg. BNP Paribas also has a significant presence in the United States and strong
positions in Asia and the emerging markets.
BNP Paribas has been operating in India since 1860 in a number of businesses such as
Investment Banking (CIB), Private banking (BNP Paribas Wealth Management), Life Insurance
(SBI Life) and Asset Management (Sundaram BNP Paribas), Infrastructure Funding (Srei BNP
Paribas), Retail Financing (Sundaram BNP Paribas Home Finance), Car Contract Hiring (Arval),
Institutional Broking (BNP Paribas Securities India) and Securities Services (Sundaram BNP
Paribas Securities Services and BNP Paribas Sundaram Global Securities Operations).
Why geojit bnp Paribas…………
1. 22 years of history in Indian Capital Market
Geojit BNP Paribas has 22 years of in-depth broking experience in the Indian Capital Market.
More than 4.5 lakh clients and over Rs 5,400 crores (as of 31st Mar.’09) in Assets Under
Management reflect the trust reposed in our expertise.
Page 17
2. Pioneer in Online Trading in Feb. 2000
In the year 2000, Geojit BNP Paribas pioneered the simple concept of providing individuals with
the facility to trade online. This revolution has given the company the first mover advantage in
online trading. As a creative innovator, Geojit BNP Paribas uses advanced technology in online
trading to meet client requirements such as customized online trading platforms and many other
services.
3. Srrong Shareholders
Geojit BNP Paribas is backed by srrong shareholders. In 2007, global banking major BNP
Paribas joined the company’s other major shareholders- Mr. C.J George, KSIDC (Kerala State
Indusrial Development Corporation ) And Mr. Rakesh Jhunjhunwala- when it took a Stake to
become the single largest shareholder.
Wide range of products
Geojit BNP Paribas offers a wide range of trading and investment products and solutions.
Certified financial advisors help clients to arrive at the right financial solution to meet their
individual needs.
The wide range on offer includes - Equities | Derivatives | Currency Futures | Custody Accounts |
Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services |
Property Services | Margin Funding | Loans against Shares
Attractive brokerage Slabs
We provide value for money! To start with, we offer low online brokerage charges which
further decrease automatically, as and when, your volumes increase.
Page 18
Learn the craft
You too can develop your trading skills by availing of the effective guidance by our our clients into successful traders
Daily mails delivered to our clients mailbox on market conditions and recommendations
Technical analysis of BSE 200 index scrips
Free monthly investment magazine
Services of professionally qualified executives at 500 offices Across india.
our strong research ideas have been instrumental in converting our clients into successful traders.
Multichannel service- internet, Phone, Branch trading
Trade the way that you want to by selecting from multiple channel options- Internet, Phone or Branch.
First mover advantage
Geojit BNP Paribas through its first mover advantage in different areas has been the first to serve
investors with its innovative offerings.
1st to launch internet trading in the year 2000.
1st to launch integrated internet trading system for cash and
derivative segments in the year 2002.
1st Indian stock broking company to commence domestic retail
broking operations in any foreign country.
1st in the industry to have a global player offering its name thereby creating Geojit BNP Paribas.
1st to launch exclusive branches for women in 2005.
Page 19
Our deep reach
we have a pan-India network of 500 offices with industry certified executives and a dedicated
Call Centre to provide you quality services.
Wide range of fund options
Geojit BNP Paribas gives you the option to choose from the 700 plus Mutual Fund schemes
offered by over 35 Asset Management companies such as SBI Mutual Fund, Reliance Mutual
Fund, Franklin Templeton India Mutual Fund, Tata Mutual Fund, Sundaram BNP Paribas
Mutual Fund, Fidelity Mutual Fund, and HDFC Mutual Fund.
13/03/2007 With Geojit, BNP Paribas enters into savings products distribution in India and
creates the BNP Paribas Personal Investors business line BNP Paribas acquires a 27% interest in
the India-based company Geojit and becomes its main shareholder.
BNP Paribas enters the capital of Geojit Financial Services Ltd through a preferential allotment
representing 27% of Geojit’s equity. The capital increase will take place in two stepts and the
share of BNP Paribas will increase up to a minimum of 34.35% in the coming few weeks.
Based in Kochi, Kerala, Geojit is a brokerage firm and distributor of financial savings products,
with approximately 250,000 clients, a network of 400 branches throughout India, and over 2,000
employees. Geojit also operates in the United Arab Emirates through the joint-venture Barjeel
Geojit Securities.
Geojit offers brokerage services for equities, derivatives and commodities, financial savings
products (funds, life insurance, programmed savings plans) and a portfolio management service,
mainly to private customers.
Page 20
The capital increase allotted to BNP Paribas will mainly allow to finance the continued
development of the company in India and to bolster its presence in the Gulf countries, primarily
through the opening of a new joint-venture in Saudi Arabia. The company will use the brand
name Geojit BNP Paribas and the common logo of the group's companies for all its operations in
India.
CJ George, age 48, has been the CEO of Geojit since its creation and becomes CEO of Geojit
BNP Paribas. He holds a Masters in Business and the Certified Financial Planner (CFP) degree.
He was elected Businessman of Kerala in 2002. He is a member of the Executive Board of the
Associated Chambers of Commerce and Industry of India, New Delhi (ASSOCHAM), of the
Kochi Chamber of Commerce and of the Executive Committee of Financial Planning standard
Board of India, Bombay. He also sat on the Executive Board of the National Stock Exchange
(NSE).CJ George joins the Executive Board of BNP Paribas Personal Investors.
A strategic partnership between Geojit and BNP Paribas
Already present in India through its Investment Banking, Private Banking, Insurance (joint-
venture SBI Life) and Asset Management (joint-venture Sundaram BNP Paribas, etc.) activities,
BNP Paribas will find in Geojit a strong trading and distribution platform in a fast growing
market.
To accelerate its growth, Geojit will benefit from the BNP Paribas Group's experience in savings
distribution (investment funds, life insurance), cross-selling, consulting and discretionary
management of stocks and investment funds, multi-channel distribution and direct marketing and
telesales.
A new business line, BNP Paribas Personal Investors, is part of the Asset Management &
Services (AMS) division
Page 21
- Cortal Consors
- its subsidiary, the brokerage firm B* Capital
- the interest in Geojit
BNP Paribas Personal Investors is dedicated to providing financial investment advice to a mass-
affluent clientele in Europe and several emerging countries through various distribution channels
(Internet, telephone and face-to-face). These operations are managed jointly so as to ensure that
their identity.
BNP Paribas Personal Investors, with 4,000 members, operates in Europe through Cortal
Consors, the leading broker in personal investing and online trading, which offers a complete
range of products and investment services through various distribution channels. Cortal Consors
operates in 5 European countries: Germany, France, Belgium, spain and Luxemburg.
B capital, a Cortal Consors brokerage firm, offers private investors wishing to manage their own
portfolio information and peronalized consulting and management under mandate services.
BNP Paribas is a European leader in banking and financial services, with a signifi cant and
growing presence in the United States and leading positions in Asia. The Group has one of the
largest international banking networks, a presence in over 85 countries, with almost 163,000
employees, including over 126,000 in Europe. BNP Paribas enjoys key positions in its three core
businesses.
The company has in the Market Capitalisation ( In billions of eoros) in the year( 2007 ) 67.2
And Return on equity (in%) year (2007) 19.6
Geojit BNP Paribas Financial Services Ltd. consists of four companies.
Page 22
BNP Paribas India solutions Pvt.Ltd.
BNP Paribas India Solutions Private Limited (BNPPISPL), incorporated in 2005, is a subsidiary
of BNP Paribas S.A. BNPPISPL aims to provide info-center, data warehousing, IT and back-
office processing services, with major focus on capital markets information technologies as well
as regional organization and methods.
BNP Paribas Investment Services Pvt.ltd.
BNP Paribas Investment Services India Pvt. Ltd. brings to the table a high level of personalised
service, expert guidance, comprehensive financial plans and strategies, competitive products, and
convenient access to state-of-the-art technologies.
Joint Venture- Geojit BNP Paribas Financial Services Ltd.
Geojit, is a leading retail broker with more than 340 000 clients, Rupees 6000 CR of assets
under custody and executes more than 150 000 trades per day. It is listed on NSE and its network
is made of more than 400 offices all overIndia.
BNP Paribas’ credit rating to AA+ in July 2007, our Group joined one of only a handful of
banks worldwide considered as a beacon of fi nancial strength. BNP Paribas is also one of the
world’s most valuable brands.
Research is the solid foundation on which Geojit BNP Paribas financial Services Ltd.
advice is based. Almost 10% of revenue is invested on equity research and we hire and train the
best resources to become advisors. At present we have 25 equity analysts researching over 26
sectors. From a fundamental, technical and derivatives research perspective; Geojit BNP Paribas
research reports have received wide coverage in the media (over a 1000 mentions last year).
Geojit BNP Paribas Financial Services Ltd. has witnessed rapid organic growth due to
favorable market conditions as well as efforts put in by the company itself. Over a period of time
many more regional broking firms may be acquired to gain solid footing in various regions of
Page 23
India. The company has also established a base in the UAE to address the needs of the overseas
audience.
Geojit BNP Paribas Financial Services Ltd. was founded in 1988 as partnership firm, with just
two people Mr. C.J.George And Mr. Ranjit running the show.
This company’s institutional business unit has relationships with almost all leading foreign
institutional investors (FIIs) in the Roma, Istanbul, London and Singapore.
We provide advice-based broking (equities and derivatives), portfolio management services
(PMS), e-Broking, depository services, commodities trading, IPO and mutual fund investment
advisory services.
Geojit BNP Paribas Financial Services Ltd value portfolio scheme has demonstrated very strong
performance backed by our single-minded focus on research-based value investing and the
experience and management of.
Mr C.J.George – an acknowledged expert in value investing.
Geojit BNP Paribas Financial Services Ltd.unique Wealth Creation Study, authored by Mr.
C.J.George, Managing Director. Investors keenly await this annual study for the wealth of
information it has on how companies created wealth during the preceding five years.
The organization finds its strength in its team of young, talented and confident individuals.
Qualified professionals carry out different functions under the able leadership of its promoter,
Page 24
Mr. C.J.George Stringent employee selection process, focus on continuous training and adoption
of best management practices drive the quest to achieving our Core Purpose and Values
HISTORY
1988 :-The Company Geojit Sequrities Limited (GSL) , was A Partnership Firm , with two
partners – Mr.C. J. George And Mr. Ranjit.
1994 :-The Company was incorporated as a Public Limited Company on 24th November and
obtained its certificates on commencement of business 25th January 1995.
1995 :-The Company has a Subsidiary in the name of the Geojit Stock and shares Limited
(GSSL) To Carry on the activities as a Dealer of Over the Counter exchange of India.
1996 :- The Company had make a Public issue of .equity Shares aggregating To RS.95 / -
Lakhs , During the Period under Report which received and was Oversubscribed Over 14
times.
1998 :-The Company , a joint Venture company with Kerala State Industrial Development
Corporation ( KSIDC) , has Announced improved working results for 1997-98.
1999:-The equity shares of the Company are Presently listed at five stock exchange VIZ.,
Madras, Ahemdabad,, Coimbatore, Delhi and Coachin.
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2000:-Geojit Securities Ltd, a leading Retail Share broking firm launched Internet sequrities
trading for the first time in india.
Geojit securities is a joint Venture with Kerala State Industrial Development Corporation
(KSIDC) with Branches in 40 cities .
Geojit Securities Ltd , the first Company to start online trading services, has Signed MoU with
UTI Bank to enable investors to buy \ Sell Demat Stocks through the Companies Web Site. The
company launched its online interface with HDFC Bank for Internet Trading.
.Geojit Securities Ltd, a leading Stock broking Company , has decided to issue bonus Shares at
1:1 ratio, to capitalize part of general reserve
CORE PURPOSE & VALUES
Core Purpose
To be a well respected and preferred global Stock broking financial services organization
enabling wealth creation for all Geojit BNp Paribas Financial services’s stock brokers.
Values.
Integrity : A company honoring commitment with highest ethical and business practices.
Team Work : Attaining goals collectively and collaboratively.
Meritocracy : Performance gets differentiated, recognized and rewarded in an apolitical
environment.
Passion & Attitude: High energy and self motivated with a “Do It” attitude and
entrepreneurial spirit.
Excellence in Execution: Time bound results within the framework of the company’s
value system.
Page 26
Management Team
MOSt management team is regularly engaged in finding ways to improve operational
efficiencies and customer satisfaction.
You will find CAs, CFAs, ICWAs, , MBAs and IT professionals managing crucial functions, to
bring you best products and services - from research & advice to trade execution & settlement.
At MOSt we practice meritocracy and each of the team members is provided extensive training.
SENIOR MANAGEMENT
Mr. Binoy Varghese Samuel is the Chief financial officer and Managing Director of Geojit BNP
Paribas financial services Ltd.
Mr. A.P.Kurjan has served on the Non-executive independent chairman of the board. He is
currently a member of the Bombay stock Exchange & National Stock Exchange (NSE)
committee for F&O.
Recently, Mr. C.j George was conferred the “CIO 100 ingenious award at the 4th annual CIO
100 symposium and awards ceremony.”
Geojin BNP Paribas Financial Services group activities include Wealth Management,
Investment Banking, Institutional Broking, Private Equity with operations in 1300 Business
locations in over 400 cities and more than 3,00,000 customers.
Gojit BNP Paribas Financial services Ltd. recently became a listed company with a Market
Capitalisation of above 3000 Crores.
Page 27
FAST FACTS/MILESTONES
Charter member of the Financial Planning Standards Board of India of 2006.
BNP Paribas acquires a 27% interest in the India-based company Geojit and becomes its
main share holder.
Geojit Financial Services Ltd through a preferential allotment representing 27% of
Geojit's equity.
In 2009 Geojit Finance Launch of Property Services division.
In 2009 Geojit Finance Launch of online trading in currency Derivatives.
1 st brokerage to offer full Direct Market Access to execution in india For institutional
clients.
BNP Paribas Securities india (P) Ltd – a joint venture with BNP Paribas S.A for
stitutional Brokerage.
Geojit Credits, a subsidiary, registers with RBI as a Non-Banking Financial Company
(NBFC).
PRODUCTS / FINANCIAL SERVICES.
Equities
Geojit BNP Paribas, a member of NSE and BSE, has a network of over 500 branches in India
and abroad, rendering quality equity trading services. Geojit BNP Paribas not only has a strong
offline presence but also provides automated online trading services.
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Geojit BNP Paribas also provides a Call & Trade facility to its customers wherein they can place
and track their orders through our dedicated Call Centre Desk by dialing the toll free number
1800-425-5501 or 91-484-2405822 (Standard Rates Apply).
Geojit BNP Paribas's retail spread caters to the need of individual investors. Trading in equities
is made simple, safe and interesting with smart advice from the research desk through daily SMS
alerts, market pointers, periodical research reports, stock recommendations and customer meets
organized frequently.
The online trading system allows customers to track the markets by setting up their own market
watch, receiving research tips, stock alerts, real-time charts and news and many more features
enable the customer to take informed decisions.
The brokerage structure* makes Geojit BNP Paribas's Online trading all the more attractive:
0.03% for day trading (applicable on both sides)
0.30% for delivery
Benefits
MOSt RMs proactively help you take informed equity investment decisions and build a healthy
portfolio. The RMs keep a close watch on the performance of each stock in your portfolio and
suggest changes as and when there is a significant trend reversal or deterioration in a company's
performance. This is to help you reach your investment goal. The RM doesn't stop at just that, he
goes a step further to ensure that your trades are settled and stocks credited in your Demat
account in a timely manner. This allows us to give you a convenient single window service and
your RM becomes the single point contact for all equities related matters. You will receive
regular portfolio valuation reports to enable you to monitor performance and view the progress
towards the investment objective.
Page 29
Derivatives
Geojit BNP Paribas Financial sevices Ltd F&O
Futures & options are derivatives, which use equity as their underlying. Hence our Equity
Advisory Group (EAG), which is highly qualified, will also act as your advisors & help you take
informed decisions while trading in these derivative instruments.
My Broker (E-Broking)
There is nothing more exhilarating , more daring and more rewarding than making the right trade
at the right time. Welcome to Geojit Finance’s (E-Broking) Platform which brings you a world
class experience of online investing –anyplace, anytime. Buying and selling of shares is now just
a click away.
IPO
Background:
Book Building and Fixed Price Issue are the two types of Initial Public Offerings (IPOs) through
which a corporate can raise money in the capital market.
In a book building public issue the bids are received at different price levels and the demand for
the issue is built up over a period of time. Depending upon the bids received at different price
levels the issue price is ascertained. In a fixed price issue the issue price is pre ascertained by the
issuer.
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Portfolio Management Services
In today's complex financial environment, investors have unique needs which are derived from
their risk appetite and financial goals. But regardless of this, every investor seeks to maximize
his returns on investments without capital erosion.
While there are many investment avenues such as fixed deposits, income funds, bonds, equities
etc…. It is a proven fact that Equities as an asset class typically tend to outperform all other asset
classes over the long run.
Investing in equities, require knowledge, time and a right mind-set. Equity as an asset class also
requires constant monitoring may not be possible for you to give the necessary time, given your
other commitments.
Geojit BNP Paribas Financial Services Ltd. recognize this, and manage your investments
professionally to achieve specific investment objectives, and not to forget, relieving you from the
day to day hassles which investment require.
Geojit BNP Paribas Financial Services Ltd. brings with more than 2 decades of experience &
expertise in equity research and stock broking.
When you invest through our PMS, you can be assured of the best research being used for the
investment decisions. Geojit Finance’s equity research has been consistently ranked very highly
in surveys conducted by leading international publications.
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Portfolios
After understanding your risk appetite and financial goal, Geojit Finance has created various
investment portfolios. Geojit BNP Paribas Financial Services Ltd. currently offer following
schemes, with different approaches to managing your investments.
Value Portfolio
Bull’s Eye Portfolio
Next Trillion Dollar Opportunity Portfolio.
Benefits of Portfolio Management Service
Professional Management
The service offers professional management of your equity investments with an aim to deliver
consistent return with an eye on risk.
.
Risk Control
Well defined investment philosophy & strategy acts as a guiding principle in defining the
investment universe. Geojit Finance has a very robust portfolio management software that
enables the entire construction, monitoring and the risk management processes.
Convenience
Geojit Finance’s Portfolio Management Service relieves you from all the administrative hassles
of your investments. Geojit Finance provides periodic reports on the performance and other
aspects of your investments.
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Constant Portfolio Tracking
Geojit Finance understands the dynamics of equity as an asset class, so we track your
investments continuously to maximize the returns.
Transparency
You will get account statements and performance reports on a monthly basis. That’s not all; web
access will enable you to track all information relating to your investment on daily basis. A
password protected web login, will enable your to access details your investment on click of a
button.
The following portfolio reports are accessible online :
Performance Statements
Portfolio Holding Reports
Transactions Statements
Capital Gain / Loss Statements
Mutual Funds
Mutual funds… realize your financial goal through MOSt MUTUAL.
Investments can seem complicated and mystical. As all the traditional investment avenues like
bank deposits, RBI Bonds, NSC, KVP etc are becoming unattractive with the interest rate falling
continuously affecting the yields, one needs to look for other investments alternatives. Mutual
funds offer a platform to participate in the equity & debt market indirectly through professional
management.
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Mutual funds are becoming the most popular investment vehicle offering various kinds of
schemes with different investment objectives. Geojit Finance believes that investments through
mutual funds are one of the most safest, easiest and convenient ways of successful investment
making. The investments are in congruence to the laid down investment objectives securing the
goals & objectives of the unit holders.
At Geojit BNP Paribas Financial Services Ltd, they understands the importance of financial
goals of our privileged clients and to provide them one stop solution to all your financial needs
and tailor made portfolio we now have separate dedicated Mutual fund desk.
Depository Services
In the times of having a demat account linked to your trading account becomes really convenient.
The non-trading clients can also avail of DES. Today DES is available at all business locations
of Geojit Finance. In terms of number of accounts Geojit Finance’s DES is the biggest
Depository Participant with over 1,20,000 accounts. You receive regular account reports and an
efficient service at all times. Clients having holdings over Rs. 10 lakhs receive special SMS
service.
Sales & Trading
Geojit BNP Paribas Financial Services Ltd’s sales & trading team, comprising top equity
professionals, translates Geojit Finance’s research findings into actionable advise for clients,
based on their specific needs. Each of Geojit Finance’s sales personnel has at least five years’
experience in equity research. Sophisticated computerized tools are used to understand client
investment profile and objectives, which ensures proactive and timely service.
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DERIVATIVES
HISTORY OF DERIVATIVES
The concept of derivatives is not a new one. A kind of derivatives instruments were used
in Ancient Greece in 330 B.C. The Olive growers in order to reduce the risk of a low price for
their crop which were to be harvest months later, entered into forward agreements where a price
was agreed for delivery at a specific time in future. In 1636 in Amsterdam, the producers and
purchasers of tulips made also forward agreements to limit their risk in case that the harvest of
tulips was poor. In United States the establishment of the New York Stock Exchange in 1790,
created the need for investors for a formal and organized derivatives market. The securities
companies of Wall Street published projects on derivatives transactions for the public investors.
At the beginning of 1900 the transactions on derivatives were made over the counter (OTC). In
1929 after the Crash, the American Congress established the Securities Exchange Commission
(SEC) with the task to monitoring the smooth operation of the market. What gave the boost for
the significant growth of the derivatives market were the establishment of the Chicago Board
Options Exchange and the creation of Options Clearing Corporation in 1973. Ten years later in
1983, derivatives on indices made their appearance. The first one was Standard and Poor's 100.
This innovation was followed by derivatives on bonds and interest rates.
The world financial markets have undergone qualitative changes in the last three decades
due to phenomenal growth of derivatives. An increasingly large number of organizations now
consider derivatives to play a significant role in implementing the financial policies. Derivatives
are used for a variety of purposes but perhaps the most important is hedging. Hedging involves
transfer of market risk - the possibility of sustaining losses due to unforeseen unfavorable price
changes. A derivative transaction allows a firm to alter its market risk for a price.
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Risk is a characteristic feature of all commodity and capital markets. Prices of all
commodities whether agricultural like wheat, cotton, rice, coffee or tea of non-agricultural like
silver, gold, etc are subject to fluctuation over time in keeping with the prevailing demand and
supply conditions. To hedge against this, came the use of derivatives.
What are Derivatives?
Derivatives are contracts for the future delivery of assets at prices agreed at the time of
the contract. The quantity and quality of the asset is specified in the contract. The buyer of the
asset will make the cash payment at the time of delivery. Derivative products initially emerged,
as hedging devices against fluctuations in commodity prices and commodity-linked derivatives
remained the sole form of such products for almost three hundred years.
Derivatives Defined
Derivative is a security whose value is derived from the value of the underlying asset in a
contractual manner. In the Indian context, the Securities Contracts (regulation) Act, 1956
(SCRA) defines "derivative" to include:
1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract for differences or any other form of security.
2. A contract, which derives its value from the prices, or index of prices, of underlying
securities.
The derivatives are securities under the SCRA and the trading of derivatives is governed
by the regulatory framework under the SCRA.
All derivatives are based on some "cash" products. The underlying assets of derivative
instruments may be any produce of the following types.
Commodities include grain, coffee, beans, orange juice, etc.
Precious metals like gold and silver
Foreign Exchange rate
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Bonds of different types, including medium to long-term negotiable debt
securities issued by governments, companies, etc.
Short-term debt securities such as trade bills.
OTC (Over the Counter) money market products such as loans or Deposits.
Derivatives are specialized contracts which are employed for variety of purpose including
reduction of funding cost by borrowers, enhancing the yield on asset, modifying the payment
structure of assets to correspond to investors market view, etc. However the most important use
of derivatives is in transferring market risk, called hedging. Of late derivatives have assumed a
very significant place in the field of finance and they seem to be the driving global financial
markets.
There are many kinds of derivatives including futures, options, interest rate swaps and
mortgage derivatives.
Forward Contracts
A deal for the purchase or sale of a commodity, security or other assets can be in the spot
or forward markets. A spot or cash market is most commonly used for trading. In addition to
cash purchases another way to acquire or sell assets is by entering into a Forward Contract. In
forward contract the buyer agrees to pay cash at a later date when the seller delivers the goods.
EG: If a car is booked with a dealer and the delivery 'matures' the car is delivered after its price
has been paid.
Usually no money changes hands when forward contract are entered into, but sometimes one or
both the parties to a contract may like to ask for some initial, good faith, deposit to ensure that
the contract is honored by the other party.
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Typically in a forward contract the price at which the underlying commodity are asset will be
traded is decided at the time of entering the contract. The essential idea of entering into a forward
contract is to peg the price and thereby avoid the price risk.
Forward contracts have been in existence since quiet some time. The organized commodities
exchange, on which forward contracts are traded, probably started in Japan in the early
eighteenth century, while establishment of the Chicago Board Of Trade (CBOT) in 1848 led to
the start of a formal commodities exchange in the USA.
Futures Contract
The problem associated with forward contracts led to the emergence of Futures Contract. A
futures contract is a standardized contract between two parties where one of the parties commits
to sell and the other to buy, a stipulated quantity (and quality where applicable) of a commodity,
currency, security, index or some other specified item at an agreed price on or before a given
date in the future.
Futures contract is an improvement over the forward contract in terms of standardization,
performance guarantee and liquidity. Thus, whereas forward contracts are not standardized, the
futures are standardized ones, so that
1. The quantity of the commodity or the asset which would be transferred or would form
the basis of gain/loss on maturity of a contract.
2. The quality of the commodity—if a certain commodity is involved - and the place
where delivery of the commodity would be made,
3. The date and month of delivery
4. The units of price quotation
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5. The minimum amount by which the price would change and the price limits for the
days' operations, and other relevant details are all specified in the futures contract. Thus
in a way, it becomes a standard asset, like any other asset to be traded.
People can buy or sell futures like other commodities. When an investor buys a future contract
(is that he takes a long position) on an organized futures exchange, he is, in fact assuming the
right and obligation of taking delivery of the specified underlying item (say 10 Quintals of wheat
of a specified grade) on a specified date. Similarly, when an investor sells a contract, to take a
short position one assumes that the right and obligation to make delivery of the underlying asset.
While there is a risk of non-performance if the forward contract, it is not so in case of futures
contract. This is because of the existence of a clearing house or clearing corporation associated
with futures exchange, which plays a pivotal role in the trade so that it become the buyer to seller
and the seller to the buyer. When a party takes a long position in contract it is obligated to sell
the underlying commodity in question at the stipulated price to the clearinghouse on the maturity
of the contract. Similarly an investor, who takes a short position on the contract, can seek its
execution through the clearinghouse only.
Unlike forward contract, it is not necessary to hold on to a futures contract until maturity- one
can easily close out a position in a futures contract. Either of the parties may reverse their
position by initiating a reverse trade so that the original seller of a contract can sell an identical
contract at a later date, canceling, in effect the original contract. Thus the exchange facilitates
subsequent selling (buying) of a contract so that a party can offset its position and eliminate the
obligations.
Futures Terminology
Spot price:
The price at which an asset trades in the spot market.
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Futures price:
The price at which the futures contract trades in the futures market.
Contract cycle:
The period over which a contract trades. The index futures contracts on the NSE as well
as BSE have one-month, two-months and three-months expiry cycles, which expire on the last
Thursday of the month. Thus a July expiration contract would expire on the last Thursday of
July. On the Friday following the last Thursday, a new contract having a three-month expiry
would be introduced for trading. More generally we can say, on the first trading day after the day
of the expiry of that month's futures contract.
Expiry date:
It is the date specified in the futures contract. This is the last day on which the contract
will be traded. It will cease to exist by the end of that day.
Contract size:
The amount of asset that has to be delivered under one contract. The contract size of the
stock index futures on NSE Nifty is 200 and the contract size, of the stock index futures on BSE
Sensex is 50.
Basis:
Basis is usually defined as the spot price minus the futures price. There will be a different
basis for each delivery month for the same asset at any point in time. On 19th June 2001 Nifty
closed at 1096.65. August 2001 Nifty futures closed at 1098.90.
Therefore the basis for the August Nifty futures is -2.25 index points. In a normal market, basis
will be negative. This reflects the fact that the underlying asset is to be carried at a cost for
delivery in the future.
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Cost of carry:
The relationship between futures prices and spot prices can be summarized in terms of
what is known as the cost of carry. This measures the storage cost plus the interest that is paid to
finance the asset less the income earned on the asset. In the case of stocks, dividend will be the
income earned on the asset. The storage cost will be negligible.
Initial Margin:
The amount that must be deposited in the margin account kept with the broker at the time
a futures contract is first entered into is known as initial margin. Margins are to be strictly
collected in the futures and options markets by brokers as per the exchange regulations.
Otherwise the exchange cannot guarantee the trades to all participants in the market.
Marking-to-market:
In the futures market, at the end of each trading day, the margin account is adjusted to
reflect the investor's gain or loss depending upon the futures closing price or settlement price.
This is called marking-to-market.
Maintenance margin:
If the balance in the margin account falls below the maintenance margin, the investor
receives a margin call and is expected to top up the margin account to the initial margin level
before trading commences on the next day
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Beta:
Beta is a concept to be used in using futures and options for hedging. Beta measures the
sensitivity of a share or a portfolio to that of the index. Beta of a share is found out by relating
the daily price changes of a share to the daily changes in a stock price index. If a graph is drawn
with daily changes of the share price on y-axis and daily changes in the index on x-axis the slope
of the straight line fitted will be the value of beta. Mathematically it is found by regression
method. If the beta of Tisco is found to be 1.23, it implies if the index increases by 10% in a
period, price of Tisco will increase by 12.3%.
Beta of the portfolios is found by weighted average of the betas of the shares in the portfolio. For
example, an investor's portfolio has equal value in Tisco and Infosys. Tisco has a beta of 1.23
and Infosys has a beta of 1.37. The portfolio beta is the average of 1.23 and 1.37, which is 1.3.
NSE website is providing values of beta for a large number of shares.
Options:
An option ids the right, but not the obligation, to buy or sell a specified amount (and quality) of a
commodity, index, or financial; instrument or to buy or sell a specified number of underlying
futures contracts at a specified price on or before a given date in the future. Thus options, like
futures, also provide a mechanism by which one can acquire a certain commodity or other asset,
or to take a position in order to make profit or cover risk for a price. The buyer who takes a long
position and the seller (the writer), who takes a short position. An option contract gives its owner
right to buy/sell a particular commodity to asset at a predetermined price by a specific date.
Options are of two types Call option and Put options. A call option gives an owner the right to
buy a specific quantity of underlying asset at a predetermined price-the exercise price on a
specified date—the date on maturity.
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For example, suppose it is January now and an investor buys a March call option contract on
(Reliance India Limited) RIL shares with an exercise price of Rs 300. With this the investor
obtains the right to buy 100 shares of RIL at her rate of Rs 300 per share on a particular day in
the month of March. The investor is not obliged to buy the shares. Obviously, if on the expiry of
the option the price of the share in the market is being quoted at higher than Rs 300, the investor
would like to exercise the call. By buying shares at Rs 300 and selling them at the prevailing
higher price, the investor can make a profit. If on the other hand, the price of the share is quoted
at Rs 300 of lower, the investor would not benefit by buying the share. In any case, the writer of
the call option is obliged to sell the shares at Rs 300 per share if called upon.
In case of Put option the option holder has the right to sell a specific amount of the underlying
asset at the agreed price on the date of maturity. Thus id an investor buys a March put option on
RIL shares with an exercise price of Rs 300 per share the investor gets the right to sell 100 shares
of RIL at the rate of Rs 210 per share on a specific day in the month of March. The investor
would naturally be inclined to exercise the option if the share price in the month of march
happen to be lower than Rs300. by buying shares in the market at a lower then Rs300 per share,
and selling than at Rs 300 per share, the investor would gain stand again. In this kind of an
option, the writer undertakes to buy the shares at the exercise price, in case the holder of the
option opts for that.
Option Terminology
Index option:
An option having the index as the underlying asset. Like index futures contracts, index
options contracts are also cash settled.
Stock options:
Stock options are options on individual stocks. A contract gives the holder the right to
buy or sell shares at the specified price.
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American option:
American options are options that can be exercised any time up to the expiration date.
This name is only a classification and does not imply that they are available only in America.
European options:
European options are options that can be exercised only on the expiration date. European
options are easier to analyze than American options, and properties of American options are
frequently deducted from those of its European counter part.
Call option:
A call option gives the holder the right but not the obligation to buy an asset by a certain
date for a certain price.
Put option:
A put option gives the holder the right but not the obligation to sell an asset by a certain
date for a certain price.
Buyer of an option:
The buyer of the option, either call or put, pays the premium and buys the right but not
the obligation to exercise his option on the seller/writer.
Writer of an option:
The writer of a call/put option is the one who receives the option premium and is thereby
obliged to sell/buy the asset if the buyer exercises on him. Option writer is the seller of the
option contract.
Strike price:
The price specified in the option contract at which buying or selling will take place is
known as the strike price or the exercise price.
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Option price:
Option price is the premium, which the option buyer pays to the option seller or writer.
Black and Scholes formula is widely used for determining the fair value of options.
Expiration date:
It is the date on which the European option is exercised. It is also called as exercise date,
strike date or maturity date.
Intrinsic value of an option:
The option premium can be broken down into two components- intrinsic value and time value.
The intrinsic value of an option is the amount, which the holder will get by exercising his option
and immediately selling or buying the acquired shares in the spot market.
For example, if the strike price of a call option on Reliance shares is Rs.325 and current market
price is Rs.350. The holder of the option can buy the Reliance shares at Rs.325 by exercising the
option and can make a profit of Rs.25 by immediately selling them in the market. In this case the
intrinsic value of the call option is Rs.25.
Time value of the option:
The time value of an option is the difference between its premium and its intrinsic value.
At-the-money:
An option is called at-the-money option when the strike price equals, or nearly equals, the
spot price of the share. For example, if the strike price of stock index option on Nifty is 1080 and
the Nifty index is also at 1080, the option is called at-the-money option.
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In the money:
A call option is in the money when the underlying asset price is greater than the strike
price. For example, if the strike price in the case of Nifty stock index option is 1050 and Nifty is
at 1080, the option is in-the-money option.
Out-of-the-money:
A call option is out-of-the-money if the strike price is greater than the underlying asset
price. For example, if the strike price in the case of Nifty stock index option is 1100 and Nifty is
at 1080, the option is out-of-the-money option,
The following table defines the relationship between the spot price and strike price for
calls and puts for categorizing them as at-the money, in the money and out-of-the-money.
Strategy Call option Put Option
In –the-money Spot >Strike Spot<Strike
At-the money Spot= Strike Spot = Strike
Out-of-the –money Spot<Strike Spot>Strike
Participants in Derivatives Markets
The participants in derivatives markets are broadly classified into three groups:
Hedgers
Speculators
Arbitrageurs.
Page 46
Hedgers
As already observed, hedging (covering against losses) is the prime reason, which has led to the
emergence of derivatives. The availability of derivatives allows the undertaking of many
activities at a substantially lower risk. Hedgers therefore are an important constituent of the
traders in derivatives market.
Hedgers are the traders who wish to eliminate the risk (of price change) to which they are
already exposed. They may take a long position on, or short sell, a commodity and would,
therefore stand to lose should the price move in adverse directions. Example. Suppose a leading
trader buys a large quantity of wheat that would take two weeks to reach him. Now he fears that
the wheat prices may fall in the coming two weeks and so wheat may have to be sold at lower
prices. The trader can sell futures (or forward) contract with a matching price to hedge. Thus if
the wheat prices do fall, the trader would lose money on the inventory of the wheat but will
profit from the futures contract, which would balance the loss.
Speculators
Speculators are those who are willing to take risk. These are the people who take
positions in the market and assume risk to profit from fluctuations in prices. In fact, the
speculators consume information, make forecasts about the prices and put their money in these
forecasts. In this process, they feed information into prices and thus contribute to market
efficiency by taking positions they are betting that a price would go up or they bet that it would
go down. Depending on their perceptions, they make long or short positions on futures /or
options, or may hold (spread) positions (simultaneously long and short positions on the same
derivatives). Example supposes that a share is currently quoted at Rs 32 and a speculator is
strong on this share. Assume that a call option, with exercise price of Rs 35 and due in one
month, on this share is available in the market at 50 paise (per share). Buying this option would
require Rs 50(a call is for 100 shares) only.
Page 47
Now the price of the share is less than or equal to Rs 35, the call shall not be exercised and the
loss would be Rs 50 or 100% of the investment. If on the other hand the price rules at Rs 40, then
a gain of 100* (Rs 40-Rs35))= Rs 500 would be made, which works out to be 900% of the
investment.
With no option or other derivative available, the investor would be required to invest Rs 3200(for
100 share) and would make a profit of Rs 800 i.e., only 24% of the amount invested. Not only
that, many losses would be incurred if the share price were to settle at less than Rs 32.
Obviously, therefore, the derivatives adequately address the needs of the speculators without
threatening the market integrity in the process.
Arbitrageurs
They are People who trade in two or more different markets. Thus arbitrageur involves
making risk-less profit by simultaneously entering into transactions in two or more markets. If a
certain share is quoted at a lower rate on the (DSE) Delhi stock exchange and at a higher rate in
BSE an arbitrageur would make profit by buying the share at DSE and simultaneously selling at
BSE.
Page 48
FLOW CHART OF DERIVATIVE TRADING
Page 49
Member Firm
Reports Sale
Reports Purchases
Member FirmMember Firm
Selling broker
Confirms
purchase
SellingBroker
Clearinghouse
1 1
Obligation Obligation
Long Short
Seller now short 1 Contract
Confirms
Sale
Buyer now long 1 Contract
Confirms
Purchase
Trading ring
Orders were
executed by out
cry but now it is
Buying broker
Confirms
purchase
Seller
Buying BrokerMember Firm
Buyer
Pricing of Futures
There are various models for valuating the futures
Cost of carry model
According to the cost of carry model the price of a futures contract is spot price plus the
cost of carry of the asset till the date of delivery specified in the futures contract.
F = S + C
The cost of carry C will have three components, storage cost, cost of financing and any
income earned by holding the asset (which is treated as a negative cost and deducted). For shares
cost of storage will be zero. In the case of commodities like wheat, coffee, the storage cost needs
to be incurred to carry stocks.
Example
Find out the fair price of a two-month futures contract on Nifty given the following
information.
1. Current value of Nifty is 1078.
2. Reliance declared a dividend of Rs.5 per share, which will be received by the shareholders
after 15 days of purchasing the contract. The market price of Reliance is Rs.350 and its weight in
Nifty is 15%.
3. The cost of financing is 10 percent per annum.
4. The cost of storage will be nil.
Page 50
Solution:
1. Since Nifty is traded in multiples of 200, spot value of the contract is 200*1078 = Rs.2,15,600.
2. Reliance has a weight of 15% in Nifty, its value in the contract is Rs.32,340 (215600*0.15)
3. If the market price is Rs.350, then a traded unit of Nifty involves 92.4 shares of Reliance. The
dividend received is therefore going to be Rs.462.
4. Thus, fair futures price F = Rs. 1078+17.72-2.34 = Rs.1093.38
5. Note: interest cost (1078*0.1 *(60/365) =Rs. 17.72) and interest on
dividend received ([462/200] +462*0.1 *(45/365)/200 = Rs.2.34) are calculated at simple
interest)
6. Note that a dividend receipt has an effect on fair futures pricing. Hence it is important to know
the dividend already declared or likely to be declared to determine the fair futures price.
Participants interested in selling futures at fine prices have to know these details.
Carry Price Model
P = SP + CC-CR
Where P is future price, SP Spot price, CC Carry Cost, CR Carry Return. Here Spot price
id the current market price of one unit of the share in the market. Carry cost refers to the holding
cost, including the interest charges on borrowings the cash to buy the asset. In case of physical
commodities, storage, etc. Carry return refers to the income such as dividends on shares, which
may accrue to the investor.
Page 51
Valuation of options
The option premium or the price is determined competitively on the floor of the option
exchange by the influx of buy and sell orders. It is influenced by a number of factors some of
them, which are listed as, follows:
1. Price of the underlying asset
2. Volatility
3. Length of the period
4. Interest rates
5. Tax rules with regard to gains and losses arising from the option trading.
6. Margin requirements in case of uncovered option writers
7. Transaction cost
Essentials for a good derivatives market
Large market capitalization
Liquidity
Clearinghouse that guarantees trades
Physical Infrastructure
Risk taking capability and analytical skills
Page 52
Role of derivatives in India
Derivatives will make hedging possible
Derivatives will enable separation between speculators who wish to bear risk Vs Hedgers
Derivatives will lead to an improvement in cash market
Develop Indian financial Industry
Risk management
Price Discovery
Market effectiveness
Ease of speculation
WORLD DERIVATIVES MARKETS:
The past three decades have witnessed a singular rise in the development and growth of
derivatives markets in the world over. Futures and options trading has registered a phenomenal
rise and new products have been evolved. Futures and options exchanges and OTC derivative
markets are integral parts of virtually all the economies which have reached an advanced state of
economic development such markets are likely to become important parts of developing
economies as well, when they move into advanced stages of development with the passage of
time.
Apart from USA, U.K. and several European counties, Japan and Singapore, amongst others,
which have well-developed futures and options markets, a large number of other countries have
also developed, or are in the process of developing such markets. The countries and markets
include Argentina, Brazil, Bulgaria, Chile, China, Columbia, Costa Rica, Greece, Guatemala,
Hungary, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Portugal, Russia,
Slovak Republic, Slovenia, South Africa, Thailand and Turkey.
Page 53
Introduction of Futures and options in India:
India is one of the many emerging markets of the world where derivatives have been
introduced in the recent past. For long exchanges like the stock exchange, Mumbai and Vadodara
Stock Exchange showed their willingness in introducing trading in futures and options. However,
a concerted effort in this direction was made by the National Stock Exchange(NSE) in July, 1995
when it considered the modalities of introducing derivatives trading, mainly futures and options.
Within a few months, NSE developed a system of options and futures trading aiming at
modifying the carry forward system to include options and futures in its scope.
By January 1996, the NSE started work on the scheme of such trading. In March 1996, it
made a presentation to SEBI on its plans to commence trading in futures and options. The
exchange proposed to start with index based futures and index based options, which are seen as
comparatively safer forms of derivatives.
Functions performed by derivatives Markets
The derivatives markets perform a number of useful economic functions:
1. Price discovery:
The futures and options markets serve an all important function of price discovery. The
individuals with better information and judgment are inclined to participated in these markets to
take advantage of such information. When some new information arrives, perhaps some good
news about the economy for instance, the actions of speculators swiftly feed their information
into the derivatives markets causing changes in the prices of the derivatives. As these markets are
usually the first ones to react because the transaction cost is much lower in these markets than in
the spot markets. Therefore, these markets indicate what is likely to happen and thus assist in
better price discovery.
Page 54
2. Risk Transfer:
By their very nature, the derivative instruments do not themselves involve risk. Rather, they
merely redistribute the risk between the market participants. In this senses, the whole derivatives
market may be compared to a gigantic insurance company – providing means to hedge against
adversities of unfavourable market movements in return for a premium, and providing means and
opportunities to those who are prepared to take risks and make money in the process.
3. Market Completion:
The existence of derivative instruments adds to the degree of completeness of the market. A
complete market implies that the number of independent securities or instruments is equal to the
number of all possible alternative future states of the economy.
A market would be said to be complete if instruments may be created which can, solely or
jointly, provide a cover against all the possible adverse outcomes, it is held that a complete
market can be achieved only when, firstly there is a consensus among all investors in the
economy as to the number of adds, or states, that the economy can land up with, and, secondly,
there should exist an ‘efficient fund’ on which simple options can be traded. Here an ‘efficient
fund’ implies a portfolio of basic securities that exist in the market with the property of having a
unique return for every possible outcome, while a simple option is one whose pay off depends
only on one underlying return. The presence of future and options markets does, however lead to
a greater degree of market completeness.
Page 55
RISK
Definition Of Risk:
It is the possibility of loss or the degree or probability of such a loss. A technical definition on
risk. Risk and uncertainty are an integral part of investment decision. Technically "Risk" can be
defined as a situation where the possible consequences of the decision that is to be taken are
known." Uncertainty" is generally defined to apply to situations where the probabilities cannot
be estimated. However risk and uncertainty are used interchangeably
Risk can be classified as follows:
Page 56
RISK
Internal Risk
1. Business Risk2. Financial Risk
External Environmental risks
1. Market Risk2. Interest rate risk3. Purchasing power Risk
Unique Risks
1. Labour Strikes2. Weak Managerial policies3. Consumer preferences
Risk of
1. Securities Market 2. Economy
Unsystematic
1. Industry Risk
Systematic
1. Economic2. Sociological3. Political4. Legal Risk
Types of Risk:
a) Systematic
b) Unsystematic
Systematic Risk:
External risks are uncontrollable and broadly effect the investments. These external risks
are called Systematic risk. They include Economic, sociological, political, legal risks.
Unsystematic Risk:
Risk due to internal environment of a firm or those affecting a particular industry are
referred as unsystematic risk. This risk is depending on the firm or industry.
With respect to this project we are confined to market risk, which arises from systematic
risk. Market risk, is referred to stock variability due to changes in investor's attitudes and
expectations. The investor's reaction to the news etc. Market risk triggers off through real events
comprising political, social, economic reasons. The initial decline or 'rise' in the market price will
create an emotional instability of investors and cause a fear of loss or create an undue
confidence, relating possibility of profit. The reaction to loss will culminate in excessive selling
and pushing price down and reaction to gain will bring in the active buying of securities. How
ever investors are more reactive towards decline in prices rather than increase in prices.
Hedging strategies using index futures
There are eight basic modes of trading on the index futures market:
Page 57
Hedging:
1. Long security, short Nifty futures
2. Short security, long Nifty futures
3. Have portfolio, short Nifty futures
4. Have funds, long Nifty futures
Speculation:
1. Bullish index, long Nifty futures
2. Bearish index, short Nifty futures
Arbitrage:
1. Have funds, lend them to the market
Hedging:
TIP:
Hedging does not always making money. If the index has gone up instead of going down
futures position will show a loss and the investor has to fund it if required by reducing his
portfolio. The best that can be achieved using hedging is the removal of unwanted exposure. The
hedged position will make less profit than the un-hedged position, half the time. The investor
should adopt this strategy for the short periods of time where the market volatility that he
anticipates makes him uncomfortable, or when he plans to sell his holdings in the near future.
Long Security, Short Nifty Futures
A person may buy Larsen & Toubro at Rs 300 thinking that it would announce good
results and the security price would rise. A few days later, Nifty drops, so he makes losses, even
if his understanding of Larsen & Toubro was correct.
Page 58
Every buy position on a security is simultaneously a buy position on Nifty. This is because a
LONG LARSEN & TOUBRO position generally gains if Nifty rises and generally loses if Nifty
drops. The stock picker may be thinking he wants to be LONG LARSEN & TOUBRO, but a
long position on Larsen & Toubro effectively forces him to be LONG LARSEN & TOUBRO +
LONG NIFTY
Those who are bullish about index should just buy Nifty futures; they need not trade
individual securities.
Those who are bullish about LARSEN & TOUBRO do wrong by carrying along a long
position on Nifty as well.
Every time we adopt a long position on a security, we should sell some amount of Nifty
futures. This offsets the hidden Nifty exposure that is inside every long security position.
Short Security, Long Nifty:
A person may sell MUL at Rs 230 thinking that it would announce poor results as decline
in car sales and the security price would fall. A few days later, Nifty rises, so he makes losses,
even if his understanding of MUL was correct.
Every sell position on a security is simultaneously a sell position on Nifty. This is
because a SHORT MUL position generally gains if Nifty falls and generally loses if Nifty rises.
The stock picker may be thinking he wants to be SHORT MUL, but a long position on MUL
effectively forces him to be Short Mul + Short Nifty.
Page 59
Those who are bearish about index should just sell Nifty futures; they need not trade
individual securities.
Those who are bearish about MUL do wrong by carrying along a short position on Nifty
as well.
Every time we adopt a short position on a security, we should buy some amount of Nifty futures.
This offsets the hidden Nifty exposure that is inside every short security position.
Hedging: Have portfolio, short Nifty futures:
Every portfolio contains a hidden exposure. This statement is true for all portfolios. In the case of
portfolios, most of the portfolio risk is accounted for by index fluctuations (unlike individual
securities, where only 30-60% of the securities risk is accounted for by the index fluctuations).
Hence a position LONG PORTFOLIO + SHORT NIFTY can often become one-tenth as risky as
the LONG PORTFOLIO position.
Page 60
SURVEY AND ANALYSIS
AGE BREAK UP OF RESPONDENTS
Table No. 4.1
AGE GROUP OF RESPONDENTS
Graph No. 4.1
Age is an indication of matured thoughts. We can see from the above data that 83% of the
respondents are of the age group of more than 40. 5% are of the age between 25 to 40 and 12%
are in the age of less than 25. From this we can see that the respondents are quiet experienced in
spending and investing their earnings. This shows the maturity of the respondents.
Page 61
AGE GROUP
12%
5%
83%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
LESS THAN 25 25 - 40 MORE THAN 40
LESS THAN 25
25 - 40
MORE THAN 40
AGE GROUP RESPONDENTS PERCENTAGE
LESS THAN 25 12 12
25 – 40 5 5
MORE THAN 40 83 83
DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS
Table No. 4.2
SEX RESPONDENTS PERCENTAGE
MALE 69 69
FEMALE 31 31
DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS
Graph No. 4.2
The above data reveals that 69% of the respondents are males and 31% are females. It shows
that although the men are having more control on their investments and decision making in the
family, women are also interested in investments.
From the above data it is clear that a trend is developing, in which women are also
moving towards investing their savings.
Page 62
GENDER
69%
31%
MALE
FEMALE
OCCUPATION OF RESPONDENTS
Table No. 4.3
OCCUPATION RESPONDENTS PERCENTAGE
BUSINESS 17 17
EMPLOYEE 57 57
PROFESSIONAL 26 26
OCCUPATION OF RESPONDENTS
Graph No. 4.3
It can be observed that 17% of the respondents are in business, 57% are employees and rest
26% are professionals. The majority of the investors come from the employee and aged segment
of the society.
The employee segment of the respondents is more interested in investing. The objective
of their investment may be to live a secured and happy life after the retirement from their job.
Page 63
17%
57%
26%
0%
10%
20%
30%
40%
50%
60%
BUSINESS EMPLOYEE PROFESSIONAL
OCCUPATION
BUSINESS
EMPLOYEE
PROFESSIONAL
INCOME OF THE RESPONDENTS
Table No. 4.4
INCOME RESPONDENTS PERCENTAGE
LESS THAN 15,000 28 28
15,000 - 25,000 39 39
MORE THAN 25,000 33 33
INCOME OF THE RESPONDENTS
Graph No. 4.4
From the above table we can find out that 28% of the respondents have income less than 15,000
about 39% are ranging between 15, 000 to 25,000 however, about 33% constitute income group
of more than 25,000.
This indicates that middle income people are more interested in investing. They want to earn
more from what they have invested in order to live a luxurious life.
Page 64
28%
39%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
LESS THAN 15,000 15,000 - 25,000 MORE THAN 25,000
INCOME
LESS THAN 15,000
15,000 - 25,000
MORE THAN 25,000
SAVING AND INVESTMENT PATTERN OF RESPONDENTS
Table No. 4.5
SAVING & INVESTMENT RESPONDENTS PERCENTAGE
YES 100 100
NO 0 0
SAVING AND INVESTMENT PATTERN OF RESPONDENTS
Graph No. 4.5
All respondents have the nature of saving of what they have earned. They invest their savings in
order to earn more. The availability of many investment avenues and raise in the education level
of the people also contributed towards saving and investment of their earnings.
Page 65
100%
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
YES NO
SAVING AND INVESTMENT
YES
NO
THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE
Table No. 4.6
BROKING HOUSE RESPONDENTS PERCENTAGE
Geojit SECURITIES 34 34
IL & FS SECURITIES 21 21
INTEGRATED SERVICES 18 18
OTHERS 27 27
THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE
Graph No. 4.6
34%
21%18%
27%Geojit IL&FS INTEGRATED OTHERs
The above data reveals that in CKM Geojit Securities is having a major market share, compare to
the other security dealers. As the Geojit Securities are no.1 security dealers in India, respondents
choose Geojit Securities as their broking house. The reputation and market share of the company
helped here to get more clients.
Page 66
INVESTMENT AREAS AWARE OF
Table No. 4.7
INVESTMENT AREAS RESPONDENTS PERCENTAGE
REAL ESTATE 24 8
POST OFFICE 52 17
STOCK MARKET 60 20
PRECIOUS METALS 14 5
BANKS 85 28
MUTUAL FUNDS 32 11
COMMODITIES 4 1
INSURANCE 29 10
INVESTMENT AREAS
Page 67
Graph No. 4.7
Among the various investment areas available banks dominate since it is quiet safe
compared to other investments and it occupies 28%, followed by stock market 20%, because of
the recent boom. The safest among all investments is the post office 17%, real estate 8%, mutual
funds 11%, insurance 10%, precious metals 5% and commodities 1%.
INVESTMENT CRITERIA
Page 68
8%
17%
20%
5%
28%
11%
1%
10%
0%
5%
10%
15%
20%
25%
30%
REAL ESTATE
POST OFFICE
STOCK MARKET
PRECIOUS METALS
BANKS
MUTUAL FUNDS
COMMODITIES
INSURANCE
INVESTMENT AREAS
Table No. 4.8
CRITERIA RESPONDENTS PERCENTAGE
LIQUIDITY 14 14
PROFITABILITY 26 26
SAFETY 52 52
LEGALITY 8 8
INVESTMENT CRITERIA OF RESPONDENTS
Graph No. 4.8
It can be seen that all the investors give preference for safety for their investment. Safety of
investment can be seen in banks, safety occupies 52%, profitability 26%, liquidity 14% and
legality 8%.
This shows a direct relationship between safety and investment. As the banks are more
safer, more people invest in banks.
Page 69
CRITERIA
14%
26%
52%
8%
LIQUIDITY
PROFITABILITY
SAFETY
LEGALITY
IN THE PRESENT SCENARIO I PREFER INVESTING IN
Table No. 4.9
PREFERED AREAS RESPONDENTS PERCENTAGE
REAL ESTATE 12 12
POST OFFICE 6 6
STOCK MARKET 41 41
BANK 21 21
INSURANCE 8 8
MUTUAL FUNDS 12 12
THE PRESENT SCENARIO I PREFER INVESTING IN
Graph No. 4.9
Due to the stock market boom with FDI and FII inflows, respondents prefer stock market with
41% followed by banks 21%, real estate and mutual funds 12% each, post office 6% and
insurance 8% respectively.
It is clear that most of the respondents prefer stock market investment. This is because in the
present scenario the stock market is booming and the SENSEX has already achieved a record
high. So in order to get the benefit of the stock market boom, respondents are more interested in
stock market investments.
Page 70
PREFERED AREAS
12%
6%
41%
21%
8%
12%
REAL ESTATE
POST OFFICE
STOCK MARKET
BANK
INSURANCE
MUTUAL FUNDS
AWARENESS ABOUT INVESTOR AWARENESS ADVERTISEMENTS
Table No. 4.10
AWARENESS ABOUT ADVERTISEMENTS RESPONDENTS PERCENTAGE
YES 53 53
NO 47 47
AWARENESS ABOUT SEBI ADVERTISEMENTS
Graph No. 4.10
53% of the respondents watch the investor awareness advertisements given by SEBI. It is found
that most of the respondents do not watch the investor awareness advertisements given by SEBI.
Hence there is a need to educate the investors about their rights and obligations.
Page 71
AWARENESS ABOUT ADVERTISEMENTS
53%
47%
YES
NO
RISK SEEKING OF INVESTORS
Table No. 4.11
RISK SEEKER RESPONDENTS PERCENTAGE
YES 29 29
NO 71 71
RISK SEEKING OF INVESTORS
Graph No. 4.11
From the above data we can conclude that most of the investors are risk averse. They do
not want to take risk, they prefer low risk investments. As most of the respondents are from the
middle income group they do not want to take risk with their investment.
Page 72
YES
NO
PERCENTAGE
29%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
RISK SEEKER
YES
NO
INVESTMENT PATTERN ON THE BASIS OF RISK
Table No. 4.12
INVESTMENT PATTERN RESPONDENTS PERCENTAGE
LOW RISK INVESTMENTS 31 31
MODERATE RISK INVESTMENTS 60 60
HIGH RISK INVESTMENTS 9 9
INVESTMENT PATTERN ON THE BASIS OF RISK
Graph No. 4.12
We can see that 31% of the respondents prefer low risk investments, 60% prefer moderate risk
and only 9% go in for high risk investments.
This shows that respondents prefer those investments, in which the risk involved is
moderate or low.
Page 73
INVESTMENT PATTERN31%
60%
9%
LOW RISK INVESTMENTS
MODERATE RISKINVESTMENTS
HIGH RISK INVESTMENTS
PREFERENCE GIVEN ACCORDING TO RISK AND RETURN
Table No. 4.13
PREFERENCE ACCORDING TO RISK RESPONDENTS PERCENTAGE
MINIMUM RISK MAXIMUM RETURN 55 55
MINIMUM RISK MINIMUM RETURN 35 35
MAXIMUM RISK MAXIMUM RETURN 10 10
PREFERENCE GIVEN ACCORDING TO RISK AND RETURN
Graph No. 4.13
It is found that most of the respondents prefer investments of minimum risk and maximum
return. 35% of the respondents prefer minimum risk and minimum return. Only 10% go for
maximum risk and maximum return in their investments.
This suggests that most of the respondents do not want to take risk while investing.
Page 74
PREFERENCE
55%
35%
10%
0%
10%
20%
30%
40%
50%
60%
MINIMUM RISK MAXIMUM RETURN
MINIMUM RISK MINIMUM RETURN
MAXIMUM RISKMAXIMUM RETURN
MINIMUM RISK MAXIMUMRETURN
MINIMUM RISK MINIMUMRETURN
MAXIMUM RISK MAXIMUMRETURN
RESPONDENTS WHO THINK RISK CAN BE MINIMIZED
Table No. 4.14
RISK CAN BE MINIMIZED RESPONDENTS PERCENTAGE
YES 93 93
NO 7 7
RESPONDENTS WHO THINK RISK CAN BE MINIMIZED
Graph No. 4.14
As the saying goes “higher the risk higher the return”, 7% of the respondents are of the opinion
that risk can not be minimized and the remaining 93% says that risk can be minimized.
Risk is involved in every investment, in some investments it may be less and in some
investments it may be high. The respondents are of the opinion that the risk involved in
investments can be minimized.
Page 75
RISK CAN BE MINIMIZED
93%
7%
YES
NO
RISK MINIMIZING INSTRUMENTS
Table No. 4.15
INSTRUMENTS RESPONDENTS PERCENTAGE
INSURANCE 56 56
POST OFFICE 10 10
GOVERNMENT BONDS 6 6
FUTURES & OPTIONS 26 26
OTHERS 2 2
RISK MINIMIZING INSTRUMENTS
Graph No. 4.15
As an instrument of minimizing risk the respondents are aware of insurance than derivatives.
Insurance constitute 56%, followed by futures and options 26%, post office 10%, government
bonds 6% and others 2%.
As compared to futures and options, insurance is very easy to understand and to deal
with. So the respondents opt for insurance as a risk minimizing instrument rather than
complicated futures and options.
Page 76
INSTRUMENTS
56%
10%
6%
26%
2%
0%
10%
20%
30%
40%
50%
60%
INSURANCE POST OFFICE GOVERNMENTBONDS
FUTURES &OPTIONS
OTHERS
INSURANCE
POST OFFICE
GOVERNMENT BONDS
FUTURES & OPTIONS
OTHERS
AWARENESS TO FUTURES AND OPTIONS
Table No. 4.16
AWRENESS OF DERIVATIVES
RESPONDENTS PERCENTAGE
YES 42 42
NO 58 58
AWARENESS TO FUTURES AND OPTIONS
Graph No. 4.16
Only 42% of the respondents are aware of futures and options or partially know about
them. The remaining 58% do not know about futures and options.
This indicates that still futures and options are not known to a large segment of investors.
This shows that media and market experts have not been so effective in educating the investors
about futures and options.
Page 77
AWRENESS
58%
42%
YES
NO
RESPONDENTS WHO LIKE TO KNOW MORE ABOUT THEM
Table No. 4.17
LIKE TO KNOW MORE RESPONDENTS PERCENTAGE
YES 85 85
NO 15 15
LIKE TO KNOW MORE ABOUT DERIVATIVES
Graph No. 4.17
It shows that about 85% of the respondents want to know more about futures and options, this
also include people with partial knowledge and the remaining 15% say no, this can be either they
know about them or do not want to know about it.
Majority of the respondents wants to know more about futures and options. As the futures
and options are little complex to understand, respondents would like to know more about them.
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85%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
YES NO
LIKE TO KNOW MORE
YES
NO
MEDIAS TO UNDERSTAND THE CONCEPTS OF DERIVATIVES
Table No. 4.18
LEARNING MEDIA RESPONDENTS PERCENTAGE
SEMINARS 23 23
PRINT MEDIA 19 19
TELEVISION 32 32
INTERACTION WITH EXPERTS 26 26
LEARNING MEDIA
Graph No. 4.18
Most of the respondents want to understand the concept of futures and options through
Television which constitutes 32%, seminars 23%, interaction with market experts 26% and print
media 19%.
Some of the respondents have little knowledge about futures and options yet, they are
interested to learn about this aspect through various media.
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LEARNING MEDIA
23%
19%
32%
26%
SEMINARS
PRINT MEDIA
TELEVISION
INTERACTION WITH EXPERTS
TRADING PATTERN OF INVESTORS IN DERIVATIVES
Table No. 4.19
TRADE RESPONDENTS PERCENTAGE
DO NOT TRADE 67 67
DAILY 7 7
WEEKLY 6 6
FORTNIGHTLY 4 4
MONTHLY 16 16
TRADING PATTERN OF INVESTORS IN DERIVATIVES
Graph No. 4.19
Since most of the respondents are not derivative traders, they trade less. 67% of the respondents
do not trade, 7% trade daily, 6% weekly, 4% fortnightly and 16% trade monthly through
derivatives.
This indicates that investors trade less frequently in futures and options.
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67%
7% 6% 4%
16%
0%
10%
20%
30%
40%
50%
60%
70%
TRADE
DO NOT TRADE
DAILY
WEEKLY
FORTNIGHTLY
MONTHLY
I USE THIS INSTRUMENT TO TRADE IN
Table No. 4.20
TRADE IN RESPONDENTS PERCENTAGE
GOLD 0 0
SHARES 30 72
CURRENCY 6 14
COMMODITY 6 14
RESPONDENTS USED OF DERIVATIVES TO TRADE IN
Graph No. 4.20
Futures and options mainly used by respondents to trade in shares, it constitute about 30%. The
6% of the respondents use it to trade in currency and commodities.
It can be concluded that most of the respondents use futures and options only to trade in
shares. They are not aware or do not trade in Gold and other precious metals through derivatives.
The use of futures and options to trade in currency and commodities is also comparatively low.
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TRADE IN
0%
72%
14%
14%
GOLD
SHARES
CURRENCY
COMMODITY
I THINK THROUGH DERIVATIVES
Table No. 4.21
THROUGH DERIVATIVES RESPONDENTS PERCENTAGE
RISK CAN BE MINIMIZED 32 76
LOSS CAN BE MINIMIZED 10 24
RESPONDENTS WHO THINK THROUGH DERIVATIVES
Graph No. 4.21
76% of the respondents think that through derivatives risk can be minimized. In contrast
24% of the respondents feel that derivatives can be used to minimize the loss. This indicates that
futures and options are mainly used to minimize the risk involved in the investment.
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THROUGH DERIVATIVES
76%
24%
RISK CAN BE MINIMIZED
LOSS CAN BE MINIMIZED
EXPERIENCE WITH DERIVATIVES WAS
Table No. 4.22
EXPERIENCERESPONDENT
S PERCENTAGE
VERY SATISFACTORY
8 19
SATISFACTORY 18 43
NOT SATISFACTORY 10 24
NONE 6 14
RESPONDENTS EXPERIENCE WITH DERIVATIVES
Graph No. 4.22
43% of the respondents are satisfied with the trading in derivatives. 24% are not satisfied
with the performance of derivatives. 19% says they are very satisfied with the performance of
derivatives. 14% says none.
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EXPERIENCE
19%
43%
24%
14%
VERY SATISFACTORY
SATISFACTORY
NOT SATISFACTORY
NONE
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FINDINGS
1. The study shows that most of the respondents are aged more than 40 years.
2. Major parts of the respondents are employees and regular investors to stock markets.
3. The respondents consider safety and liquidity to be the prime importance and therefore
want to invest their savings in banks rather than in the stock market and other investment
avenues.
4. Major portions of investors consider insurance, as the best hedging tool and the exposure
to futures and options is also quite well.
5. Respondents believe that futures and options are very technical and difficult to
understand.
6. They prefer television and seminars to understand about futures and options.
7. Among the players in the derivative market most of the respondents trade on monthly
positions, and are quite satisfied with their performance.
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SUGGESTIONS
1. Although the derivatives market is growing considerably in India, respondents lack
knowledge about futures and options, therefore awareness has to be developed about
derivatives.
2. As the majority of the respondents fall in the middle income group, they do not opt for
futures and options due to high margins. So steps should be taken to lower the initial
margins, in order to make derivatives popular among small and medium level investors.
3. There is a necessity from the brokers’ point of view to provide adequate and timely
information to the clients.
4. The television media with assistance from market experts can help the investors or
traders to give more knowledge about futures and options.
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CONCLUSION
Though the derivatives market has overtaken the cash market in daily turnover and volumes we
can see that the awareness among the investing public about futures and options as a tool of
hedging is not much and respondents think that this topic is highly technical and complicated to
understand. And a few respondents know about derivatives and are reluctant in keeping heavy
sums and margins with brokers.
As the study shows that most of the respondents do not want to take risk in their investment, the
futures and options can be an ideal tool for minimizing their investment risk. But the problem is,
they are not aware of futures and options fully. There is a necessity on the part of the media and
market experts to make futures and options more familiar among the investing public.
It is also found that futures and options mainly used to trade in shares only. So there is a need to
make them familiar in the trading of commodities, currencies and precious metals.
The complexity involved in the trading of futures and options should be reduced and it should be
made simple to understand, even for a common man. This will definitely help in developing
Indian futures and options market in the coming years.
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Annexure
QUESTIONNAIRE
1. Name:.......................................
2. Address:....................................
3. Age Group:
Less than 25 25-40 More than 40
4. Sex : Male Female
5. Occupation:
Business Employee Professional
Others (Please Specify)...................
6. Monthly Income :
Less than 15,000 15,000-25,000 More than 25,000
7. Do you invest your savings?
Yes No
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8. The name of the company through which you invest
Geojit Securities IL & FS Securities Integrated Services Other (Please
specific)……………………..
9. Areas of investment that you are aware of:
Real Estate Post Office Stock Market
Precious metals Banks Mutual funds
Other (Please specific)…………………..
10. While investing you give the highest preference to (Any one)
Liquidity Profitability Safety
Legality Others (please specify)…………………….
11. Which investment according to you is most preferable?
Real estate Post office Stock Market
Precious metals Banks Mutual funds Other
(Please specific)……………………
12. Do you watch the investor awareness advertisements given by SEBI?
Yes No
13. Are you a risk seeker?
Yes No
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14. You invest in :
Low risk Investments Moderate risk investments
High risk investments
15. In your investments you give preference for :
Minimum risk, Maximum return
Minimum risk, Minimum return
Maximums risk, Maximum return
16. Do you think that risk can be minimized? (If No go to Q. No 18 )
Yes No
17. If YES what are the instruments that can be used to minimize your
investment risk.
Insurance Post office Government Bonds
Futures and options Others (Please Specify)………………..
18. Are you aware of futures and options?
Yes No
19. Do you like to know more about futures and options?
Yes No
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20. Through which medium would you like to understand about futures and options?
Seminars Print Media Television
Interaction with market experts
21. How often do you trade through futures and options?
Do not trade Daily Weekly
Fortnightly Monthly
22. I use derivatives to trade in :
Gold Shares Currency Commodities
Others (Please Specify)………………….
23. Which one do you think is correct?
Through Derivatives:
Risk can be minimized Loss can be minimized
24. Your experience with futures and options as an. instrument to minimize risk or loss
has been :
Very satisfactory Satisfactory
Not satisfactory None
25. Please give suggestions if any, to your company (broker)……………………………
THANK YOU
Page 91
BIBLIOGRAPHY
1. N.D. Vohra and B.R. Bagri, “Futures and options”, Tata Mc Graw – Hill Publications,
2001, Pp2-10.
2. Hull C. John “Options, futures and other derivatives”, Pearson Education, 4 th Edition
2001, Pp28.
3. Edwards. R. Franklin and Cindy, “Futures and Options”, Mc Graw – Hill Publications,
1992, Pp92.
4. Parameshwara K. Sunil, “Futures Market theory and practice”, Tata Mc Graw – Hill
Publications, 2003, Pp2-48.
5. D.C.Patwari and A. Bhargava, “Options and futures – An Indian perspective”, Jaico
Publishing house, 2005, Pp1-30.
INTERNET:
http://www.angelfire.com/a_brief_history_of_derivatives.htm
http://www.business_standard.com
http://www.bseindia.com
http://www.nscindia.com
http;//www.geojitbnpparibas.com
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