“A STUDY ON INVESTMENT BEHAVIOUR OF THE

INVESTORS”

“Dissertation Report” submitted in partial fulfillment of the

requirement for the award of the degree of

“Master of Business Administration”

Of

Bangalore University

Submitted By

Avinash Kumar Singh

(06RWCM6012)

Under the guidance of

Ms M. Priya

T. JOHN GROUP OF INSTITUTIONS

Bangalore

Student’s Declaration

I Avinash Kumar Singh hereby declare that this dissertation

titled “A Study on Investment Behavior of the Investors”

submitted by me to the department of Management,

Bangalore University in partial fulfillment of requirement of

MBA programme is a bonafide work carried by me under the

guidance of Ms M Priya This has not been submitted to any

other university or institution for the award of any degree or

published any time before.

Place: Bangalore Avinash Kumar

Singh

Date:

Certificate from Faculty Guide

Certified that this dissertation entitled “A Study on

Investment Behavior of the Investors” submitted in partial

fulfillment for the award of MBA Degree of Bangalore

University, was carried out by Avinash Kumar Singh has not

been submitted to any other university or institution for the

award of any degree/diploma/certificate.

__________________

____

(Ms M Priya)

Acknowledgement

I express my sincere gratitude towards the Manager for

providing me the information for the successful completion

of my dissertation. I am also thankful towards the

management for providing me the opportunity, guidance and

encouragement for the successful completion of my

dissertation.

I am also thankful to my Guide Ms M Priya for giving me

the valuable time and teachings. Under the able guidance of

my mentor I have learned a lot about how to go about for my

dissertation.

Lastly I express my sincere thanks to my Parents and Friend

and

Those who have helped directly or indirectly in successful

completion of my Dissertation

Contents

1. Introduction to Insurance industry.

2. Research Design

3. Industry Profile

4. Analysis and Interpretation of Data

5. Summary of Findings, Conclusion and

Recommendations.

Bibliography

Annexure

List of Tables

S. No

Title

1

2

3

4

5

6

7

8

9

10

11

Investment preference among varies age groups

Investment preference among various income levels

Types of Investment

Frequency of Investment

Basis of investment

Investment pattern affected by market movement

Factors influence to choice various investment alternatives

Period of the investment

Reason behind the choice of investment

Analysis of companies before investing in percentage

The type of analysis used by the investors.

List of Graphs

S. No

Title

1

2

3

4

5

6

7

8

9

10

11

Investment preference among varies age groups

Investment preference among various income levels

Types of Investment

Frequency of Investment

Basis of investment

Investment pattern affected by market movement

Factors influence to choice various investment alternatives

Period of the investment

Reason behind the choice of investment

Analysis of companies before investing in percentage

The type of analysis used by the investors.

INTRODUCTION

1. Introduction:

Chapter 1

The money you earn is partly spent and the rest saved for meeting

future expenses. Instead of keeping the savings idle you may like to

use savings in order to get return on it in the future, which is known as

'investment'. There are various investment avenues such as Equity,

Bonds, Insurance, Bank Deposit etc. A Portfolio is a combination of

different investment assets mixed and matched for the purpose of

achieving an investor's goal.

The two key aspects of investment are time and risk. Sacrifice takes

place now and is certain. Benefit is expected in the future and tends to

be uncertain. In some investments (like stock options) risk element is

dominant attribute and in some investment (like govt. bonds) time is

dominant attribute .There are various factors which affects investors'

portfolio such as annual income, government policy, natural

calamities, economical changes etc.

Almost every one owns a portfolio of investments. The portfolio is

likely to comprise financial assets (bank deposits, bonds, stocks, and

so on) and real assets (motorcycle, house, and so on)

The Companies Act 1850, introduced the concept of limited liability

to India, served to stimulate the activity in the stock market. From

then number of acts are passed to boost the revolutionary change. The

global capital market registered spectacular growth in the decade of

1990's which had an effect on the growth of Indian market.

The world market capitalization grew at an average annual rate of

16% during the decade, it grew from about US $ 9.3 trillion in 1990

to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion by

2001.

The turnover on all markets taken together has grown nearly 19 times

from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before

depleting to about US $ 42 trillion in 2001.

The turnover in developed markets has, however, grown more sharply

than that in emerging markets. The US alone accounted for about 70%

of world wide turnover in 2001. Despite having a large number of

companies listed in its stock exchanges, India accounted for a merger

of 59% in 2001 as compared to 1.06% in 2000.

The stock markets world wide has grown in size as well as depth:

since last one decade. During the decade 1990-2000, the world

market: capitalization/GDP ratio more than doubled from 51% to

120%. Value traded GDP rose from 29% to 103% and turn over ratio

shot up from 48% to 89%. The combined market capitalization of a

select 22 emerging economies increased US $ 339 billion in 1990 to

US $ 2.2 trillion in 2000.

The average market capitalization increased from 3.6% to 7%, Annual

value of shares traded increased from $ 180 billion to $ 2.2 trillion

increased from 16.7% to 45.5%.

For India the total capitalization grew from $ 38,567 million at the

end of 1990 to $ 110,396 million at the end of 2001. Turn-over of

stocks increased from $ 21,198 million in 1990 to $ 249,298 million

in 2001. Market capitalization as a percentage of GDP grew from

12.2% in 1999 to 32.4% in 2001 .while turnover ratio went up from

65.9% in 1999 to 191.4% in 2000. The number of listed companies in

India was 5,975 as at end of 2001. There are very few countries,

which have higher turnover ratio than India. Standard and Poor (SP)

ranked India, 25th in terms of market capitalization, 15th in terms of

total value traded in stock-exchanges and 6th in terms of turn-over

ratio.

2.1 Industry Overview:

Globalization of the financial market has led to a manifold increase in

investment. New markets have been opened; new instruments have

been developed new services have been launched.

India has a well established capital market mechanism where in

effective and efficient transfer of money capital or financial resources

from the -vesting class to the entrepreneur class in the private and

public sector of the economy occurs. Indian capital market has a long

history of organized trading which started with the transaction in loan

stocks of the East India Company from; at time it has undergone

drastic changes to meet the requirements of the globalization.

The Indian Capital Market had been dormant in the 70's and 80's - 3S

witnessed unprecedented boom during the recent years. There has

been a shift of household savings from physical assets to financial

assets, particularly:" i.e. risk bearing securities such as shares and

debentures. Capital markets 3tructure has also undergone sea changes

with number of financial services and banking companies, private

limited companies coming in to the scene which lade the competition

in the market stiffer.

The Companies Act 1850, introduced the concept of limited liability

in India, served to stimulate the activity in the stock market. From

then number of acts are passed to boost the revolutionary change. The

global capital market registered spectacular growth in the decade of

1990's which had an effect on the growth of Indian market.

The world market capitalization grew at an average annual rate of °

6% during the decade, it grew from about US $ 9.3 trillion in 1990 to

about US $ 6 trillion in 2000 but f911 to about US $ 28 trillion by

2001. The turnover on all markets taken together has grown nearly 19

times from US $ 5.5 trillion in 1990 US $ 48 trillion in 2000 before

depleting to about US $ 42 trillion in 2001.

The turnover in developed markets has, however, grown more sharply

than that in emerging markets. The US alone accounted for about 70%

of world wide turnover in 2001. Despite having a large number of

companies listed in its stock exchanges, India accounted for a merger

of 59% in 2001 down from 1.06% in 2000.

The stock markets world wide has grown in size as well as depth over

last one decade. During the decade 1990-2000, the world market

capitalization/GDP ratio more than doubled from 51% to 120%. Value

traded 3DP rose from 29% to 103% and turn over ratio shot up from

48% to 89%. The combined market capitalization of a select 22

emerging economies increased from US $ 339 billion in 1990 to US $

2.2 trillion in 2000.

The average market capitalization increased from 3.6% to 7%, annual

value of shares traded increased from $ 180 billion to $ 2.2 trillion

and GDP increased from 16.7% to 45.5%.

For India the total capitalization grew from $ 38,567 million at the ed

of 1990 to $ 110,396 million at the end of 2001.

Turn-over of stocks increased from $ 21,198 million in 1990 to $

249,298 million in 2001. Market capitalization as a percentage of

GDP grew from 12.2% in 1999 to 32.4% in 2001 while turnover ratio

went up from 65.9% in 1999 to 191.4% in 2000. The number of listed

companies in India was 5,975 as at end of 2001. There are very few

countries, which have higher turnover ratio than India. Standard and

Poor (SP) ranked India, 25th in terms of market capitalization, 15th in

terms of total value traded in stock-exchanges and 6th in terms of turn-

over ratio.

Indian Securities Market

The past decade in many ways has been remarkable for securities

market in India. It has grown exponentially as measured in terms of

amount raised from the market, number of stock exchanges and other

intermediaries, the number of listed stocks, market capitalization,

trading volumes and turnover on stock exchanges, and investor

population. Along with this growth, the profiles of the investors,

issuers and intermediaries have changed significantly. The market has

witnessed Fundamental institutional changes resulting in drastic

reduction in transaction costs and significant improvements in

efficiency, transparency and safety.

Dependence on Securities Market

Three main sets of entities depend on securities market. While the

corporate and Governments raise resources from the securities market

to meet their obligations, the households invest their savings in the

securities. Corporate Sector: The 1990s witnessed emergence of the

securities market as a major source of finance for trade and industry.

A growing number of companies are accessing the securities market

rather than depending on loans from FIls/banks. The corporate sector

is increasingly depending on external sources for meeting its funding

requirements.

There appears to be growing preference for direct financing (equity

and debt) to indirect financing (bank loan) within the external sources.

According to CMIE data, the share of capital market based

instruments in resources raised externally increased to 53% in 1993-

94, but declined thereafter to 33% by 199900 and further to 21 % in

2001-02.

In the sector-wise shareholding pattern of companies listed on NSE, it

is observed that on an average the promoters hold more than 55% of

total shares. Though the Non-promoter holding is about 44%, Indian

public held only 17% and the public float (holding by Fils, MFs,

Indian public) is at best 25%

There is not much Difference in the shareholding pattern of

companies in different sectors. Strangely, 63% of shares in companies

in media and entertainment sector are held by private corporate bodies

though the requirement of public offer was relaxed to 10% for them.

The promoter holding is not strikingly high in respect of companies in

the IT and telecom sectors where similar relaxation was granted.

Governments: Along with increase in fiscal deficits of the

governments, the dependence on market borrowings to finance fiscal

deficits has increased over the years. During the year 1990-91, the

state governments and the central government financed nearly 14%

and 18% respectively of their fiscal deficit in percentage

terms, dependence of the state governments on market borrowing did

not increase much during the decade 1991-2001. In case of central

government, it increased to 77.6% by 2002-03.

Households: According to RBI data, household sector accounted for

82.4% of gross domestic savings during 2001-02. They invested 38%

of financial savings in deposits, 33% in insurance/provident funds, 11

% on small savings, and 8% in securities, including government

securities and units of mutual funds during 2001- 02. Thus the fixed

income bearing instruments are the most preferred assets of the

household sector. Their share in total financial savings of the

household sector witnessed an increasing trend in the recent past and

is estimated at 82.4% in 2001- 02. In contrast, the share of financial

savings of the household sector in securities (shares, debentures,

public sector bonds and units of UTI and other mutual funds and

government securities) is estimated to have gone down from 22.9% in

1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02;

Though there was a major shift in the saving pattern of the

household sector from physical assets to financial assets and within

financial I assets, from bank deposits to securities, the trend got

reversed in the recent past due to high real interest rates, prolonged

subdued conditions in the secondary Market, lack of confidence

by the issuers in the success of issue process as well as of

investors in the credibility of the issuers and the systems and poor

performance of mutual funds. The portfolio of household sector

remains heavily weighted in favor of physical assets and fixed income

bearing instruments. Investor Population

The Society for Capital Market Research and Development carries out

periodical surveys of household investors to estimate the number of

investors. Their first survey carried out in 1990 placed the total

number of share owners at 90-100 lakh. Their second survey

estimated the number of share owners at around 140-150 lakh as of

mid-1993. Their latest survey estimates the number of shareowners at

around 2 crore at 1997 end, after which it remained stagnant up to the

end of 1990s.

The bulk of increase in number of investors took place during 199194

and tapered off thereafter.49% of the share owners at the end of 2000

had, for the first time, entered the market before the end of 1990, 44%

entered during 1991-94, 6.3% during 1995-96 and 0.8% since 1997.

The survey attributes such tapering off to persistent depression in the

share market and investors' bad experience with many unscrupulous

company promoters and managements.

Distribution of Investors: The Society for Capital Market Research

& Development estimates that 15% of urban households and only 0.5-

1.0% of semi-urban and rural households own shares. It is estimated

that 4% of all households own shares.

RESEARCH DESIGN

RESEARCH DESIGN

Chapter 2

2.1. Problem Identification:

Analyze the investment pattern of people and the popularity of

different products (Fund Invest, RBI Bonds, Stock Direct, Insurance

,mutual funds and other securities ) provided by the financial

institutions and banks for investment.

2.2 Objective of the study:

•To study the investment pattern of people.

•To study the investment decisions of different social class people (in

term of age group, education, income level etc.)

•To analyze the investment pattern of people who reside in an

economically developed area and economically developing area.

•To study techniques and principles useful in systematic and rational

investment management.

•To study the popularity of various products offered for investment in

the market.

•And, to study the role of brokerage firm as an intermediaries.

2.3 CONCEPTS

2.3.1 Investment:

Investment means buying securities or other monetary or paper

(financial) assets in the money markets or capital markets, or in fairly

liquid real assets, such as gold as an investment, real estate, or

collectibles.

Investment is the commitment of a person's fund to derive future

income in the form of interest, dividend, premiums ,pension benefits

or appreciation in the value of their capital .Valuation is the method

for assessing whether a potential investment is worth its price. Types

of financial investments include shares or other equity investment, and

bonds (including bonds denominated in foreign currencies). These

investments assets are then expected to provide income or positive

future cash flows, but may increase or decrease in value giving the

investor capital gains or losses.

Essential nature of investment

•Reduced current consumption

•Planned later consumption

•By saving money (instead of spending it), individuals tradeoff

present consumption for a larger future consumption.

2.3.2 Characteristics of Investment:

(i) Interest (return)

When we borrow money, we are expected to pay for using it - this is

known as Interest. Interest is an amount charged to the borrower for

the privilege of using the lender's money. Interest is usually calculated

as a percentage of the principal balance (the amount of money

borrowed).

The percentage rate may be fixed for the life of the loan or it may be

variable, depending on the terms of the loan.

And also it can be defined when we invest in some asset then,

Rate of return = Annual income + (end price -begin price)

Begin price

What factors determine interest rates?

The factors which govern these interest rates are mostly economy

related and are commonly referred to as macroeconomic factors.

Some of these factors are:

• Demand for money

• Level of Government borrowings

• Supply of money

• Inflation rate

(ii) Risk

Risk may relate to loss of capital, delay in repayment of capital non-

payment of interest, or variability of return. While some investment

such as government securities and bank deposits are almost without

risk, others are more risky. The risk of an investment is determined by

the investment's maturity period, repayment capacity, nature of return

commitment, and so on.

To measure the deviation of the person's income:

- Variance

- Standard deviation

- Beta

(iii) Safety

Every investor expects to get back the initial capacity on maturity

without loss and without delay. Investment safety is gauged through

the reputation established by the borrower of the fund. A highly

reputed and successful corporate entity assures investors of their

initial capital.

(iv) Liquidity

An investment which is easily saleable or marketable without loss of

money and without loss of time is said to be possess the characteristic

of liquidity. Some investments such as deposit in unknown corporate

entities, bank deposit, post office deposit, national saving certificate,

and so on are not marketable.

An investor tends to be prefer maximization of expected return,

minimization of risk, safety of fund, and liquidity of investment

Investment versus speculation

INVESTER SPECUALTER

• Has a relatively longer

planning horizon

• Assumes moderate risk

• Assumes modest rate of

return

• Gives greater significance

to fundamental factors and

evaluates the firm

• Typically uses his own

funds

• Has very short planning

• Assumes high risk

• Assumes high rate of return

for high risk

• Relies more on hearsay

technical charts, and market.

• Normally borrow from

others.

The three Qolden rules for all investors are:

~ Invest early

~ Invest regularly

~ Invest for long term and not short term

One needs to invest for

~ Earn return on your idle resources

~ Generate a specified sum of money for a specific goal in life

~ Make a provision for an uncertain future

~ To meet the cost of inflation

2.3.4 Types of Investment:

(i) Short term Investment- It is an investment made by the investor

for very short period of time i.e. for one to three years. Such as

investment in bank, money market, liquid funds etc.

(ii) Long Term Investment - When investor invests money for

more than three to five years then it is called long term investment.

Such as investment in bonds, mutual funds, fixed bank deposits, PPF,

insurance etc

Various options available for investment

~ Physical assets

• Real estate

• Gold/jewelry

• Commodities

• Assets etc.

~ Financial assets

• fixed deposits with banks

• Small saving instruments with post offices

• Insurance /provident /pension fund etc.

> Securities market

• Share

• Bonds

• Debentures

• Mutual fund

• Derivatives etc.

2.3.5 Investor:

Investor is a person or an organization that invest money in various

investment sources for specific objective. Attitude of investment is

different in each alternative. E.g. financial market have different

attitude towards risk and return. Some investors are risk avers, while

some have an affinity of risk. The risk bearing capacity of investor is a

function of personal, economical, environment, and situational factors

such as income, family size, expenditure pattern, and age. A person

with higher income is assumed to have higher risk-bearing capacity.

Thus investor can be classified as risk skiers, risk avoiders, or risk

bearers

Before making any investment, one must ensure to:

> Obtain written documents explaining the investment

> Read and understand such documents

> Verify the legitimacy of the investment

> Find out the costs and benefits associated with the investment

> Assess the risk-return profile of the investment

> Know the liquidity and safety aspects of the investment

> Ascertain if it is appropriate for your specific goals

> Compare these details with other investment opportunities available

> Examine if it fits in with other investments you are considering or you have

already made

> Deal only through an authorized intermediary

> Seek all clarifications about the intermediary and the investment

> Explore the options available to you if something were to go wrong,

and then, if satisfied, make the investment.

Portfolio

A Portfolio is a combination of different investment assets mixed and

matched for the purpose of achieving an investor's goal. Items that are

considered a part of your portfolio can include any financial asset you

own, like shares, debentures, bonds, mutual fund units etc. and real

assets like gold, art and even real estate etc. However, for most

investors a portfolio has come to signify an investment in financial

instruments like shares, debentures, fixed deposits, mutual fund units.

Diversification

It is a risk management technique that mixes a wide variety of

investments within a portfolio. It is designed to minimize the impact

of anyone security on overall portfolio performance. Diversification is

possibly the best way to reduce the risk in a portfolio.

Advantages of having a diversified portfolio

A good investment portfolio is a mix of a wide range of asset class.

Different securities perform differently at any point of time.

So with a mix of asset types, your entire portfolio does not suffer the

impact of a decline of anyone security. When your stocks go down,

you may still have the stability of the bonds in your portfolio. There

have been all sorts of academic studies and formulas that demonstrate

why diversification is important, but it's really just the simple practice

of "not putting all your eggs in one basket. If you spread your

investments across various types of assets and markets, you'll reduce

the risk of your entire portfolio getting affected by the adverse returns

of any single asset class.

PORTFOLIO MANAGEMENT PROCESS

1.specification of investment objectives and constraints

2.choice of the asset mix

3.formulation of [portfolio strategy

4.selection of securities

5.portfolio execution

6.portfolio revision

7.performance evaluation

2.4 SCOPE OF THE STUDY

2.4.1 Investment Avenues:

In India, numbers of investment avenues are available for the

investors. Some of them are marketable and liquid while others are

non marketable and some of them also highly risky while others are

almost risk less. The investor has to choose Proper Avenue among

them, depending upon his specific need, risk preference, and return

expected

Investment avenues can broadly categories under the following

heads

1. Corporate securities

Equity shares Preference shares

Debenture/Bonds GDR's/ADR's

Warrants Derivatives

2.Deposit in bank and non banking companies

3.Post office deposits and certificate

4.Life insurance policies

5.Provident fund schemes

6.Government and semi-government securities

7.Mutual fund and schemes

8.Real estate

Odd Lot Market

The odd lot market facility is used for the Limited Physical Market.

The main features of the Limited Physical Market are detailed in a

separate section (1.14).

RETDEBT Market

The RETDEBT market facility on the NEAT system of capital market

segment is used for transactions in Retail Debt Market session.

Trading in Retail Detail Market takes place in the same manner as in

equities (capital market) segment. The main features of this market

are detailed in a separate section (1.15) on RETDEBT market.

Auction Market

In the Auction market, auctions are initiated by the Exchange on

behalf of trading members for settlement related reasons. The main

features of this market are detailed in a separate section (1.13) on

auction.

(a) Equity share

Equity capital represents ownership capital. Total equity capital of a

company is divided into equal units of small denominations, each

called a share. For example, in a company the total equity capital of

Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each

such unit of Rs 10 is called a 'share'. Thus, the company then is said to

have 20, 00,000 equity shares of Rs 10 each. Equity share holders

collectively own the company .they bear the risk and enjoys the

rewards of ownership. The holders of such shares are members of the

company and have voting rights. When company makes profit

shareholder receives there share of the profit in form of dividends. In

addition, when company performs well and the future expectation

from the company is very high, the price of the companies share goes

up in the market.

\Investor can invest in shares either primary market offerings or in the

secondary market. While fixed income investment avenues may be the

more important of the investors, equity shares seem to capture their

interest the most.

Authorized capital: The amount of capital that a company can issue

as per its memorandum .

Issued capital: The amount offered by the company to the investors

Paid-up capital: It is part of issued capital that has been subscribed to

by the investors.

Face value: The value printed on the share scrip (if share is issued at

face value It is called par value)

Premium: If the share sold at higher than face value. Discount If the

share sold at lower than face value.

(b) Preference shares

Preference share as that part of share capital of the Company which

enjoys preferential right as to: (a) payment of dividend at a fixed rate

during the life time of the Company; and (b) the return of capital on

winding up of the Company. It is lie in between pure equity and debt.

But preference shares cannot be traded, unlike equity shares, and are

redeemed after a pre-decided period. Also, Preferential Shareholders

do not have voting rights. These are issued to the public only after a

public issue of ordinary shares.

Preference shares also get traded in the market and give liquidity to

investor. Investor can opt for this type of investment when their risk

performance is very low. currently preference dividend is tax exempt.

(c) Debentures and Bonds

It is a fixed income (debt) instrument issued for a period of more than

one year with the purpose of raising capital. The central or state

government corporations and similar institutions sell bonds.

A bond is generally a promise to repay the principal along with a

fixed rate of interest on a specified date, called the Maturity Date.

Many types of debenture and bonds have been structured to suit

investors with different time needs. Though having higher risk as

compared to bank fixed deposits, bonds and debentures do offer

higher returns. Debenture instruments require scanning the market and

choosing specific securities that will cater to investment objectives of

the investor.

(d) Depository Receipts (GDRs/ADRs)

Global depository receipts are the instrument in the form of a

depository receipts or certificate created by the overseas depository

bank outside India and issued to non-resident investors against

ordinary shares. A GDR issued in America, is an American

Depositary Receipts. As investors seek to diversify their equity

holdings, the option of GDRs and ADRs is very lucrative, while

investing in such securities, investors should identify the

capitalization and risk characterizes of the instrument and the

companies' performance in the home country.

(e) Warrants

A warrant is a certificate giving its holder rights to purchase securities

at a stipulated price within a specified time limit. The warrants act as a

value addition because holder of the warrant has the right but not the

obligation to investing in equity at the indicated rate. An option

contract often sold with another security. For instance, corporate

bonds may be sold with warrants to buy common stock of that

corporation. Warrants are generally detachable. Options generally

have lives of up to one year. The majority of options traded on

exchanges have maximum maturity of nine months. Longer dated

options are called Warrants and are generally traded over-the counter

(ii) Savings bank account with commercial bank

Broadly speaking, savings bank account, money market/liquid funds

and fixed deposits with banks may be considered as short-term

financial investment options. Savings Bank Account is often the first

banking product people use, which offers low interest (8%-11.5%

p.a.), making them only marginally better than fixed deposits.

(iii) Bank fixed deposits

Fixed Deposits with Banks are also referred to as term deposits.

Minimum investment period for bank FDs is 30 days. Fixed Deposits

in banks are for those investors, who have low risk appetite. Bank FDs

is likely to be lower than money market fund returns.

•Deposits in banks are very safe because of the regulations of RBI and

the guarantee provided by the deposit insurance corporation.

•The interest rate on fixed deposits varies with term of the deposits

•Bank deposits enjoy exceptionally high liquidity

•Loans can raised against bank deposits

iv) Company fixed deposits

These are short-term (six months) to medium-term (three to five

years) borrowings by companies at a fixed rate of interest which is

payable monthly, quarterly, semi annually or annually.

Fixed deposits mobilized by manufacturing companies is regulated by

the Company Law Board and fixed deposits mobilized by the finance

companies (precisely non banking companies) are regulated by the

RBI .They can also be cumulative fixed deposits where the entire

principal along with the interest is paid at the end of the loan period.

The rate of interest varies between 6-9% per annum for company FDs.

The interest received is after deduction of taxes.

•Company deposits represents unsecured loans

•Company deposits have to be necessarily credit rated

•Depositors don't get any tax benefits.

(v) Post Office Savings:

Post Office Monthly Income Scheme is a low risk saving instrument,

which can be availed through any Post Office. It provides an interest

rate of 8% per annum, which is paid monthly. Minimum amount,

which can be invested, is Rs. 1,000/- and additional investment in

multiples of Rs. 1,000/-. Maximum amount is Rs. 3,00,000/- (if

Single) or Rs. 6,00,000/-(if held jointly) during a year.

It has a maturity period of 6 years. A bonus of 10% is paid at the time

of maturity. Premature withdrawal is permitted if deposit is more than

one year old. A deduction of 5% is levied from the principal amount if

withdrawn prematurely. The 10% bonus is also denied.

•Deposits can be made in multiple of Rs.50

•Deposits can be pledged

•The interest rate on deposits is slightly higher than banks • The

interest is calculated half yearly and paid yearly

Schemes like monthly income scheme of post office, Kisan vikas patra,

and National saving certificate etc...

(vi) Life insurance policies

Insurance companies offer many investment schemes to investors.

These schemes promote saving and additionally provide insurance

cover. L1C is the largest life insurance company in India. Some of its

schemes include life policies,

•Convertible whole life assurance policy,

•Endowment assurance policy,

•Jeevan Saathi,

•Money back policy

•Unit linked plan

•Term assurance

•Immediate annuity

•Deferred annuity • Riders etc.

Insurance policies, while catering to the risk compensation to be faced

in the future by investor, also have the advantage of earning a

reasonable interest on their investment insurance premiums.

Considerations in choosing a policy:

•Reviewing the insurance needs and circumstances and that most

closely fit our needs.

•Ability of the payment of the premiums

•Don't buy life insurance unless you intend to stick with your plan

(vii) Public Provident Fund (PPF):

A long term savings instrument with a maturity of 15 years but no of

contributions annually has to be 16 and interest payable at 8% per

annum compounded annually. The subscriber to a PPF has to make

minimum of deposits of Rs.100 Annually. A PPF account can be

opened through a nationalized bank at anytime during the year and is

open all through the year for depositing money. Tax benefits can be

availed for the amount invested and interest accrued is tax-free.

A withdrawal is permissible every year from the seventh financial

year of the date of opening of the account and the amount of

withdrawal will be limited to 50% of the balance at credit at the end of

the 4th year immediately preceding the year in which the amount is

withdrawn or at the end of the preceding year whichever is lower the

amount of loan if any.

The subscriber to the PPF is eligible to take loan from the third year

sixth year after opening of account .and interest for that loan is 1 %

higher than PPF ACC interest rate.

(viii) Government and semi-government securities

It is a fixed income (debt) instrument issued for a period of more than

one year with the purpose of raising capital. The central or state

government, corporations and similar institutions sell bonds. A bond

is generally a promise to repay the principal along with a fixed rate of

interest on a specified date, called the Maturity Date.

The government issues securities in the money market and in the

capital market. Money market instruments are traded in Wholesale

Debt Market (WDM) trades and retail segments. Instruments traded in

the money market are short term instruments such as treasury bills and

convertible bonds.

Three types of instruments are issued by govt are:

•An investment resembles a co. debenture .It carries the name of the

holder and registered with Public Debt Office.

•A promissory note to the holder, which contain the promise by

President of India (or state govt).

•A bearer security where the interest and other payments are made to

holder.

(ix) Mutual fund

These are funds operated by an investment company which raises

money from the public and invests in a group of assets (shares,

debentures etc.), in accordance with a stated set of objectives. It is a

substitute for those who are unable to invest directly in equities or

debt because of resource, time, risk factor or knowledge constraints.

Benefits include professional money management, buying in small

amounts and diversification.

Till 1986 the Unit Trust Of India was only offering mutual funds. As

mutual fund sector is liberalized, at present there are more than 30

mutual funds offering over 1000 schemes.

Entities involved in mutual find operation are:

Mutual fund, the trustee, the asset management company, the

custodian, the registrar and transfer agents.

Mutual fund units are issued and redeemed by the Fund Management

Company based on the fund's net asset value (NA V), which is

determined at the end of each trading session. NAV is calculated as

the value of all the shares held by the fund, minus expenses,

divided by the number of units issued. Mutual Funds are usually

long term investment vehicle though there some categories of mutual

funds, such as money market mutual funds, which are short term

instruments.

Mutual fund schemes invest in three broad categories of financial

assets like equity ,bond and cash .On the basis of objective we can

categories mutual funds as equity funds/growth funds, diversified

funds, sector funds, index funds, tax saving funds, debt/income

funds, liquid funds/money market funds, gift funds, balanced

funds, mixed funds. And on the basis of flexibility we can categories

them as open-ended funds, close-ended funds and interval funds.

Pros and cons of mutual funds

Pros Cons

Diversification expenses

Professional management lack of thrill

Liquidity

Tax advantages

Comprehensive regulation

Transparency

(x) Real Estate

Investment in real estate also made when the expected returns are very

attractive. Buying property is an equally strenuous investment

decisions. Real estate investment is often linked with the future

development plans of the location. At present investment in real assets

is booming there are various investment source are available for

investment which are directly or indirectly investing real estate.

In addition to this, the more affluent investors are likely to be

interested in other type of real estate, like commercial property

,agricultural land ,semi urban land , and resorts .

Sources of Housing Finance

•Employers

•Life insurance corporations

•Housing Finance corporations

•Commercial banks

(xi) Bullion investment

The bullion offers investment opportunity in the form of gold, silver,

art objects (paintings ,antiques), precious stones and other metals

(precious objects), specific categories of metals are traded in the metal

exchange.

The bullion market presents an opportunity for an investor by offering

returns and the end value of future. It has been absurd that on several

occasions, when stock market failed, the gold market provided a

return on investments.

2.5 METHODOLOGY

Primary Data

A questionnaire schedule was prepared and the primary data was

collected.

Secondary Data

•Company website

•Customer data base

•Company report ' s

•Books and publications

•Related information from various websites

Period of Study:

The study concentrates only on the past 3 years data with the help of

data source available. Period of study and analyzing the primary data

is two months.

Type of research:

This is a descriptive research where survey method is adopted to

collect primary information from the investors using different scales

as required and the required secondary information for the analysis.

Sampling Technique

The sampling technique followed in this study is non-probability

convenient sampling. Simple random techniques are used to select the

respondent from the available database.

The research work will be carried on the basis of structured

questionnaire. The study is restricted to the investors of the Bangalore

and Bhubaneswar city only.

Sample Size

The population being large the survey will be carried among 150

respondents who are the clients (or investors) of Bangalore Stock

Exchange. They will be considered adequate to represent the

characteristics of the entire population.

Tools used for data analysis The analysis of data collection is

completed and presented systematically with the use of Microsoft

Excel.

2.6 Sources of data

Sources of study for investors:

A look out for new investment opportunities helps investors to beat

the market. There are many sources from which investors can gather

the required information. Such as;

(i) Financial institutions

Corporate house, government bodies and mutual funds are the main

source of investment information. Many of these enterprises have

their own website and post investment related information on their

websites.

(ii) Financial market

Stock exchange and regulated bodies also provide useful information

to investor to make there investment decisions. With respect to

secondary market, the Securities and Exchange Board of India uses

various modes to promote investors education and takes great effort to

achieve an investor friendly secondary market in India.

The Reserve Bank of India also provide useful information relating to

the prevent interest rates and non-banking financial intermediaries that

mobiles money through deposit schemes.

(iii) Financial service intermediaries

These are intermediaries who promote securities among the public.

Many of these intermediaries are the agencies of specific instruments

especially tax saving instruments. These intermediaries offer to share

their commission from there concerned organization with the

individual investor thus investor get additional advantages while

investing through intermediaries.

(iv) Media

Press sources such as financial news papers, financial magazine,

business news channel, websites etc. provide information related to

investment to the public. Besides information on securities, these

sources also provide analysis of information and in certain instance

suggest suitable investment decisions to be made by investor

INDUSTRY PROFILE

INDIAN CAPITAL MARKET Chapter 3

3.1 About Capital Markets and Depository

3.1.1 About Capital Market:

The function of the financial market is to facilitate the transfer of

funds from surplus sectors (lenders) to deficit sectors (borrowers). A

financial market consists of investors or buyers of securities,

borrowers or sellers of securities, intermediaries and regulatory

bodies. Indian financial system consists of money market and capital

market.

The capital market consists of primary and secondary markets. The

primary market deals with the issue of new instruments by the

corporate sector· such as equity shares, preference shares and debt

instruments. The secondary market or stock exchange is a market for

trading and settlement of securities that have already been issued. The

investors will holding securities or sell securities through registered

brokers/sub-brokers of the stock exchange.

The introduction of NSE & SSE has increased the reach of capital

market manifold which in turn increased the number of investors

participating in the capital market and thus creates the possibility of a

bad delivery. The cost & time spend by the brokers for rectification of

this bad delivery tends to be higher with the geographical spread of

the clients. The increase in trade volumes leads to exponential rise in

the back office operation.

The inconvenience faced by the investors (in area that are far long &

away from the main metros) in the settlement of the trade also limits

the opportunity for such investors in participating in auction trading.

This has made the investors as well as brokers wary of Indian capital

market. The erstwhile settlement system on Indian stock exchanges

was inefficient and increased risk, due to the time that elapsed before

trades was settled. The transfer was by physical movement of papers.

There had to be a physical delivery of securities - a process fraught

with delays and resultant risks.

The second aspect of the settlement related to transfer of shares in

favor of the purchaser by the company. The system of transfer of

ownership was grossly inefficient as every transfer involves physical

movement of paper securities to the issuer for registration, with the

change of ownership being evidenced by an endorsement on the

security certificate. In many cases the process of transfer would take

much longer than the two months stipulated in the Companies Act and

a significant proportion of transactions would end up as bad delivery

due to faulty compliance of paper work. Theft, forgery, mutilation of

certificates and other irregularities were rampant. In addition, the

issuer had the right to refuse the transfer of a security. All this added

to costs and delays in settlement, restricted liquidity and made

investor grievance redress time consuming and, at times, intractable.

To obviate these problems, the Depositories Act, 1996 was passed. It

provides for the establishment of depositories in securities with the

objective of ensuring free transferability of securities with speed,

accuracy and security.

3.1.2 Depository:

Depository is an organization where the securities of a shareholder are

held in the electronic form at the request of the shareholder through a

medium of a Depository Participant (DP). The principal function of a

Depository is to dematerialize securities and enables their transaction

in book-entry form electronically.

Depository functions like a security bank, where the dematerialized

securities are traded and held in custody. This facilitates faster, risk-

free and low cost settlement similar to bank.

Following tables compares the two;

(a) Bank (b) DEPOSITIRY

Hold funds in account Hold securities in accounts

Transfer funds between accounts Transfer securities between

accounts

Transfer without physically

handling money

Transfer without physically

handling securities

Safekeeping of money Safekeeping of securities

In India the Depository Act defines a Depository to mean, a company

formed and registered under the Companies Act, 1956 and which has

been granted a certificate of registration under sub-section (1 A) of

section 12 of the Securities and Exchange Board of India Act, 1992

Depositories in India

There are two depositories in India, which provide dematerialization

of securities

• National Securities Depository Limited (NSDL)

• Central Depository Services Limited (CDSL)

Benefits of participation in a depository

o Immediate transfer of securities

No stamp duty on transfer of securities

o Elimination of risks associated with physical certificates

such as bad delivery, fake securities, etc.

o Reduction in paperwork involved in transfer of securities

o Reduction in transaction cost

o Ease of nomination facility

o Change in address recorded with DP gets registered

electronically with all companies in which investor holds

securities eliminating the need to correspond with each of

them separately

o Transmission of securities is done directly by the DP

eliminating correspondence with companies

o Convenient method of consolidation of folios/accounts

o Holding investments in equity, debt instruments and

Government securities in a single account; automatic

credit into Demat account of shares, arising out of

split/consolidation/merger etc.

Depository Participant

The Depository provides its services to investors through its agents

called Depository Participants (DPs). These agents are appointed by

the depository with the approval of SEBI. According to SEBI

regulations, amongst others, three categories of entities, i.e. Banks,

Financial Institutions and SEBI registered trading members can

become DPs. The depository has not prescribed any minimum

balance. Customer can have zero balance in his account.

ISIN

ISIN (International Securities Identification Number) is a unique

identification number for a security.

Custodian

A Custodian is basically an organization, which helps register and

safeguard the securities of its clients. Besides safeguarding securities,

a custodian also keeps track of corporate actions on behalf of its

clients:

� Maintaining a client's securities account

� Collecting the benefits or rights accruing to the client in respect

of securities

� Keeping the client informed of the actions taken or to be taken

by the issue of securities, having a bearing on the benefits or rights

accruing to the client.

Dematerialization of securities

In order to dematerialize physical securities one has to fill a Demat

Request Form (DRF) which is available with the DP and submit the

same along with physical certificates. Separate DRF has to be filled

for each ISIN number. Odd lot share certificates can also be

dematerialized. Dematerialized shares do not have any distinctive

numbers. These shares are fungible, which means that all the holdings

of a particular security will be identical and interchangeable. One can

dematerialize his debt instruments, mutual fund units; government

securities in his single Demat account.

Re-materialization

If one wishes to get back his securities in the physical form one has to

fill in the Remat Request Form (RRF) and request his DP for

rematerialisation of the balances in his securities account.

Legal framework:

The Depositories Act 1956 provides the regulation of depositories in

securities.

EBI formulated the Depositories and participants Regulation Act,

1996 to oversee the matter regarding admission and working of

Depositories and its participant. The Depositories Act passed by

parliament received the President's assents on August 10, 1996. The

Act enables the setting up of multiple depositories in the country.

Only a company registered under the companies Act (1956) and

sponsored by the specified categories of institution can setup

depository in India. The Depository offers services relating to holding

of securities and facility processing of transaction in such securities in

book entry form. The transaction handled by depositories includes

settlement of market trades, settlement of off-market trades, securities

lending and borrowing, pledge & hypothecations.

Eligibility criteria for a Depository:

Any of the following may be a Depository:

•A public financial institution as defined in section 4A of the

Companies Act, 1956.

• A bank included in the second schedule to the RBI Act, 1934.

• A foreign bank operating in India with the approval of the RBI.

• A Recognized Stock Exchange.

•An institution engaged in providing financial services where not less

then 75% of the equity is held jointly or severally by the institution.

• A custodian of the securities approved by Government of India.

•A foreign financial services institution approved by Government of

India.

The promoters of Depository are also known as its sponsors. A

depository company must have a minimum net worth of Rs. 100 cr.

The sponsor(s) of the depository have to hold at least 51 % of the

capital of the Depository Company.

Agreement between depository and issuers:

If either the issuers (a company which has issued securities) or the

investor opts to hold his securities in a Demat form, the issuer enters'

into an agreement with the depository to enable the investors to

dematerialize their securities. No such agreement is necessary where

the state or central government is the issuer of securities. Where an

issuer has appointed a registrar to the issue of share transfer, the

depository enters into a tripartite agreement with the issuer and (R&T)

agent; the case may be, for the securities declared eligible for

dematerialize

Rights and obligation of Depositories:

•Every depository should have adequate mechanism for reviewing

monitoring and evaluating the controls, system, procedures and

safeguards.

•Annual inspections of the procedures and it should be reported to

SEBI.

•To ensure that the integrity of automatic data processor system is

maintained to safeguards information.

•Adequate measures, including insurance, to protect the interests of

the beneficial owners against any risk.

3.2 Function of Depository Participant:

• Dematerialization:

One of the primary functions of depository is to eliminate or minimize

the movement of physical securities in the market. This is done

through converting securities held in physical form in to holdings in to

back entry form.

•Account Transfer:

The depository gives effects to all transfer resulting from the

settlement of trade and other transaction between various beneficial

owners by recording entries in the accounts of such beneficial owners.

•Transfer & Registration:

A transfer is a legal change of ownership of a security in the records

of the insurer. Transfer of securities under demat occur merely by

passing book-entries in the records of the depositories, on the

instruction of beneficial owners.

•Pledge and hypothecation:

•Depositories allow the securities with them to be used as collateral to

secure loans and other credits. The securities pledged are transferred

to a segregated or collateral

• Linkage with clearing system:

The clearing system performs the function of ascertainment in the pay

in (sell) or payout (buy) of brokers who leave traded on the stock

exchange. Actually delivery of securities from the clearing system is

from the selling brokers and delivery of securities from the clearing

system to the buying broker is done by depository. To achieve this

depositories and the clearing system are linked electronically.

To handle the securities in electronic form as per the Depositories Act

1996 two depositories are registered with SEBI.

They are

1)NSDL -- National securities depository limited.

CDSL -- Central depository service (India) limited. account through

book-entries in the records of the depository .

3.3 NSDL

India had a vibrant capital market, which is more than a century old,

the paper-based settlement of trades caused substantial problems like

bad delivery and delayed transfer of title till recently. The enactment

of Depositories Act in August 1996 paved the way for establishment

of NSDL, the first depository in India. NSDL promoted by institutions

of national stature responsible for economic development of the

country has since established a national infrastructure of international

standard that handles most of the trading and settlement in

dematerialized form.

Using an innovative and flexible technology system, NSDL works to

support the investors and brokers in the capital market of the country.

NSDL aims at ensuring the safety and soundness of Indian

marketplaces by developing settlement solutions that increase

efficiency and minimizing risk and cost. In the depository system,

securities are held in depository accounts, which is more or less

similar to holding funds in bank accounts. Transfer of ownership of

securities is done through simple account transfer.

This method does away with all the risks and hassles normally

associated with paperwork. Consequently, the cost of transacting in a

depository environment is considerably lower as compared to

transacting in certificate sough simple account transfers.

.3.4 CDSL

CDSL was set up with the objective of providing convenient,

dependable and secure depository services at affordable cost to all

market participants. CDSL received the certificate of commencement

of business from SEBI in February 1999.

Depository facilitates holding of securities in the electronic form and

enables securities transactions to be processed by book-entry by a

Depository Participant (DP), who as an agent of the depository, offers

depository services to investors. According to SEBI guidelines,

financial institutions, banks, custodians, stockbrokers, etc. are eligible

to act as DPs. The investor who is known as beneficial owner (BO)

has to open a Demat account through any DP for dematerialization of

his holdings and transferring securities.

The balances in the investors account recorded and maintained with

CDSL can be obtained through the DP. The DP is required to provide

the investor, at regular intervals, a statement of account, which gives

the details of the securities holdings and transactions. The depository

system has effectively eliminated paper-based certificates, which were

prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL

offers an efficient and instantaneous transfer of securities.

3.5 Capital market structure An indirect, but very authentic source of information about

Distribution of Beneficial Accounts with NSDL at the end of

Feb.2006

S. No. States / Union Beneficial Accounts

Territories Number % to total

1 Andhra Pradesh 194,405 6.08

2 Bihar 27,340 0.85

3 Chandigarh 7,891 0.25

4 Delhi 323,693 10.12

5 Goa 11,374 0.36

6 Gujarat 536,720 0.12

7 Himachal Pradesh 3,706 0.12

8 Jammu & Kashmir 7,320 0.23

9 Karnataka 195,159 6.10

10 Kerala 76,793 2.40

11 Madhya Pradesh 71,158 2.23

12 Maharashtra 911,997 28.52

13 Orissa 14,701 0.46

14 Pondicherry 2,481 0.08

15 Punjab 52,434 1.64

16 Rajasthan 72,316 2.26

17 Tamil Nadu 230,407 7.20

18 Uttar Pradesh 188,835 5.90

19 West Bengal 214,432 6.71

20 Others 54,802 1.71

Total 3,197,964 100.00

Investor is the data base of beneficial accounts with the

depositories. By February 2006, there were 3 million beneficial

accounts with the National Securities Depository Limited

(NSDL). The state-wise distribution of beneficial accounts with

NSDL is presented in Table. As expected Maharashtra and

Gujarat account for nearly 45% of total beneficial accounts. Account Opening

Any investor who wishes to avail depository services must first open

an account with a Depository participant of NSDL. The investor can

open an account with any depository participant of NSDL. An

Investor may open an account with several DPs or he may open

several accounts with single DP. After exercising this choice, the

investor has to enter into an agreement with the DP. The form and

contents of this agreement are specified by the business rules of

NSDL.

� A DP may be required to open three categories of accounts for

clients Beneficiary Account, Clearing Member Account and

Intermediary Account.

� A Beneficiary Account is an ownership account. The holder/s

of securities in this type of account owns those securities.

� The Clearing Member Account and Intermediary Account are

transitory accounts. The securities in these accounts are held for

commercial purpose only.

� A Clearing Member Account is opened by a broker or a

Clearing Member for the purpose of settlement of trades.

� An Intermediary Account can opened by a SEBI registered

intermediary for the purpose of stock lending and borrowing.

Check List for Account Opening

� Proof of Address, certified copies of ration card/ passport! voter

ID/ PAN card/ driving License / bank passbook.

� Ensure that all compulsory fields in the account opening form

are filled (except PAN/ GIR & nomination which are optional).

� In case of corporate, ensure a copy of board resolution of

authorized signatories. Ensure proper authorization in case of

power of attorney holder.

� DP should give a copy of agreement to the client, including the

charges.

� Inform clients regarding standing instruction facility.

� Branches of DP to co-ordinate & follow up with Head Office

for account opening.

� Ensure account is activated before forwarding Client 10 to

client. ~ Inform settlement deadlines to clients.

Dematerialization

One of the methods for preventing all the problems that occur with

physical securities is through dematerialization (Demat). The share

certificates are shredded (i.e., its paper form is destroyed) and a

corresponding credit entry of the number of securities (written on the

certificates) is made in the account opened with the depository

participant (DP). Each security is identified in the depository system

by ISIN and short name.

i) Steps in Dematerialization of shares:

1. Client! Investor submits the DRF (Demat Request Form)

and physical certificates to DP. DP checks whether the

securities are available for Demat or not. Client defaces the

certificate by stamping 'Surrendered for Dematerialization'.

DP punches two holes on the name of the company and

draws two parallel lines across the face of the certificate.

2. DP enters the Demat request in his system to be sent to

NSDL. DP dispatches the physical certificates along with

the DRF to the R& T Agent.

3. NSDL records the details of the electronic request in the

system and forwards the request to the R& T Agent.

4. R& T Agent, on receiving the physical documents and the

electronic request, verifies and checks them. Once the R&T

Agent is satisfied, dematerialization of the concerned

securities is electronically confirmed to NSOL.

5. NSDL credits the dematerialized securities to the beneficiary

account of the investor and intimates the DP electronically.

The DP issues a statement of transaction to the client.

Rematerialisation

Re-materialization is the exact reverse of dematerialization. It refers to

the process of issuing physical securities in place of the securities held

electronically in book-entry form with a depository. Under this

process, the depository account of a beneficial owner is debited for the

securities sought to be re-materialized and physical certificates for the

equivalent number of securities is/are issued.

A beneficial owner holding securities with a depository has a right to

get his electronic holding converted into physical holding at any time.

The beneficial owner desiring to receive physical security certificates

in place of the electronic holding should make a request to the issuer

or it's R& T Agent through his DP in the prescribed re-materialization

request form (RRF).

Re-Materialization Process:

1. The DP should provide re-materialization request forms

(RRF) to clients.

2. The client should complete RRF in all respects and submit it

to the DP.

3. If RRF is not found in order, the DP should return the RRF

to the client for rectification.

4. If RRF is found in order the DP should accept RRF and

issue an acknowledgement to the client.

5. DP should enter the re-materialization request in DPM.

DPM will generate a remat request number (RRN) which

should be mentioned on RRF.

6. An authorized person, other than one who entered the RRF

details in OPM, should verify the details of RRN and release

a request to the depository .

7. The OP should complete the authorization of RRF and

forward it to the issuer or it's R& T Agent for re-

materialization. The OP should forward RRF to the issuer or

it's R& T Agent within seven days of accepting it from the

client.

8. The issuer or its R& T Agent should verify the RRF for

validity, completeness and correctness. It should also match

the details with the intimation received from the depository

against the same RRN.

9. In case the issuer or its R& T Agent finds RRF in order, it

should confirm the re-mat request. The issuer or its R& T

Agent should then proceed to issue the physical security

certificates and dispatch them to the beneficial owner.

10. The OP, on receiving confirmation of debit entry in OPM,

should inform the client accordingly.

The entire process takes a maximum of 30 days.

3.6 Capital market nature of business & services

Trading and settlement

One of the basic services provided by NSOL is to facilitate transfer of

securities from one account to another at the instruction of the account

holder. In NSOL depository system both transferor and transferee

have to give instructions to its depository participants lPO’s for

delivering [transferring out] and receiving of securities. However,

transferee can give 'Standing Instructions' [SI] to its OP for receiving

in securities. If SI is not given, transferee has to give separate

instructions each time securities have to be received.

Transfer of securities from one account to another may be done for

any of the following purposes:

a. Transfer due to a transaction done on a person to person basis is

called off-market’ transaction.

b. Transfer arising out of a transaction done on a stock exchange.

c. Transfer arising out of transmission and account closure.

Settlement of off-Market transaction

Off-Market Table

Steps in settlement of off-market transaction

1. Seller gives delivery instructions to his DP to move securities

from his account to the buyer’s account.

2. Buyer automatically receivers the credit of the securities into

his account on the basis of standing instruction for credits.

3. Buyer receivers credit of securities into his account only if he

gives receipt instructions, if standing instructions have not been

given.

4. DP needs to be extra careful in verifying the signature of the

client if unusual quantities of securities are being debited to the

account.

5. Funds move from buyer o seller outside he NSDL system.

Market Settlement-Demat Shares

A market trade is one that is settled through participation of a Clearing

Corporation. In the depository environment, the securities move

through account transfer. Once the trade is executed by the broker on

the stock exchange, the seller gives delivery instructions to his DP to

transfer securities to his broker's account.

The broker has to then complete the pay-in before the deadline

prescribed by the stock exchange. The broker removes securities from

his account to CC/CH of the stock exchange concerned, before the

deadline given by the stock exchange.

The CC/CH gives pay-out and securities are transferred to the buying

broker's account. The broker then gives delivery instructions to his DP

to transfer securities to the buyer's account.

The movement of funds takes place outside the NSDL system.

1. Seller gives delivery instructions to his DP to move securities

from his account to his broker's account

2. Securities are transferred from broker's account to CC on the

basis of a delivery out instruction.

3. On pay-out, securities are moved from CC to buying broker's

account.

4. Buying broker gives instructions and securities move to the

buyer's account.

Transfer of securities towards settlement of transactions done on a

stock exchange is called settlement of market transaction. This type of

settlement is done by transferring securities from a beneficiary

account to a clearing member account.

Brokers of stock exchanges that offer settlement through depository

are required to open a 'clearing member account'. In addition to the

brokers, custodians registered with SEBI and approved by stock

exchanges can open a clearing member account.

These accounts are popularly known as 'Broker Settlement Account'.

A client who has sold shares will deliver securities into the settlement

account of the broker through whom securities were sold.

Pledge and Hypothecation

The Depositories Act permits the creation of pledge and

hypothecation against securities. Securities held in a depository

account can be pledged or hypothecated against a loan, credit, or such

other facility availed by the beneficial owner of such securities. For

this purpose, both the parties to the agreement, i.e., the pledger and

the pledgee must have a beneficiary account with NSDL. However,

both parties need not have their depository account with the same DP.

The nature of control on the securities offered as collateral determines

whether the transaction is a pledge or hypothecation. If the lender

(pledge) has unilateral right (without reference to borrower) to

appropriate the securities to his account if the borrower (pledger)

defaults or otherwise, the transaction is called a pledge.

Pledge of Demat shares

Steps:

1. Agreement is signed between the pledger and pledgee outside the

NSDL system

2. Pledger gives a pledge creation request to DP who enters it in the

system.

3. The request reaches the pledgee's DP through the NSDL system.

Pledgee is intimated by his DP.

4. Pledgee gives a pledge creation confirmation to his DP who

enters it in the system.

5. Securities are transferred from 'free balances' head to 'pledged

balances' head.

6. Loan is given by pledgee to pledger outside the NSDL system.

Checklist for pledge/hypothecation

While processing a pledge/hypothecation request, the DP should take

care with regard to the following steps/points:

1. Ensure that the instruction form is submitted in duplicate.

2. On receipt of instruction for creation of pledge, check whether

there is enough balance in pledger's account to effect the creation

of pledge/hypothecation or not. If not, advise the client suitably.

3. Ensure that all compulsory fields in the instruction form are

entered.

4. Ensure that request for confirmation of pledge is given before the

closure date mentioned in the instruction form.

Stock Lending and Borrowing

The transactions involving lending and borrowing of securities are

executed through approved intermediaries duly registered with SEBI

under the Securities Lending Scheme, 1997. Such an intermediary

may deal in the depository system only through a special account

(known as Intermediary Account) opened with a DP. An intermediary

account may be opened with the DP only after the intermediary has

obtained SEBI arrival and registered itself with SEBI under the

Securities Lending Scheme. The intermediary also needs to obtain an

approval of NSDL.

Deposit of securities from lender to intermediary

Steps:

1. Lender forwards request to his DP.

2. Lender's DP electronically communicates request to NSDL.

3. The securities are blocked in lender's account in favor of the

intermediary.

4. NSDL electronically informs intermediary's DP.

5. Intermediary forwards acceptance request to his DP.

6. Intermediary’s DP electronically communicates acceptance to

NSDL.

7. Securities are moved from lender’s account to intermediary’s

account.

Lending of securities by intermediary to Borrower

Steps:

1. Borrower forwards request to his DP.

2. Borrower's DP electronically communicates request to

NSDL.

3. NSDL electronically informs intermediary's DP.

4. Intermediary forwards acceptance request to his DP.

5. Intermediary's DP electronically communicates acceptance

to NSDL.

6. Securities are moved from intermediary's account to

borrower's account

Repayment of securities by Borrower to intermediary

1. Borrower forwards repayment request to his DP.

2. Borrower's DP electronically communicates request to NSDL.

3. The securities are blocked in borrower's account in favour of

the intermediary.

4. NSDL electronically informs intermediary's DP.

5. Intermediary forwards acceptance request to his DP.

6. Intermediary's DP electronically communicates acceptance to

NSDL.

7. Securities are moved from lender's account to intermediary's

account.

Repayment of securities by intermediary to lender

1. Intermediary forwards repayment requires to his DP.

2. Intermediary's DP electronically communicates request to

NSDL.

3. Securities are blocked in intermediary's account in favour of the

lender.

4. NSDL electronically informs lender's DP.

5. Lender forwards acceptance request to his DP.

6. Lender's DP electronically communicates acceptance to NSDL.

7. Securities are moved from intermediary's account to lender's

account.

DATA ANALYSIS

AND

INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

Chapter 4

4.1 Methodology:

Primary Data

A questionnaire schedule was prepared and the primary data was

collected.

Secondary Data

• Company website

• Customer data base

• Company report '

• Books and publications

• Related information from net

Period of Study:

The study concentrates only on the past 3 years data with the help of

data source available. Period of study and analyzing the primary data

is two months.

Type of research:

This is a descriptive research where survey method is adopted to

collect primary information from the investors using different scales

as required and the required secondary information for the analysis.

Sampling Technique

The sampling technique followed in this study is non-probability

convenient sampling. Simple random techniques are used to select the

respondent from the available database. The research work will be

carried on the basis of structured questionnaire. The study is restricted

to the investors of the Bangalore and Bhubaneswar city only.

Sample Size

The population being large the survey will be carried among 150

respondents who are the clients (or investors) of Bangalore Stock

Exchange. They will be considered adequate to represent the

characteristics of the entire population.

Tools used for data analysis

The analysis of data collection is completed and presented

systematically with the use of Microsoft Excel.

4.2 Data analysis

1. Investment preference among varies age groups:

Age Group (in Years) Investment

Avenues < 20 20 –

30

31 – 40 41 –

60

> 60

Equity 25 24 27 28 15

Debenture / Bonds 11 10 9 15 23

Bank Deposits 18 18 17 16 20

Insurance 20 24 22 21 14

Gold & Real Estate 18 15 15 12 17

Others 2 4 2 4 4

0

5

10

15

20

25

30

Equ

ity

Debe

ntur

e / B

onds

Ban

k Dep

osits

Insu

ranc

e

Gold &

Rea

l Estat

e

Oth

ers

Age Group (in

Years) < 20

Age Group (in

Years) 20 – 30

Age Group (in

Years) 31 – 40

Age Group (in

Years) 41 – 60

Age Group (in

Years) > 60

Interpretation:

From the above tables we can conclude that, all the age groups are

give more preference on investing in equity, except those who are

more than sixty years. And the second more preferable investment

avenue is insurance. But the age group which is more that sixty yeas

gives more preference to invest in Debenture, Tax saving bonds and

then bank deposits.

2. Investment preference among various income levels:

Annual Income (in Rs. Lakh) Investment

Avenues < 1 1 – 2 2 – 3.5 3.5 – 5 > 5

Equity 16 19 26 26 29

Debenture / Bonds 5 6 7 7 8

Bank Deposits 31 24 21 18 14

Insurance 15 17 18 20 21

Gold & Real Estate 3 4 5 8 9

Others 16 14 5 6 3

0

5

10

15

20

25

30

35

Equity

Deb

entu

re /

Bonds

Bank Dep

osits

Insu

ranc

e

Gold

& R

eal E

stat

e

Oth

ers

Annual Income (in Rs.

Lakh) < 1

Annual Income (in Rs.

Lakh) 1 – 2

Annual Income (in Rs.

Lakh) 2 – 3.5

Annual Income (in Rs.

Lakh) 3.5 – 5

Annual Income (in Rs.

Lakh) > 5

Interpretation:

The above table reveals that higher income levels are giving more

preference to invest in equity where as lower income levels given

more preference to invest in bank deposits. It implies that the higher

income level groups are preferred to take more risk in investment

rather than lower income level. And those who are taken more risk in

investment are preferred to invest in equality rather than any

investment avenues.

3. Types of Investment:’

Types of Investment Frequency

Short Term Investment 21

Long Term Investment 44

Both 35

Type of investment

Short Term

Investment

Long Term

Investment

Both

Short Term

Investment

Long Term

Investment

Both

Interpretation:

Among the total sample size 44 per cent investors are prefer to

investing in long term and 21 percent are prefer to investment in short

term. Where as 35 per cent of investors are preferred to invest in both

long term as well as in short term Investment Avenue

4. Frequency of Investment:

Frequency of Investment Frequency

Weekly 13

Monthly 35

Quarterly 26

Half Yearly 15

Yearly 11

Frequency

0

5

10

15

20

25

30

35

40

Week

ly

Mon

thly

Qua

rterly

Half

Yearly

Yea

rly

Frequency

Interpretation:

This graph reveals that 35 percent of investors are investing monthly,

26 per cent of investors are investing quarterly. 11 per cent of

investors are investing in a yearly basis where as 13 per cent and 15

per cent of investors are investing in weekly and half-yearly basis

respectively.

5. Basis of investment

Types of Investment Frequency

Self Analysis 54

Financial Advice 19

Broker Advice 19

F/R Advice 11

C A Advice 5

Interpretation:

From this we can come to know most of the investor i.e. 54% basis of

study is self analysis and remaining 46% of investors take advice

from advisers such as broker advice, financial advice, friends or

relatives advice or charted account advice for investment. So it shows

most of the individual investor basis of study is self analysis

Basis of Investment

Self Analysis Financial Advice Broker advice

F/R Advice C A Advice

6. Investment pattern affected by market movement:

Options Frequency

Yes 53

No 47

Frequency

44

45

46

47

48

49

50

51

52

53

54

Yes No

Frequency

Interpretation:

From this we can come to know that 53 investors investment

pattern will affect if any market movement (SSE index, inflation

rate etc). So majority of the investor's investment pattern will

affect if any changes in the market. Market movement is very

important factor for changing in investment pattern.

7. Factors influence to choice various investment alternatives:

Factors influence Percentage

Risk Involved 16

Return they give 30

Past performance 20

Future Growth 24

Other factor 10

Risk

involved

16%

Return they

give

30%Past

performance

20%

Future

Growth

24%

Other factor

10%Risk involved

Return they give

Past performance

Future Growth

Other factor

Interpretation:

By seeing this findings we can say 30% of investor investment

decision is depend on return on investment, second important

factor is future growth and past performance of the company. 16%

of investor’s investment is based on risk involved. Choice of factor

is changing from investor to investor.

Factors Influence on investment decision

8. Period of the investment.

Short Term Long term

38 62

0

10

20

30

40

50

60

70

Short Term Long term

Series1

Interpretation:

Most of the investors follow the long term investment to reduce the

risk loss. And few investors invest in the short term, who is having

good knowledge of investment and market

9. Reason behind the choice of investment

Reasons No. of

investors

Self awareness 16

Financial advisors 33

Brokerage firms 25

Friends and relatives 10

Media 16

No. of investors

Self awareness Financial advisors

Brokerage firms Friends and relatives

Media

Interpretation:

The above graph reveals that, the more investors choose the

investment type by the financial advisor suggestions and some people

choose by the help of brokers.

10. Analysis of companies before investing in percentage

Yes No

65 35

Interpretation:

The above graph reveals that, there are more number of investors

make the analysis of companies before investing in that.

0

10

20

30

40

50

60

70

Yes No

Series1

11. The type of analysis used by the investors.

Type of analysis No of investors

Technical 10

Company analysis 20

News 40

Follow the brokers 30

No of investors

0

5

10

15

20

25

30

35

40

45

Technical Company

analysis

New s Follow the

brokers

No of investors

SUMMARY OF FINDINGS

SUGGESTION

AND

CONCLUSION

Summary findings conclusion and recommendations

FINDINGS

� Income level of an investor is an impotent factor which affects

portfolio of the investor.

� 45 per cent of investors are preferred to invest in long term

avenues where as 30 per cent of investors are preferred to invest in

both long term and short term avenues.

� 55 percent of the investors are preferred to invest in either

monthly or quarterly basis.

� 60 per cent of the investors are investing on the basis of self-

analysis.

� Business paper is an important source of study for the investor.

Apart from this, business channels and web sites are some other

important sources of study..

� Return on investment and risk involved is most important factor

for the investor before taking any investment decisions.

� Return on investment and credit rating are two important

factors for those investor who are interested to invest in

Bonds/Debenture.

� Past record, dividend record and future growth of the firm are

the important factor for those investors who are interested to invest in

equity.

� Higher income level groups and risk taking investors are

preferred to invest in equity rather than any other investment avenues.

� Middle age group investors are preferred to invest in equity,

where as the old age group investors are preferred to invest in RBI

Bonds or any other type of tax saving bonds.

� Lower income level groups are not preferred to take risk and

they choose bank deposits, post office savings and insurance as a

better investment option. They also look for tax saving investment

avenues.

� Generally those investors who are invested in equity, are

personally follow the stock market frequently i.e. in daily basis. But

those who are invested in mutual funds are watch stock market

weekly or fortnightly.

� In Bangalore, investors are more aware about various

investment avenues and the risk associated with that. But in

Bhubaneswar, investors are more conservative in nature and they

prefer to invest in those avenues where risk is less like bank deposits,

small savings, post office savings etc.

Suggestions:

� Awareness program has to be conducted by Stock Brokering

firms because most of the investors are unaware about this new

service.

� Since the intent and web based communication is getting

popular brokerage firms and financial institutions should update web

site frequently and provide information up to date

� Investors have to compare the brokerage charges.

� Since the investors expect better services from the firms it

should provide more value added services like derivative trading, NSE

trading etc.

� As investors' investment decision is based on the study of

different sources, trading firms should start giving advertisement in

business newspaper and in business magazine.

� Most of the investor's portfolio is diversified so there is huge

scope in various new services. So intermediaries provide services like

add more mutual funds in to its 'Fund Invest' etc.

� Trading firms should expand its business by setting up of new

branches in various places where they have lot of client for example

Bijapur

.Limitation and scope for further research:

The study is conducted by taking a limited number of sample sizes

which is stated earlier. And this study reflects the perceptions of those

investors who are residing in Bangalore and Bhubaneswar. There

might be a chance that the perceptions of the investors' of different

cities are varied due to diversity in social life, living pattern, income

level etc.

Conclusion

The study entitled "Investment Pattern of People" has been undertaken

with the objective, to analyze the investment pattern of people in

Bangalore city

Analysis of the study was undertaken with the help of survey

conducted .After analysis and interpretation of data it is concluded

that in Bangalore investors are more aware about various investment

avenues & the risk associated with that.

All the age groups give more important to invest in equity & except

people those who are above 50 give important to insurance, fixed

deposits and tax saving benefits.

References & Bibliography:

Article

• Capital Market Review 2005-06

Books

• Financial Management, PRASANNA CHANDRA, 6th edition

• Financial Management, KHAN & JAIN, 3rd edition

• Security Analysis and Portfolio Management, FISCHER &

JORDAI

• Research Methodology, David .R. Cooper and Schindler

Websites

• www.shcil.com

• www.icicidirect.com

• www.nseindia.com

• www.economictimes.com

Annexure

QUESTIONNAIRE

I am Avinash Kumar Singh a student of T.John College Bangalore IV

SEM, MBA undertaking a project as a part of my Course. I am

conducting a Survey on "Study on the investment pattern of people in

financial market in Bangalore city". I request you to kindly give me

your valuable response to the queries below. I assure you that the data

provided by you will be kept confidential.

1. Name:

2. Educational level

PUC Graduation Post-Graduation

Professional Others (Please Specify) ………………

3. Age

Less than 20 20 – 30 31 – 40 41 – 60

More than 60

4. Number of persons in the family

1 2 3 d 4 d More than 4

5. Occupation

Employed Private Sector

Public Sector Self Employed

Business Retired

Profession (CA/Lawyer/Doctor/Others ……………)

Not employed

6. Annual income and savings

a. Annual income (in Rs.)

Less than 1 lakh

1 - 21akhs

2 - 3.5 lakhs

3.5 - 5 lakhs

More than 5 lakhs

b. Annual savings (in Rs.)

Less than 10,000

10,000 - 20,000

20,001 - 30,000

30,001 - 40,000

40,001 & above

7. Investment avenues that you like to choose

Equity FI Bonds Corporate Debenture

Company Fixed Deposits Bank Deposits

PPF Life Insurance Small / Post-office

Savings

Gold Real Estate Mutual Funds

Others ……………

8. Average amount (in Rs.) invested in a year in the following avenues

Equity FI Bonds Corporate Debenture

Company Fixed Deposits Bank Deposits

PPF Life Insurance Small / Post-office Savings

Gold Real Estate Mutual Funds

Others ……………

9. Are you a short term or long term investor?

Short term Long term Both

10. State reason behind choice of your investment options

d Self - Awareness Financial Advisors Broker's Advice

Friends' or Relatives' Advice Media

11. What is you frequency of investments?

Weekly Monthly Quarterly

Half-yearly Yearly

12. Do you personally follow the stock market?

Yes No

13. If yes, then how frequently do you watch market?

Daily Twice a Week Weekly Fortnightly

14. Do you like to invest by self knowledge or through any brokerage

firms?

By self knowledge through brokerage firms

15. Do you make analysis before investing?

Yes No

16. If yes what kind of analysis do you make?

Technical Company analysis

News Follows the brokers

17. Has your experience till now is helping you to Invest/Trade.

Yes No

18. Do you have any suggestion to make investment in a best way?

……………………………………………………………………

………………….…..……………………………………………

……………………………………………………………………

……………………………………………………………………

…………………….

Thank you for sharing your valuable response