PROJECT REPORT

ON

WORKING OF STOCK

MARKETS &

DEPOSITORY

PARTICIPANTS

SUBMITTED BY : SWETA SINGH CHAUHAN

USM

KURUKSHETRA UNIVERSITY

INTRODUCTION

Organisation Profile

India Infoline Ltd. is a one-stop financial services shop, most respected for

quality of its advice, personalised service and cutting-edge technology.

Vision Statement

The company’s vision is to be the most respected company in the financial

services space.

India Infoline Group

The India Infoline group, comprising the holding company, india infoline

limited and its wholly-owned subsidiaries, straddle the entire financial services

space with offerings ranging from equity research, equities and derivatives

trading, commodities trading, portfolio management services, mutual funds,

life insurance, fixed deposits, goi bonds and other small savings instruments

to loan products and investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com

and www.5paisa.com. The company has a network of over 2100 business

locations (branches and sub-brokers) spread across more than 450 cities and

towns. The group caters to approximately a million customers.

India Infoline Group subsidiaries

India Infoline Media and Research Services Limited

India Infoline Commodities Limited

India Infoline Marketing & Services

India Infoline Investment Services Limited

IIFL (Asia) Pte Limited

Global Presence

USA, Dubai, Singapore

History

IIFL was founded in 1995 by Mr. Nirmal Jain (Chairman and Managing

Director) as an independent business research and information provider. It

gradually evolved into a one-stop financial services solutions provider. Its

strong management team comprises competent and dedicated professionals

It is a pan-India financial services organization across 1,361 business

locations and a presence in 428 cities. Its global footprint extends across

geographies with offices in New York, Singapore and Dubai. It is listed on the

Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

It offesr a wide range of services and products comprising broking (retail and

institutional equities and commodities), wealth management, credit and

finance, insurance, asset management and investment banking.

It is registered with the BSE and the NSE for securities trading, MCX, NCDEX

and DGCX for commodities trading, CDSL and NSDL as depository

participants. It is registered as a Category I merchant banker and is a SEBI

registered portfolio manager. It also received the FII license in IIFL Inc. IIFL

Securities Pte Ltd received approval from the Monetary Authority of Singapore

to carry out corporate advisory and dealing in securities operations. Two

subsidiaries – India Infoline Investment Services and Moneyline Credit Limited

– are registered with RBI as non-deposit taking non-banking financial services

companies. India infoline Housing Finance Ltd, the housing finance arm, is

registered with the National Housing Bank.

Milestones

Year Achievements

1995 Incorporated as an equity research and consulting firm with a client

base that included leading FIIs, banks, consulting firms and

corporates.

1999 Restructured the business model to embrace the internet; launched

archives.indiainfoline.com mobilised capital from reputed private

equity investors.

2000 Commenced the distribution of personal financial products; launched

online equity trading; entered life insurance distribution as a

corporate agent. Acknowledged by Forbes as ‘Best of the Web’ and

‘...must read for investors’.

2004 Acquired commodities broking license; launched Portfolio

Management Service.

2005 Listed on the Indian stock markets.

2006 Acquired membership of DGCX; launched investment banking

services.

2007 Launched a proprietary trading platform; inducted an institutional

equities team; formed a Singapore subsidiary; raised over USD 300

mn in the group; launched consumer finance business under the

‘Moneyline’ brand.

2008 Launched wealth management services under the ‘IIFL Wealth’

brand; set up India Infoline Private Equity fund; received the

Insurance broking license from IRDA; received the venture capital

license; received inprinciple approval to sponsor a mutual fund;

received ‘Best broker- India’ award from FinanceAsia; ‘Most

Improved Brokerage- India’ award from Asiamoney.

2009 Received registration for a housing finance company from the

National Housing Bank; received ‘Fastest growing Equity Broking

House - Large firms’ in India by Dun & Bradstreet.

Company Structure

India Infoline Limited is listed on both the leading stock exchanges in India,

viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange

(NSE) and is also a member of both the exchanges. It is engaged in the

businesses of Equities broking, Wealth Advisory Services and Portfolio

Management Services. It offers broking services in the Cash and Derivatives

segments of the NSE as well as the Cash segment of the BSE. It is registered

with NSDL as well as CDSL as a depository participant, providing a one-stop

solution for clients trading in the equities market. It has recently launched its

Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services

to clients. These services are offered to clients as different schemes, which

are based on differing investment strategies made to reflect the varied risk-

return preferences of clients.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans

and financing activities under one subsidiary. Recently, Orient Global, a

Singapore-based investment institution invested USD 76.7 million for a 22.5%

stake in India Infoline Investment Services. This will help focused expansion

and capital raising in the said subsidiaries for various lending businesses like

loans against securities, SME financing, distribution of retail loan products,

consumer finance business and housing finance business. India Infoline

Investment Services Private Limited consists of the following step-down

subsidiaries.

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

products)

(b) Moneyline Credit Limited (consumer finance)

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

India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of

commodities broking. Its experience in securities broking empowered it with

the requisite skills and technologies to allow it offer commodities broking as a

contra-cyclical alternative to equities broking. It enjoys memberships with the

MCX and NCDEX, two leading Indian commodities exchanges, and recently

acquired membership of DGCX. It has a multi-channel delivery model, making

it among the select few to offer online as well as offline trading facilities.

IIFL (Asia) Pte Limited

IIFL (Asia) Pte Limited is wholly owned subsidiary which has been

incorporated in Singapore to pursue financial sector activities in other Asian

markets. Further to obtaining the necessary regulatory approvals, the

company has been initially capitalized at 1 million Singapore dollars.

India Infoline Media and Research Services Limited.

The content services represent a strong support that drives the broking,

commodities, mutual fund and portfolio management services businesses.

Revenue generation is through the sale of content to financial and media

houses, Indian as well as global.

It undertakes equities research which is acknowledged by none other than

Forbes as 'Best of the Web' and '…a must read for investors in Asia'. India

Infoline's research is available not just over the internet but also on

international wire services like Bloomberg (Code: IILL), Thomson First Call

and Internet Securities where India Infoline is amongst the most read Indian

brokers.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers

Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate

Agent with the Insurance Regulatory and Development Authority

(IRDA). It is the largest Corporate Agent for ICICI Prudential Life

Insurance Co Limited, which is India's largest private Life Insurance

Company. India Infoline was the first corporate agent to get licensed by

IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited is a newly formed subsidiary

which will carry out the business of Insurance broking. It has applied to

IRDA for the insurance broking licence and the clearance for the same

is awaited. Post the grant of license, it proposes to also commence the

general insurance distribution business.

History of stock market

Historian Fernand Braudel suggests that in Cairo in the 11th century, Muslim

and Jewish merchants had already set up every form of trade association and

had knowledge of many methods of credit and payment, disproving the belief

that these were originally invented later by Italians. In 12th century France the

courratiers de change were concerned with managing and regulating the

debts of agricultural communities on behalf of the banks. Because these men

also traded with debts, they could be called the first brokers. A common

misbelief is that in late 13th century Bruges commodity traders gathered

inside the house of a man called Van der Beurze, and in 1309 they became

the "Brugse Beurse", institutionalizing what had been, until then, an informal

meeting, but actually, the family Van der Beurze had a building in Antwerp

where those gatherings occurred ; the Van der Beurze had Antwerp, as most

of the merchants of that period, as their primary place for trading. The idea

quickly spread around Flanders and neighboring counties and "Beurzen" soon

opened in Ghent and Amsterdam. There are stock markets in virtually every

part of the world at this moment. Some of the important stock markets are

United States.

In the middle of the 13th century, Venetian bankers began to trade in

government securities. In 1351 the Venetian government outlawed spreading

rumors intended to lower the price of government funds. Bankers in Pisa,

Verona, Genoa and Florence also began trading in government securities

during the 14th century. This was only possible because these were

independent city states not ruled by a duke but a council of influential citizens.

The Dutch later started joint stock companies, which let shareholders invest in

business ventures and get a share of their profits - or losses. In 1602, the

Dutch East India Company issued the first shares on the Amsterdam Stock

Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have

been the first stock exchange to introduce continuous trade in the early 17th

century. The Dutch "pioneered short selling, option trading, debt-equity

swaps, merchant banking, unit trusts and other speculative instruments, much

as we know them" (Murray Sayle, "Japan Goes Dutch", London Review of

Books XXIII.7, April 5, 2001). There are now stock markets in virtually every

developed and most developing economies, with the world's biggest markets

being in the United States, Canada, China (Hongkong), India, UK, Germany,

France and Japan.

Function and purpose of stock market

The stock market is one of the most important sources for companies to raise

money. This allows businesses to be publicly traded, or raise additional

capital for expansion by selling shares of ownership of the company in a

public market. The liquidity that an exchange provides affords investors the

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

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

estate.

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

part of the dynamics of economic activity, and can influence or be an indicator

of social mood. An economy where the stock market is on the rise is

considered to be an up coming economy. In fact, the stock market is often

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

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

increased business investment and vice versa. Share prices also affect the

wealth of households and their consumption. Therefore, central banks tend to

keep an eye on the control and behavior of the stock market and, in general,

on the smooth operation of financial system functions.

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

they collect and deliver the shares, and guarantee payment to the seller of a

security. This eliminates the risk to an individual buyer or seller that the

counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in

that lower costs and enterprise risks promote the production of goods and

services as well as employment. In this way the financial system contributes

to increased prosperity

Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable

transformation. One feature of this development is disintermediation. A portion

of the funds involved in saving and financing flows directly to the financial

markets instead of being routed via the traditional bank lending and deposit

operations. The general public's heightened interest in investing in the stock

market, either directly or through mutual funds, has been an important

component of this process. Statistics show that in recent decades shares

have made up an increasingly large proportion of households' financial assets

in many countries. In the 1970s, in Sweden, deposit accounts and other very

liquid assets with little risk made up almost 60 percent of households' financial

wealth, compared to less than 20 percent in the 2000s. The major part of this

adjustment in financial portfolios has gone directly to shares but a good deal

now takes the form of various kinds of institutional investment for groups of

individuals, e.g., pension funds, mutual funds, hedge funds, insurance

investment of premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated

by new rules for most funds and insurance, permitting a higher proportion of

shares to bonds. Similar tendencies are to be found in other industrialized

countries. In all developed economic systems, such as the European Union,

the United States, Japan and other developed nations, the trend has been the

same: saving has moved away from traditional (government insured) bank

deposits to more risky securities of one sort or another.

The behavior of the stock market

From experience we know that investors may temporarily pull financial prices

away from their long term trend level. Over-reactions may occur—so that

excessive optimism (euphoria) may drive prices unduly high or excessive

pessimism may drive prices unduly low

According to the efficient market hypothesis (EMH), only changes in

fundamental factors, such as profits or dividends, ought to affect share prices.

(But this largely theoretic academic viewpoint also predicts that little or no

trading should take place—contrary to fact—since prices are already at or

near equilibrium, having priced in all public knowledge.) But the efficient-

market hypothesis is sorely tested by such events as the stock market crash

in 1987, when the Dow Jones index plummeted 22.6 percent—the largest-

ever one-day fall in the United States. This event demonstrated that share

prices can fall dramatically even though, to this day, it is impossible to fix a

definite cause: a thorough search failed to detect any specific or unexpected

development that might account for the crash. It also seems to be the case

more generally that many price movements are not occasioned by new

information; a study of the fifty largest one-day share price movements in the

United States in the post-war period confirms this. Moreover, while the EMH

predicts that all price movement (in the absence of change in fundamental

information) is random (i.e., non-trending), many studies have shown a

marked tendency for the stock market to trend over time periods of weeks or

longer.

Various explanations for large price movements have been promulgated. For

instance, some research has shown that changes in estimated risk, and the

use of certain strategies, such as stop-loss limits and Value at Risk limits,

theoretically could cause financial markets to overreact.

Other research has shown that psychological factors may result in

exaggerated stock price movements. Psychological research has

demonstrated that people are predisposed to 'seeing' patterns, and often will

perceive a pattern in what is, in fact, just noise. (Something like seeing

familiar shapes in clouds or ink blots.) In the present context this means that a

succession of good news items about a company may lead investors to

overreact positively (unjustifiably driving the price up). A period of good

returns also boosts the investor's self-confidence, reducing his (psychological)

risk threshold.

The stock market, as any other business, is quite unforgiving of amateurs.

Inexperienced investors rarely get the assistance and support they need. In

the period running up to the recent Nasdaq crash, less than 1 percent of the

analyst's recommendations had been to sell (and even during the 2000 - 2002

crash, the average did not rise above 5%). The media amplified the general

euphoria, with reports of rapidly rising share prices and the notion that large

sums of money could be quickly earned in the so-called new economy stock

market.

Crashes

A stock market crash is often defined as a sharp dip in share prices of equities

listed on the stock exchanges. In parallel with various economic factors, a

reason for stock market crashes is also due to panic. Often, stock market

crashes end speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of

billions of dollars and wealth destruction on a massive scale. An increasing

number of people are involved in the stock market, especially since the social

security and retirement plans are being increasingly privatized and linked to

stocks and bonds and other elements of the market. There have been a

number of famous stock market crashes like the Wall Street Crash of 1929,

the stock market crash of 1973–4, the Black Monday of 1987, the Dot-com

bubble of 2000.

One of the most famous stock market crashes started October 24, 1929 on

Black Thursday. The Dow Jones Industrial lost 50% during this stock market

crash. It was the beginning of the Great Depression.

Another famous crash took place on October 19, 1987 – Black Monday. On

Black Monday itself, the Dow Jones fell by 22.6% after completing a 5 year

continuous rise in share prices. This event not only shook the USA, but

quickly spread across the world. Thus, by the end of October, stock

exchanges in Australia lost 41.8%, in Canada lost 22.5%, in Hong Kong lost

45.8%, and in Great Britain lost 26.4%. The names “Black Monday” and

“Black Tuesday” are also used for October 28-29, 1929, which followed

Terrible Thursday--the starting day of the stock market crash in 1929. The

crash in 1987 raised some puzzles-–main news and events did not predict the

catastrophe and visible reasons for the collapse were not identified. This

event raised questions about many important assumptions of modern

economics, namely, the theory of rational human conduct, the theory of

market equilibrium and the hypothesis of market efficiency. For some time

after the crash, trading in stock exchanges worldwide was halted, since the

exchange computers did not perform well owing to enormous quantity of

trades being received at one time. This halt in trading allowed the Federal

Reserve system and central banks of other countries to take measures to

control the spreading of worldwide financial crisis.

In the United States the SEC introduced several new measures of control into

the stock market in an attempt to prevent a re-occurrence of the events of

Black Monday. Computer systems were upgraded in the stock exchanges to

handle larger trading volumes in a more accurate and controlled manner. The

SEC modified the margin requirements in an attempt to lower the volatility of

common stocks, stock options and the futures market. The New York Stock

Exchange and the Chicago Mercantile Exchange introduced the concept of a

circuit breaker.

Stock market index

The movements of the prices in a market or section of a market are captured

in price indices called stock market indices, of which there are many, e.g., the

S&P, the FTSE and the Euronext indices. Such indices are usually market

capitalization weighted, with the weights reflecting the contribution of the stock

to the index. The constituents of the index are reviewed frequently to

include/exclude stocks in order to reflect the changing business environment.

Investment strategies

One of the many things people always want to know about the stock market

is, "How do I make money investing?" There are many different approaches;

two basic methods are classified as either fundamental analysis or technical

analysis. Fundamental analysis refers to analyzing companies by their

financial statements found in SEC Filings, business trends, general economic

conditions, etc. Technical analysis studies price actions in markets through

the use of charts and quantitative techniques to attempt to forecast price

trends regardless of the company's financial prospects. One example of a

technical strategy is the Trend following method, used by John W. Henry and

Ed Seykota, which uses price patterns, utilizes strict money management and

is also rooted in risk control and diversification.

Additionally, many choose to invest via the index method. In this method, one

holds a weighted or unweighted portfolio consisting of the entire stock market

or some segment of the stock market (such as the S&P 500 or Wilshire 5000).

The principal aim of this strategy is to maximize diversification, minimize taxes

from too frequent trading, and ride the general trend of the stock market

(which, in the U.S., has averaged nearly 10%/year, compounded annually,

since World War II).

Stock exchangeA stock exchange, securities exchange or (in Europe) bourse is a corporation

or mutual organization which provides "trading" facilities for stock brokers and

traders, to trade stocks and other securities. Stock exchanges also provide

facilities for the issue and redemption of securities as well as other financial

instruments and capital events including the payment of income and

dividends. The securities traded on a stock exchange include: shares issued

by companies, unit trusts and other pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it has to be listed

there. Usually there is a central location at least for recordkeeping, but trade is

less and less linked to such a physical place, as modern markets are

electronic networks, which gives them advantages of speed and cost of

transactions. Trade on an exchange is by members only. The initial offering of

stocks and bonds to investors is by definition done in the primary market and

subsequent trading is done in the secondary market. A stock exchange is

often the most important component of a stock market. Supply and demand in

stock markets are driven by various factors which, as in all free markets,

affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself,

nor must stock be subsequently traded on the exchange. Such trading is said

to be off exchange or over-the-counter. This is the usual way that bonds are

traded. Increasingly, stock exchanges are part of a global market for

securities.

The role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the

following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for

expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more

rational allocation of resources because funds, which could have been

consumed, or kept in idle deposits with banks, are mobilized and redirected to

promote business activity with benefits for several economic sectors such as

agriculture, commerce and industry, resulting in stronger economic growth

and higher productivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,

increase distribution channels, hedge against volatility, increase its market

share, or acquire other necessary business assets. A takeover bid or a

merger agreement through the stock market is one of the simplest and most

common ways for a company to grow by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual

and professional stock investors, through dividends and stock price increases

that may result in capital gains, will share in the wealth of profitable

businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to

improve on their management standards and efficiency in order to satisfy the

demands of these shareholders and the more stringent rules for public

corporations imposed by public stock exchanges and the government.

Consequently, it is alleged that public companies (companies that are owned

by shareholders who are members of the general public and trade shares on

public exchanges) tend to have better management records than privately-

held companies (those companies where shares are not publicly traded, often

owned by the company founders and/or their families and heirs, or otherwise

by a small group of investors).

However, some well-documented cases are known where it is alleged that

there has been considerable slippage in corporate governance on the part of

some public companies. The dot-com bubble in the early 2000s, and the

subprime mortgage crisis in 2007-08, are classical examples of corporate

mismanagement. Companies like Pets.com (2000), Enron Corporation (2001),

One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI

WorldCom (2002), Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008),

Lehman Brothers (2008), were among the most widely scrutinized by the

media.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in

shares is open to both the large and small stock investors because a person

buys the number of shares they can afford. Therefore the Stock Exchange

provides the opportunity for small investors to own shares of the same

companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to

finance infrastructure projects such as sewage and water treatment works or

housing estates by selling another category of securities known as bonds.

These bonds can be raised through the Stock Exchange whereby members of

the public buy them, thus loaning money to the government. The issuance of

such bonds can obviate the need to directly tax the citizens in order to finance

development, although by securing such bonds with the full faith and credit of

the government instead of with collateral, the result is that the government

must tax the citizens or otherwise raise additional funds to make any regular

coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on

market forces. Share prices tend to rise or remain stable when companies

and the economy in general show signs of stability and growth. An economic

recession, depression, or financial crisis could eventually lead to a stock

market crash. Therefore the movement of share prices and in general of the

stock indexes can be an indicator of the general trend in the economy.

What Are Stocks?

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock

represents a claim on the company's assets and earnings. As one acquires

more stock, his/her ownership stake in the company becomes greater.

Whether one says shares, equity, or stock, it all means the same thing.

Being an Owner

Holding a company's stock means that a person is one of the many owners

(shareholders) of a company, and, as such, he/she has a claim (albeit usually

very small) to everything the company owns. Yes, this means that technically

the person owns a tiny sliver of every piece of furniture, every trademark, and

every contract of the company. As an owner, the person is entitled to his/her

share of the company's earnings as well as any voting rights attached to the

stock.

A stock is represented by a stock certificate. This is a fancy piece of paper

that is proof of a person’s ownership. In today's computer age, we can’t

actually get to see this document because the depository participant keeps

these records electronically, which is also known as holding shares "in street

name ." This is done to make the shares easier to trade. In the past when a

person wanted to sell his or her shares, that person physically took the

certificates down to the brokerage. Now, trading with a click of the mouse or a

phone call makes life easier for everybody.

Being a shareholder of a public company does not mean the shareholder

have a say in the day-to-day running of the business. Instead, one vote per

share to elect the board of directors at annual meetings is the extent to which

the holder has a say in the company. For instance, being a Microsoft

shareholder doesn't mean one can call up Bill Gates and tell him how he

thinks the company should be run. In the same line of thinking, being a

shareholder of Anheuser Busch doesn't mean oen can walk into the factory

and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the

firm for shareholders. If this doesn't happen, the shareholders can vote to

have the management removed--well, this is the theory anyway. In reality,

individual investors generally don’t own enough shares to have a material

influence on the company. It's really the big boys like large institutional

investors and billionaire entrepreneurs who make the decisions.

Shareholders not being able to manage the company isn't too big a deal. After

all, the idea is that you don't want to have to work to make money? The

importance of being a shareholder is that the person is entitled to a portion of

the company’s profits and have a claim on assets. Profits are sometimes paid

out in the form of dividends. The more shares you own, the larger the portion

of the profits you get. The claim on assets is only relevant if a company goes

bankrupt. In case of liquidation, shareholders receive what's left after all the

creditors have been paid. This last point is worth repeating: the importance

of stock ownership is your claim on assets and earnings. Without this,

the stock wouldn't be worth the paper it's printed on.

Another extremely important feature of stock is its limited liability. This is a

legal term, which means that the shareholder is not personally liable in the

case of the company not being able to pay its debts. Other companies such

as partnerships are set up so that if the partnership goes bankrupt the

creditors can come after the partners (shareholders) personally and sell of

their house, car, furniture, etc. Owning stock means that, no matter what, the

maximum value one can lose is the value of his/her investment. Even if a

company of which the person is a shareholder goes bankrupt, he/she can

never lose his/her personal assets.

Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits

with thousands of people when they could keep profits to themselves? The

reason is that at some point every company needs to raise money. To do this,

companies can either borrow it from somebody or raise it by selling part of the

company, which is known as issuing stock. A company can borrow by taking a

loan from a bank or by issuing bonds. Both methods fit under the umbrella of

"debt financing." On the other hand, issuing stock is called "equity financing."

Issuing stock is advantageous for the company because it does not require

the company to pay back the money or make interest payments along the

way. All that the shareholders get in return for their money is the hope that the

shares will some day be worth more. The first sale of a stock, which is issued

by the private company itself, is called the initial public offering (IPO).

It is important to understand the distinction between a company financing

through debt and financing through equity. When a debt investment such as a

bond is bought, the return of money (the principal) along with promised

interest payments is guaranteed. This isn't the case with an equity investment.

By becoming an owner, the shareholder assumes the risk of the company not

being successful. Just as a small business owner isn't guaranteed a return,

neither is a shareholder. As an owner the shareholder’s claim on assets is

lesser than that of creditors. This means that if a company goes bankrupt and

liquidates, a shareholder doesn't get any money until the banks and

bondholders have been paid out; this is called absolute priority. Shareholders

earn a lot if a company is successful, but they also stand to lose their entire

investment if the company isn't successful.

Risk

It must be emphasized that there are no guarantees when it comes to

individual stocks. Some companies pay out dividends, but many others do

not. And there is no obligation to pay out dividends even for those firms that

have traditionally given them. Without dividends an investor can make money

on a stock only through its appreciation in the open market. On the downside,

any stock may go bankrupt, in which case your investment is worth nothing.

Although risk might sound all negative, there is also a bright side. Taking-on

greater risk demands a greater return on your investment. This is the reason

why stocks have historically outperformed other investments such as bonds or

savings accounts. Over the long term, an investment in stocks has historically

had an average return of around 10%-12%. A great proof of the power of

owning equities is General Electric. One share bought in 1928 would be worth

over $65,000 today!

Different Types of Stock

There are two main types of stocks: common stock and preferred stock.

Common Stock

Common stock is, well, common. When people talk about stocks in general

they are most likely referring to this type. In fact, the majority of stock issued is

in this form. Common shares represents ownership in a company and a claim

on a portion of profits (dividends). Investors get one vote per share to elect

the board members who oversees the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher

returns than almost every other investment. This higher return comes at a

cost as common stocks entail the most risk. If a company goes bankrupt and

liquidates, the common shareholders will not receive money until the

creditors, bondholders, and preferred shareholders are paid.

Preferred Stock

Preferred stock represents some degree of ownership in a company but

usually doesn’t have the same voting rights (this may vary depending on the

company). On preferred shares, investors are usually guaranteed a fixed

dividend forever. This is different than common stock that has variable

dividends that are never guaranteed. Another advantage is in the event of

liquidation preferred shareholders are paid off before the common

shareholder (but still after debt holders). Preferred stock may also be callable,

meaning that the company has the option to purchase the shares from

shareholders at anytime for any reason (usually for a premium).

Some people consider preferred to be more like debt than equity. A good way

to think of these shares is in-between bonds and common shares.

Different Classes of Stock

Common and preferred are the two main forms of stock. However, it's also

possible for companies to customize different classes of stock in any way they

want. The most common reason for this is when a company wants voting

power to remain with a certain group. Hence, different classes of shares are

given different voting rights. For example, one class of shares would be held

by a select group and given 10 votes per share while a second class would be

issued to the majority of investors with 1 vote per share.

When there is more than one class of stock, the classes are traditionally

designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), the

company of Warren Buffett (one of the greatest investors of all time), has two

classes of stock. The different forms are represented by placing the letter

behind the ticker symbol in a form like: "BRKa, BRKb" or "BRK.A, BRK.B".

How Stocks Trade

Most stocks are traded on exchanges, which are places where buyers and

sellers meet and decide on a price. Some exchanges are physical locations

where transactions are carried out on a trading floor. The other type of

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

made electronically.

The purpose of a stock market is to facilitate the exchange of securities

between buyers and sellers, thus, reducing the risks of investing. A stock

market is nothing more than a super-sophisticated farmers market linking

buyers and sellers.

What Causes Prices To Change?

Stock prices are changed everyday by market forces. It means that share

prices change because of supply and demand. If more people want to buy a

stock (demand) than sell it (supply), then the price moves up. Conversely, if

more people want to sell a stock, there would be more supply than demand

and the price would fall.

Understanding supply and demand is easy. What is difficult to comprehend is

what makes people like a particular stock yet dislike another stock. This

comes down to figuring out what news is positive for a company and what

news is negative. There are many answers to this problem and just about any

investor asked has their own ideas and strategies.

That being said, the principal theory is that the price movement of a stock

shows what investors feel a company is worth. The value of a company is its

market capitalization, which is the stock price multiplied by the number of

shares outstanding. For example, a company that trades at $100 per share

and has 1,000,000 shares outstanding is worth less that a company that

trades at $50 but has 5,000,000 shares outstanding. ($100 x 1,000,000 =

$100,000,000 while $50 x 5,000,000 = $250,000,000). To further complicate

things, the price of a stock doesn't just reflect what a company is worth

currently, it takes into account the growth that investors expect in the future.

The most important indicator of the worth of a company is its earnings.

Earnings are the profit a company makes, and in the long run no company

can survive without them. If a company never makes money, they aren't going

to stay in business. Public companies are required to report their earnings 4

times a year (once each quarter). Wall Street watches with rabid attention at

this time that is referred to as earnings season. The reason behind this is

because analysts base their future value of a company on their earnings

projection. If a company's results surprise (are better than expected), the price

jumps up. If a company's results disappoint (are worse than expected), then

the price will fall.

Of course, it's not just earnings that can change the price of a stock. It would

be a rather simple world if this were the case! A perfect example of this was

the dot-com bubble. Dozens of Internet companies rose to have market

capitalizations in the billions of dollars without ever making even the smallest

profit. But these valuations did not hold and most of the Internet companies

saw their values shrink to a fraction of their highs. Still, the fact that prices did

move this much demonstrates that there are factors other than earnings that

influence stocks. Investors have developed literally hundreds of these

variables, ratios and indicators such as the P/E ratio, while others are

extremely complicated and obscure with names like Chaikin Oscillator or

Moving Average Convergence Divergence (MACD).

So, why do stock prices change? The best answer is that nobody really knows

for sure. Some believe that it isn't possible to predict how stocks will change in

price while others think that by drawing charts and looking at past price

movements, you can determine when to buy and sell. The only thing we do

know as a certainty is that stocks are volatile and can change in price

extremely rapidly.

The important things to grasp about this subject are:

1. Supply and demand in the market determine stock price.

2. Price times the number of shares outstanding (market capitalization) is the

value of a company. Comparing just the share price of two companies is

meaningless.

3. Theoretically, earnings are what makes a company increase its value, but

there are other indicators which investors use to predict stock price.

4. There is no consensus as to why stock prices move the way they do.

Buying Stocks

There are twomain ways to purchase stock:

Using a Brokerage

The most common method to buy stocks is to use a brokerage. Brokerages

come in two different flavors. Full-service brokerages offer you (supposedly)

expert advice and can manage your account but also charge a lot. Discount

brokerages offer little in the way of personal attention but are much cheaper.

It used to be that only the wealthy could afford a broker as full service brokers

aren't cheap! With the Internet came the explosion of online discount brokers.

Because of them nearly anybody can now afford to invest in the market.

DRIPs & DIPs

Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) are

plans in which individual companies allow shareholders to purchase stock

directly from the company for a minimal cost. Drips are a great way to invest

small amounts of money at regular intervals.

How to Read a Stock Table/Quote

Any financial paper has stock quotes that will look something like the image

below:

Columns 1 & 2: 52-Week Hi and Low. These are the highest and lowest

prices that a stock has traded at over the previous 52-weeks (1 year). This

typically does not include the previous day's trading.

Column 3: Company Name & Type of Stock. This column lists the name of

the company. If there are no special symbols or letters following the name, it

is common stock. Different symbols imply different classes of shares. For

example, "pf" means the shares are preferred stock.

Column 4: Ticker Symbol. This is the unique alphabetic name which

identifies the stock. If you watch financial TV the ticker tape will quote the

latest prices alongside this symbol. If you are looking for stock quotes online,

you always search for a company by the ticker symbol.

Column 5: Dividend Per Share. This indicates the annual dividend payment

per share. If this space is blank, the company does not currently pay out

dividends.

Column 6: Dividend Yield. This is the percentage return on the dividend. It is

calculated as annual dividends per share divided by price per share.

Column 7: Price/Earnings Ratio. This is calculated by dividing the current

stock price by earnings per share from the last four quarters.

Column 8: Trading Volume. This figure shows the total number of shares

traded for the day, listed in hundreds. To get the actual number traded, add

"00" to the end of the number listed.

Column 9 & 10: Day High & Low. This indicates the price range the stock

has traded at throughout the day's trading. In other words, these are the

maximum and the minimum people have paid for the stock.

Column 11: Close. The close is the last trading price recorded when the

market closed on the day. If the closing price is up or down mo re than 5%

than the previous day's close, the entire listing for that stock is bold-faced.

Keep in mind, you are not guaranteed to get this price if you buy the stock the

next day because the price is constantly changing (even after the exchange is

closed for the day). The close is merely an indicator of past performance and

except in extreme circumstances serves as a ballpark of what you should

expect to pay.

Column 12: Net Change. This is the dollar value change in the stock price

from the previous day's closing price. When you hear about a stock being "up

for the day," it means the net change was positive.

The Bulls, the Bears, and the Farm

The Bulls

A bull market is when everything in the economy is great, people are finding

jobs, GDP is growing, and stocks are rising. Things are just plain rosy! Picking

stocks during a bull market is easier because everything is going up. Bull

markets cannot last forever though, and sometimes they can lead to

dangerous situations if stocks become overvalued. If a person is an optimist,

believing that stocks will go up, he is called a bull and said to have a bullish

outlook.

The Bears

A bear market is when the economy is bad, recession is looming, and stock

prices are falling. Bear markets make it tough for investors to pick profitable

stocks. One solution to this is to make money when stocks are falling using a

technique called short selling. Another strategy is to wait on the sidelines until

you feel that the bear market is nearing its end and only then start buying in

anticipation of a bull market. If a person is a pessimist, believing that stocks

are going to drop, he is called a bear and said to have a bearish outlook.

The Other Animals on the Farm - Chickens and Pigs

Chickens are afraid to lose anything. Their fear overrides their need to make

profits and so they turn to only money- market securities or get out of the

markets all together. While it's true you should never investment in something

that you lose sleep over, if you avoid the market completely and never take

any risk, you are guaranteed to never see any return.

Pigs are high risk investors looking for the one big score in a short period of

time. Pigs buy on hot tips and invest in companies without doing their due

diligence. They get impatient, greedy, and emotional about their investments,

and are drawn to high-risk securities without putting in the proper time or

money to learn about these investment vehicles. Professional traders love the

pigs, as it's often from their losses that the bulls and bears reap their profits.

INTRODUCTION OF DEPOSITORY

Depository

A depository is an organization which holds securities of investors in electronic

form at the request of the investors through a registered Depository

Participant.  It also provides services related to transactions in securities.

In India ,Depository Act defines a depository to mean “a company formed and

registered under Companies Act,1956 and which has been granted a certificate

of registration under sub section(IA) of section 12 of Securities and Exchange

Board of India Act,1992”

DEPOSITORY SYSTEM

It is a system whereby the transfer and settlement of scripts take place not

through the traditional method of transfer deeds and physical delivery of scripts

but through modern system of effecting transfer of ownership of securities by

means of book entry on the ledgers or the depository without physical

movement of scripts.

The new system thus eliminates paper work, facilitates automatic and

transparent trading in scripts, shortens the settlement period and ultimately

contributes to the liquidity of investment in securities. This system is also

known as ‘Scriples trading system’.

CONSTITUENTS OF DEPOSITORY SYSTEM

There are essentially four players in the depository system:-

1. The Depository Participant

2. The Beneficial Owner/Investor

3. The issuer

4. The Depository

FACILITIES OFFERED BY DEPOSITORY SYSTEM:

The following are some of important facilities offered by depository

system:-

1. Dematerialization

2. Rematerialisation

3. Electronic settlement of trade

4. Electronic credit of securities allotted in public, rights and bonus issue.

5. Pledging or hypothecation of dematerialized securities.

6. Freezing of demat account.

ADVANTAGES OF DEPOSITORY SYSTEM:

The system is expected to offer the much awaited custodial services to Indian

and Foreign investors together. It is likely to bring about the following benefits

to various investors, issuing companies as well as nation:

(A) Advantages to the Investors :

Quick transfer of funds and securities.

Elimination of all risks associated with physical certificates.

Minimized chances of fraud, theft of securities.

Statement of accounts.

(B) Advantages to the issuer:

Costs of registration & transfer of shares get reduced which were

earlier incurred by the issuer company.

Saving in cost involved at the time of public issues.

Easy to attract foreign investors without any cost of issuance in

overseas market.

(C) Advantages to Intermediaries :

Faster settlement

Less risk of Bad Delivery

Reduced chances of forgery, counterfeit certificates, loss in transit, theft

etc.

SOME IMPORTANT POINTS

Who is the depository participant?

A Depository Participant (DP) is an agent of the depository through which

it interfaces with the investor. A DP can offer depository services only after

it gets proper registration from SEBI.  Banking services can be availed

through a branch whereas depository services can be availed through a DP.

What is the minimum net worth required depositary?

The minimum net worth stipulated by SEBI for a depository is Rs.100

crore.

How many depository participants are registered with SEBI?

As on 31/03/2009, total of 711 DPs are registered with SEBI.

Can an investor operate a joint account on “either or survivor”

basis just like a bank account?

No. The demat account cannot be operated on “either or survivor” basis like

the bank account.

Can an investor close his demat account with one DP and

transfer all securities to another account with another DP?

Yes. The investor can submit account closure request to his DP in the

prescribed form. The DP will transfer all the securities lying in the account,

as per the instruction, and close the demat account.

Whether investors can freeze or lock their accounts?

Investors can freeze or lock their accounts for any given period of time, if

so desired. Accounts can be frozen for debits (preventing transfer of

securities out of accounts) or for credits (preventing any movements of

hindrances into accounts) or for both.

Do dematerialised shares have distinctive numbers?

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.

What is ‘Standing Instruction’ given in the account opening

form?

In a bank account, credit to the account is given only when a ‘pay in’ slip is

submitted together with cash/cheque. Similarly, in a depository account

‘Receipt in’ form has to be submitted to receive securities in the account.

However, for the convenience of investors, facility of ’standing instruction’

is given. If you say ‘Yes’ for standing instruction, you need not submit

‘Receipt in’ slip every time you buy securities. If you are particular that

securities can be credited to your account only with your consent, then do

not say ‘yes’ [or tick ] to standing instruction in the application form.

Is it possible to give delivery instructions to the DP over

Internet and if yes, how?

Yes. Both NSDL and CDSL have launched this facility for delivering

instructions to your DP over Internet, called SPEED-e and EASI

respectively. The facility can be used by all registered users after paying the

applicable charges.

Is it possible to get securities allotted in public offering directly

in the electronic form?

Yes, it is possible to get securities allotted to in Public Offerings directly in

the electronic form. In the public issue application form there is a provision

to indicate the manner in which an investor wants the securities allotted. He

has to mention the BO ID and the name and ID of the DP on the application

form. Any allotment made will be credited into the BO account.

How cash corporate are benefit such as dividend / interest

received?

The concerned company obtains the details of beneficiary holders and their

holdings as on the date of the book closure / record date from Depositories.

The payment to the investors will be made by the company through the

ECS (Electronic Clearing Service) facility, wherever available. Thus the

dividend / interest will be credited to your bank account directly. Where

ECS facility is not available dividend / interest will be given by issuing

warrants on which your bank account details are printed. The bank account

details will be those which you would have mentioned in your account

opening form or changed thereafter.

How would one receive non-cash corporate benefit such as

bonus etc.?

The concerned company obtains the details of beneficiary holders and their

holdings as on the date of the book closure / record date from depositories. 

The entitlement will be credited by the company directly into the BO

account

DEMAT ACCOUNT

The whole depository system is based on demats account. So it is

necessary to understand the concept of demat accounts.

What’s a demat account?

Demat refers to a dematerialised account. Just as you have to open an

account with a bank if you want to save your money, make cheque

payments etc, you need to open a demat account if you want to buy or sell

stocks. So it is just like a bank account where actual money is replaced by

shares. You have to approach the DPs (remember, they are like bank

branches), to open your demat account.

Let’s say your portfolio of shares looks like this: 40 of Infosys, 25 of

Wipro, 45 of HLL and 100 of ACC. All these will show in your demat

account. So you don’t have to possess any physical certificates showing that

you own these shares. They are all held electronically in your account. As

you buy and sell the shares, they are adjusted in your account. Just like a

bank passbook or statement, the DP will provide you with periodic

statements of holdings and transactions.

Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialised form.

Although the market regulator, the Securities and Exchange Board of India

(SEBI), has allowed trades of upto 500 shares to be settled in physical form,

nobody wants physical shares any more. So a demat account is a must for

trading and investing

Why demat?

The demat account reduces brokerage charges, makes

pledging/hypothecation of shares easier, enables quick ownership of

securities on settlement resulting in increased liquidity, avoids confusion in

the ownership title of securities, and provides easy receipt of public issue

allotments. It also helps you avoid bad deliveries caused by signature

mismatch, postal delays and loss of certificates in transit. Further, it

eliminates risks associated with forgery, counterfeiting and loss due to fire,

theft or mutilation. Demat account holders can also avoid stamp duty (as

against 0.5 per cent payable on physical shares), avoid filling up of transfer

deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

Buying & Selling

The procedure for buying and selling dematerialized securities is similar to the

procedure for buying and selling physical securities.  The difference lies in the

process of delivery (in case of sale) and receipt (in case of purchase) of

securities.

In case of purchase:-

The broker will receive the securities in his account on the payout day

The broker will give instruction to its DP to debit his account and credit

investor’s account

Investor will give ‘Receipt Instruction to DP for receiving credit by

filling appropriate form. However one can give standing instruction

For credit in to ones account that will obviate the need of giving Receipt

Instruction every time.

 In case of sale:-

The investor will give delivery instruction to DP to debit his account and credit

the broker’s account. Such instruction should reach the DP’s office at least 24

hours before the pay-in as other wise DP will accept the instruction only at the

investor’s risk.

Demat Benefits

The benefits are enumerated below:-

A safe and convenient way to hold securities;

Immediate transfer of securities;

No stamp duty on transfer of securities;

Elimination of risks associated with physical certificates such as bad

delivery, fake securities, delays, thefts etc.;

Reduction in paperwork involved in transfer of securities;

Reduction in transaction cost;

No odd lot problem, even one share can be sold;

Nomination facility;

Change in address recorded with DP gets registered with all companies

in which investor holds securities electronically eliminating the need to

correspond with each of them separately;

Transmission of securities is done by DP eliminating correspondence

with companies;

Automatic credit into demat account of shares, arising out of

bonus/split/consolidation/merger etc.

Holding investments in equity and debt instruments in an account

Demat Conversion

Converting physical holding into electronic holding (dematerializing securities)

In order to dematerialize physical securities one has to fill in a DRF (Demat

Request Form) which is available with the DP and submit the same along with

physical certificates one wishes to dematerialize. Separate DRF has to be filled

for each ISIN Number.

The complete process of dematerialization is outlined below:

Surrender certificates for dematerialization to respective depository

participant.

Depository participant intimates Depository of the request through the

system.

Depository participant submits the certificates to the registrar of the

Issuer Company.

Registrar confirms the dematerialization request from depository.

After dematerialization of the certificates, Registrar updates accounts

and informs depository of the completion of dematerialization.

Depository updates its accounts and informs the depository participant.

Depository participant updates the demat account of the investor.

Fees Involved

NOW to the crux — the cost of opening and holding a demat account. There

are four major charges usually levied on a demat account: Account opening

fee, annual maintenance fee, custodian fee and transaction fee. All the charges

vary from DP to DP.

Account-opening fee

Depending on the DP, there may or may not be an opening account fee.

Private banks, such as ICICI Bank, HDFC Bank and UTI Bank do not

have one. However, players such as India Infoline Ltd., Karvy

Consultants and the State Bank of India do so. But most players levy

this when the person re-opens a demat account, though the Stock

Holding Corporation offers a lifetime account opening fee, which allows

you to hold on to your demat account over a long period. This fee is

refundable.

Annual maintenance fee

This is also known as folio maintenance charges, and is generally levied

in advance.

Custodian fee

This fee is charged monthly and depends on the number of securities

(international securities identification numbers — ISIN) held in the

account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month.

DPs will not charge custody fee for ISIN on which the companies have

paid one-time custody charges to the depository.

Transaction fee

The transaction fee is charged for crediting/debiting securities to and

from the account on a monthly basis. While some DPs, such as SBI,

charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the

fee to the transaction value, subject to a minimum amount. The fee also

differs based on the kind of transaction (buying or selling). Some DPs

charge only for debiting the securities while others charge for both. The

DPs also charge if your instruction to buy/sell fails or is rejected. In

addition, service tax is also charged by the DPs.

In addition to the other fees, the DP also charges a fee for converting the

shares from the physical to the electronic form or vice-versa. This fee varies

for both demat and remat requests. For demat, some DPs charge a flat fee

per request in addition to the variable fee per certificate, while others charge

only the variable fee.

For instance, Stock Holding Corporation charges Rs 25 as the request fee

and Rs 3 per certificate as the variable fee. However, SBI charges only the

variable fee, which is Rs 3 per certificate. Remat requests also have charges

akin to that of demat. However, variable charges for remat are generally

higher than demat. Some of the additional features (usually offered by

banks) are:

• Some DPs offer a frequent trader account, where they charge frequent

traders at lower rates than the standard charges.

• Demat account holders are generally required to pay the DP an advance

fee for each account which will be adjusted against the various service

charges. The account holder needs to raise the balance when it falls

below a certain amount prescribed by the DP. However, if you also hold

a savings account with the DP you can provide a debit authorization to

the DP for paying this charge.

• Finally, once you choose your DP, it will be prudent to keep all your

accounts with that DP, so that tracking your capital gains liability is

easier. This is because, for calculating capital gains tax, the period of

holding will be determined by the DP and different DPs follow different

methods. For instance, ICICI Bank uses the first in first out (FIFO)

method to compute the period of holding. The proof of the cost of

acquisition will be the contract note. The computation of capital gains is

done account-wise.

Rematerialisation

The process of converting electronic holdings (demat shares) back

into Physical Certificates is called Rematerialisation.

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

RRF (Remat Request Form) and request his DP for rematerialisation of the

balances in his securities account. The process of rematerialisation is outlined

below;

One makes a request for rematerialisation.

Depository participant intimates depository of the request through the

system.

Depository confirms rematerialisation request to the registrar.

Registrar updates accounts and prints certificates.

Depository updates accounts and downloads details to depository

participant.

Registrar dispatches certificates to investor.

Some important points

Can one pledge dematerialised securities?

Yes. In fact, pledging dematerialised securities is easier and more

advantageous as compared to pledging physical securities.

What should one do to pledge electronic securities?

The procedure to pledge electronic securities is as follows:

Both investor (pledgor) as well as the lender (pledgee) must have

depository accounts with the same depository;

Investor has to initiate the pledge by submitting to DP the details of the

securities to be pledged in a standard format ;

The pledgee has to confirm the request through his/her DP;

Once this is done, securities are pledged.

All financial transactions between the pledgor and the pledgee are

handled as per usual practice outside the depository system.

How can one close the pledge after repayment of loan?

After one has repaid the loan, one can request for a closure of pledge by

instructing the DP in a prescribed format. The pledge on receiving the

repayment will instruct his DP accordingly for the closure of the pledge.

TRANSACTION STATEMENTS

How does one know that the DP has updated the account after each

transaction?

The DP gives a Transaction Statement periodically, which will detail

current balances and various transactions made through the depository

account. If so desired, DP may provide the Transaction Statement at

intervals shorter than the stipulated ones, probably at a cost.

At what frequency will the investor receive his Transaction

Statement from his DP?

DPs have to provide transaction statements to their clients once in a month,

if there are transactions and once in a quarter, if there are no transactions.

Moreover, DPs can provide transaction statement in electronic form under

digital signature subject to their entering into a legally enforceable

arrangement with the BOs to this effect.

What is to be done if there are any discrepancies in transaction

statement?

In case of any discrepancy in the transaction statement, one can contact

his/her DP. If the discrepancy cannot be resolved at the DP level, one

should approach the Depository.

LENDING AND BORROWING

What is Lending and Borrowing of Securities?

If any person required to deliver a security in the market does not

readily have that security, he can borrow the same from another

person who is willing to lend as per the Securities Lending and

Borrowing Scheme.

Can lending and borrowing be done directly between two

persons?

No. Lending and borrowing has to be done through an ‘Approved

Intermediary’ registered with SEBI. The approved intermediary

would borrow the securities for further lending to borrowers.

Lenders of the securities and borrowers of the securities enter into

separate agreements with the approved intermediary for lending and

borrowing the securities.  Lending and borrowing is effected through

the depository system.

NOMINATION

Who can nominate?

Nomination can be made only by individuals holding beneficiary accounts

either singly or jointly.  Non-individuals including society, trust, body

corporate, karta of Hindu Undivided Family, holder of power of attorney

cannot nominate.

Who can be a nominee?

Only an individual can be a nominee. A nominee shall not be a society,

trust, body corporate, partnership firm, Karta of Hindu Undivided

Family or a power of attorney holder.

What is transmission of demat securities?

Transmission is the process by which securities of a deceased account

holder are transferred to the account of his legal heirs / nominee. Process of

transmission in case of dematerialised holdings is more convenient as the

transmission formalities for all securities held in a demat account can be

completed by submitting documents to the DP, whereas in case of physical

securities the legal heirs/nominee/surviving joint holder has to

independently correspond with each company in which securities are held.

In the event of death of the sole holder, how the successors

should claim the securities lying in the demat account?

The claimant should submit to the concerned DP an application

Transmission Request Form (TRF) along with the following supporting

documents

In case of death of sole holder where the sole holder has appointed a

nominee : Notarized copy of the death certificate

In case of death of the sole holder, where the sole holder has not

appointed a nominee : Notarized copy of the death certificate

Any one of the below mentioned documents

Succession certificate

Copy of probated will

Letter of Administration

The DP, after ensuring that the application is genuine, will transfer

securities to the account of the claimant.

The major advantage in case of dematerialised holdings is that the

transmission formalities for all securities held with a DP can be completed

by interaction with the DP alone, unlike in the case of physical share

certificates, where the claimant will have to interact with each Issuing

company or its Registrar separately.

 

LITERATURE

REVIEW

LITERATURE REVIEW

After the formulation of the problem, a brief summary of it should be written

down and the researcher should have to do its extensive literature survey

connected with the problem. For this purpose, abstracting and indexing journals

and published or unpublished bibliographies are first place to go Academic

Journals, Conference proceedings, reports etc. must be tapped depending upon

nature of the problem. The literature for this project includes various

newspapers, magazines

Economic Survey” for the information regarding the depository services by

depository participants. In the external sector of the Economic survey the

trends over the period of time are given.

“RBI bulletin” for the information regarding the demat services of

different banks over the period of last years.

C.R Kothari1” The information regarding the basics of research and

research methodology, what are the different types of research designs,

what is problem statement, what are the sources of data collection and what

are the methods of data collection is given in this section.

“S.P Gupta2”. The information regarding the statistical tools and their

limitations in different fields the research is given in this section. This

section explains why to use correlation and what are the situations in which

correlation can be used, and what does correlation means.

“Sashi K. Gupta4”, Financial Institutions And Markets, Kalyani

Publications, New Delhi To have information regarding depositories in

India

“Bhole L.M.5”, Management of Financial institutions, Tata MC Graw Hill,

2000 to have information regarding dematerialization and rematerialisation

process.

“Khan M.Y.6” , Indian Financial System, Tata MC Graw Hill,2000

http://www.nseindia.com/ In order to get information regarding national

stock exchange of India this site is used.

OBJECTIVEs

OF

STUDY

OBJECTIVE OF STUDY

The objective of the research means the purpose for which the research is being

carried out. The objectives of this research are as follows:

Primary Objective:-

The primary objective of my report is to impart a comparative and analytical

study of the depository and online share trading services of Depository

Participants in India and basic understanding of the manner in which they

function in this competitive environment, the products and services offered by

DPs, entire process of share transactions and account openings and brokerage

charged and different software used to facilitate the trading process. To know

about the benefits derived from such system.

Secondary Objective:-

Apart from understanding the stock Exchange terminologies or jargons, it was

also aimed about reading of market conditions, the feasibility and growth of

depository services of various depository participants in India. The client

servicing offered by the online share trading sites in real market situations.

RESULTS

&

FINDINGS

RESULTS AND FINDINGS

Comparative Table of Demat A/c Charges of ICICI , HDFC,

Sharekhan, Indiabulls, Kotak Mahindra Bank, INDIA

INFOLINE LTD.

DPs:- ICICI HDFC SHARE KHAN

INDIABULLS

Kotak Mahindra

INDIA INFOLINE

LTD.Annual

Maintenance Charges

Rs.500/- Rs.499/- Rs.300/- Nil Rs.400/- Rs.300/-

Debit Instruction Rs.10/- per ISIN

0.04% of value or minimu

m Rs.25/-

0.04% of value or

minimum Rs.15/-

0.05% of value or

minimum Rs.21/-

0.04% of value or minimum

Rs.20/-

0.05% of value or minimum Rs.15-100/-

Dematerialisation Rs.35/-+ Rs.22/- per certificate

Rs.35/- + Rs.3/-

per certificat

e

Rs.5/- per certificate

for securities upto 100

Rs. 3/- per certificate, min Rs.10/- + Rs.35/- postage

Rs.25/- +Rs.3/- per certificate

Rs.25/- +Rs.3/- per certificate

Rematerialisation Rs. 20/- per certificate

Actual as levied by

NSDL

Rs. 30/- per

certificate Min

Rs.50/-

Rs. 30/- per certificate

Min Rs.50/-

Rs.10/- per Certificate

Rs.10/- per Certificate

Pledge Creation 0.02% Min Rs.15/-&

0.04% min.Rs.

30/-

0.02%Min.

Rs.25/-

0.02%+Min Rs.

50/-

0.02% Min Rs 100/-

0.02% min Rs.50

0.02% min Rs.50/-

Closure Same as above

Same as above

Rs.100/- Same as above

Same as above Rs. 250/- +S.T.

SIGNIFICANCE

OF

STUDY

INDIAN CAPITAL MARKET OVERVIEW

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

from surplus sectors (lenders) to deficit sectors (borrowers).Normally ,

households have investigable funds or savings, which they lend to

borrowers in the corporate and public sectors whose requirement of funds

far exceed their savings. A financial market consists of investors or buyers

of securities, borrowers or seller of securities, intermediaries and regulatory

bodies.

ORGANISED MONEY MARKET

Indian financial system consists of money market and capital market. The

money market has two components –the organized and the unorganized.

The organized market is dominated by commercial banks. The other major

participants are Reserve Bank of India, Life Insurance Corporation, General

Insurance Corporation, and Unit Trust Of India, Securities Trading

Corporation of India Ltd., other primary dealers, commercial banks and

mutual funds. The core of the money market is the inter bank call money

market whereby short term money borrowing /lending is effected to manage

temporary liquidity mismatches.

UNORGANISED MONEY MARKET

Despite rapid expansion of organized money market through a large

network of banking institutions that have extended their reach even to rural

areas, there is still an active unorganized market. It consists of indigenous

bankers and money lenders. In unorganized market, there is no clear

demarcation between short term and long term finance and even between

purposes of finance. The inability of the poor to meet the “creditworthiness”

requirements of banking sector make them to take recourse to the

institutions that still remain outside the regulatory framework of banking.

THE CAPITAL MARKET

The Capital market consists of primary and secondary markets. The

Primary Market deals with issue of new instruments by 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. It may have a physical location

like stick exchange and a trading floor. Since 1995, trading in securities is

screen based and Internet based trading has also made an appearance in

India. Secondary market consists of 22 stock exchanges the secondary

market provides a trading place for securities already issued, to be brought

and sold. It provides liquidity to the initial buyers in the primary market.

CAPITAL MARKET PARTICIPANTS

There are several major players in the primary market These includes the

merchant bankers, mutual funds, financial institutions, foreign institutional

investors (FIIs) and individual investors .In the secondary market , there are

the stock exchanges, stock brokers (who are members of stock

exchange),the mutual funds, financial institutions, foreign institutional

investors (FIIs), and individual investors.

MARKET REGULATION

It is important to ensure smooth working of capital market, as it is the arena

for the players associated with the economic growth of the country. Various

laws have been passed from time to time to meet this objective.

The financial market in India was highly segmented until the initiation of

reforms in 1992-93 on account of a variety of regulations and administered

prices including barriers to entry. The reform process was initiated with the

establishment of Securities and Exchange Board of India (SEBI).

NATIONAL STOCK EXCHANGE

The National Stock Exchange commenced its operations in 1994 as a first

step in reforming the securities market through improved technology and

introduction of best practices in management. It started with the concept of

an independent governing body without any broker representation thus

ensuring that the operator’s interests were not allowed to dominate the

governance of the exchange.

Before the NSE was set up, trading on stock exchange in India used to take

place through open outcry without the use of Information Technology for

immediate matching or recording of trades. This was time consuming and

inefficient. This practice of physical trading imposed limits on trading

volumes as well as the speed with which new information was incorporated

into prices. To obviate this, the NSE introduced screen based trading system

(SBTS).

BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS:-

“C.R Kothari” Research Methodology, Wishwa Parkashan, 2nd Edition ( pg.

39-67 & 117-157).

“S.P Gupta” .Statistical Methods, 30th edition, “Sultan Chand &

. . Sons” (Page no .378-418)

“Hooda R.P”, Statistics for Business and Economics, 10th Edition

WEBSITES:-

http://www.icicibank.com/pfsuser/aboutus/overview/overview.htm

http://www.hdfcbank.com/aboutus/general/default.htm

http://www.utibank.com/Banking/bank.asp

http://www.centurionbop.co.in/site/aboutus.html

http://www.kotak.com/Kotak_GroupSite/aboutus/default.htm

http://www.indiainfoline.com

http://www.5paisa.com

JOURNALS & MAGZINES :-

SEBI Bulletin, August 2006, Volume 4

Economic Survey 2005-06

Marketing Research

RBI Bulletin

OTHER REFRENCES :-

Books of NSDL (Operations Module)