INDIAN SECURITY MARKET-AN

OVERVIEW

Dissertation submitted to the Rajasthan Technical University in

partial fulfillment of the reqirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

(Session-2007-09)

Submitted by
)

College Log

Project Guide

DECLARATION
I Pawan kumar student of MBA III Semester of -----------. hereby declare that the
report entitled “Indian Securities Market an Overview” is submitted by me in the line
of partial fulfillment of the course objectives for the Masters of Business Administration
Degree.

I assure that this project is the result of my own efforts and that any other institute for the
award of any degree or diploma has not submitted it.

ACKNOWLEDGEMENT

Summer training is one of the vital and active parts of the curriculum of management
students. The basic idea behind this is to strengthen the student’s concept through
practical training and make them acquainted with actual methods and procedures.
I did the work as Management Trainee ---------jaipur for a period of eight weeks starting
from --------

I would like to extend my heartly gratitude to ----------, my Team Leader, for his
guidance throughout the project. Without his support and co-operation I would have
failed in my endeavors and targets in the summer training. I take this opportunity to say
“Thank You Sir”.

I would also like to thank all the employees of our branch at ----------, Jaipur for
providing me the required knowledge, information and material to have a clear idea of
what securities market is all about.

It is a great pleasure for me to put on records my appreciation and gratitude towards I

would like to thank ----------------) for his guidance and his valuable support during the
project directly or indirectly.

Thanking You.

PREFACE

As the part of my MBA curriculum I was required to undergo summer training in a

business organization for eight or six weeks. I approached Unicon Securities Private
Limited at Green House C.Scheme, Jaipur for this purpose and got an opportunity to
get summer training from --------- who readily agreed to extend his cooperation.
The project was assigned to me by the organization. The topic of my project was
“Indian Securities Market - An Overview”. In this record I have put my best efforts to
compile the data to the highest level of accuracy and give my views to the best of my
judgment.

-
MBA III Semester

CONTENTS

Chapter 1: INTRODUCTION

1.1 Introduction of UNICON 1-3

1.2 Branches of all over India 4-4
1.3 Financial Performance of UNICON 5-5
1.4 UNICON Services 6-6
1.5 Benefit of Investing with UNICON 7-7
1.6 Product Details of UNICON 8-12
1.7 Option Available for Investment 13-19

Chapter 2: METHODOLOGY
2.1 Introduction of the Securities Market in India 20-20
2.2 Objective of the Study 20-20
2.3 Securities 21-21
2.4 Securities Market 22-22
2.5 Types of Securities Market 22-23
1. Primary Market 23-24
Issue of Shares 24-27
Listing of Securities 28-28
2. Secondary Market 29-30
Stock Exchange 31-34
Equity Investment 34-37
Debt Investment 37-40
2.6 Derivatives 40-39
2.7 Commodities 40-41
2.8 Depository 41-43
2.9 Mutual Fund 44-50
2.10 Regulator 50-51

Chapter 3: DISCUSSION

3.1 Discussion 52-53

Chapter 4: SUGGESTIONS and CONCLUSION

4.1 Suggestion 54-54

4.2 Conclusion 55-55

1.1 Introduction to UNICON

Unicon group also comprises institutional broking and

corporate Finance. While the institutional broking division caters to the largest domestic
and foreign institutional investors, telecom and media. Unicon holds a sizeable portion
of the market in each of these segments.
As the forerunner of investment research in the Indian market, we provide the best
research coverage amongst broking houses in India. Our research team is rated as one of
the best in the country. Voted four times as the Top Domestic Brokerage House by Asia-
money Survey. Unicon is consistently ranked amongst the top domestic brokerage
houses in India.

UNICON BACKGROUND
Unicon is one of the leading retail brokerage firms in the country. It is the retail broking
arm of the Delhi, which has over eight decades of experience in the stock broking
business. Unicon offers its customers a wide range of equity related services including
trade execution on BSE, NSE, Derivatives, depository services, online trading,
investment advice etc.

With more than 150 share shops in 80 cities, and India’s premier portal,
www.uniconindia.in, we reach out to customers like no one else. Unicon offers you trade
execution facilities on the BSE and the NSE, for cash as well as derivatives, depository
services and most importantly, investment advice tempered by 5 years of research and
broking experience.

]The firm’s online trading and investment site—www.uniconindia.in —was launched in

2004. The site gives access to superior content and transaction facility to retail customers

across the country. Known for its jargon-free, investor friendly language and high
quality research, the site has a registered base of over one-lakh customers. In Delhi
(N.C.R)

Region approx- 1000 online share trading accounts per Month are opened.

The content-rich and research oriented portal has stood out among its contemporaries
because of its steadfast dedication to offering customers best-of-breed technology and
superior market information. The objective has been to let customers make informed
decisions and to simplify the process of investing in stocks.
Unicon has launched Speed Trade in 2004, a net-based executable application that
emulates the broker terminals along with host of other information relevant to the Day
Traders. This was for the first time that a net-based trading station of this caliber was
offered to the traders. In the last six months Speed Trade has become a de facto standard
for the Day Trading community over the net.

Unicon ground network includes over 300 centers in 140 cities in India, of which
63 are fully owned branches.

Unicon has always believed in investing in technology to build its business. The
company has used some of the best-known names in the IT industry, like Sun
Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,
Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading
engine and content. With a legacy of more than 5 years in the stock markets, the
Unicon group ventured into institutional broking and corporate finance 5 years ago.
Presently Unicon is one of the leading players in institutional broking and corporate
finance activities. Unicon holds a sizeable portion of the market in each of these
segments. SSKI’s institutional broking arm accounts for 7% of the market for Foreign
Institutional portfolio investment and 5% of all Domestic Institutional portfolio
investment in the country. It has 60 institutional clients spread over India, Far East, UK
and US. Foreign Institutional Investors generate about 65% of the organization’s
revenue, with a daily turnover of over US$ 2 million. The Corporate Finance section has
a list of very prestigious clients and has many ‘firsts’ to its credit, in terms of the size of
deal, sector tapped etc. The group has placed over US$ 1

Pipavav, Essar, Hutchison, Planet Asia, and Shopper’s Stop.

Unicon is

 Among the top 3 branded retail service providers

 No. 2 player in online business

 Largest network of branded broking outlets in the country servicing 100,000

clients
Unicon is the retail broking arm organization with more than eight decades of trust &
credibility in the stock market. Unicon is amongst pioneers of investment research in the
Indian market. In 1984 it was ventured into Institutional Broking & Corporate Finance.
Unicon is a leading domestic player in Indian institutional business, which is having over
US$ 5 billion of private equity deals

1.2 BRANCHES ALL OVER INDIA

1.4 Financial Performance of UNICON
Unicon is India's leading retail financial services company. They have over 588 share
shops across 213 cities in India. While their size and strong balance sheet allow them to
provide customers with varied products and services at very attractive prices, their over
750 Client Relationship Managers are dedicated to serving customers unique needs.
Unicon is lead by a highly regarded management team that has invested crores of rupees
into a world class Infrastructure that provides clients with real-time service & 24/7
access to all information and products. Their flagship Unicon Professional Network
offers real-time prices, detailed data and news, intelligent analytics, and electronic
trading capabilities, right at your fingertips. This powerful technology complemented by
their knowledgeable and customer focused Relationship Managers is creating a world of
Smart Investor.

Unicon offers a full range of financial services and products ranging from Equities to
Derivatives enhance your wealth and hence, achieve your financial goals.

Unicon Client Relationship Managers are available to the customers to help with their
financial planning and investment needs. To provide the highest possible quality of
service, Share khan provides full access to all our products and services through multi-
channels.

1.5 UNICON SERVICES

 1.6 BENEFITS OF INVESTING WITH UNICON
ACCESSIBILITY
Unicon provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for
investors. These services are accessible through our centers across the country (Over
250 locations in 123 cities), over the internet (through the website www.sharekhan.com)
as well as over the Voice Tool.
CONVENIENCE
You can call our Dial-n-Trade number (1-600-22-7050) to get investment advice and
execute your transactions. We have a dedicated call-center to provide this service via a
toll-free number from anywhere in India.

ADVANTAGES
 Secure Order by Voice Tool Dial-n-Trade.
 Automated Portfolio to keep track of the value of your actual purchases.
 24x7 Voice Tool access to your trading account.
 Personalized Price and Account Alerts delivered instantly to your Cell Phone & E-
mail address.
 Special Personal Inbox for order and trade confirmations.
 On-line Customer Service via Web Chat.
 Anytime Ordering.

1.7 PRODUCT DETAILS OF UNICON SECURITIES

Unicon offers the following products:-

UNICON PLUS

This account allows the client to trade through our website and is suitable for the retail
investor who is risk-averse and hence prefers to invest in stocks or who do not trade too
frequently.

FEATURES:-
 Online trading account for investing in Equity and Derivatives
 Both NSE & BSE online and Trading through website Live terminal
 Both Cash & F&O
 No brokerage commitment required
 Integration of On-line trading, Saving Bank and Demat Account.
 Instant cash transfer facility against purchase & sale of shares.
 Competitive transaction charges.
 Instant order and trade confirmation by E-mail.
 Streaming Quotes.(Cash & Derivatives)
 Personalized market watch.
 Single screen interface for Cash and derivatives and more.
 Provision to enter price trigger and view the same online in market watch.

UNICON SWIFT

UNICON SWIFT is an internet-based software application that enables anyone to buy

and sell in an instant. It is ideal for active traders and jobbers who transact frequently
during day’s session to capitalize on intra-day price movement.

FEATURES
 Instant order Execution and Confirmation.
 Single screen trading terminal.(NSE AND BSE BOTH)
 Real-time streaming quotes, tic-by-tic charts.
 Market summary (Cost traded scrip, highest value etc.)
 Hot keys similar to brokers’ terminal.
 Alerts and reminders.
 Back-up facility to place trades on Direct Phone lines.

DIAL-N-TRADE
Along with enabling access for their trade online, the UNICON PLUS and UNICON
SWIFT ACCOUNT also gives their customers Dial-n trade services. With this service,
all the customers need to do is dial to their dedicated phone lines 1-800-22-7050.
IPO On-line
The customers can apply all the forthcoming IPO online hassle-free.
Charge UNICON PLUS UNICON SWIFT

Special rate of
Account Opening Rs. 700/- Rs. 1200/- (LIFE TIME)

Monthly Rs. NIL Rs. NIL

Commitment Charge

Rate of Intraday-0.03% Intraday-0.03%

Brokerages Delivery-0.30% Delivery-0.30%

CHARGES
SOURCE:www.uniconindia.in
*Refundable in case the brokerage is more than Rs.500/= p.m. Or quarterly generated
brokerage to be 1500/-. ** Taxes as per govt.
For UNICON SWIFT the Monthly Recurring Fee of Rs.NIL per month is very nominal
considering the benefits of the product. This access charges will be debited to all the new
customers signed up after Sep15 2004. And at the end of the month if the client has
contributed more than Rs.500 as brokerage the access charge of Rs.500 will be credited
back to the clients account. Please note - this credit of Rs.500 will be refunded only to
customers who have contributed more than Rs.500 as brokerage during the month.

DEPOSITORY CHARGES:
Account Opening Charges Rs. 200
Annual Maintenance Charges Rs. NIL first year
Rs. 200 Per annum from second year
onward

BROKERAGE CHARGED
0.03% Plus Taxes for Each leg of Intra-day trade
0.30% Plus Taxes for trades resulting in delivery

EXPOSURE: 5 TO 8 TIMES (ON MARGIN MONEY)

TIE UPS: Tie up with four banks i.e. HDFC Bank Ltd, AXIS Bank, UTI bank , ICICI
Bank for online money transfer.

DOCUMENTS REQUIRED
 As per KYC guide lines there needs to be Photo Identity and Address proof of the customer. The
required documents are mentioned below:-
Identity Proof Residence/Address Proof

· Passport · Passport(valid)
· Pan Card · Voter's ID
· Driving License · Driving License(valid)
· Voter's ID · Bank Statement(latest)
· MAPIN UIN Card · Telephone Bill(latest)
· Electricity Bill(latest)
· Ration Card
· Flat Maintenance Bill(latest)
· Insurance Policy(latest)
· Leave-License/Purchase Agreement(latest)
 2 Photographs
 1 Cheque of Rs.200 In Favor of Unicon Securities Pvt. Ltd. ( For UNICON
PLUS), Or
 1 Cheque of Rs.1200/=In Favor of Unicon Securities Pvt. Ltd. (For UNICON
SWIFT Account).

1.8 OPTIONS AVAILABLE FOR INVESTMENT

 1. FIXED DEPOSITS

Fixed deposits remain the most popular instrument for financial savings in India. They
are the middle path investments with adequate returns and sufficient liquidity. There are
basically three avenues for parking savings in the form of fixed deposits. The most
common are bank deposits. For nationalized banks, the yield is generally low with a
maximum interest of 10 to 10.5% per annum for a period of three years or more. The rate
of interest differs from bank to bank and is generally higher for private sector and
foreign banks. This, however, does not mean that the depositor loses all his rights over
the money for the duration of the tenor decided. The deposits can be withdrawn before
the period is over. However, the amount of interest payable to the depositor, in such
cases goes down (usually 1% to 2% less than the original rate). Moreover, as per RBI
regulations there will be no interest paid for any premature withdrawals for the period 15
days to 29 or 15 to 45 days as the case may be.

Post office is a very safe and secure investment avenue. The money is used in the
development of the society as a whole, while it provides steady returns. The biggest
advantage of investing in post office schemes is the tax benefit that they provide. Thus a
lot of savings go through this channel to dual advantage - tax benefits and steady returns.

Other than these, there deposits with NBFCs or Non Banking Financial Corporations and
company deposits are more attractive.

2. NATIONAL SAVING CERTIFICATES (NTSCs)

National Savings Certificates (NSC) is an assured return scheme, armed with powerful
tax rebates under Section 88 of the Income Tax Act, 1961. Interest is payable at 8 per
cent, compounded half-yearly for a duration of 6 years.

NSC combines growth in money with reductions in tax liability as per the provisions of
the Income Tax Act, 1961. The scheme offers a coupon of 8 per cent, compounded semi-
annually. So, Rs 1,000 invested in NSCs become Rs 1,586.87 on maturity after 6 years.
3. LIFE INSURANCES

Life insurance is a contract that pledges payment of an amount to the person assured or
his nominee on the happening of the event insured against. The contract also provides for
the payment of premium periodically to the Corporation by the policyholder. Life
insurance is universally acknowledged to be an institution, which eliminates 'risk',
substituting certainty for uncertainty and comes to the timely aid of the family in the
unfortunate event of death of the breadwinner. By and large, life insurance is
civilization’s partial solution to the problems caused by death. Life insurance, in short, is
concerned with two hazards that stand across the life-path of every person—Dying
prematurely leaving a dependent family and living the old age without much of support.

1. That of dying prematurely leaves a dependent family to fend for itself.

2. That of living till old age without visible le means of support

The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972,
Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related
Acts. Life Insurance Corporation India (LIC) is the undisputed leader in this area and
provides.

4. PUBLIC PROVIDENT FUND (PPF)

The Public Provident Fund (PPF) is probably the most popular of all the tax-saving
schemes. PPF is a savings cum tax saving instrument. It also serves as a retirement
planning tool for many of those who do not have any structured pension plan covering
them. Under Section 88 of the Income Tax Act, you can invest up to Rs 70,000 of your
income to claim a rebate of upto 30 per cent depending upon the rate of rebate applicable
in your case. The PPF account may be opened at any branch of the State Bank of India
(SBI) and its subsidiaries, a few branches of the other nationalized banks, and all head
post offices. The minimum deposit is Rs 500.Minimum deposit required in a PPF
account is Rs. 500 in a financial year. Maximum deposit limit is Rs. 70,000 in a financial
year. Maximum number of deposits is twelve in a financial year.
The account matures for closure after 15 years. Account can be continued with or
without subscriptions after maturity for block periods of five years. Premature
withdrawal is permissible every year after completion of 5 years from the end of the year
of opening the account. Loans from the amount at credit in PPF amount can be taken
after completion of one year from the end of the financial year of opening the account
and before completion of the 5th year.
Interest at the rate notified by the Central Government from time to time, is calculated
and credited to the accounts at the end of each financial year. Presently, the rate of
interest is 8% per annum. Income Tax rebate is available "on the deposits made", under
Section 88 of Income Tax Act, as amended from time to time. Interest credited every
year is tax-free.

5. REAL ESTATES

Real estate is a legal term (in some jurisdictions) that encompasses land along with
anything permanently affixed to the land, such as buildings. Fixtures include buildings,
fences, and things attached to buildings, such as plumbing, heating, and light fixtures.
Property that is not affixed is regarded as personal property. For example, furniture and
draperies are items of personal property.

Within the real estate sector, foreign investment is now permitted in construction and
project development related to both residential and commercial development in (i)
Housing Townships; (ii) Commercial Office Space; (iii) Hotels and Resorts; (iv)
Hospitals; (v) Educational Institutions; (vi) Recreational facilities; and (vii) City and
State level Infrastructure. Real Estate investment is one of the easiest ways to make
money.

6. SHARE MARKET
The capital of the company is divided into the number of equal parts known as shares
and holders of these shares are called shareholders or owners of the company and
company provide part of profit to shareholders out of net profit is known as dividend and
at the time of loss the shareholders have to bear the loss also.

TYPES OF SHARES:-

EQUITY SHARES

PREFERENCE SHARES

EQUITY SHARES: Equity Shares is the owners’ capital in the company. The holders
of these shares are the real owners of the company. They have control over the working
of the company. Equity Shareholders are paid dividend after paying it to the preference
shareholders.

PREFERENCE SHARES: These Shares have certain preferences as compared to other

types of shares. These shares are given two preferences. First is for payment of dividend
and second is for repayment of capital at the time of liquidation of company.

DEBENTURES

Debenture is a document under the company’s seal which provides for the payment of
principal sum and interest thereon at regular intervals. A debenture holder is a creditor of
the company. A fixed rate of interest is paid on debentures irrespective of profit or loss.

Debentures are payable in priority over share capital. Debenture holders have no right
over the management of company. Debenture holders are merely the creditors of
company not the owner of the company.

7. DERIVATIVES
Derivatives are the instrument and Derivative contract is a financial instrument whose
payoff structure is derived from the value of the underlying asset.

There are 3 types of Derivative contracts

Option Contract

Future Contract

Forward Contract

FORWARD CONTRACT: It is an agreement entered today under which one party

agrees to buy and the other agrees to sell on a specified future date at an agreed price.

FUTURE CONTRACT: It is a standardized contract between two parties where one

party commits to sell and the other commits to buy, a specified quantity of a specified
asset at an agreed price on a given date in the future.

OPTION CONTRACT: It is a contract between two parties under which the buyer of
the option buys the right and not the obligation to buy or sell, a standardized quantity of
a financial instrument at or before a pre determined date at a price, which is decided in
advance.

8. COMMODITIES MARKET

Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated exchanges, in which they are bought and sold
in standardized Contracts. A commodity has value, which represents a quantity of human
labor. The fact that it has value implies straightaway that people try to economies its use.
A commodity also has a use value, an exchange value and a price.
In the world of business, a commodity is an undifferentiated product whose value arises
from the owner's right to sell rather than the right to use. Example: commodities from the
financial world include oil (sold by the barrel), electricity, wheat, bulk chemicals such as
sulfuric acid, base and other metals, and even pork-bellies and orange juice. More
modern commodities include bandwidth, RAM chips and (experimentally) computer
processor cycles, and negative commodity units like emissions credits.
In the original and simplified sense, commodities were things of value, of uniform
quality, that were produced in large quantities by many different producers; the items
from each different producer are considered equivalent.

9. INITIAL PUBLIC OFFER (IPO)

An initial public offering (IPO) is the first sale of a corporation's common shares to
public investors. The main purpose of an IPO is to raise capital for the corporation. The
first sale of stock by a private company to the public, IPO’s are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large privately-
owned companies looking to become publicly traded. On an average IPO to give decent
returns as this helps companies to build up trust and later raise huge amounts from
public.

10. MUTUAL FUNDS

A mutual fund is a basket of investment brought from the money of investors and
managed by a set of experts. It raises money from the investors regularly by coming out
with new schemes which carry a particular name depending upon their investment
portfolio. For e.g. DSP FMCG fund will only invest in the shares and debt of the FMCG
companies. The return received by the scheme is highlighted in the form of a higher
NAV.

NAV= initial issue price + profit net of expenses NAV goes up or down based on the
performance of the scheme, which in term is related to the performance of the market.
2.1 INTRODUCTION OF SECURITY MARKET IN INDIA
The securities market essentially has three categories of participants, namely, the issuers
of securities, investors in securities and the intermediaries, such as merchant bankers,
brokers etc. While the corporate and government raise resources from the securities
market to meet their obligations, it is households that invest their savings in the
Securities
Market.
It is advisable to conduct transactions through an intermediary. For example you need to
transact through a trading member of a stock exchange if you intend to buy or sell any
security on stock exchanges. You need to maintain an account with a depository if you
intend to hold securities in demat form. You need to deposit money with a banker to an
issue if you are subscribing to public issues. You get guidance if you are transacting
through an intermediary. Chose a SEBI registered intermediary, as he is accountable for
its activities. The list of registered intermediaries is available with exchanges, industry
associations etc.
The securities market has two interdependent segments: the primary (new issues) market
and the secondary market. The primary market provides the channel for sale of new
securities while the secondary market deals in securities previously issued.

2.2 OBJECTIVES OF THE STUDY

 To understand the securities, securities market, function of securities market and

who regulate the securities market.
 To know the types and nature of securities available in the security mark To
know the company policy, how one can invest in securities through Unicon.
2.3 SECURITIES

Meaning of Securities The definition of ‘Securities’ as per the Securities Contracts

Regulation Act (SCRA), 1956, includes instruments such as shares, bonds, scrip, stocks
or other marketable securities of similar nature in or of any incorporate company or body
corporate, government securities, derivatives of securities, units of collective investment
scheme, interest and rights in securities, security receipt or any other instruments so
declared by the Central Government.
A security is a type of transferable interest representing financial value. Traditionally
securities have been categorized between debt and equity securities, and between bearer
and registered securities.
Representing the full range of investment opportunities, a security can refer to an instru-
ment which allows the holder to claim an ownership position in a corporation (a stock); a
creditor relationship with a corporation, a government or its agency (a bond); or other
rights to ownership as stipulated in specific contract (a futures contract).

Types of securities

 Share
 Debentures
 Bonds
 Government Securities
 Derivative products
 Units of Mutual Funds etc.
2.4 SECURITIES MARKET

A place or places where securities are bought and sold, the facilities and people engaged
in such transactions, the demand for and availability of securities to be traded, and the
willingness of buyers and sellers to reach agreement on sales. Securities markets include
over-the-counter markets, the New York Stock Exchange, the Chicago Board of Trade
and the American Stock Exchange.

Functions of Securities Market

Securities Markets is a place where buyers and sellers of securities can enter into trans-
actions to purchase and sell shares, bonds, debentures etc. Further, it performs an impor-
tant role of enabling corporates, entrepreneurs to raise resources for their companies and
business ventures through public issues. Transfer of resources from those having idle re-
sources (investors) to others who have a need for them (corporates) is most efficiently
achieved through the securities market. Stated formally, securities markets provide chan-
nels for reallocation of savings to investments and entrepreneurship. Savings are linked
to investments by a variety of intermediaries, through a range of financial products,
called ‘Securities’.

2.5 TYPES OF SECURITIES MARKET

1. Primary Market
2. Secondary Market

1. PRIMARY MARKET

The primary market is the financial market for the initial issue and placement of
securities. Unlike in the secondary market, no organized stock exchanges are necessary.
An organization that need funds contacts their investment banker who typically
assembles a syndicate of securities dealers that will sell the new stock issue.
It is the initial market for any item or service. It also signifies an initial market for a new
stock issue. The jargon also means a firm, trading market held in a security by a trader
who performs the activities of a specialist by being ready to execute orders in that stock.
Primary markets bring together buyers and sellers - either directly or through
intermediaries - by providing an arena in which sellers’ investment propositions can be
priced, brought to the marketplace, and sold to buyers. In this context, the seller is called
the issuer and the price of what’s sold is called the issue price.

Role of the ‘Primary Market’

The primary market provides the channel for sale of new securities. Primary market pro-
vides opportunity to issuers of securities; Government as well as corporates, to raise re-
sources to meet their requirements of investment and/or discharge some obligation. They
may issue the securities at face value, or at a discount/premium and these securities may
take a variety of forms such as equity, debt etc. They may issue the securities in domes -
tic market and/or international market.

Face Value of a share/debenture

The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it
is the original cost of the stock shown on the certificate; for bonds, it is the amount paid
to
the holder at maturity. Also known as par value or simply par. For an equity share, the
face value is usually a very small amount (Rs. 5, Rs. 10) and does not have much bearing
on the price of the share, which may quote higher in the market, at Rs. 100 or Rs. 1000
or any other price. For a debt security, face value is the amount repaid to the investor
when the bond matures (usually, Government securities and corporate bonds have a face
value of Rs. 100). The price at which the security trades depends on the fluctuations in
the interest rates in the economy.

Premium and Discount in a Security Market

Securities are generally issued in denominations of 5, 10 or 100. This is known as the

Face Value or Par Value of the security as discussed earlier. When a security is sold
above its face value, it is said to be issued at a Premium and if it is sold at less than its
face value, then it is said to be issued at a Discount.

1.1 ISSUE OF SHARES

Need to issue shares to the public

Most companies are usually started privately by their promoter(s). However, the
promoters’ capital and the borrowings from banks and financial institutions may not be
sufficient for setting up or running the business over a long term. So companies invite
the public to contribute towards the equity and issue shares to individual investors. The
way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a
public issue is an offer to the public to subscribe to the share capital of a company. Once
this is
done, the company allots shares to the applicants as per the prescribed rules and
regulations laid down by SEBI.

Kinds of issues

Primarily, issues can be classified as a Public, Rights or Preferential issues (also known
as private placements). While public and rights issues involve a detailed procedure,
private placements or preferential issues are relatively simpler. The classification of
issues is illustrated below:
1. Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue
of securities or an offer for sale of its existing securities or both for the first time to the
public. This paves way for listing and trading of the issuer’s securities.
2. A follow on public offering (Further Issue) is when an already listed company
makes either a fresh issue of securities to the public or an offer for sale to the public,
through an offer document.
3. Rights Issue is when a listed company which proposes to issue fresh securities to its
existing shareholders as on a record date. The rights are normally offered in a particular
ratio to the number of securities held prior to the issue. This route is best suited for
companies who would like to raise capital without diluting stake of its existing
shareholders.
4. A Preferential issue is an issue of shares or of convertible securities by listed
companies to a select group of persons under Section 81 of the Companies Act, 1956
which is neither a rights issue nor a public issue. This is a faster way for a company to
raise equity capital. The issuer company has to comply with the Companies Act and the
requirements contained in the Chapter pertaining to preferential allotment in SEBI
guidelines which inter-alia include pricing, disclosures in notice etc.

Issue price
The price at which a company's shares are offered initially in the primary market is
called as the Issue price. When they begin to be traded, the market price may be above or
below the issue price.

Market Capitalization
The market value of a quoted company, which is calculated by multiplying its current
share price (market price) by the number of shares in issue is called as market capitaliza -
tion. E.g. Company A has 120 million shares in issue. The current market price is Rs.
100. The market capitalization of company A is Rs. 12000 million.

Price of an issue
Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall
decide the price. There is no price formula stipulated by SEBI. SEBI does not play any
role in price fixation. The company and merchant banker are however required to give
full disclosures of the parameters, which they had considered while deciding the issue
price. There are two types of issues, one where company and Lead Merchant Banker fix
a
price (called fixed price) and other, where the company and the Lead Manager (LM)
stipulate a floor price or a price band and leave it to market forces to determine the final
price (price discovery through book building process).
Cut-Off Price
In a Book building issue, the issuer is required to indicate either the price band or a floor
price in the prospectus. The actual discovered issue price can be any price in the price
band or any price above the floor price. This issue price is called “Cut-Off Price”. The
issuer and lead manager decides this after considering the book and the investors’ ap-
petite for the stock. Floor price is the minimum price at which bids can be made.

Price Band in a book built IPO

The prospectus may contain either the floor price for the securities or a price band within
which the investors can bid. The spread between the floor and the cap of the price band
shall not be more than 20%. In other words, it means that the cap should not be more
than 120% of the floor price. The price band can have a revision and such a revision in
the price band shall be widely disseminated by informing the stock exchanges, by issu-
ing a press release and also indicating the change on the relevant website and the termi -
nals of the trading members participating in the book building process. In case the price
band is revised, the bidding period shall be extended for a further period of three days,
subject to the total bidding period not exceeding ten days.

The Price Band

It may be understood that the regulatory mechanism does not play a role in setting the
price for issues. It is up to the company to decide on the price or the price band, in
consultation with Merchant Bankers.

Timeframe for getting refund if shares not allotted

As per SEBI guidelines, the Basis of Allotment should be completed with 15 days from
the issue close date. As soon as the basis of allotment is completed, within 2 working
days the details of credit to demat account / allotment advice and despatch of refund or -
der needs to be completed. So an investor should know in about 15 days time from the
closure of issue, whether shares are allotted to him or not. It would take around 3 weeks
after the closure of the book built issue

Role of a ‘Registrar’ to an issue

The Registrar finalizes the list of eligible allottees after deleting the invalid applications
and ensures that the corporate action for crediting of shares to the demat accounts of the
applicants is done and the dispatch of refund orders to those applicable are sent. The
Lead Manager coordinates with the Registrar to ensure follow up so that that the flow of
applications from collecting bank branches, processing of the applications and other
matters till the basis of allotment is finalized, dispatch security certificates and refund
orders completed and securities listed.

1.2 LISTING OF SECURITIES

Listing means admission of securities of an issuer to trading privileges (dealings) on a
stock exchange through a formal agreement. The prime objective of admission to
dealings on the exchange is to provide liquidity and marketability to securities, as also to
provide a mechanism for effective control and supervision of trading.

Listing Agreement
At the time of listing securities of a company on a stock exchange, the company is re -
quired to enter into a listing agreement with the exchange. The listing agreement speci-
fies the terms and conditions of listing and the disclosures that shall be made by a com-
pany on a continuous basis to the exchange.

Delisting of securities
The term ‘Delisting of securities’ means permanent removal of securities of a listed
company from a stock exchange. As a consequence of delisting, the securities of that
company would no longer be traded at that stock exchange.

SEBI’s Role in an Issue

Any company making a public issue or a listed company making a rights issue of value
of more than Rs 50 lakh is required to file a draft offer document with SEBI for its ob-
servations. The company can proceed further on the issue only after getting
observations from SEBI. The validity period of SEBI’s observation letter is three months
only i.e. the company has to open its issue within three months period.
2. SECONDARY MARKET
Secondary market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange. Majority
of the trading is done in the secondary market. Secondary market comprises of equity
markets and the debt markets.
A secondary market is an organization that buys loans from lenders, thereby providing
the lender with the capital to issue new loans. Selling loans is a common practice among
lenders, so the bank you make your payments to may change during the life of the loan.
The terms and conditions of your loan do not change when it is sold to another holder.
Sallie Mae is the nation's largest secondary market and holds approximately one third of
all educational loans.

Role of the Secondary Market

For the general investor, the secondary market provides an efficient platform for trading
of his securities. For the management of the company, Secondary equity markets serve
as a monitoring and control conduit—by facilitating value-enhancing control activities,
enabling implementation of incentive-based management contracts, and aggregating in-
formation (via price discovery) that guides management decisions.

Difference between the Primary Market and the Secondary Market

In the primary market, securities are offered to public for subscription for the purpose of
raising capital or fund. Secondary market is an equity-trading venue in which already
existing/pre-issued securities are traded among investors. Secondary market could be
either auction or dealer market. While stock exchange is the part of an auction market,
Over-the-Counter (OTC) is a part of the dealer market.
PRODUCTS IN THE SECONDARY MARKET
Following are the main financial products/instruments dealt in the Secondary market,
which may be divided broadly into Shares and Bonds:
Shares:
1.Equity Shares: An equity share, commonly referred to as ordinary share, represents
the form of fractional ownership in a business venture.

2. Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a
ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle
a shareholder to receive 2 shares for every 3 shares held at a price of Rs. 125 per share.
Bonus Shares: Shares issued by the companies to their shareholders free of cost based on
the number of shares the shareholder owns.

3. Preference shares: Owners of these kind of shares are entitled to a fixed dividend or
dividend calculated at a fixed rate to be paid regularly before dividend can be paid in
respect of equity share. They also enjoy priority over the equity shareholders in payment
of surplus. But in the event of liquidation, their claims rank below the claims of the
company’s creditors, bondholders/debenture holders.

4. Cumulative Preference Shares: A type of preference shares on which dividend

accumulates if remained unpaid. All arrears of preference dividend have to be paid out
before paying dividend on equity shares.

5. Cumulative Convertible Preference Shares: A type of preference shares where the

dividend payable on the same accumulates, if not paid. After a specified date, these
shares will be converted into equity capital of the company.
Bond
Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A
debt security is generally issued by a company, municipality or government agency. A
bond investor lends money to the issuer and in exchange, the issuer promises to repay
the loan amount on a specified maturity date. The issuer usually pays the bondholder pe-
riodic interest payments over the life of the loan. The various types of Bonds are as fol -
lows:

1. Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic
interest is paid. The difference between the issue price and redemption price represents
the return to the holder. The buyer of these bonds receives only one payment, at the
maturity of the bond.

2. Convertible Bond: A bond giving the investor the option to convert the bond into
equity at a fixed conversion price.

3. Treasury Bills: Short-term (up to one year) bearer discount security issued by
government as a means of financing their cash requirements.

2.1 STOCK EXCHANGE

An organized marketplace for securities featured by the centralization of supply and
demand for the transaction of orders by member brokers for institutional and individual
investors.
A stock exchange is an organization of which the members are stockbrokers. A stock ex-
change provides facilities for the trading of securities and other financial instruments.
Usually facilities are also provided for the issue and redemption of securities as well as
other capital events including the payment of income and dividends.

About BSE
Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as "BSE", it was established as "The Native Share & Stock
Brokers Association" in 1875. It is the first stock exchange in the country to obtain
permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation)
Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

With demutualisation, the trading rights and ownership rights have been de-linked
effectively addressing concerns regarding perceived and real conflicts of interest. The
Exchange is professionally managed under the overall direction of the Board of
Directors. The Board comprises eminent professionals, representatives of Trading
Members and the Managing Director of the Exchange. The Board is inclusive and is
designed to benefit from the participation of market intermediaries.The Exchange
provides an efficient and transparent market for trading in equity, debt instruments and
derivatives. The BSE's On Line Trading System (BOLT) is a proprietory system of the
Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement
functions of the Exchange are ISO 9001:2000 certified.

About NSE

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of the
recommendations of high-powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

Role of a Stock Exchange in buying and selling shares

The stock exchanges in India, under the overall supervision of the regulatory authority,
the Securities and Exchange Board of India (SEBI), provide a trading platform, where
buyers and sellers can meet to transact in securities. The trading platform provided by

NSE is an electronic one and there is no need for buyers and sellers to meet at a physical
location to trade. They can trade through the computerized trading screens available with
the NSE trading members or the Internet based trading facility provided by the trading
members of NSE.

Demutualisation of stock exchanges

Demutualisation refers to the legal structure of an exchange whereby the ownership, the
management and the trading rights at the exchange are segregated from one another.

Demutualised exchange different from a mutual exchange

In a mutual exchange, the three functions of ownership, management and trading are
concentrated into a single Group. Here, the broker members of the exchange are both the
owners and the traders on the exchange and they further manage the exchange as well.
This at times can lead to conflicts of interest in decision-making. A demutualised
exchange, on the other hand, has all these three functions clearly segregated, i.e. the
ownership, management and trading are in separate hands. Currently, two stock
exchanges in India, the National Stock Exchange (NSE) and Over the Counter Exchange
of India (OTCEI) are demutualised.

2.2 EQUITY INVESTMENT

Investment in Securities
When we buy a share of a company you become a shareholder in that company. Shares
are also known as Equities. Equities have the potential to increase in value over time. It
also provides your portfolio with the growth necessary to reach your long-term
investment goals. Research studies have proved that the equities have outperformed most
other forms of investments in the long term. This may be illustrated with the help of
following examples:
a) Over a 15-year period between 1990 to 2005, Nifty has given an annualized return of
17%.
b) Mr. Raju invests in Nifty on January 1, 2000 (index value 1592.90). The Nifty value
as of end December 2005 was 2836.55. Holding this investment over this period Jan
2000 to Dec 2005 he gets a return of 78.07%. Investment in shares of ONGC Ltd for the
same period gave a return of 465.86%, SBI 301.17% and Reliance 281.42%. Therefore,
 Equities are considered the most challenging and the rewarding, when compared
to other investment options.
 Research studies have proved that investments in some shares with a longer
tenure of investment have yielded far superior returns than any other investment.
However, this does not mean all equity investments would guarantee similar high
returns. Equities are high-risk investments. One needs to study them carefully before
investing.

Average return on Equities in India

Since 1990 till date, Indian stock market has returned about 17% to investors on an
average in terms of increase in share prices or capital appreciation annually. Besides that
on average stocks have paid 1.5% dividend annually. Dividend is a percentage of the
face value of a share that a company returns to its shareholders from its annual profits.
Compared to most other forms of investments, investing in equity shares offers the
highest rate of return, if invested over a longer duration.

Factors, which influence the price of a stock

Broadly there are two factors: (1) stock specific and (2) market specific. The stock-
specific factor is related to people’s expectations about the company, its future earnings
capacity, financial health and management, level of technology and marketing skills. The
market specific factor is influenced by the investor’s sentiment towards the stock market
as a whole. This factor depends on the environment rather than the performance of any
particular company. Events favorable to an economy, political or regulatory environment
like high economic growth, friendly budget, stable government etc. can fuel euphoria in
the investors, resulting in a boom in the market. On the other hand, unfavorable events
like war, economic crisis, communal riots, minority government etc. depress the market
irrespective of certain companies performing well. However, the effect of market-
specific factor is generally short-term. Despite ups and downs, price of a stock in the
long run gets stabilized based on the stock specific factors. Therefore, a prudent advice
to all investors is to analyze and invest and not speculate in shares.

Meaning of the terms of Growth Stock and Value Stock Growth Stocks:
In the investment world we come across terms such as Growth stocks, Value stocks etc.
Companies whose potential for growth in sales and earnings are excellent, are growing
faster than other companies in the market or other stocks in the same industry are called
the Growth Stocks. These companies usually pay little or no dividends and instead prefer
to reinvest their profits in their business for further expansions.

Value Stocks:
The task here is to look for stocks that have been overlooked by other investors and
which may have a ‘hidden value’. These companies may have been beaten down in price
because of some bad event, or may be in an industry that's not fancied by most investors.
However, even a company that has seen its stock price decline still has assets to its name
- buildings, real estate, inventories, subsidiaries, and so on. Many of these assets still
have value, yet that value may not be reflected in the stock's price. Value investors look
to buy stocks that are undervalued, and then hold those stocks until the rest of the market
realizes the real value of the company's assets. The value investors tend to purchase a
company's stock usually based on relationships between the current market price of the
company and certain business fundamentals. They like P/E ratio being below a certain
absolute limit; dividend yields above a certain absolute limit; Total sales at a certain
level relative to the company's market capitalization, or market value etc.
Bid and Ask price
The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have to
sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you
intend to sell. The ‘Ask’ (or offer) is what you need to know when you're buying i.e. this
is the rate/ price at which there is seller ready to sell his stock. The seller will sell his
stock if he gets the quoted “Ask’ price.

Portfolio
A Portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving an investor's goal(s). Items that are considered a part of your
portfolio can include any asset you own-from shares, debentures, bonds, mutual fund
units to items such as 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, and mutual fund units.

Diversification in Portfolio
It is a risk management technique that mixes a wide variety of investments within a
portfolio. It is designed to minimize the impact of any one security on overall portfolio
performance. Diversification is possibly the best way to reduce the risk in a portfolio.

Advantages of the diversified portfolio

A good investment portfolio is a mix of a wide range of asset class. Different securities
perform differently at any point in time, so with a mix of asset types, your entire
portfolio does not suffer the impact of a decline of any one 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.
 2.3 DEBT INVESTMENT
Investment in the financing of property or of some endeavor, in which the investor loan-
ing funds does not own the property or endeavor, nor share in its profits. If property is
pledged, or mortgaged, as security for the loan, the investor may claim the property to
repay the debt if the borrower defaults on payments. Also see equity investment.

Debt Instruments
Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender. In Indian securities markets, the term ‘bond’ is
used for debt instruments issued by the Central and State governments and public sector
organizations and the term ‘debenture’ is used for instruments issued by private
corporate
Sector.

Features of the debt instruments

Each debt instrument has three features: Maturity, coupon and principal.
1. Maturity: Maturity of a bond refers to the date, on which the bond matures,
which is the date on which the borrower has agreed to repay the principal. Term-
to-Maturity refers to the number of years remaining for the bond to mature. The
Term-to-Maturity changes everyday, from date of issue of the bond until its
maturity. The term to maturity of a bond can be calculated on any date, as the
distance between such a date and the date of maturity. It is also called the term or
the tenure of the bond
2. Coupon: Coupon refers to the periodic interest payments that are made by the
borrower (who is also the issuer of the bond)
3. Principal: Principal is the amount that has been borrowed, and is also called the
par value or face value of the bond. The coupon is the product of the principal
 and the coupon rate. The name of the bond itself conveys the key features of a
bond. For example, a GS CG2008 11.40% bond refers to a Central Government
bond maturing in the year 2008 and paying a coupon of 11.40%. Since Central
Government bonds have a face value of Rs.100 and normally pay coupon semi-
annually, this bond will pay Rs. 5.70 as six- monthly coupon, until maturity.

Different Segments in the Debt Market in India

There are three main segments in the debt markets in India, viz., (1) Government
Securities, (2) Public Sector Units (PSU) bonds, and (3) Corporate securities.
The market for Government Securities comprises the Centre, State and State-sponsored
securities. In the recent past, local bodies such as municipalities have also begun to tap
the debt markets for funds. Some of the PSU bonds are tax free, while most bonds
including government securities are not tax-free. Corporate bond markets comprise of
commercial paper and bonds. These bonds typically are structured to suit the
requirements of investors and the issuing corporate, and include a variety of tailor- made
features with respect to interest payments and redemption.

Participants of the Debt Market

Given the large size of the trades, Debt market is predominantly a wholesale market,
with dominant institutional investor participation. The investors in the debt markets are
mainly banks, financial institutions, mutual funds, provident funds, insurance companies
and corporate. We may subscribe to issues made by the government/corporates in the
primary
market. Alternatively, We may purchase the same from the secondary market through
the stock exchanges.

2.6 DERIVATIVES
A specialized security or contract that has no intrinsic overall value, but whose value is
based on an underlying security or factor as an index. A generic term that, in the energy
field, may include options, futures, forwards, etc.
Types of Derivatives
Forwards: A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types of
forward contracts in the sense that the former are standardized exchange-traded
contracts, such as futures of the Nifty index.
Options: An Option is a contract, which gives the right, but not an obligation, to buy or
sell the underlying at a stated date and at a stated price. While a buyer of an option pays
the premium and buys the right to exercise his option, the writer of an option is the one
who receives the option premium and therefore obliged to sell/buy the asset if the buyer
exercises it on him. Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the
underlying asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of
underlying asset at a given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and
116 single stocks.
Warrants: 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.

Option Premium

At the time of buying an option contract, the buyer has to pay premium. The premium is
the price for acquiring the right to buy or sell. It is price paid by the option buyer to the
option seller for acquiring the right to buy or sell. Option premiums are always paid
upfront.

2.7 COMMODITY
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of
movable property other than actionable claims, money and securities”. Futures’ trading
is organized in such goods or commodities as are permitted by the Central Government.
At present, all goods and products of agricultural (including plantation), mineral and
fossil origin are allowed for futures trading under the auspices of the commodity
exchanges recognized under the FCRA.

Commodity Exchange
A Commodity Exchange is an association, or a company of any other body corporate
organizing futures trading in commodities. In a wider sense, it is taken to include any
organized market place where trade is routed through one mechanism, allowing effective
competition among buyers and among sellers – this would include auction-type
exchanges, but not wholesale markets, where trade is localized, but effectively takes
place through many non-related individual transactions between different permutations
of buyers and sellers.

Commodity derivatives market

Commodity derivatives market trade contracts for which the underlying asset is
commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton,
etc or precious metals like gold, silver, etc.

Difference between Commodity and Financial derivatives

The basic concept of a derivative contract remains the same whether the underlying
happens to be a commodity or a financial asset. However there are some features, which
are very peculiar to commodity derivative markets. In the case of financial derivatives,
most of these contracts are cash settled. Even in the case of physical settlement, financial
assets are not bulky and do not need special facility for storage. Due to the bulky nature
of the underlying assets, physical settlement in commodity derivatives creates the need
for warehousing. Similarly, the concept of varying quality of asset does not really exist
as far as financial underlings are concerned. However in the case of commodities, the
quality of the asset underlying a contract can vary at times.
 2.8 DEPOSITORY
A place where something of value is left for safekeeping.
A depository similar to a bank – A Discussion
A Depository can be compared with a bank, which holds the funds for depositors. An
analogy between a bank and a depository may be drawn as follows:

Bank Depository Holds

1. Holds funds in an account Hold securities in an account

2. Transfers funds between accounts on the instruction of the account holder Trans-
fers securities between accounts on the instruction of the account holder.
3. Facilitates transfers without having to handle money facilitates transfers of
ownership without having to handle securities.
4. Facilitates safekeeping of money Facilitates safekeeping of shares.

Depositories in India
There are two depositories in India, which provide dematerialization of securities. The
National Securities Depository Limited (NSDL) and Central Securities Depository
Limited (CSDL).

Benefits of participation in a depository

The benefits of participation in a depository are:
 Immediate transfer of securities
 No stamp duty on transfer of securities
 Elimination of risks associated with physical certificates such as bad delivery,
fake securities, etc.
 Reduction in paperwork involved in transfer of securities
 Reduction in transaction cost
  Ease of nomination facility
 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
Transmission of securities is done directly by the DP eliminating correspondence with
companies
 Convenient method of consolidation of folios/accounts
 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.

Meaning of Depository Participant (DP)

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.

Meaning of Custodian
A Custodian is basically an organisation, 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 physical securities

In order to dematerialize physical securities one has to fill in a Demat Request Form
(DRF) 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.

2.9 MUTUAL FUNDS

A fund operated by an investment company that raises money from shareholders and
invests it in stocks, bonds, options, commodities, or money market securities. These
funds offer investors the advantages of diversification and professional management also
known as an open-end investment company, to differentiate it from a closed-end
investment company. Mutual funds invest pooled cash of many investors to meet the
fund's stated investment objective. Mutual funds stand ready to sell and redeem their

shares at any time at the fund's current net asset value: total fund assets divided by shares
outstanding.
Regulatory Body of Mutual Funds
Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual
funds. All the mutual funds must get registered with SEBI.

Benefits of investing in Mutual Funds

There are several benefits from investing in a Mutual Fund:
1. Small investments: Mutual funds help you to reap the benefit of returns by a portfolio
spread across a wide spectrum of companies with small investments.

2. Professional Fund Management: Professionals having considerable expertise,

experience and resources manage the pool of money collected by a mutual fund. They
thoroughly analyze the markets and economy to pick good investment opportunities.

3. Spreading Risk: An investor with limited funds might be able to invest in only one or
two stocks/bonds, thus increasing his or her risk. However, a mutual fund will spread its
risk by investing a number of sound stocks or bonds. A fund normally invests in
companies across a wide range of industries, so the risk is diversified.
4. Transparency: Mutual Funds regularly provide investors with information on the
value of their investments. Mutual Funds also provide complete portfolio disclosure of
the investments made by various schemes and also the proportion invested in each asset
type.

5. Choice: The large amount of Mutual Funds offer the investor a wide variety to choose
from. An investor can pick up a scheme depending upon his risk/ return profile.

6. Regulations: All the mutual funds are registered with SEBI and they function within
the provisions of strict regulation designed to protect the interests of the investor.

Meaning of NAV
NAV or Net Asset Value of the fund is the cumulative market value of the assets of the
fund net of its liabilities. NAV per unit is simply the net value of assets divided by the
number of units outstanding. Buying and selling into funds is done on the basis of NAV-
related prices. The NAV of a mutual fund are required to be published in newspapers.
The NAV of an open-end scheme should be disclosed on a daily basis and the NAV of a
close end scheme should be disclosed at least on a weekly basis.

Entry and Exit Load

A Load is a charge, which the mutual fund may collect on entry and/or exit from a fund.
A load is levied to cover the up-front cost incurred by the mutual fund for selling the
fund. It also covers one time processing costs. Some funds do not charge any entry or
exit load. These funds are referred to as ‘No Load Fund’. Funds usually charge an entry
load ranging between 1.00% and 2.00%. Exit loads vary between 0.25% and 2.00%. For
e.g. Let us assume an investor invests Rs. 10,000/- and the current NAV is Rs.13/-. If the
entry load levied is 1.00%, the price at which the investor invests is Rs.13.13 per unit.

The investor receives 10000/13.13 = 761.6146 units. (Note that units are allotted to an
investor based on the amount invested and not on the basis of no. of units purchased).
Let us now assume that the same investor decides to redeem his 761.6146 units. Let us
also assume that the NAV is Rs 15/- and the exit load is 0.50%. Therefore the
redemption price per unit works out to Rs. 14.925. The investor therefore receives
761.6146 x 14.925 = Rs.11367.10.
Risks involvement in investing in Mutual Funds
Mutual Funds do not provide assured returns. Their returns are linked to their
performance. They invest in shares, debentures, bonds etc. All these investments involve
an element of risk. The unit value may vary depending upon the performance of the
company and if a company defaults in payment of interest/principal on their
debentures/bonds the performance of the fund may get affected. Besides incase there is a
sudden downturn in an industry or the government comes up with new a regulation
which
affects a particular industry or company the fund can again be adversely affected. All
these factors influence the performance of Mutual Funds.

Some of the Risk to which Mutual Funds are exposed to is given below:

Market risk
If the overall stock or bond markets fall on account of overall economic factors, the
value of stock or bond holdings in the fund's portfolio can drop, thereby impacting the
fund performance.

Non-market risk
Bad news about an individual company can pull down its stock price, which can
negatively affect fund holdings. This risk can be reduced by having a diversified
portfolio that consists of a wide variety of stocks drawn from different industries.

Interest rate risk

Bond prices and interest rates move in opposite directions. When interest rates rise, bond
prices fall and this decline in underlying securities affects the fund negatively.

Credit risk
Bonds are debt obligations. So when the funds invest in corporate bonds, they run the
risk of the corporate defaulting on their interest and principal payment obligations and
when that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of
the fund to take a beating.

Types of Mutual funds

Mutual funds are classified in the following manner:

(a) On the basis of Objective

Equity Funds or Growth Funds

Funds that invest in equity shares are called equity funds. They carry the principal
objective of capital appreciation of the investment over the medium to long-term. They
are best suited for investors who are seeking capital appreciation. There are different
types of equity funds such as Diversified funds, Sector specific funds and Index based
funds.

Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant
for risk-averse investors who want a diversified portfolio across sectors.

Sector funds
These funds invest primarily in equity shares of companies in a particular business sector
or industry. These funds are targeted at investors who are bullish or fancy the prospects
of a particular sector.

Index funds
These funds invest in the same pattern as popular market indices like S&P CNX Nifty or
CNX Midcap 200. The money collected from the investors is invested only in the stocks,
which represent the index. For e.g. a Nifty index fund will invest only in the Nifty 50
stocks. The objective of such funds is not to beat the market but to give a return
equivalent to the market returns.
Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities
provided under this scheme are in the form of tax rebates under the Income Tax act.

Debt/Income Funds
These funds invest predominantly in high-rated fixed-income-bearing instruments like
bonds, debentures, government securities, commercial paper and other money market
instruments. They are best suited for the medium to long-term investors who are averse
to
risk and seek capital preservation. They provide a regular income to the investor.

Liquid Funds/Money Market Funds

These funds invest in highly liquid money market instruments. The period of investment
could be as short as a day. They provide easy liquidity. They have emerged as an
alternative for savings and short term fixed deposit accounts with comparatively higher
returns. These funds are ideal for corporates, institutional investors and business houses
that invest their funds for very short periods.

Gilt Funds
These funds invest in Central and State Government securities. Since they are
Government backed bonds they give a secured return and also ensure safety of the
principal amount. They are best suited for the medium to long-term investors who are
averse to risk.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in
some proportion. They provide a steady return and reduce the volatility of the fund while
providing some upside for capital appreciation. They are ideal for medium to long-term
investors who are willing to take moderate risks.

b) On the basis of Flexibility

Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for
subscription and redemption throughout the year. Their prices are linked to the daily net
asset value (NAV). From the investors' perspective, they are much more liquid than
closed-ended funds.

Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and
thereafter closed for entry as well as exit. These funds have a fixed date of redemption.
One of the characteristics of the close-ended schemes is that they are generally traded at
a
discount to NAV; but the discount narrows as maturity nears. These funds are open for
subscription only once and can be redeemed only on the fixed date of redemption. The
units of these funds are listed on stock exchanges (with certain exceptions), are tradable
and the subscribers to the fund would be able to exit from the fund at any time through
the secondary market.

Different rights that are available to a Mutual Fund holder in India

As per SEBI Regulations on Mutual Funds, an investor is entitled to:
1. Receive Unit certificates or statements of accounts confirming your title within 6
weeks from the date your request for a unit certificate is received by the Mutual
Fund.
2. Receive information about the investment policies, investment objectives,
financial position and general affairs of the scheme.
3. Receive dividend within 42 days of their declaration and receive the redemption
or repurchase proceeds within 10 days from the date of redemption or repurchase.
4. The trustees shall be bound to make such disclosures to the unit holders as are
essential in order to keep them informed about any information, which may have
an adverse bearing on their investments.
5. 75% of the unit holders with the prior approval of SEBI can terminate the AMC
of the fund.
 6. 75% of the unit holders can pass a resolution to wind-up the scheme.
7. An investor can send complaints to SEBI, who will take up the matter with the
concerned Mutual Funds and follow up with them till they are resolved.

2.10 REGULATOR

Need of Regulators in Securities Market

The absence of conditions of perfect competition in the securities market makes the role
of the Regulator extremely important. The regulator ensures that the market participants
behave in a desired manner so that securities market continues to be a major source of
finance for corporate and government and the interest of investors are protected.

Regulation of the Securities Market

The responsibility for regulating the securities market is shared by Department of
Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of
India (RBI) and Securities and Exchange Board of India (SEBI).

SEBI (Securities and Exchange Board of India)

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for
establishment of Securities and Exchange Board of India (SEBI) with statutory powers
for (a) protecting the interests of investors in securities (b) promoting the development of
the securities market and (c) regulating the securities market. Its regulatory jurisdiction
extends over corporate in the issuance of capital and transfer of securities, in addition to
all intermediaries and persons associated with securities market. SEBI has been
obligated to perform the aforesaid functions by such measures as it thinks fit. In
particular, it has powers for:
 Regulating the business in stock exchanges and any other securities markets
 Registering and regulating the working of stock brokers, sub–brokers etc.
 Promoting and regulating self-regulatory organizations
  Prohibiting fraudulent and unfair trade practices
 Calling for information from, undertaking inspection, conducting inquiries and
audits of the stock exchanges, intermediaries, self – regulatory organizations,
mutual funds and other persons associated with the securities market.

3.1 DISCUSSION
I strongly believe that a well functioning securities market is conducive to sustained eco-
nomic growth. There have a number of studies, starting from World Bank and IMF to
various scholars, which have established robust relationship not only one way, but also
the both ways, between the development in the securities market and the economic
growth. An important study by Ross Levine and Sara Zervos (1996) finds that the stock
market development is highly significant statistically in forecasting future growth of per
capita GDP.

This happens, as market gets disciplined / developed/ efficient, it avoids the allocation of
scarce savings to low yielding enterprises and forces the enterprises to focus on their
performance which is being continuously evaluated through share prices in the market
and

which faces the threat of takeover. Thus securities market converts a given stock of
investible resources to a larger flow of goods and services.
The securities market fosters economic growth to the extent that it-

(a) Augments the quantities of real savings and capital formation from any
given level of national income,
(b) Increases net capital inflow from abroad,
(C) Raises the productivity of investment by improving allocation of
investible Funds.
(d) Reduces the cost of capital.
The securities market provides a bridge between ultimate savers and ultimate investors
and creates the opportunity to put the savings of the cautious at the disposal of the
enterprising, thus promising to raise the total level of investment and hence of growth.
The indivisibility or lumpiness of many potentially profitable but large investments rein-
forces this argument. These are commonly beyond the financing capacity of any single
economic unit but may be supported if the investor can gather and combine the savings
of many. Moreover, the availability of yield bearing securities makes present
consumption more expensive relative to future consumption and, therefore, people might
be induced to consume less today. The composition of savings may also change with
fewer saving being held in the form of idle money or unproductive durable assets, simply
because more divisible and liquid assets are available.
The securities market facilitates the internationalization of an economy by linking it with
the rest of the world. This linkage assists through the inflow of capital in the form of

portfolio investment. Moreover, a strong domestic stock market performance forms the
basis for well performing domestic corporate to raise capital in the international market.
This implies that the domestic economy is opened up to international competitive pres-
sures, which help to raise efficiency. It is also very likely that existence of a domestic se-
curities market will deter capital outflow by providing attractive investment opportuni-
ties within domestic economy. Any financial development that causes investment alter-
natives to be compared with one another produces allocation improvement over a system
of segregated investment opportunities. They provide a

convenient market place to which investors and issuers of securities go and thereby
avoid the need to search a suitable counterpart. The market provides standardized prod-
ucts and
thereby cuts the information costs associated with individual instruments. The market in-
stitutions specialize and operate on large scale, which cuts costs through the use of
tested procedures and routines. There are also other developmental benefits associated
with the existence of a securities market. First, the securities market provides a fast-rate
breeding ground for the skills and judgment needed for entrepreneurship, risk bearing,
portfolio selection and management. Second, an active securities market serves as an
‘engine’ of general financial development and may, in particular, accelerate the integra-
tion of informal financial systems with the institutional financial sector. Securities di-
rectly displace traditional assets such as gold and stocks of produce or, indirectly, may
provide portfolio assets for unit trusts, pension funds and similar FIs that raise savings
from the traditional sector. Third, the existence of securities market enhances the scope,
and provides institutional mechanisms, for the operation of monetary and financial pol-
icy.

.1 SUGGESTIONS

It is suggested after going through the work that:-

1. Sound functioning of security market is contributing to the smooth economic
growth.
2. A disciplined / developed / efficient security market avoids the allocation of
scarce savings of low yielding enterprises and forces the enterprises to focus on
their performance.
3. As low yielding enterprise will focus on their performance, the performance will
be evaluated through share prices in the market.
4. Expediting the securities market has linkage with the internationalization, which
will bring huge inflow of capital in form of portfolio investment.
 5. Though improved functioning strategies of securities market provides a
convenient market place to which investors and issuer of securities go and
thereby avoid the need to search for a suitable counterpart.

4.2 CONCLUSION
Indian economy globalizes and the capital market has been linked to the international
financial market. Foreign individuals and institutional investors are now encouraged to
participate into it. So, there is a need for raising the Indian Capital market in to the
international standards in terms of efficiency and transparency. One such measure is the
passing out of the Depository Act in the year 1996. Dematerialization of securities is one
of the major steps aimed at improving and modernizing the capital market and enhancing
the levels of investor’s protection measures which aims at eliminating the bad deliveries
and forgery of shares and expediting the transfer of shares.

This study is giving an overview about the security market as is evident from the title of
work. It has given insight into the functioning and components of primary and secondary
market. It made clear the meaning of stock exchange which provides a platform to enlist
the company’s securities and facilitate the buying and selling of various securities like
shares, debenture, bonds, and government securities etc.

As has been discussed at the outset of concluding the work, that to cater to the growing
demands of globalization the trading in securities has been made more transparent and
easy through the introduction of Depository Act in 1996, and the dealing in securities
have been made convenient through the dematerialization of securities. The regulatory
body SEBI has introduced revised procedures so as to combine the latest procedure of
securities dealing, giving impetus on the investor protection.

5.1 IMPLICATION OF THE STUDY

This study can help the investors who

are new in the market.
This study also helps in finding how to
invest in capital market whether to trade
offline or online.
 Refrences

 Securities Market (Basic) Module: NCFM

 Economic Times.

 Training Kit Provided by the UNICON.

Websites:

 www.equitymaster.com
 www.investopedia.com
 www.valuenotes.com

SUBMITTED BY :

(PAWAN KUMAR)
IILM ACADEMY OF HIGHER LEARNING
JAIPUR