A Study on Investment Pattern of Investors on Different Products

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A study on investment pattern of investors on different products in India using the questionnaires to understand how salaried employees investment pattern and preferences towards different products. Read more on www.projectskart.com for information. An investment refers to the commitment of funds at present, in anticipation of some positive rate of return in future. Today the spectrum of investment is indeed wide. An investment is confronted with array of investment avenues. Among all investment, investment in equity is in best high proportion. This is because the history of stock market is booming and bursts overnight millionaires, an instant pauper.

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investors on different products
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INTRODUCTION
EXECUTIVE SUMMARY
An investment refers to the commitment of funds at present, in anticipation of some
positive rate of return in future. Today the spectrum of investment is indeed wide. An investment
is confronted with array of investment avenues. Among all investment, investment in equity is in
best high proportion. This is because the history of stock market is booming and bursts overnight
millionaires, an instant pauper.
Indian economy is doing indeed well in recent years. The study has been undertaken to
analyze the projectskart.com investment community. The main reasons behind the study are the
factors like income, economy condition, and the risk covering nature of the Indian investors. The
percentage of Indian investors investing in the Indian equity market is very less as compared to
foreign investors.
This study has been undertaken in Asit C. Mehta Investment Interrmediates Ltd.
(ACMIIL), which was incorporated in the year 1986. And the company, which is, diversified
into many fields like securities, insurance, distribution, commodities and investment services.
This project contains the investors’ preferences and as well as the different factors that
affect investors decision on the different investment avenues most of them investors are the
clients of Asit C. Mehta Investment Interrmediates Ltd., which provides a complete bouquet of
products in equity, debt, commodities, forex, depository, derivatives and allied services in India .
This study includes response of investor in choosing securities in each classification and
analysis has been for the respective performance based on their returns. The findings relates to
the outperforming products and investors risk taking ability while investing in each different
products.
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1.1 PROBLEM STATEMENT
The statement of the problem under study is to analyze the projectskart.com investors and
the popularity of different products/Services provided by Asit C. Mehta for investment. This
problem tries to identify the investors’ perception and their risk taking ability while investing in
different products of market.
1.2 OBJECTIVES:
· To study the projectskart.com investors.
· To study the investment decisions of different social class investors (in term of age
group, education, income level etc.)
· To analyze the projectskart.com investors who reside in an economically developed
area and economically developing area.
· To study the difference between various investment options offered at Asit C. Mehta.
· To study the role of Asit C. Mehta as a depository participant.
1.3 SCOPE OF THE STUDY
The primary market starts from broad environmental factors to the industry, which influences
the share price and finally analyzing the companies’ potentiality by considering possible risk
associated with securities for investing public. Since share prices of the company is empirically
found to depend up to 50% on the performance of the industry and the economy, studying those
related field provide insights for selecting different products of Asit C. Mehta. Income and risk
factors play a significant role while selecting particular product of a Asit C Mehta, as it can
create an opportunity for one product and may not for the other, the analyzing impact of income
and risk on projectskart.com investors is important. As research reports shows that frequency of
investment pattern, factors, income level play more significant role in deciding pattern of
investment. So analyzing the factors that affect projectskart.com investors and other investment
criteria provide the valuable insights.
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1.4 RESEARCH METHODOLOGY
· Definitions of the population
Since the study is mainly related to know the investment patterns of the investors on
different products of company. Their potentiality of earning income and reducing risk of the
investment community on the products, where each security in the market has to be analyzed
through their earnings over the others. The population here was being Asit C. Mehta customers.
· Type of research:
This is a descriptive research where survey method is adopted to collect primary
information from the investors using different scales as required and the required secondary
information for the analysis.
· Primary Data
A questionnaire schedule was prepared and the primary data was collected through
survey method.
· Secondary Data
Company website
Books
Related information from net
Customer database
· Sample Size
The population being large the survey was carried among 50 respondents, most of them
are the clients of Asit C. Mehta Investment Interrmediates Ltd, Hassan. They will be considered
adequate to represent the characteristics of the entire population.
· Sampling Procedure
The sampling procedure followed in this study is non-probability convenient sampling.
Simple random procedures are used to select the respondent from the available database. The
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research work will be carried on the basis of structured questionnaire. The study is restricted to
the investors of the Hassan.
· Techniques for data analysis
The analysis of data collection is completed and presented systematically with the use of
Microsoft Excel and MS-Word. The various tools which were used for presentation are:
· Bar graphs.
· Pie charts.
· Column graphs.
1.5 LIMITATIONS:
· The investment pattern analysis has been limited to only 50 investors.
· This study is conducted to analyze their pattern not all those factors that really matter while
investing.
· It is conducted in Hassan city.
· An interpretation of this study is based on the assumption that the respondents have given correct
information.
· The economy and industry are so wide and comprehensive that it is difficult to encompass all the
likely factors influencing the investors’ investment pattern in the given period of time.
· As the study has been limited to only 50 only out of them most are Asit C. Mehta clients and
potential customers.
· Besides the study has the limitation of time, place and resources.
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REVIEW OF LITERATURE
Investment is the sacrifice of certain present value for the uncertain future reward. It entails
arriving at numerous decisions such as type, mix, amount, timing, grade etc of investment and
disinvestments. Further such decisions making has not only to be continuous but rational too.
Instead of keeping the savings idle you may like to use savings in order to get return on it in the
future, which is known as ‘investment’. There are various investment avenues such as Equity,
Bonds, Insurance, and Bank Deposit etc. A Portfolio is a combination of different investment
assets mixed and matched for the purpose of achieving an investor's goal. There are various
factors which affects investors’ portfolio such as annual income, government policy, natural
calamities, economical changes etc.
2.1What is Investment?
Investment is the employment of funds with the aim of achieving additional income or
growth in value. The essential quality of income is that, it involves ‘waiting ‘for a reward. It
involves the commitment of resources which have been saved or put away from current
consumption in the hope that some benefits will occur in future. The term ‘investment’ does not
appear to be a simple as it has been defined. Investment has been categorized by financial experts
and economists. It has also often been confused with the term speculation.
 Financial and Economic Meaning of Investment
Investment is the allocation of monetary resources to assets that expected to yield some
gain or positive return over a given period of time. These assets range from safety investment to
risky investments. Investments in this form are also called ‘Financial Investments’.
To the economists, ‘Investment’ means the net additions to the economy’s capital stock which
consists of goods and services that are used in the production of other goods and services. In this
context the term investment implies the information of new and productive capital in the form of
new construction, new producers’ durable equipment such as plant and equipment. Inventories
and human capital are included in the economist’s definition of investment.
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In simple words investment means buying securities or other monetary or paper (financial) assets
in the money markets or capital markets, or in fairly liquid real assets, such as gold as an
investment, real estate, or collectibles. Valuation is the method for assessing whether a potential
investment is worth its price. Types of financial investments include shares or other equity
investment, and bonds (including bonds denominated in foreign currencies). These investments
assets are then expected to provide income or positive future cash flows, but may increase or
decrease in value giving the investor capital gains or losses
 Features of an investment programme
In choosing specific investments, investors will need definite ideas regarding features,
which their investment avenue should possess. These features should be consistent with the
investors’ general objectives and in addition, should afford them all the incidental conveniences
and advantages, which are possible under the circumstances. The following are the suggested
features as the ingredients from which many successful investors compound their selection
policies.
 Safety of principal
The investor, to be certain of the safety of principal, should carefully review the
economic and industry trends before choosing the types of investment. Errors are avoidable and
therefore, to ensure safety of principal, the investor should consider diversification of assets.
Adequate diversification involves mixing investment commitments by industry, geographically,
by management, by financial type and maturities. A proper combination of these factors would
reduce losses.
 Liquidity
Even investor requires a minimum liquidity in his investment to meet emergencies.
Liquidity will be ensured if the investor buys a proportion of readily saleable securities out of his
total portfolio. He may therefore, keep a small proportion of cash, fixed deposits and units which
can be immediately made liquid investments like stocks and property or real estate cannot ensure
immediate liquidity.
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 Income stability
Regularity of income at a consistent rate is necessary in any investment pattern. Not only
stability, it is also important to see that income is adequate after taxes. It is possible to find out
some good securities, which pay particularly all their earnings in dividends.
 Appreciation and purchasing power stability
Investors should balance their portfolios to fight against any purchasing power stability.
Investors should judge price level inflation, explore their possibility of gain and loss in the
investments available to them, limitations of personal and family considerations. The investor
should also try and forecast which securities will possibly appreciate. A purchase of property at
the right time will lead to appreciation in time. Growth stock will also appreciate over time.
These, however, should be done thoughtfully and not in a manner of speculation.
 Legality and freedom from care
All investments should be approved by law. Law relating to minors, estates, trusts, shares
and insurance be studied will bring out many problems for the investor. One way of being free
from care is to invest in securities like Unit Trust of India, Life Insurance Corporation or Saving
Certificates. The management of securities is then left to the care of the Trust who diversifies the
investments according to safety, stability and liquidity with the consideration of their investment
policy. The identity of legal securities and investments in such securities also help the investor in
avoiding many problems.
 Tangibility
Intangible securities have many times lost their values due to price level inflation,
confiscatory laws or social collapse. Some investor prefers to keep a part of their wealth invested
in tangible properties like building, machinery and land. It may, however, be considered that
tangible property does not yield an income apart from direct satisfaction of possession or
property.
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TABLE: 2.1
FEATURE OF INVESTMENT AVENUES
Particulars Risk Return/ Capital Liquidity/ Tax
Current appreciation Marketability benefits
yield
Equity High Low High High High
Shares
Debentures Low High Very low Very low Nil
Bank Deposit Low Low Nil High Nil
Life Nil Nil Low Low Moderate
Insurance
Policies
Real Estate Low Low High in Moderate Changes
Long-term according
to rules
Gold and Low Nil High in Moderate Nil
Silver Long-term
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2.2 THE INVESTMENT PROCESS-STAGES IN INVESTMENT
The investment process is generally described in four stages. These stages are investment
policy, investment analysis, valuation of securities and portfolio construction.
a. Investment Policy
The first stage determines and involves personal financial affairs and objectives before
making investments. It may also be called preparation of the investment policy stage. The
investor has to see that he should be able to create an emergency fund, an element of liquidity
and quick convertibility of securities in to cash. This stage may, therefore, be considered
appropriate for identifying investment assets and considering the various features of investment.
b. Investment Analysis
When an individual has arranged a logical of the types of the investments that he requires on
his portfolio, the next step is to analyse the securities available for investment. He must make a
comparative analysis of the type of the industry, industry of security and fixed vs. variable
securities. The primary concern at this stage would be to form beliefs regarding future behavior
or prices and stocks, the expected returns and associated risk.
c. Valuation of investments
The third step is perhaps most important consideration of the valuation of investments,
investments value, in general, is taken to be the present worth to the owners of the futures
benefits from investments. The investor has to bear in mind the value of these investments.
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Appropriate sets of weights have to be applied with use of the forecasted benefits to estimate the
value of the investment assets. Comparison of the value with the current market price of the asset
allows a determination of the relative alternativeness of the asset. Each asset must be valued on
its individual merit. Finally the portfolio should be constructed.
d. Portfolio Construction
As discussed under features of investment programme, portfolio construction requires
knowledge of the different aspects of securities. consisting of safety and growth of principal,
liquidity of assets after taking into account the stage involving investment timing, selection of
investment, allocation of savings to different investments.
The success of every investment decision has become increasingly important in recent times.
Making sound investment decision requires both knowledge and skill. Skill is needed to evaluate
risk and returns associated with an investment decision. Knowledge is required regarding the
complex investment alternatives available in the economic environment.
2.3 SUCCESS IN INVESTMENT
Success in most things is relative, and not less so in the field of investment. Success in
investment means earning the highest possible return with the constraints imposed by the
investor’s personal circumstances-age, family needs, liquidity requirements, tax position and
acceptability of risk. If possible, performance should be measured against alternative investment,
or combination of investment, available to the investor within those constraints. Genuine success
also means winning the battle against inflation, against the fall in the real value of savings and
capital.
To be successful investor, one should strive to achieve no less than the rate of return consistent
with the risk assumed. But is this success? If markets are efficient, abnormal returns ere not
likely to be achieved, and so the best one can hope for return consistent with the level of risk
assumed. The trick is to assess the level of risk we wish to assume and make certain that the
collection of assets we buy fulfills our risk expectations. As a reward for assuming this level of
risk, we will receive the returns that are consistent with it. If however, we believe that we do
better than the level of return warranted by the level of risk assumed, then success must be
measured in these terms. But care must be exercised here. Merely realizing higher returns does
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not indicate success in this sense. We are really talking about outperforming the average of the
participant in the market for assets. And if we realize higher return we must be certain that we
are not assuming higher risks consistent with those returns in order to measure our success. Thus
we are left with two definitions of success.
(i) Success is achieving the rate of return warranted by the level of risk assumed. Investors
expect returns proportional to the risk assumed.
(ii) Success is achieving a rate of return in excess or warranted by the level of risk assumed.
Investors expect abnormal returns for the risk assumed.
To be successful under the first definition, an investor must have a rational approach to portfolio
construction and management. Reasonably efficient diversification is the key. To be successful
under the second definition, an investor must have at least one of the following:
Superior Analytical Skill, Superior Forecasting Ability, Inside Information, Dumb Luck
Whether and to what extent anyone is likely to possess these characteristics and consistently be
able to outperform the market by the level of risk assumed is critical issue. The investor should
be aware of, but not denoted by, the fact that professional investors in particular, largely
dominate investment markets, the stock market. As a consequence, grossly under-valued
investments are rarely easy to come by. Moreover, he should beware of books subtitled. How I
made a Million in the Stock Market, Get Rich Quick and statements such as ‘You can have a
high return with no risk’. In reasonably efficient markets risk and return go together like bread
and butter; in the words of Milton Friedman, there is no such thing as a free lunch.
Success involves planning—clearly establishing one’s objectives and constraints. Investments
should be looked at in terms of what they contribute to the overall portfolio, rather than their
merits in isolation. Institutional investment will probably play some part, and performance tables
are available to give some guidance. But personal direct investment should not be overlooked,
particularly in the obvious area of Turk ownership, and one’s own knowledge, skills, hobbies and
acquaintances can also be put to advantage. Remember Francis Bacon’s words: If a man look
sharply and attentively, he shall see fortune; for though she be blamed, yet she is not so invisible.
More money has been lost in the stock market, then one can imagine simply because of the
failure of investors to clearly define their objectives and assess their financial temperaments. In
analyzing the portfolios of individual investors, the most common errors observed are:
Firstly, portfolio is over diversified, containing so many issues that the investors cannot follow
closely the development in those companies.
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Secondly, many portfolios suffer from overconcentration in one or two issues.
Thirdly, all too often, the quality of these securities is not consistent with the stated investment
goal and usually a portfolio contains too many speculative securities.
Fourthly, many individual investors are afraid to take losses; they want to wait for their stock to
come back to the price they paid.
Fifthly, most investors, without realizing it, do not have a plan. They are buying and selling and
believe is going where the action is instead of sticking to an investment goal.
Finally, most serious of all some investors consider only profit potential never the risk factor.
They try to wait for the bottoms to buy and tops to sell, they don’t learn from their mistakes and
sight of their financial goals for the timeframe of the investment objectives under pressure of
hope, fear, or greed.
Should investors play a winner’s game or a loser’s game while buying securities?
To answer this question, probably the best way to explain it is to use a sport as an illustration. Let
us take tennis. To professionals like Williams sisters, tennis is a winner game. To win, they must
deliver the ball to a place where the opponent will find it difficult to return or play at a speed that
the opponent cannot keep up with. They win the game by delivering winning shots.
According to sports writers, on the one hand, tennis to amateurs is actually a loser’s game. They
do not have the strikes that in any way resemble those of Williams sisters and other
professionals. The best strategy to win a game, they, is to keep the ball in play and let the
opponent defeat himself by hitting the ball into the net or outside the court. They win game by
loosing less than their opponent.
The above analogy clears the distinction between winner and loser’s game. Probably now the
investors can guess whether buying securities is a winner’s game or a loser’s game. Recently,
buying securities has become a loser’s game even for professionals engaged in institutional
investing. For those who determine to win the loser’s game, it is required:
1) Play your own game. Know your policies very well and play according to them all the time.
2) Do the things do best? Make ‘fewer’ but ‘better’ investment decisions.
3) Concentrate on your defences. Most investors spend too little time on sell-decisions. Sell
decisions are as important as buy-decisions. Investors should spend at least equal time in making
sell-decision.
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The crucial point of loser’s game is to put the balance sheet and the income statement through a
fine screen. This is the first step in making sure to avoid a mistake and will help the investor to
keep away from letting the excitement make him move too quickly. Remember the old saying. A
fool and his money are quickly parted.
 THREE APPROACHES TO SUCCEED AS AN INVESTOR
As Charles Ellis argued, it appears that there are three different ways of earning superior risk-
adjusted returns on stock market. The first one is physically difficult, the second one is
intellectually difficult, and the third one is psychologically difficult.
 Physically Difficult Approach
Many investors seem to follow this approach, wittingly or unwittingly. They look at the
newspapers and financial periodicals to learn about new issues, they visit the offices of brokers
to get advice and application forms, and they apply regularly in the primary market. They follow
the budget announcements intently, they read CMIE reports to learn about the developments in
economy and various industrial sectors, they read investment columns written by the so called
‘experts’, they follow developments in the companies, they solicit information from company
executives, they read the columns in technical analysis, and they attend seminars and
conferences. In a nutshell, they apply themselves assiduously, diligently, and even doggedly.
They operate on the premise that if they can be a step ahead of others, they will outperform the
market.
The physically difficult approach seems to have worked reasonably well for most of the
investors in India since the late 1970s to the early 1990s, for three principal reasons:
1. Typically, issues in the primary market have been priced very attractively.
2. The secondary market, thanks to limited competition till almost 1991, was characterized by
numerous inefficiencies that provided rewarding opportunities to the diligent investor.
3. An advancing price-earnings multiple, in general, bailed out even inept investors.
Things, however, have changed from mid-1995. The opportunities for subscribing issues in
the primary market have substantially dried up as companies, quite understandably, are placing
securities with institutional investors at prices that are fairly close to the prevailing market prices.
Likewise, the scope for earning superior returns in the secondary market has diminished as the
degree of competition and efficiency is increasing, thanks to the emergence of hundreds of new
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institutional players (mutual funds, foreign institutional investors, merchant banking
organisations, corporate bodies) and millions of new individual investors. Finally, the prospects
of a fluctuating price-earnings multiple seem to be a greater than the prospects of a rise in the
price-earnings multiple.
 Intellectually Difficult Approach
The Intellectually Difficult Approach to successful investing calls for developing profound
understandings of the nature of investments and hammering out a strategy based on superior
insights. This approach has been followed mainly by the highly talented investors who have an
exceptional ability, a rare perceptiveness, an unusual skill, or a touch of clairvoyance. Such a gift
has been displayed by investors like Benjamin Graham, John Maynard Keynes, John Templeton,
George Soros, Warren Buffet, Phil Fisher, Peter Lynch, and others.
Benjamin Graham, widely acclaimed as the father of modern security analysis, was an
exceptionally gifted quantitative navigator who relied on hard financial facts and religiously
applied the ‘margin of safety’ principle. John Maynard Keynes, arguably the most influential
economist of the 20th
Century, achieved considerable investment success on the basis of his
sharp insights into market psychology. John Templeton had an unusual feel for bargain stocks
and achieved remarkable success with the help of bargain stock investing. Warren Buffett, the
most successful stock market investor of our times, is the quintessential long-term value investor.
George Soros, a phenomenally successful speculator, developed and applied a special insight
which he labels as the ‘reflexivity’ principle. Growth Phil Fisher, a prominent growth stock
advocate, displayed a rare ability with regard to invest in growth stocks. Peter Lynch, perhaps the
most widely read investment guru in recent years, has performed exceptionally well, thanks to a
rare degree of openness and flexibility in his approach.
The intellectually difficult approach calls for a special talent that is diligently honed and nurtured
over time. Obviously, it can be practiced only by a select few and you should have the objectivity
to discern whether you can join this elite club. Remember that many investors unrealistically
believe that they have a rare gift because the stock market provides an exceptionally fertile
environment for self-deception. Participants in the stock market can easily live in a world of
make belief by accepting confirming evidence and rejecting contradictory evidence. As David
Dreman says:
“Under conditions of anxiety and uncertainty, with vast interacting information grid, the market
can become a giant Rorschach test, allowing the investor to see any pattern that he
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wishes....experts cannot only analyse information incorrectly, they can also find relationships
that aren’t there- a phenomenon called illusory correlation.”
 Psychologically Difficult Approach
The stock market is periodically swayed by two basic human emotions, viz. Greed and fear.
When greed and euphoria sweep the market prices rise to dizzy heights. On the other hand, when
fear and despair envelop the market, prices fall to abysmally low levels. If you can surmount
these emotions which can wrap your judgment, create distortions in your thinking, and induce
you to commit follies, you are likely to achieve superior investment results.
The psychologically difficult approach essentially calls for finding ways and means of
substantially overcoming fear and greed. Its operational guidelines are as follows:
1. Develop an investment policy and adhere to it consistently
2. Do not try to forecast stock prices
3. Rely more on hard numbers and less on judgment
4. Maintain a certain distance from the market place
5. Face uncertainty with equanimity
These guidelines look simple, but they are psychologically difficult to follow. Yet, for the bulk
of the investors this appears to be only sensible approach to improve the odds of their investment
performance.
2.4 INVESTMENT AND SPECULATION
Traditionally, investment is distinguished from speculation in three ways, which are based on the
factors of:
1. Capital gains.
2. Time period.
3. Risk
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The distinction between investments and speculations is given in the table below:
TABLE: 2.2
Investment Speculation
Time Horizon Long-term time Short-term planning
framework beyond 12 holding assets even
months. for one day with the
objective.
Risk It has limited risk. There are high profits
and gains.
Return It is consistent and High returns, though
moderate over a long risk of loss is high.
period.
Use of funds Own funds through Own and borrowed
savings funds.
Decisions Safely, liquidity, Market behaviour
profitability and information,
stability, judgements on
considerations and movement in the
performance of stock market.
companies. Hunches and beliefs.
1. Capital Gain
The distinction between investment and speculation emphasizes that if the motive is primarily to
achieve profits through price changes, it is speculation. If purchase of securities is preceded by
proper investigation and analysis and review to receive a stable return over a period of time, it is
termed as investment. Thus, buying low and selling high, making large capital gain is associated
with speculation.
2. Time Period
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The second difference is the consideration of the time period. A longer-term fund allocation is
termed as investment. A short-term holding is associated with trading for the ‘quick turn’ and is
called speculation.
The distinction between investment and speculation is helped to identify the role of the investor
and speculator. The investor constantly evaluates the worth of a security through fundamental
analysis, whereas the speculator is interested in market action and price movement. These
distinctions also draw out the fact that there is a very fine line of division between investment
and speculation. There are no established rules and loss, which identify securities, which are
permanent for investment. There has to be a constant review of securities to find out whether it is
a suitable investment. To conclude, it will be appropriate to state that some financial experts have
called investment ‘a well grounded and carefully planned speculation’, or good investment is a
successful speculation. Therefore, investment and speculation are a planning of existing risks. If
artificial and unnecessary risks are created for increased expected returns, it becomes gambling.
3. Risk
The word ‘risk’ has a definite financial meaning. It refers to possibility of incurring a loss in a
financial transaction. In a broad sense, investment is considered to involve limited risk and is
confined to those avenues where the principal is safe. ‘Speculation’ is considered as an
involvement of funds of high risk. An example may be cited of stock brokers’ lists of securities
which labels and recommends securities separately for investments and speculation purposes.
Risk, however, is a matter of degree and no clear-cut lines of demarcation can be drawn between
high risk and low risk and sometimes these distinctions are purely arbitrary. No investments are
completely risk-free. Even if it safety of principal and interest are considered, there are certain
non manageable risks which are beyond the scope of personal power. These are (a) the
purchasing power risk – In other words, it is the fall in real value of the interest and the principal
and (b) the money rate risk or the fall in market value when interest rate rises.
These risks affect both the speculator and the investor. High risk and low risk are, therefore,
general indicators to help and understanding between the terms investments and speculation.
2.5 What causes the risks?
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The risks are caused by the following factors:
1) Wrong decision of what to invest in.
2) Wrong timing of investment.
3) Nature of the instrument invested say, the category of assets like corporate shares or bonds, Chit
funds, Nidhis, Benefit funds etc. are highly risky, as they are in the unorganized sector. Some
instruments as bank deposits or P.O Certificates are less risky, due to their certainty of payment
of principal and interest.
4) Creditworthiness of the issuer: The securities of Government end semi-Government bodies are
more credit worthy than those issued by the corporate sector and much less secure are those in
the unorganized sector like indigenous bankers, shroffs, chit funds etc. private limited companies
share and shares of unlisted companies are more risky.
5) Maturity period are length of investment: The longer the period, the more risky is the investment
normally.
6) Amount of investment: The higher the amount invested in any security the larger is the risk,
while a judicious mix of investments in small quantities may be less risky.
7) Method of investment, namely, secured by collateral or not.
8) Terms of lending such as periodicity of servicing, redemption periods etc.
9) Nature of the industry or business in which the company is operating.
10) National and international factors, acts of god etc.
Reference was made to two types of Risk of investor:
· Systematic Risks-
· Unsystematic Risks-
1. Systematic Risks-
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Systematic Risks are out of external and uncontrollable factors, arising out of the market,
nature of the industry and state of the economy and a host of other factors. In other words
systematic risk refers to that portion of the total variability of the return caused by common
factor affecting the prices of all securities alike through economic, political and social factors.
2. Unsystematic Risks-
Unsystematic Risks emerge out of the known and controllable factors, internal to the issuer
of the securities or companies. In other words unsystematic risk refers to that portion of the total
variability of the return caused due to unique factors, relating that firm or industry, through such
factors as management failure, labour strikes, raw material scarcity etc.
While the systematic risk is common to all companies and has to be borne by the investor and
compensated by the Risk Premium, The unsystematic risk can be reduced by the investor through
proper diversification and planning a proper investment strategy for the purpose.
Examples of Systematic Risks
 Market Risk:
This arises out of changes in Demand and Supply pressures in the markets, following the
changing flow of the information or expectations. The totality of the investor perception and
subjective factors influence the events in the market which are unpredictable and give rise to
risk, which is not controllable.
 Interest Rate Risk:
The return on an investment depends on the interest rate promised on it and changes in
market rates of interest from time to time. The costs of funds barrowed by companies or
stockbrokers depend on interest rates. The market activity and investor perceptions change with
the changes in interest rates. These interest rates depend on nature of instruments, stocks, bonds,
loans etc maturity of the periods and the creditworthiness of the issuer of securities. But basically
the monetary and credit policy, which is not controllable by the investor, affects the riskiness of
investments due their effects on returns, expectations, and the total principal due to be refunded
 Purchasing Power Risk:
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Inflation or rise in prices lead to rise in costs of production, lower margins, wage rises and
profit sqeezing etc. The return expected by the investors will change due to change in real value
of returns. Cost pushed inflation is caused by rise in the costs, due to wage rise or rise in input
prices. Demand-pull forces operate to increase prices due to inadequate supplies and rising
demand. The increase in demand may be caused by changing expectation of future interest rates
and inflation or due to increase in money supply or creation of currency to finance the deficits of
the government. This element of purchasing power risk is inherent in all investments and cannot
be controlled by him.
Examples of Unsystematic Risks
 Business Risk:
This relates to variability of business, sales income, profits etc., which in turn depend on the
market conditions for the product mix, input supplies, strength of competitors etc. This business
risk is sometimes external to the company due to changes in government policy or strategy of
competitors or unforeseen market conditions. They may be internal due to fall in production,
labour problem, raw materials problem or inadequate supply of electricity etc. The internal
business risk leads to fall in revenues and in profit of the company, but can be corrected by
certain changes in the company’s policies.
 Financial Risk:
This relates to the method of financing, adopted by the company, high leverage leading to
larger debt servicing problems or short-term liquidity problems due to bad debts, delayed
receivables and fall in current assets or rise in current liabilities. These problems could no doubt
to be solved, but they may lead to fluctuations in earnings, profits and dividends to share holders.
Sometimes, if the company runs in to losses or reduced profits, these may lead to fall in returns
to investors or negative returns. Proper financial planning and other financial adjustments can be
used to correct this risk and as such it is controllable.
 Default Or Insolvency Risk:
The barrower or issuer of securities may become insolvent or may default, or delay the
payments due, such as interest installments or principal repayments. The barrower’s credit rating
might have fallen suddenly he became default prone and in its extreme form it may lead to
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insolvency or bankruptcies. In such cases the investor may get no return or negative returns. An
investment in a healthy company’s share might turn out to be a waste paper, if within a short
span, by the deliberate mistakes of management or acts of God, the company became sick and its
share price tumbled below its face value.
Other Risks
In addition to the above major risks both in controllable and uncontrollable categories,
there are many more risks, which can be listed, but in actual practice, they may vary in form, size
and effect.
Some of such identifiable risks are:
 Political Risks:
Political risks, fallowing the changes in the government, or its policy shown in fiscal or
budgetary aspects etc., through changes in tax rates, imposition of controls or administrative
regulations etc.
 Management Risks:
Management Risks, due to errors or inefficiencies of management, causing losses to the
company.
 Marketability Risks:
Marketability Risks, involving loss of liquidity or loss of value in conversions from one
asset to another say, from stocks to bonds, or vice versa. Such risks may arise due to some
features of securities, such as capability; or lack of sinking fund or Debenture Redemption
Reserve fund, for repayment of principal or due to conversion terms, attached to the security,
which may go adverse to the investor.
All the above types of risks are of varying degrees, resulting in uncertainty or variability of
return, loss of income and capital losses, or erosion of real value of income and wealth of the
investor. Normally the higher the risk taken, the higher is the return. But sometimes the risk is
caused by acts of God and there may be no return at all.
2.6 Investment and Gambling
The difference between investment and gambling is very clear. From the above
discussion, it is established that investment is an attempt to carefully plan, evaluate and allocate
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funds in various investment outlets which offers safety of principal, moderate and continuous
returns and long-term commitment. Gambling is quite the opposite of investment. It connotes
high risk and the expectation of high returns. It consists of uncertainty and high stakes for thrill
and excitement. Typical examples of gambling are horse racing, game of cards, lottery etc.
Gambling is based on tips, rumours and hunches, it is unplanned, non-scientific and without
knowledge of the exact nature of risk. These distinctions between investment, speculation and
gambling give us a basic idea of their nature, purpose and role.
2.7 Investment and Arbitrage
Investment is usually a planned method of safely putting ones savings into different
outlets to get a good return. Arbitrage is the mechanism of keeping one’s risk to the minimum
through hedging and taking advantage of price differences in different markets. The
simultaneous purchase of the same or similar security in two different markets would be an
arbitrage transaction. Short-term gains can be expected through such transactions. An investor
can also be an arbitrageur if he buys and sells securities in more than one stock exchange to take
advantage of the price differentials in such exchanges. Derivatives introduced in the Indian
market have a great potential for arbitrage transactions. Arbitrage transactions help in enhancing
efficiency and liquidity in the stock market and in increasing the volume of trade. Hedgers,
speculators and arbitrageurs can make riskless profits through the arbitrage process.
 Real Assets
Real assets refer to tangible assets, which are in the form of land and buildings, furniture,
gold, silver, diamonds, or artifacts. These assets have a physical appearance. They may be
marketable or non-marketable. They may also have the feature of being movable or non-
movable. These assets are used to produce goods or services.
 Financial Assets
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A financial asset is a claim represented by securities. These assets are popularly called
paper securities. Shares, bonds, debenture, bills, loans, lease, derivatives and fixed deposits are
some of the financial assets. Therefore, financial assets represent a claim on the income
generated by real assets of some other parties. Financial assets can be easily traded, as they are
marketable and transferable. Financial assets are usually between two parties, for example, if a
person buys a bond of Rs. 10,000 of ICICI Bank. The bond is liabilities of ICICI, but an asset of
the person buying a bond because he has a claim over the bank to receive the principal sum with
interest.
 Commodity Assets
Commodities are a new form of investment in India. Commodity assets consist of wheat,
sugar, potatoes, rubber, coffee and other grains. Commodities are also in the form of metal like
gold, silver, aluminium and copper. It also consists of items like cotton oil and foreign currency.
Importers and exporters invest in commodities to diversify their portfolios. Traders hedge or
transact in commodities to make gains. A National Commodity and Derivatives Exchange Ltd.
(NCDEX) have been set up in India in 2003 as a public limited company to transact in
commodities.
The promoters of NCDEX were ICICI Bank Ltd., National Bank for Agriculture and Rural
Development (NABARD), Life Insurance Corporation of India, (Punjab National Bank, Canara
Bank, CRISIL Ltd., Indian Farmers Fertilizer, Co-operative Ltd. (IFFCO) and National Stock
Exchange of India Ltd., (NSE). All these institutions subscribed to the equity shares of NCDEX.
2.8 Factors Favourable For Investment
The investment market should have a favourable environment to be able to function
effectively. Business activities are marked by social, economic and political considerations. It is
important that the economic and political factors are favourable. Generally, there are four basic
considerations, which foster growth and bring opportunities for investment. These are legal
safeguards, stable currency and existence of financial institutions to aid savings and forms of
business organization.
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 Legal Safeguards
A stable government, which frames adequate legal safeguards, encourages accumulation of
savings and investments. Investors will be willing to invest their funds if they have the assurance
of protection of their contractual and property rights.
In India, the investors have the dual advantage of free enterprise and control. Freedom,
efficiency and growth are ensured from the competitive forces of private enterprises. Statutory
control exerts discipline and curtails some element of freedom. In India, the political climate is
conducive to investment since the new economic reforms in 1991 leading to liberalization and
globalization.
 A Stable Currency
A well-organized monetary system with definite planning and proper policies is a necessary
prerequisite to an investment market. Most of the investments such as bank deposits, life
insurance and shares are payable in the currency of the country. A proper monetary policy will
give direction to the investment outlets. As far as possible, the monetary policy should neither
promote acute inflationary pressures nor prepare for a deflation model. Neither condition is
satisfactory.
Price inflation destroys the purchasing power of investments. Thrift is also penalized when the
net interest after taxes received by the investor is less than the rise in the price level, leaving the
investor with less total purchasing power than he had at the time of saving. Inflation occurs
generally in unstable conditions like war or floods but in the last decade, it also discernible in
peace conditions especially in developing countries because of huge government deficit in
creating infrastructure. Deflation is equally disastrous because the nominal values of inventories,
plant and machinery and land and building tend to shrink. An example of the evil effects of
deflation can be cited for the period 1929-1933 in the United States when the shrinkage in
nominal values came to a point of producing wholesale bankruptcy.
A reasonable stable price level, which is produced by wise monetary and fiscal management,
contributes towards proper control, good government, economic well being and a well-
disciplined growth oriented investment market and protection to the investor.
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 Existence of Financial Institutions and Services
The presence of financial institutions and financial services encourage savings, direct them to
productive uses and helps the investment market go grow. The financial institutions in existence
in India are mutual funds, development banks, commercial banks, life insurance companies,
investment companies, investment bankers and mortgage bankers. The financial services include
venture capital, factoring and forfeiting, leasing, hire purchase and consumer finance, housing
finance, merchant bankers and portfolio management. Investment bankers are merchants of
securities. They buy bonds and stocks of companies for re-sale to investors. The investment
bankers are distinguished from security brokers who act as agents in buying and selling already
issued securities for commission. Mortgage bankers sometimes act as merchants and sometimes
as agents on mortgage loans generally on residential properties. They serve as middlemen
between investors and borrowers and perform collateral service in connection with loans.
Commercial banks and financial institutions also act as mortgage bankers in giving mortgage
loans and servicing the loans.
In India, there are a large number of financial institutions under Central Government and State
Governments and rural bodies that have encouraged the growth of savings and investment. The
Life Insurance Corporation and Unit Trust of India offer a wide variety of schemes for savings
and give tax benefits also. Apart from these, there is a well-organized network of development
banks such as the Industrial Development Bank of India (IDBI), Industrial Credit Investment
Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI). At the state
level, there are State Financial Corporation, for rural areas and agriculture, the National Bank of
Agriculture and Rural Development (NABARD). These financial institutions and development
banks offer a wide variety of policies for encouraging savings and investment. These institutions
lend an element of strength to the capital market and promote discipline while encouraging
growth.
Since 1991, there has been a development of the private corporate sector. Many new financial
institutions have emerged in the private sector. Insurance companies, mutual funds and venture
capitalists leasing companies have been opened up to private financing agencies. Foreign banks
have been allowed to do business.
Thus, there is the presence of a large number of institutions and services, which channel the
funds in productive directions.
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 Choice of Investment
The growth and development of the country leading to greater economic activity has led to the
introduction of a vast array of investment outlets. Apart from putting aside savings in savings
banks where interest is low, investors have the choice of a variety of instruments. The question to
reason out is which is the most suitable channel? Which media will give a balanced growth and
stability of return? The investor in his choice of investment will have to try and achieve a proper
mix between high rate of return and stability of return to reap the benefits of both. Some of the
instruments available are equity shares and bonds, provident fund, life insurance, fixed deposits
and mutual funds schemes.
The three golden rules for all investors are:
Invest early
Invest regularly
Invest for long term and not short term
One needs to invest for
Earn return on your idle resources
Generate a specified sum of money for a specific goal in life
Make a provision for an uncertain future
To meet the cost of inflation
2.9 Fundamental analysis of various investment alternatives:
Before investing in various investment alternatives fundamental analysis is very necessary.
A fundamental analysis believes that analyzing the economy, strength, management, production,
financial status and other related information will help to choose investment avenues that will
outperform the market and provide consistent gain to the investor. Fundamental analysis is the
examination of the underlying forces that affect the interests of the economy, industrial sectors,
and companies. It tries to forecast the future movement of capital market using signals from the
economy, industry, company. Fundamental analysis requires an examination of the market from
broader prospective. It also examines the economic environment, industrial performance, and
company performance before taking an investment decision.
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 Economic Analysis
The economic analysis aims at determining if the economic climate is conductive and is
capable of encouraging the growth of business sector, especially the capital market. When the
economy expands, most industry groups and companies are expected to benefit and grow and
when the economy declines, most sectors and companies usually face survival problems. Hence,
to predict scrip prices, an investor has to spend time exploring the forces operating in the overall
economy. Economic analysis implies the examination of GDP, government financing,
government borrowings, consumer durable goods market, non-durable goods and capital goods
market, saving and investment pattern, interest rates, inflation rates, tax structure, foreign direct
investment, and money supply.
The most used tools for performing economic analysis are;
o Gross Domestic Product
o Monetary policy and liquidity
o Inflation
o Interest rate
o International influences
o Consumer behaviors
o Fiscal policy etc
 Industry Analysis:
It is very important to see how the industry to which the company belongs is faring.
Specifics like effect of Government policy, future demand of its products etc. need to be
checked. At times prospects of an industry may change drastically by any alterations in business
environment. For instance, devaluation of rupee may brighten prospects of all export-oriented
companies. Investment analysts call this as Industry Analysis. Companies producing similar
products are subset (form a part) of an Industry/Sector. For example, National Hydroelectric
Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power
Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India.
Tools for industry analysis
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o Cross study of performance of the industry.
o Industry performance over times.
o Differences in industry risk.
o Prediction about market behaviors,
o Competition over the industry life cycle
 Company Analysis:
Company analysis involved choice of investment opportunities within a specific industry
that consists of several individual companies.
How has the company been faring over the past few years? Seek information on its current
operations, managerial capabilities, growth plans, its past performance vis-à-vis its competitors
etc.
 Financial Analysis:
If performance of an industry as well as of the company seems good, then check, if at the
current price, the share is a good to buy or not. For this, look at the financial performance of the
company and certain key financial parameters like Earnings per Share (EPS), P/E ratio, current
size of equity etc. for arriving at the estimated future price. This is termed as Financial Analysis.
For that you need to understand financial statements of a company i.e. balance Sheet and Profit
and Loss Account contained in the Annual Report of a company.
2.10 Types of investment:
(i) Short term Investment-
It is an investment made by the investor for very short period of time i.e. for one to three
years. Such as investment in bank, money market, liquid funds etc.
(ii) Long Term Investment –
When investor invests money for more than three to five years then it is called long term
investment. Such as investment in bonds, mutual funds, fixed bank deposits, PPF, insurance etc
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2.11 Investor:
Investor is a person or an organization that invest money in various investment
sources for specific objective. Attitude of investment is different in each alternative. E.g.
financial market have different attitude towards risk and return. Some investors are risk averse,
while some have an affinity of risk. The risk bearing capacity of investor is a function of
personal, economical, environment, and situational factors such as income, family size,
expenditure pattern, and age. A person with higher income is assumed to have higher risk-
bearing capacity. Thus investor can be classified as risk skiers, risk avoiders, or risk bearers.
2.12 Categories of Investors
While there are as many investing styles as there are investors, most people fall more or
less into one of three broad categories: conservative, moderate, aggressive.
 Conservative investors
Generally, conservative investors feel that safeguarding what they have is their top priority.
These investors want to avoid risk — particularly the risk of losing any principal (their original
investment) — even if that means they’ll have to settle for very modest returns.
Conservative investors allocate most of their portfolios to bonds, such as Treasury notes or high-
rated municipal bonds, and cash equivalents, such as CDs and money market accounts. They’re
generally reluctant to invest in stocks, which may lose value, especially over the short term.
When conservative investors do venture into stocks they‘re often inclined to choose blue chips or
other large-cap stocks with well-known brands because they tend to change value more slowly
than other types of stock and often pay dividend income.
 Moderate investors
Moderate investors want to increase the value of their portfolios while protecting their assets
from the risk of major losses.
For example, a moderate investor might use an allocation model that has 60% in stock, 30% in
bonds, and 10% in cash equivalents. While they will tend to favor blue chip and other large-cap
stocks, they may be willing to invest a modest portion of their principal in higher risk securities
— such as international stock, small-caps, and volatile sector funds — in order to increase their
potential for higher returns.
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 Aggressive investors
Aggressive investors concentrate on investments that have the potential for significant growth.
They are willing to take the risk of losing some of their principal, with the expectation that they
will realize greater returns.
Aggressive investors might allocate from 75 to 95% of their portfolios to individual stocks and
stock mutual funds. While large- and small-cap stocks and funds may make up the core of their
portfolios, many aggressive investors will have significant holdings in more speculative stocks
and funds, such as emerging market and sector mutual funds. Since aggressive investors focus on
growth, they are usually less inclined to hold income producing securities, such as bonds.
An aggressive investing style is definitely not for the faint of heart. It’s best suited for investors
with a long-term investing horizon of 15 years or more, who are willing to make a long-term
commitment to the stocks they buy. But history has shown that an aggressive investing approach,
combined with a well diversified portfolio, and the patience to stick to a long-term buy-and-hold
investing strategy through inevitable market downturns, can be the most profitable in the long
run.
Before making any investment, one must ensure to:
o Obtain written documents explaining the investment
o Read and understand such documents
o Verify the legitimacy of the investment
o Find out the costs and benefits associated with the investment
o Assess the risk-return profile of the investment
o Know the liquidity and safety aspects of the investment
o Ascertain if it is appropriate for your specific goals
o Compare these details with other investment opportunities available
o Examine if it fits in with other investments you are considering or you have already made
o Deal only through an authorized intermediary
o Seek all clarifications about the intermediary and the investment
o Explore the options available to you if something were to go wrong, and then, if satisfied, make
the investment.
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2.13 Investment Avenues:
In India, numbers of investment avenues are available for the investors. Some of
them are marketable and liquid while others are non-marketable and some of them also highly
risky while others are almost risk less. The investor has to choose Proper Avenue among them,
depending upon his specific need, risk preference, and return expected
Investment avenues can broadly be categorized under the following heads
o Corporate securities
Equity shares Preference shares
Debenture/Bonds GDR’s/ADR’s
o Deposit in bank and non banking companies
o Post office deposits and certificate
o Life insurance policies
o Provident fund schemes
o Government and semi-government securities
o Mutual fund and schemes
o Real estate
(i)Corporate securities:
(a) Equity share
Total equity capital of a company is divided into equal units of small denominations, each
called a share. The holders of such shares are members of the company and have voting rights.
When company makes profit shareholder receives their share of the profit in form of dividends.
In addition, when company performs well and the future expectation from the company is very
high, the price of the companies share goes up in the market.
Investor can invest in shares either primary market offerings or in the secondary market.
(b) Preference shares
Preference share as that part of share capital of the Company which enjoys preferential right as
to: (a) payment of dividend at a fixed rate during the lifetime of the Company; and (b) the return
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of capital on winding up of the Company. It is lie in between pure equity and debt. But
preference shares cannot be traded, unlike equity shares, and are redeemed after a pre-decided
period. Also, Preferential Shareholders do not have voting rights. These are issued to the public
only after a public issue of ordinary shares.
Preference shares also get traded in the market and give liquidity to investor. Investor can
opt for this type of investment when their risk performance is very low.
(c) Debentures and Bonds
It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest
on a specified date, called the Maturity Date.
Many types of debenture and bonds have been structured to suit investors with different
time needs. Though having higher risk as compared to bank fixed deposits, bonds and debentures
do offer higher returns. Debenture instruments require scanning the market and choosing specific
securities that will cater to investment objectives of the investor.
(d) Depository Receipts (GDRs/ADRs)
Global depository receipts are the instrument in the form of a depository receipts or
certificate created by the overseas depository bank outside India and issued to non-resident
investors against ordinary shares. A GDR issued in America, is an American Depositary
Receipts. As investors seek to diversify their equity holdings, the option of GDRs and ADR’s is
very lucrative, while investing in such securities, investors should identify the capitalization and
risk characterizes of the instrument and the companies’ performance in the home country.
(e) Warrants
A warrant is a certificate giving its holder rights to purchase securities at a stipulated
price within a specified time limit. The warrants act as a value addition because holder of the
warrant has the right but not the obligation to investing in equity at the indicated rate. An option
contract often sold with another security. For instance, corporate bonds may be sold with
warrants to buy common stock of that corporation. Warrants are generally detachable. Options
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generally have lives of up to one year. The majority of options traded on exchanges have
maximum maturity of nine months. Longer dated options are called Warrants and are generally
traded over-the counter
(ii) Savings bank account with commercial bank
Broadly speaking, savings bank account, money market/liquid funds and fixed deposits
with banks may be considered as short-term financial investment options:
Savings Bank Account is often the first banking product investors use, which offers low interest
(3.5% ), making them only marginally better than fixed deposits.
(iii) Bank fixed deposits
Fixed Deposits with Banks are also referred to as term deposits. Fixed Deposits in banks
are for those investors, who have low risk appetite. Bank FDs is likely to be lower than money
market fund returns. Fixed deposits may be recurring deposits where in savings are deposited at
regular intervals or fixed deposits of varying maturities or with the varying notice periods such as
15 days, etc. The interest rates on these deposits vary depending on the maturity period, from 4
to 9%. In general, it is lower for fixed deposits of shorter term and higher for fixed deposits of
longer term. If the deposit period is less than 90 days, the interest is paid on maturity; otherwise
it is paid quarterly.
(iv) Company fixed deposits
For a manufacturing company the term of deposits can be one to three years, whereas for
non-banking finance company it can vary between 25 months to five years. A manufacturing
company can mobilize, by way of fixed deposits, an amount equal to 25 percent of its net worth
from the public and an additional amount equal to 10 percent of its net worth from its share
holders. A non banking finance company, however can mobilize a higher amount. The interest
rates on company deposits are higher than those on bank fixed deposits.
(v) Post Office Time Deposits (POTDs):
Similar to fixed deposits of commercial banks, POTDs can be made in multiples of Rs
50without any limit. The interest rates on POTDs are, in general, slightly higher than those on
bank deposits. The interest is calculated half-yearly and paid annually. No withdrawal is
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permitted upto 6 months. After 6 months, withdrawals are permitted. However, on withdrawals
made between 6 months and 1 year, no interest is payable. On withdrawals after 1 year, but
before the term of deposit, interest is paid for the period the deposit has been held, subject to a
penal deduction of 2%. A POTD account can be pledged. Deposits in 10 years to 15 years Post
Office Cumulative Time Deposit Account can be deducted before computing the taxable income
under Section 80c.
(vi) Monthly Income Scheme of the Post Office:
Post Office Monthly Income Scheme is a low risk saving instrument, which can be
availed through any Post Office. It provides an interest rate of 8% per annum, which is paid
monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in
multiples of Rs. 1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs. 6, 00,000/-(if held
jointly) during a year. It has a maturity period of 6 years. A bonus of 5% is paid at the time of
maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of
1% is levied from the principal amount if withdrawn prematurely. The 5% bonus is also denied.
(vii) Life insurance policies
Insurance companies offer many investment schemes to investors. These schemes
promote saving and additionally provide insurance cover. LIC is the largest life insurance
company in India. Some of its schemes include life policies, convertible whole life assurance
policy, endowment assurance policy, jeevan Saathi, money back policy etc. Insurance policies,
while catering to the risk compensation to be faced in the future by investor, also have the
advantage of earning a reasonable interest on their investment insurance premiums.
(viii) Public Provident Fund:
A long-term savings instrument with a maturity of 15 years it can be made in monthly
installments with a minimum of Rs.100 and a maximum of Rs.60,000 per annum and interest
payable at 8% per annum compounded annually. It is not transferable, but has nomination
facility. One withdrawal per financial year can be made any time after 5 years from the end of
the year in which the subscription is made. Withdrawal is limited to 50% at the end of the 4th
year. All subscription of PPF are completely free and balances in PPF are not taken into account
for wealth tax purpose.
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(ix) Government and semi-government securities
It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government, corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest
on a specified date, called the Maturity Date.
The government issues securities in the money market and in the capital market. Money
market instruments are traded in Wholesale Debt Market (WDM) trades and retail segments.
Instruments traded in the money market are short term instruments such as treasury bills and
convertible bonds.
(x) Mutual fund
These are funds operated by an investment company, which raises money from the public
and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of
objectives. It is a substitute for those who are unable to invest directly in equities or debt because
of resource, time or knowledge constraints. Benefits include professional money management,
buying in small amounts and diversification.
Mutual fund units are issued and redeemed by the Fund Management Company based on
the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is
calculated as the value of all the shares held by the fund, minus expenses, divided by the number
of units issued. Mutual Funds are usually long term investment vehicle though there some
categories of mutual funds, such as money market mutual funds, which are short term
instruments.
On the basis of objective we can categories mutual funds as equity funds/growth funds,
diversified funds, sector funds, index funds, tax saving funds, debt/income funds, liquid
funds/money market funds, gift funds, balanced funds. And on the basis of flexibility we can
categories them as open-ended funds, close-ended funds and interval funds.
(xi) Real Estate
Investment in real estate also made when the expected returns are very attractive. Buying
property is an equally strenuous investment decisions. Real estate investment is often linked with
the future development plans of the location. At present investment in real assets is booming
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there are various investment source are available for investment which are directly or indirectly
investing real estate.
(xii) Bullion investment
The bullion offers investment opportunity in the form of gold, silver, and other metals;
specific categories of metals are traded in the metal exchange. The bullion market presents an
opportunity for an investor by offering returns and the end value of future. It has been absurd that
on several occasions, when stock market failed, the gold market provided a return on
investments.
2.14 Sources of study for investors:
A look out for new investment opportunities helps investors to beat the market. There are
many sources from which investors can gather the required information. Such as;
(i) Financial institutions
Corporate house, government bodies and mutual funds are the main source of investment
information. Many of these enterprises have their own website and post investment related
information on their websites.
(ii) Financial market
Stock exchange and regulated bodies also provide useful information to investor to make
their investment decisions. With respect to secondary market, the Securities and Exchange Board
of India uses various modes to promote investors education and takes great effort to achieve an
investor friendly secondary market in India. The Reserve Bank of India also provide useful
information relating to the prevent interest rates and non-banking financial intermediaries that
mobiles money through deposit schemes.
(iii) Financial service intermediaries
These are intermediaries who promote securities among the public. Many of these
intermediaries are the agencies of specific instruments especially tax saving instruments. These
intermediaries offer to share their commission from there concerned organization with the
individual investor thus investor get additional advantages while investing through
intermediaries.
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(iv) Media
Press sources such as financial newspapers, financial magazine, business news channel,
websites etc. provide information related to investment to the public. Besides information on
securities, these sources also provide analysis of information and in certain instance suggest
suitable investment decisions to be made by investor.
The foregoing discriminations about stock market and investment having under stood its
important and its unique optimization in the money market.
3.1 INDUSTRY SCENARIO:
A. Introduction:
Basically, Securities markets provide a channel for allocation of savings by an individual or an
organization to those who have a productive need for them. So, a security market can be said a
location where the savers meet the real investors who need the fund. The savers and investors are
constrained by the economy’s abilities to invest and save respectively which thus helps market in
enhancing savings and investment in the economy. The dynamics of the economic, political,
cultural and environmental activities within the country and rest of the world therefore affect
Stock Market.
A stock market is a public market for the trading of company stock and derivatives at an
agreed price; these are securities listed on a stock exchange as well as those only traded
privately. The size of the world stock market was estimated at about $36.6 trillion US at the
beginning of October 2008. [1]
The total world derivatives market has been estimated at about
$791 trillion face or nominal value, [2]
11 times the size of the entire world economy. [3]
The
value of the derivatives market, because it is stated in terms of notional values, cannot be directly
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compared to a stock or a fixed income security, which traditionally refers to an actual value.
Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an
event occurring is offset by a comparable derivative 'bet' on the event not occurring.). Many such
relatively illiquid securities are valued as marked to model, rather than an actual market price.
B. Brief History:
Indian Share Market is the oldest Asian stock market incorporated in 1875. The name of the first
share trading association in India was Native Share and Stock Broker’ Association which later
came to be known as Bombay Stock Exchange. This association started with 318 members.
The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the
1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The
location of these meetings changed many times, as the number of brokers constantly increased.
The group eventually moved to Dallas Street in 1874 and in 1875 became an official
organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE
became the first stock exchange to be recognized by the Indian Government under the Securities
Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to
measure overall performance of the exchange. In 2000 the BSE used this index to open its
derivatives market, trading Sensex futures contracts. The development of Sensex options along
with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform.
Today, BSE is the world's number 1 exchange in terms of the number of listed companies and
the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood
at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for
easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is
tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is
constructed on a 'free-float' methodology, and is sensitive to market sentiments and market
realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sect oral indices.
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Three segments of the NSE trading platform were established one after another. The Wholesale
Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment
was opened at the end of 1994. Finally, the Futures and Options segment began operating in
2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior
Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50
stocks from 25 different economy sectors. The Indices are owned and managed by India Index
Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard &
Poor's.
In 1998, the National Stock Exchange of India launched its web-site and was the first exchange
in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership
in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by
Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).
The past decade has been quite remarkable for the Securities market in India with the boom in
the economy fuelled by better banking system. It has grown exponentially and the market has
also witnessed fundamental institutional changes. There have also been significant
improvements in efficiency, transparency and safety.
However global economic activity decelerated towards the end of the calendar year resulting in
investment concerns on account of the sub-prime crisis in the US and other developed nations.
Naturally the effects of this slowdown spilled over into developing economies also and we are
looking ahead with some degree of concern over the prospects in the near future.
In recent days economic collapsed in variation of the foreign investors fund main effect of the
Indian economy in 2008-2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the
month of 8th
July 2009. In other side National Stock Exchange (NSE) 3,974 is in the same month
of 2009.
Since the markets has taken up word moment from 9th
July 2009 from the low of 3,974 to 4,578
on 24th
July 2009 due to the Sharpe recovery in global economy as well as the 1st
quarter Results
of all major company which has been announced better than expectations, Hence Indian markets
are one of the fastest emerging markets in world and attracted by many Foreign intuitional
investors.
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C. The Regulatory Authority: SEBI
The rise in number of investors was also leading to an increase in malpractices on part of the
companies, brokers, merchant bankers, investment consultants and various other agencies
involved in new issues. This led to erosion of investor confidence. The Government and the
stock exchanges Realizing this, Securities Exchange Board of India (SEBI) was constituted were
helpless as the existing legal framework was just not enough. By the Government of India in
1992
 The Major Functions Of SEBI:
 To promote fair dealings by the issuers of securities and ensure a market place where funds can
be raised at relatively low costs.
 To provide protection to the investors and safeguard their rights and interests such that there is
steady flow of savings into the market.
 Registration and regulation of stock brokers, sub-brokers, registrar to all issue, merchant
bankers, underwriters, portfolio managers and such other intermediaries who are associated with
securities market
 Prohibit insider trading in securities.
 To regulate and develop a code of conduct and fair practices by the intermediaries involved in
the stock market etc.
 Outlook 2009-10
The Indian markets traded in a very narrow range during April amidst mixed cues coming from
global and domestic markets. While the markets were hurt by the sovereign debt default concerns
of Greece and SECs allegations against Goldman Sachs, it found some comfort from good set of
FY 2009-2010earnings numbers declared by India Inc...
India’s industrial output, as measured by the Index of Industrial Production (IIP), grew by
15.1% as against an annual gain of 16.7% in January 2010, and17.6% in December 2009.
Industrial production grew by a mere 0.2% in the same month last year. Manufacturing output
rose by 16% as against a mere 0.2% in February 2009, while Mining production was at 12.2%
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versus (-) 0.2% in the year-ago period. Electricity sector output expanded by 6.7%compared to
just 0.7% in the same month a year Consumer Durables production expanded by 29.9%in
February 2010 as against 6% in the same period in 2009. Output in Capital Goods grew by
44.4% in February 2010 as against 11.8% for the same month of 2009. The growth rate in Basic
Goods category stood at 8.4% versus a contraction of 0.1% in the year-ago period. Interrmediates
Goods' output rose by15.6% in the month under review versus (-) 3% in the year-ago period. As
many as 14 out of the 17 industry groups showed a positive growth during February 2010
compared to the corresponding month of the previous year.
3.2 COMPANY PROFILE:
Company History & Background
Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL) was established in the year 1986 with a
view to offer a one-stop solution to Indian entities for their needs in financial services. Over the
last two decades it has achieved the distinction of being amongst the most trusted and reputed
brokerage houses in India. It provides a complete bouquet of products in equity, debt,
commodities, forex, depository, derivatives and allied services in India.
Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL) is the most trusted and reputed
brokerage house for providing investment-related services in the capital market and money
market and depository services in India.
The company is jointly promoted by noted stock market professionals, Mr. Asit C. Mehta and
Mrs. Deena A. Mehta, and is a part of the Mumbai-based Nucleus Group of Companies. The
other group companies are engaged in IT and IT related services such as development of
databases, back-office applications for banks, corporate document management solutions and
geographical information systems (GIS).
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ACMIIL has pan-India presence through its branches, business associates, and marketing agents.
You can also become a part of this growing business and assist us in increasing investor base,
spreading investor education, and providing capital market services to clients.
 Vision, mission & quality:
Envisioned to be the “Trusted Financial Intermediary”, the group has etched out a very specific
corporate purpose – “To reach appropriate financial products, services and solutions to every
Indian entity.”
 Purpose
To reach appropriate financial products, services and solutions to every Indian entity.
 Our Belief
That every household can, should, and will need to participate in the financial markets
directlyor indirectly to protect their financial interests
 That regulatory/legal compliance ensures economic sustainability.
 That transparency and fairness are the cornerstones of all dealings.
 That knowledge rather than capital is the key driver of this business.
 That product, process, and technology led innovations are necessary preconditions for
continuously adding value for all our constituents.
 The firsts to our credit:
 First limited liability Company to acquire membership on Bombay Stock Exchange.
 First multiple seat holder and multiple exchange members.
 First to achieve the ISO quality certification for business processes.
 First to receive a CRISIL grading for quality of operations and services.
 Company Managing Director Mrs. Deena Mehta was the first lady to be elected to the governing
board of the Stock Exchange Mumbai and first and only lady to be the President of Stock
Exchange, Mumbai.
 Values, Relationship…core to our business
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We are currently expanding our business in the retail and institutional segments on the domestic
and overseas (NRI/FII) fronts. We have select positions open for marketing, sales, research, back
office operations, and business development activities.
At Asit C. Mehta, we aim to select a candidate whose goals are aligned with ours. Knowledge
about the product, a conceptual understanding of the financial markets, a thirst to innovate, desire
to grow within the company, meticulousness towards the task on hand, an ability to design and
follow process are all qualities valued in the company.
We foster a culture that rewards talent, initiative, hard work, and accountability and nurtures
teamwork.
 Shareholders
Asit C Mehta Investment Interrmediates Ltd. (ACMIIL) is incorporated as a publicly held
limited liability company in India under the Indian Companies Act, 1956. The company was
incorporated in the year 1993 under the new enabling provisions for limited liability stock
broking companies framed by the Government to encourage limited liability company in this
area. ACMIIL was first such company on the Bombay Stock Exchange. Currently, the company
is mostly held by its founder shareholders as follows:
 Mr.Asit C Mehta
 Mrs.Deena Asit Mehta
 Mr.Kirit H Vora
 Nucleus Netsoft & GIS (India) Ltd.
 Service standards & compliance:
In order to institutionalize business processes, our company has moved to a documented
customer-centric quality management system. This has ensured that the entire organization is
driven by the common objective of delivering quality brokerage services that would create a
unique brand and top-of-the-mind recall. We are the first brokerage house to be certified under
ISO 9001:2000 for the Equity and Debt segments. We are also first stock brokerage house to be
graded under the Broker Grading service by Credit Rating & Information Services of India Ltd.
(CRISIL) for our quality of operations and services provided to clients.
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3.3 ORGANISATION STRUCTURE:
DESIGNATION NAME
Chairman and Managing Director Mr. Asit C. Mehta
Chief Executive Officer Mrs. Deena Asit Mehta
Whole-Time Director Mr. Kirit H Vohra
Chief Operating Officer Mr. Kirit H Vohra
Chief Technological Officer Mr. Kamal Goel
Chief Officer Wealth centre Mr. T .S Netrajan
Chief Manager Co-operative commodities Mr. Vidia
Chief Financial Manager Mr. Veerendra Thakur
Chief Officer Human Resources Mr. V. Vishvanath
Senior Vp Operation Mr. T .S Netrajan
Branch Manager Mr. Kapadia
Unit Manager Mr. B.P Shanthish
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MEMBERSHIP:
• Cash Market: BSE, NSE
• Derivatives: BSE, NSE
• Debt: NSE
• Foreign Exchange: Accredited by FEDAI
• PMS under SEBI License
• Merchant Banking: Approved by SEBI under Category I
• Commodities: NCDEX MCX, DGCX, EAST INDIA
Clearing Bank: State Bank of India
Reach and Access (as on July 01, 2009)
Investment Centre’s: 665 (branches, franchisee, etc.)
States & UT covered: 26
Employees: 1002
3.4 PRODUCTS AND SERVICES:
· Equity – Initial Public Offering (IPO)
· Equity – Secondary trading (cash and derivative)
· Equity – PMS
· Equity – Online Trading
· Equity – Depository Services
· Equity – Investment Advisory (fundamental and technical)
· Equity – Mutual Fund
· Equity - Arbitrage
· Commodity - Derivatives
· Debt – Government Securities
· Debt – Primary Placements
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· Debt – Advisory
· Debt – Mutual Funds
· Debt – Relief bonds, etc.
· Forex – Interbank broking
· Merchant Banking – Amalgamation & Mergers
· Merchant Banking – Private Equity Merchant Banking – Public Offering.
 Our services:
 Equity and Derivatives Trading:
Equity trading is offered to retail clients through different channels in the Bombay Stock
Exchange (BSE) & the National Stock Exchange of India (NSE), for the cash and the derivatives
segments. Investors are serviced through a PAN India network of over 650 associates / locations
comprising of 585 franchisee and 65 company branches. (as on July 2009)
 Online Trading:
Investmentz.com is our trading portal that offers online trading to retail investors in the BSE and
NSE cash and derivatives segments. The investors can do their own trading through a browser-
based interface as well as a streamer-based solution called Live exchange. This service is also
available through an Interactive Voice Response (IVR) facility for those clients who are unable
to access the Internet service at any time. The company has tied up with leading nationalized,
private and co-operative banks to offer share-trading services to the banks' customers. A
seamless gateway has been established between the banking and depository software of the bank.
 Institutional Desk:
Equity trade execution services are provided to institutional investors both domestic and FII by
our institutional desk. Research and market.
 Investment Banking:
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ACMIIL has been granted a Category I Merchant Banking license by SEBI. It offers services in
mergers, amalgamations, private equity, public offerings and a full gamut of investment banking
services.
 Commodity Trading Service are Provided Through Our Associate:
Asit C. Mehta Commodity Services Pvt. Ltd. The company is member of India’s premier
commodity exchanges, namely, the Multi Commodity Exchange of India Ltd. (MCX), the
National Commodity & Derivatives Exchange, India (NCDEX) and the East India Cotton
Exchange Association (EICA). The online trading portal also provides facility to trade on
NCDEX. One of the group company is a member of Dubai Gold & Commodity Exchange
(DGCX).
 Inter-Bank Forex Desk:
Our associate company, Asit C Mehta Forex Pvt. Ltd., undertakes inter-bank forex order
execution. Accredited by the Foreign Exchange Dealers’ Association of India (FEDAI), the
company is empanelled with approximately 60 banks and has a reasonable presence in the
market.
 Support Services
 Research:
Investors are provided with extensive information on markets and companies through hourly
market reviews, periodic market commentary and recommendations, which enable them to make
informed decisions. The company firmly believes that providing continuous and accurate
decision making tools can add substantial value to its investors.
 Advisory Services:
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Advisory services are provided as a value-added service to all retail and institutional clients. This
service is delivered through the hourly, daily, weekly, fortnightly and monthly publication of
fundamental and technical research. Calls are made through broadcast services on our private
VSAT network, SMS and e-mail.
 Accounts Information:
Accounts information to the retail clients is provided through access on our website. This assists
clients in knowing details about their trading accounts and their resultant obligations through
various reports like Bill, Contract, Financial Ledger, Transaction Register, Stock Register,
Portfolio Tracker, Stock holding position, etc. E-contracts are generated for investors giving
trade details.
 Other services:
 Price Ticker
ACMIIL, in association with Capital Market Publications, presents the
equity/derivative/commodity price ticker for easy desktop access to capital market information.
The prices reflected are generally delayed by five minutes, and any additional delay (if any)
depends on the user’s connectivity and computer system configuration. You can customize the
ticker as per your individual needs.
 Alertz
As our registered client, Investmentz.com provides you with ‘Alertz’ facility on your email SMS
and assists you in your investment decision, thus enriching your capital market investment
experience through us.
Investmentz.com’s Alertz service keeps you informed about stock prices through email and
SMS. You may activate the Email Alertz service and track your selected stocks/indices without
monitoring the trading terminal during market hours. It is now very easy to track the prices of
your selected stocks without deviating from normal activities .The SMS Alertz service is
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available for trade confirmation, fund pay-in and pay-out, market views/calls, etc, to clients who
actively use our trade execution services.
As general information, Investmentz.com does not guarantee any accuracy of generation,
databases, and delivery timings, and does not make any claims of any nature in this matter The
critical components to avail the Alertz service are:
a) Internet connectivity / bandwidth speed at your end,
b) Information feed available from the exchange,
c) Computing speed of the Alertz, and
d) Speed of your Internet Service provider (ISP) and/or domain provider and/or Telecom service
provider (TSP).
 Advice Me
To service general retail investor and assistance them in systematic creation of wealth, we could
try to provide you with some basic / brief investment idea on stock of your interest. You could
ask us an investment question related to a particular stock or sector and we would see that brief
research (fundamental / technical) input could be provided on that stock or sector.
Whatever may be our research input on your inquiry, still the final investment decision would
need to be taken by you as you know your investment profile & habits, risk appetite, income –
cash flow, person / family / social obligation, etc.
 Potential Growth Areas:
India is amongst the least affected countries in the 2008 global meltdown. May 2009 general
election in the country provided a fairly stable government. We see great potential for the
country in general and financial market in particular in the years to come. Investor participation,
product innovations, volume growth is likely to be in exponential proportion.
Our company is well poised to build a great institution in India to service the Indian and global
investors for their financial services needs The company has created a strong organization driven
by processes to handle multifold volume growth.
 Do not disturb:
To service our clients and aide them in wealth creation process, we at Asit C Mehta Investment
Interrmediates Ltd. keep on sending information about our products and services, information
related to capital market investment, etc. This information might be sent / conveyed to you via
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letter, newsletter, email, phone; SMS, etc. based on our assumption that you would need this
information and benefit you in your wealth creation process. But, at times, you might need
privacy and wish us not to contact you for such information. We would take the precaution and
see not to disturb you by excluding your contact details from our marketing list. Kindly provide
your details so as to not disturb you.
 Message Board:
Welcome to our new website! We are pleased to announce some exciting new features, an
improved user-friendly design and services to benefit our esteemed customers. We have also
taken steps to ensure faster loading of pages.
 User-friendly design:
No part of the website is more than three clicks away. This ensures speedy access to whatever
information you may need.
 Easy Trading:
We have two options for trading: Quick Trade and Regular Trade. Quick Trade enables you to
transact in any share quickly by presenting only the most relevant information. Regular Trade
gives you full information about the share, enabling you to take an informed decision.
 New features:
We've added some exciting new features like Advise Me and Online Purchase of Mutual Funds
and IPOs.
 Knowledge Center:
Investor Education and Empowerment is essential for inculcating correct investment habits. We
undertake various initiatives to educate investors and enable them to make informed investment
decisions based on their investment profiles, risk appetites, and return expectations. Three
important parts of our Investor Education and Awareness Program are: Market Wisdom series,
Video broadcasts of Investment Education Topics, and the Nucleus Investmentz newsletter. We
also conduct activities such as seminars, exhibitions, etc.
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 Market Wisdom
This is an Investor Empowerment series comprising material prepared to assist investors as they
just step into the capital market or when they are in the middle of various curves in the wealth
creation process.
The various market wisdom series for general investor education and awareness some of them
are as follows:
Why do we need financial planning?
Investors guide to share markets
Safety, liquidity and returns
What is Stock market?
Equity or Mutual funds?
The first step
How to select your broker?
Why is the stock market not a gambling den?
Do operators run the stock market?
Why do prices go up and down in the stock market?
A Lesson in Options and Futures
Sensex 12000...12800...13000...What to do?
Dividend: What does it mean to investor?
Margins and investors
Hedge funds Dabba
trading Exchange-
traded funds
Basics of commodities futures market
Settlement of trades..
Investor grievance redressal mechanism Risk
associated with equity investments etc.
 Investor Education Topics
We have been conducting the Investor Education and Awareness program via video broadcasts
through our own network (branches and business associates), which is spread over 600 locations
across 25 states and union territories in India. Speakers with industry expertise participate in
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A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
A Study on Investment Pattern of Investors on Different Products
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A Study on Investment Pattern of Investors on Different Products

  • 1. Projectskart.com investors on different products Visit www.projectskart.com for more information INTRODUCTION EXECUTIVE SUMMARY An investment refers to the commitment of funds at present, in anticipation of some positive rate of return in future. Today the spectrum of investment is indeed wide. An investment is confronted with array of investment avenues. Among all investment, investment in equity is in best high proportion. This is because the history of stock market is booming and bursts overnight millionaires, an instant pauper. Indian economy is doing indeed well in recent years. The study has been undertaken to analyze the projectskart.com investment community. The main reasons behind the study are the factors like income, economy condition, and the risk covering nature of the Indian investors. The percentage of Indian investors investing in the Indian equity market is very less as compared to foreign investors. This study has been undertaken in Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL), which was incorporated in the year 1986. And the company, which is, diversified into many fields like securities, insurance, distribution, commodities and investment services. This project contains the investors’ preferences and as well as the different factors that affect investors decision on the different investment avenues most of them investors are the clients of Asit C. Mehta Investment Interrmediates Ltd., which provides a complete bouquet of products in equity, debt, commodities, forex, depository, derivatives and allied services in India . This study includes response of investor in choosing securities in each classification and analysis has been for the respective performance based on their returns. The findings relates to the outperforming products and investors risk taking ability while investing in each different products. Projectskart.com Page 1
  • 2. Projectskart.com investors on different products 1.1 PROBLEM STATEMENT The statement of the problem under study is to analyze the projectskart.com investors and the popularity of different products/Services provided by Asit C. Mehta for investment. This problem tries to identify the investors’ perception and their risk taking ability while investing in different products of market. 1.2 OBJECTIVES: · To study the projectskart.com investors. · To study the investment decisions of different social class investors (in term of age group, education, income level etc.) · To analyze the projectskart.com investors who reside in an economically developed area and economically developing area. · To study the difference between various investment options offered at Asit C. Mehta. · To study the role of Asit C. Mehta as a depository participant. 1.3 SCOPE OF THE STUDY The primary market starts from broad environmental factors to the industry, which influences the share price and finally analyzing the companies’ potentiality by considering possible risk associated with securities for investing public. Since share prices of the company is empirically found to depend up to 50% on the performance of the industry and the economy, studying those related field provide insights for selecting different products of Asit C. Mehta. Income and risk factors play a significant role while selecting particular product of a Asit C Mehta, as it can create an opportunity for one product and may not for the other, the analyzing impact of income and risk on projectskart.com investors is important. As research reports shows that frequency of investment pattern, factors, income level play more significant role in deciding pattern of investment. So analyzing the factors that affect projectskart.com investors and other investment criteria provide the valuable insights. Projectskart.com Page 2
  • 3. Projectskart.com investors on different products 1.4 RESEARCH METHODOLOGY · Definitions of the population Since the study is mainly related to know the investment patterns of the investors on different products of company. Their potentiality of earning income and reducing risk of the investment community on the products, where each security in the market has to be analyzed through their earnings over the others. The population here was being Asit C. Mehta customers. · Type of research: This is a descriptive research where survey method is adopted to collect primary information from the investors using different scales as required and the required secondary information for the analysis. · Primary Data A questionnaire schedule was prepared and the primary data was collected through survey method. · Secondary Data Company website Books Related information from net Customer database · Sample Size The population being large the survey was carried among 50 respondents, most of them are the clients of Asit C. Mehta Investment Interrmediates Ltd, Hassan. They will be considered adequate to represent the characteristics of the entire population. · Sampling Procedure The sampling procedure followed in this study is non-probability convenient sampling. Simple random procedures are used to select the respondent from the available database. The Projectskart.com Page 3
  • 4. Projectskart.com investors on different products research work will be carried on the basis of structured questionnaire. The study is restricted to the investors of the Hassan. · Techniques for data analysis The analysis of data collection is completed and presented systematically with the use of Microsoft Excel and MS-Word. The various tools which were used for presentation are: · Bar graphs. · Pie charts. · Column graphs. 1.5 LIMITATIONS: · The investment pattern analysis has been limited to only 50 investors. · This study is conducted to analyze their pattern not all those factors that really matter while investing. · It is conducted in Hassan city. · An interpretation of this study is based on the assumption that the respondents have given correct information. · The economy and industry are so wide and comprehensive that it is difficult to encompass all the likely factors influencing the investors’ investment pattern in the given period of time. · As the study has been limited to only 50 only out of them most are Asit C. Mehta clients and potential customers. · Besides the study has the limitation of time, place and resources. Projectskart.com Page 4
  • 5. Projectskart.com investors on different products REVIEW OF LITERATURE Investment is the sacrifice of certain present value for the uncertain future reward. It entails arriving at numerous decisions such as type, mix, amount, timing, grade etc of investment and disinvestments. Further such decisions making has not only to be continuous but rational too. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future, which is known as ‘investment’. There are various investment avenues such as Equity, Bonds, Insurance, and Bank Deposit etc. A Portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal. There are various factors which affects investors’ portfolio such as annual income, government policy, natural calamities, economical changes etc. 2.1What is Investment? Investment is the employment of funds with the aim of achieving additional income or growth in value. The essential quality of income is that, it involves ‘waiting ‘for a reward. It involves the commitment of resources which have been saved or put away from current consumption in the hope that some benefits will occur in future. The term ‘investment’ does not appear to be a simple as it has been defined. Investment has been categorized by financial experts and economists. It has also often been confused with the term speculation.  Financial and Economic Meaning of Investment Investment is the allocation of monetary resources to assets that expected to yield some gain or positive return over a given period of time. These assets range from safety investment to risky investments. Investments in this form are also called ‘Financial Investments’. To the economists, ‘Investment’ means the net additions to the economy’s capital stock which consists of goods and services that are used in the production of other goods and services. In this context the term investment implies the information of new and productive capital in the form of new construction, new producers’ durable equipment such as plant and equipment. Inventories and human capital are included in the economist’s definition of investment. Projectskart.com Page 5
  • 6. Projectskart.com investors on different products In simple words investment means buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold as an investment, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Types of financial investments include shares or other equity investment, and bonds (including bonds denominated in foreign currencies). These investments assets are then expected to provide income or positive future cash flows, but may increase or decrease in value giving the investor capital gains or losses  Features of an investment programme In choosing specific investments, investors will need definite ideas regarding features, which their investment avenue should possess. These features should be consistent with the investors’ general objectives and in addition, should afford them all the incidental conveniences and advantages, which are possible under the circumstances. The following are the suggested features as the ingredients from which many successful investors compound their selection policies.  Safety of principal The investor, to be certain of the safety of principal, should carefully review the economic and industry trends before choosing the types of investment. Errors are avoidable and therefore, to ensure safety of principal, the investor should consider diversification of assets. Adequate diversification involves mixing investment commitments by industry, geographically, by management, by financial type and maturities. A proper combination of these factors would reduce losses.  Liquidity Even investor requires a minimum liquidity in his investment to meet emergencies. Liquidity will be ensured if the investor buys a proportion of readily saleable securities out of his total portfolio. He may therefore, keep a small proportion of cash, fixed deposits and units which can be immediately made liquid investments like stocks and property or real estate cannot ensure immediate liquidity. Projectskart.com Page 6
  • 7. Projectskart.com investors on different products  Income stability Regularity of income at a consistent rate is necessary in any investment pattern. Not only stability, it is also important to see that income is adequate after taxes. It is possible to find out some good securities, which pay particularly all their earnings in dividends.  Appreciation and purchasing power stability Investors should balance their portfolios to fight against any purchasing power stability. Investors should judge price level inflation, explore their possibility of gain and loss in the investments available to them, limitations of personal and family considerations. The investor should also try and forecast which securities will possibly appreciate. A purchase of property at the right time will lead to appreciation in time. Growth stock will also appreciate over time. These, however, should be done thoughtfully and not in a manner of speculation.  Legality and freedom from care All investments should be approved by law. Law relating to minors, estates, trusts, shares and insurance be studied will bring out many problems for the investor. One way of being free from care is to invest in securities like Unit Trust of India, Life Insurance Corporation or Saving Certificates. The management of securities is then left to the care of the Trust who diversifies the investments according to safety, stability and liquidity with the consideration of their investment policy. The identity of legal securities and investments in such securities also help the investor in avoiding many problems.  Tangibility Intangible securities have many times lost their values due to price level inflation, confiscatory laws or social collapse. Some investor prefers to keep a part of their wealth invested in tangible properties like building, machinery and land. It may, however, be considered that tangible property does not yield an income apart from direct satisfaction of possession or property. Projectskart.com Page 7
  • 8. Projectskart.com investors on different products TABLE: 2.1 FEATURE OF INVESTMENT AVENUES Particulars Risk Return/ Capital Liquidity/ Tax Current appreciation Marketability benefits yield Equity High Low High High High Shares Debentures Low High Very low Very low Nil Bank Deposit Low Low Nil High Nil Life Nil Nil Low Low Moderate Insurance Policies Real Estate Low Low High in Moderate Changes Long-term according to rules Gold and Low Nil High in Moderate Nil Silver Long-term Projectskart.com Page 8
  • 9. Projectskart.com investors on different products 2.2 THE INVESTMENT PROCESS-STAGES IN INVESTMENT The investment process is generally described in four stages. These stages are investment policy, investment analysis, valuation of securities and portfolio construction. a. Investment Policy The first stage determines and involves personal financial affairs and objectives before making investments. It may also be called preparation of the investment policy stage. The investor has to see that he should be able to create an emergency fund, an element of liquidity and quick convertibility of securities in to cash. This stage may, therefore, be considered appropriate for identifying investment assets and considering the various features of investment. b. Investment Analysis When an individual has arranged a logical of the types of the investments that he requires on his portfolio, the next step is to analyse the securities available for investment. He must make a comparative analysis of the type of the industry, industry of security and fixed vs. variable securities. The primary concern at this stage would be to form beliefs regarding future behavior or prices and stocks, the expected returns and associated risk. c. Valuation of investments The third step is perhaps most important consideration of the valuation of investments, investments value, in general, is taken to be the present worth to the owners of the futures benefits from investments. The investor has to bear in mind the value of these investments. Projectskart.com Page 9
  • 10. Projectskart.com investors on different products Appropriate sets of weights have to be applied with use of the forecasted benefits to estimate the value of the investment assets. Comparison of the value with the current market price of the asset allows a determination of the relative alternativeness of the asset. Each asset must be valued on its individual merit. Finally the portfolio should be constructed. d. Portfolio Construction As discussed under features of investment programme, portfolio construction requires knowledge of the different aspects of securities. consisting of safety and growth of principal, liquidity of assets after taking into account the stage involving investment timing, selection of investment, allocation of savings to different investments. The success of every investment decision has become increasingly important in recent times. Making sound investment decision requires both knowledge and skill. Skill is needed to evaluate risk and returns associated with an investment decision. Knowledge is required regarding the complex investment alternatives available in the economic environment. 2.3 SUCCESS IN INVESTMENT Success in most things is relative, and not less so in the field of investment. Success in investment means earning the highest possible return with the constraints imposed by the investor’s personal circumstances-age, family needs, liquidity requirements, tax position and acceptability of risk. If possible, performance should be measured against alternative investment, or combination of investment, available to the investor within those constraints. Genuine success also means winning the battle against inflation, against the fall in the real value of savings and capital. To be successful investor, one should strive to achieve no less than the rate of return consistent with the risk assumed. But is this success? If markets are efficient, abnormal returns ere not likely to be achieved, and so the best one can hope for return consistent with the level of risk assumed. The trick is to assess the level of risk we wish to assume and make certain that the collection of assets we buy fulfills our risk expectations. As a reward for assuming this level of risk, we will receive the returns that are consistent with it. If however, we believe that we do better than the level of return warranted by the level of risk assumed, then success must be measured in these terms. But care must be exercised here. Merely realizing higher returns does Projectskart.com Page 10
  • 11. Projectskart.com investors on different products not indicate success in this sense. We are really talking about outperforming the average of the participant in the market for assets. And if we realize higher return we must be certain that we are not assuming higher risks consistent with those returns in order to measure our success. Thus we are left with two definitions of success. (i) Success is achieving the rate of return warranted by the level of risk assumed. Investors expect returns proportional to the risk assumed. (ii) Success is achieving a rate of return in excess or warranted by the level of risk assumed. Investors expect abnormal returns for the risk assumed. To be successful under the first definition, an investor must have a rational approach to portfolio construction and management. Reasonably efficient diversification is the key. To be successful under the second definition, an investor must have at least one of the following: Superior Analytical Skill, Superior Forecasting Ability, Inside Information, Dumb Luck Whether and to what extent anyone is likely to possess these characteristics and consistently be able to outperform the market by the level of risk assumed is critical issue. The investor should be aware of, but not denoted by, the fact that professional investors in particular, largely dominate investment markets, the stock market. As a consequence, grossly under-valued investments are rarely easy to come by. Moreover, he should beware of books subtitled. How I made a Million in the Stock Market, Get Rich Quick and statements such as ‘You can have a high return with no risk’. In reasonably efficient markets risk and return go together like bread and butter; in the words of Milton Friedman, there is no such thing as a free lunch. Success involves planning—clearly establishing one’s objectives and constraints. Investments should be looked at in terms of what they contribute to the overall portfolio, rather than their merits in isolation. Institutional investment will probably play some part, and performance tables are available to give some guidance. But personal direct investment should not be overlooked, particularly in the obvious area of Turk ownership, and one’s own knowledge, skills, hobbies and acquaintances can also be put to advantage. Remember Francis Bacon’s words: If a man look sharply and attentively, he shall see fortune; for though she be blamed, yet she is not so invisible. More money has been lost in the stock market, then one can imagine simply because of the failure of investors to clearly define their objectives and assess their financial temperaments. In analyzing the portfolios of individual investors, the most common errors observed are: Firstly, portfolio is over diversified, containing so many issues that the investors cannot follow closely the development in those companies. Projectskart.com Page 11
  • 12. Projectskart.com investors on different products Secondly, many portfolios suffer from overconcentration in one or two issues. Thirdly, all too often, the quality of these securities is not consistent with the stated investment goal and usually a portfolio contains too many speculative securities. Fourthly, many individual investors are afraid to take losses; they want to wait for their stock to come back to the price they paid. Fifthly, most investors, without realizing it, do not have a plan. They are buying and selling and believe is going where the action is instead of sticking to an investment goal. Finally, most serious of all some investors consider only profit potential never the risk factor. They try to wait for the bottoms to buy and tops to sell, they don’t learn from their mistakes and sight of their financial goals for the timeframe of the investment objectives under pressure of hope, fear, or greed. Should investors play a winner’s game or a loser’s game while buying securities? To answer this question, probably the best way to explain it is to use a sport as an illustration. Let us take tennis. To professionals like Williams sisters, tennis is a winner game. To win, they must deliver the ball to a place where the opponent will find it difficult to return or play at a speed that the opponent cannot keep up with. They win the game by delivering winning shots. According to sports writers, on the one hand, tennis to amateurs is actually a loser’s game. They do not have the strikes that in any way resemble those of Williams sisters and other professionals. The best strategy to win a game, they, is to keep the ball in play and let the opponent defeat himself by hitting the ball into the net or outside the court. They win game by loosing less than their opponent. The above analogy clears the distinction between winner and loser’s game. Probably now the investors can guess whether buying securities is a winner’s game or a loser’s game. Recently, buying securities has become a loser’s game even for professionals engaged in institutional investing. For those who determine to win the loser’s game, it is required: 1) Play your own game. Know your policies very well and play according to them all the time. 2) Do the things do best? Make ‘fewer’ but ‘better’ investment decisions. 3) Concentrate on your defences. Most investors spend too little time on sell-decisions. Sell decisions are as important as buy-decisions. Investors should spend at least equal time in making sell-decision. Projectskart.com Page 12
  • 13. Projectskart.com investors on different products The crucial point of loser’s game is to put the balance sheet and the income statement through a fine screen. This is the first step in making sure to avoid a mistake and will help the investor to keep away from letting the excitement make him move too quickly. Remember the old saying. A fool and his money are quickly parted.  THREE APPROACHES TO SUCCEED AS AN INVESTOR As Charles Ellis argued, it appears that there are three different ways of earning superior risk- adjusted returns on stock market. The first one is physically difficult, the second one is intellectually difficult, and the third one is psychologically difficult.  Physically Difficult Approach Many investors seem to follow this approach, wittingly or unwittingly. They look at the newspapers and financial periodicals to learn about new issues, they visit the offices of brokers to get advice and application forms, and they apply regularly in the primary market. They follow the budget announcements intently, they read CMIE reports to learn about the developments in economy and various industrial sectors, they read investment columns written by the so called ‘experts’, they follow developments in the companies, they solicit information from company executives, they read the columns in technical analysis, and they attend seminars and conferences. In a nutshell, they apply themselves assiduously, diligently, and even doggedly. They operate on the premise that if they can be a step ahead of others, they will outperform the market. The physically difficult approach seems to have worked reasonably well for most of the investors in India since the late 1970s to the early 1990s, for three principal reasons: 1. Typically, issues in the primary market have been priced very attractively. 2. The secondary market, thanks to limited competition till almost 1991, was characterized by numerous inefficiencies that provided rewarding opportunities to the diligent investor. 3. An advancing price-earnings multiple, in general, bailed out even inept investors. Things, however, have changed from mid-1995. The opportunities for subscribing issues in the primary market have substantially dried up as companies, quite understandably, are placing securities with institutional investors at prices that are fairly close to the prevailing market prices. Likewise, the scope for earning superior returns in the secondary market has diminished as the degree of competition and efficiency is increasing, thanks to the emergence of hundreds of new Projectskart.com Page 13
  • 14. Projectskart.com investors on different products institutional players (mutual funds, foreign institutional investors, merchant banking organisations, corporate bodies) and millions of new individual investors. Finally, the prospects of a fluctuating price-earnings multiple seem to be a greater than the prospects of a rise in the price-earnings multiple.  Intellectually Difficult Approach The Intellectually Difficult Approach to successful investing calls for developing profound understandings of the nature of investments and hammering out a strategy based on superior insights. This approach has been followed mainly by the highly talented investors who have an exceptional ability, a rare perceptiveness, an unusual skill, or a touch of clairvoyance. Such a gift has been displayed by investors like Benjamin Graham, John Maynard Keynes, John Templeton, George Soros, Warren Buffet, Phil Fisher, Peter Lynch, and others. Benjamin Graham, widely acclaimed as the father of modern security analysis, was an exceptionally gifted quantitative navigator who relied on hard financial facts and religiously applied the ‘margin of safety’ principle. John Maynard Keynes, arguably the most influential economist of the 20th Century, achieved considerable investment success on the basis of his sharp insights into market psychology. John Templeton had an unusual feel for bargain stocks and achieved remarkable success with the help of bargain stock investing. Warren Buffett, the most successful stock market investor of our times, is the quintessential long-term value investor. George Soros, a phenomenally successful speculator, developed and applied a special insight which he labels as the ‘reflexivity’ principle. Growth Phil Fisher, a prominent growth stock advocate, displayed a rare ability with regard to invest in growth stocks. Peter Lynch, perhaps the most widely read investment guru in recent years, has performed exceptionally well, thanks to a rare degree of openness and flexibility in his approach. The intellectually difficult approach calls for a special talent that is diligently honed and nurtured over time. Obviously, it can be practiced only by a select few and you should have the objectivity to discern whether you can join this elite club. Remember that many investors unrealistically believe that they have a rare gift because the stock market provides an exceptionally fertile environment for self-deception. Participants in the stock market can easily live in a world of make belief by accepting confirming evidence and rejecting contradictory evidence. As David Dreman says: “Under conditions of anxiety and uncertainty, with vast interacting information grid, the market can become a giant Rorschach test, allowing the investor to see any pattern that he Projectskart.com Page 14
  • 15. Projectskart.com investors on different products wishes....experts cannot only analyse information incorrectly, they can also find relationships that aren’t there- a phenomenon called illusory correlation.”  Psychologically Difficult Approach The stock market is periodically swayed by two basic human emotions, viz. Greed and fear. When greed and euphoria sweep the market prices rise to dizzy heights. On the other hand, when fear and despair envelop the market, prices fall to abysmally low levels. If you can surmount these emotions which can wrap your judgment, create distortions in your thinking, and induce you to commit follies, you are likely to achieve superior investment results. The psychologically difficult approach essentially calls for finding ways and means of substantially overcoming fear and greed. Its operational guidelines are as follows: 1. Develop an investment policy and adhere to it consistently 2. Do not try to forecast stock prices 3. Rely more on hard numbers and less on judgment 4. Maintain a certain distance from the market place 5. Face uncertainty with equanimity These guidelines look simple, but they are psychologically difficult to follow. Yet, for the bulk of the investors this appears to be only sensible approach to improve the odds of their investment performance. 2.4 INVESTMENT AND SPECULATION Traditionally, investment is distinguished from speculation in three ways, which are based on the factors of: 1. Capital gains. 2. Time period. 3. Risk Projectskart.com Page 15
  • 16. Projectskart.com investors on different products The distinction between investments and speculations is given in the table below: TABLE: 2.2 Investment Speculation Time Horizon Long-term time Short-term planning framework beyond 12 holding assets even months. for one day with the objective. Risk It has limited risk. There are high profits and gains. Return It is consistent and High returns, though moderate over a long risk of loss is high. period. Use of funds Own funds through Own and borrowed savings funds. Decisions Safely, liquidity, Market behaviour profitability and information, stability, judgements on considerations and movement in the performance of stock market. companies. Hunches and beliefs. 1. Capital Gain The distinction between investment and speculation emphasizes that if the motive is primarily to achieve profits through price changes, it is speculation. If purchase of securities is preceded by proper investigation and analysis and review to receive a stable return over a period of time, it is termed as investment. Thus, buying low and selling high, making large capital gain is associated with speculation. 2. Time Period Projectskart.com Page 16
  • 17. Projectskart.com investors on different products The second difference is the consideration of the time period. A longer-term fund allocation is termed as investment. A short-term holding is associated with trading for the ‘quick turn’ and is called speculation. The distinction between investment and speculation is helped to identify the role of the investor and speculator. The investor constantly evaluates the worth of a security through fundamental analysis, whereas the speculator is interested in market action and price movement. These distinctions also draw out the fact that there is a very fine line of division between investment and speculation. There are no established rules and loss, which identify securities, which are permanent for investment. There has to be a constant review of securities to find out whether it is a suitable investment. To conclude, it will be appropriate to state that some financial experts have called investment ‘a well grounded and carefully planned speculation’, or good investment is a successful speculation. Therefore, investment and speculation are a planning of existing risks. If artificial and unnecessary risks are created for increased expected returns, it becomes gambling. 3. Risk The word ‘risk’ has a definite financial meaning. It refers to possibility of incurring a loss in a financial transaction. In a broad sense, investment is considered to involve limited risk and is confined to those avenues where the principal is safe. ‘Speculation’ is considered as an involvement of funds of high risk. An example may be cited of stock brokers’ lists of securities which labels and recommends securities separately for investments and speculation purposes. Risk, however, is a matter of degree and no clear-cut lines of demarcation can be drawn between high risk and low risk and sometimes these distinctions are purely arbitrary. No investments are completely risk-free. Even if it safety of principal and interest are considered, there are certain non manageable risks which are beyond the scope of personal power. These are (a) the purchasing power risk – In other words, it is the fall in real value of the interest and the principal and (b) the money rate risk or the fall in market value when interest rate rises. These risks affect both the speculator and the investor. High risk and low risk are, therefore, general indicators to help and understanding between the terms investments and speculation. 2.5 What causes the risks? Projectskart.com Page 17
  • 18. Projectskart.com investors on different products The risks are caused by the following factors: 1) Wrong decision of what to invest in. 2) Wrong timing of investment. 3) Nature of the instrument invested say, the category of assets like corporate shares or bonds, Chit funds, Nidhis, Benefit funds etc. are highly risky, as they are in the unorganized sector. Some instruments as bank deposits or P.O Certificates are less risky, due to their certainty of payment of principal and interest. 4) Creditworthiness of the issuer: The securities of Government end semi-Government bodies are more credit worthy than those issued by the corporate sector and much less secure are those in the unorganized sector like indigenous bankers, shroffs, chit funds etc. private limited companies share and shares of unlisted companies are more risky. 5) Maturity period are length of investment: The longer the period, the more risky is the investment normally. 6) Amount of investment: The higher the amount invested in any security the larger is the risk, while a judicious mix of investments in small quantities may be less risky. 7) Method of investment, namely, secured by collateral or not. 8) Terms of lending such as periodicity of servicing, redemption periods etc. 9) Nature of the industry or business in which the company is operating. 10) National and international factors, acts of god etc. Reference was made to two types of Risk of investor: · Systematic Risks- · Unsystematic Risks- 1. Systematic Risks- Projectskart.com Page 18
  • 19. Projectskart.com investors on different products Systematic Risks are out of external and uncontrollable factors, arising out of the market, nature of the industry and state of the economy and a host of other factors. In other words systematic risk refers to that portion of the total variability of the return caused by common factor affecting the prices of all securities alike through economic, political and social factors. 2. Unsystematic Risks- Unsystematic Risks emerge out of the known and controllable factors, internal to the issuer of the securities or companies. In other words unsystematic risk refers to that portion of the total variability of the return caused due to unique factors, relating that firm or industry, through such factors as management failure, labour strikes, raw material scarcity etc. While the systematic risk is common to all companies and has to be borne by the investor and compensated by the Risk Premium, The unsystematic risk can be reduced by the investor through proper diversification and planning a proper investment strategy for the purpose. Examples of Systematic Risks  Market Risk: This arises out of changes in Demand and Supply pressures in the markets, following the changing flow of the information or expectations. The totality of the investor perception and subjective factors influence the events in the market which are unpredictable and give rise to risk, which is not controllable.  Interest Rate Risk: The return on an investment depends on the interest rate promised on it and changes in market rates of interest from time to time. The costs of funds barrowed by companies or stockbrokers depend on interest rates. The market activity and investor perceptions change with the changes in interest rates. These interest rates depend on nature of instruments, stocks, bonds, loans etc maturity of the periods and the creditworthiness of the issuer of securities. But basically the monetary and credit policy, which is not controllable by the investor, affects the riskiness of investments due their effects on returns, expectations, and the total principal due to be refunded  Purchasing Power Risk: Projectskart.com Page 19
  • 20. Projectskart.com investors on different products Inflation or rise in prices lead to rise in costs of production, lower margins, wage rises and profit sqeezing etc. The return expected by the investors will change due to change in real value of returns. Cost pushed inflation is caused by rise in the costs, due to wage rise or rise in input prices. Demand-pull forces operate to increase prices due to inadequate supplies and rising demand. The increase in demand may be caused by changing expectation of future interest rates and inflation or due to increase in money supply or creation of currency to finance the deficits of the government. This element of purchasing power risk is inherent in all investments and cannot be controlled by him. Examples of Unsystematic Risks  Business Risk: This relates to variability of business, sales income, profits etc., which in turn depend on the market conditions for the product mix, input supplies, strength of competitors etc. This business risk is sometimes external to the company due to changes in government policy or strategy of competitors or unforeseen market conditions. They may be internal due to fall in production, labour problem, raw materials problem or inadequate supply of electricity etc. The internal business risk leads to fall in revenues and in profit of the company, but can be corrected by certain changes in the company’s policies.  Financial Risk: This relates to the method of financing, adopted by the company, high leverage leading to larger debt servicing problems or short-term liquidity problems due to bad debts, delayed receivables and fall in current assets or rise in current liabilities. These problems could no doubt to be solved, but they may lead to fluctuations in earnings, profits and dividends to share holders. Sometimes, if the company runs in to losses or reduced profits, these may lead to fall in returns to investors or negative returns. Proper financial planning and other financial adjustments can be used to correct this risk and as such it is controllable.  Default Or Insolvency Risk: The barrower or issuer of securities may become insolvent or may default, or delay the payments due, such as interest installments or principal repayments. The barrower’s credit rating might have fallen suddenly he became default prone and in its extreme form it may lead to Projectskart.com Page 20
  • 21. Projectskart.com investors on different products insolvency or bankruptcies. In such cases the investor may get no return or negative returns. An investment in a healthy company’s share might turn out to be a waste paper, if within a short span, by the deliberate mistakes of management or acts of God, the company became sick and its share price tumbled below its face value. Other Risks In addition to the above major risks both in controllable and uncontrollable categories, there are many more risks, which can be listed, but in actual practice, they may vary in form, size and effect. Some of such identifiable risks are:  Political Risks: Political risks, fallowing the changes in the government, or its policy shown in fiscal or budgetary aspects etc., through changes in tax rates, imposition of controls or administrative regulations etc.  Management Risks: Management Risks, due to errors or inefficiencies of management, causing losses to the company.  Marketability Risks: Marketability Risks, involving loss of liquidity or loss of value in conversions from one asset to another say, from stocks to bonds, or vice versa. Such risks may arise due to some features of securities, such as capability; or lack of sinking fund or Debenture Redemption Reserve fund, for repayment of principal or due to conversion terms, attached to the security, which may go adverse to the investor. All the above types of risks are of varying degrees, resulting in uncertainty or variability of return, loss of income and capital losses, or erosion of real value of income and wealth of the investor. Normally the higher the risk taken, the higher is the return. But sometimes the risk is caused by acts of God and there may be no return at all. 2.6 Investment and Gambling The difference between investment and gambling is very clear. From the above discussion, it is established that investment is an attempt to carefully plan, evaluate and allocate Projectskart.com Page 21
  • 22. Projectskart.com investors on different products funds in various investment outlets which offers safety of principal, moderate and continuous returns and long-term commitment. Gambling is quite the opposite of investment. It connotes high risk and the expectation of high returns. It consists of uncertainty and high stakes for thrill and excitement. Typical examples of gambling are horse racing, game of cards, lottery etc. Gambling is based on tips, rumours and hunches, it is unplanned, non-scientific and without knowledge of the exact nature of risk. These distinctions between investment, speculation and gambling give us a basic idea of their nature, purpose and role. 2.7 Investment and Arbitrage Investment is usually a planned method of safely putting ones savings into different outlets to get a good return. Arbitrage is the mechanism of keeping one’s risk to the minimum through hedging and taking advantage of price differences in different markets. The simultaneous purchase of the same or similar security in two different markets would be an arbitrage transaction. Short-term gains can be expected through such transactions. An investor can also be an arbitrageur if he buys and sells securities in more than one stock exchange to take advantage of the price differentials in such exchanges. Derivatives introduced in the Indian market have a great potential for arbitrage transactions. Arbitrage transactions help in enhancing efficiency and liquidity in the stock market and in increasing the volume of trade. Hedgers, speculators and arbitrageurs can make riskless profits through the arbitrage process.  Real Assets Real assets refer to tangible assets, which are in the form of land and buildings, furniture, gold, silver, diamonds, or artifacts. These assets have a physical appearance. They may be marketable or non-marketable. They may also have the feature of being movable or non- movable. These assets are used to produce goods or services.  Financial Assets Projectskart.com Page 22
  • 23. Projectskart.com investors on different products A financial asset is a claim represented by securities. These assets are popularly called paper securities. Shares, bonds, debenture, bills, loans, lease, derivatives and fixed deposits are some of the financial assets. Therefore, financial assets represent a claim on the income generated by real assets of some other parties. Financial assets can be easily traded, as they are marketable and transferable. Financial assets are usually between two parties, for example, if a person buys a bond of Rs. 10,000 of ICICI Bank. The bond is liabilities of ICICI, but an asset of the person buying a bond because he has a claim over the bank to receive the principal sum with interest.  Commodity Assets Commodities are a new form of investment in India. Commodity assets consist of wheat, sugar, potatoes, rubber, coffee and other grains. Commodities are also in the form of metal like gold, silver, aluminium and copper. It also consists of items like cotton oil and foreign currency. Importers and exporters invest in commodities to diversify their portfolios. Traders hedge or transact in commodities to make gains. A National Commodity and Derivatives Exchange Ltd. (NCDEX) have been set up in India in 2003 as a public limited company to transact in commodities. The promoters of NCDEX were ICICI Bank Ltd., National Bank for Agriculture and Rural Development (NABARD), Life Insurance Corporation of India, (Punjab National Bank, Canara Bank, CRISIL Ltd., Indian Farmers Fertilizer, Co-operative Ltd. (IFFCO) and National Stock Exchange of India Ltd., (NSE). All these institutions subscribed to the equity shares of NCDEX. 2.8 Factors Favourable For Investment The investment market should have a favourable environment to be able to function effectively. Business activities are marked by social, economic and political considerations. It is important that the economic and political factors are favourable. Generally, there are four basic considerations, which foster growth and bring opportunities for investment. These are legal safeguards, stable currency and existence of financial institutions to aid savings and forms of business organization. Projectskart.com Page 23
  • 24. Projectskart.com investors on different products  Legal Safeguards A stable government, which frames adequate legal safeguards, encourages accumulation of savings and investments. Investors will be willing to invest their funds if they have the assurance of protection of their contractual and property rights. In India, the investors have the dual advantage of free enterprise and control. Freedom, efficiency and growth are ensured from the competitive forces of private enterprises. Statutory control exerts discipline and curtails some element of freedom. In India, the political climate is conducive to investment since the new economic reforms in 1991 leading to liberalization and globalization.  A Stable Currency A well-organized monetary system with definite planning and proper policies is a necessary prerequisite to an investment market. Most of the investments such as bank deposits, life insurance and shares are payable in the currency of the country. A proper monetary policy will give direction to the investment outlets. As far as possible, the monetary policy should neither promote acute inflationary pressures nor prepare for a deflation model. Neither condition is satisfactory. Price inflation destroys the purchasing power of investments. Thrift is also penalized when the net interest after taxes received by the investor is less than the rise in the price level, leaving the investor with less total purchasing power than he had at the time of saving. Inflation occurs generally in unstable conditions like war or floods but in the last decade, it also discernible in peace conditions especially in developing countries because of huge government deficit in creating infrastructure. Deflation is equally disastrous because the nominal values of inventories, plant and machinery and land and building tend to shrink. An example of the evil effects of deflation can be cited for the period 1929-1933 in the United States when the shrinkage in nominal values came to a point of producing wholesale bankruptcy. A reasonable stable price level, which is produced by wise monetary and fiscal management, contributes towards proper control, good government, economic well being and a well- disciplined growth oriented investment market and protection to the investor. Projectskart.com Page 24
  • 25. Projectskart.com investors on different products  Existence of Financial Institutions and Services The presence of financial institutions and financial services encourage savings, direct them to productive uses and helps the investment market go grow. The financial institutions in existence in India are mutual funds, development banks, commercial banks, life insurance companies, investment companies, investment bankers and mortgage bankers. The financial services include venture capital, factoring and forfeiting, leasing, hire purchase and consumer finance, housing finance, merchant bankers and portfolio management. Investment bankers are merchants of securities. They buy bonds and stocks of companies for re-sale to investors. The investment bankers are distinguished from security brokers who act as agents in buying and selling already issued securities for commission. Mortgage bankers sometimes act as merchants and sometimes as agents on mortgage loans generally on residential properties. They serve as middlemen between investors and borrowers and perform collateral service in connection with loans. Commercial banks and financial institutions also act as mortgage bankers in giving mortgage loans and servicing the loans. In India, there are a large number of financial institutions under Central Government and State Governments and rural bodies that have encouraged the growth of savings and investment. The Life Insurance Corporation and Unit Trust of India offer a wide variety of schemes for savings and give tax benefits also. Apart from these, there is a well-organized network of development banks such as the Industrial Development Bank of India (IDBI), Industrial Credit Investment Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI). At the state level, there are State Financial Corporation, for rural areas and agriculture, the National Bank of Agriculture and Rural Development (NABARD). These financial institutions and development banks offer a wide variety of policies for encouraging savings and investment. These institutions lend an element of strength to the capital market and promote discipline while encouraging growth. Since 1991, there has been a development of the private corporate sector. Many new financial institutions have emerged in the private sector. Insurance companies, mutual funds and venture capitalists leasing companies have been opened up to private financing agencies. Foreign banks have been allowed to do business. Thus, there is the presence of a large number of institutions and services, which channel the funds in productive directions. Projectskart.com Page 25
  • 26. Projectskart.com investors on different products  Choice of Investment The growth and development of the country leading to greater economic activity has led to the introduction of a vast array of investment outlets. Apart from putting aside savings in savings banks where interest is low, investors have the choice of a variety of instruments. The question to reason out is which is the most suitable channel? Which media will give a balanced growth and stability of return? The investor in his choice of investment will have to try and achieve a proper mix between high rate of return and stability of return to reap the benefits of both. Some of the instruments available are equity shares and bonds, provident fund, life insurance, fixed deposits and mutual funds schemes. The three golden rules for all investors are: Invest early Invest regularly Invest for long term and not short term One needs to invest for Earn return on your idle resources Generate a specified sum of money for a specific goal in life Make a provision for an uncertain future To meet the cost of inflation 2.9 Fundamental analysis of various investment alternatives: Before investing in various investment alternatives fundamental analysis is very necessary. A fundamental analysis believes that analyzing the economy, strength, management, production, financial status and other related information will help to choose investment avenues that will outperform the market and provide consistent gain to the investor. Fundamental analysis is the examination of the underlying forces that affect the interests of the economy, industrial sectors, and companies. It tries to forecast the future movement of capital market using signals from the economy, industry, company. Fundamental analysis requires an examination of the market from broader prospective. It also examines the economic environment, industrial performance, and company performance before taking an investment decision. Projectskart.com Page 26
  • 27. Projectskart.com investors on different products  Economic Analysis The economic analysis aims at determining if the economic climate is conductive and is capable of encouraging the growth of business sector, especially the capital market. When the economy expands, most industry groups and companies are expected to benefit and grow and when the economy declines, most sectors and companies usually face survival problems. Hence, to predict scrip prices, an investor has to spend time exploring the forces operating in the overall economy. Economic analysis implies the examination of GDP, government financing, government borrowings, consumer durable goods market, non-durable goods and capital goods market, saving and investment pattern, interest rates, inflation rates, tax structure, foreign direct investment, and money supply. The most used tools for performing economic analysis are; o Gross Domestic Product o Monetary policy and liquidity o Inflation o Interest rate o International influences o Consumer behaviors o Fiscal policy etc  Industry Analysis: It is very important to see how the industry to which the company belongs is faring. Specifics like effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export-oriented companies. Investment analysts call this as Industry Analysis. Companies producing similar products are subset (form a part) of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India. Tools for industry analysis Projectskart.com Page 27
  • 28. Projectskart.com investors on different products o Cross study of performance of the industry. o Industry performance over times. o Differences in industry risk. o Prediction about market behaviors, o Competition over the industry life cycle  Company Analysis: Company analysis involved choice of investment opportunities within a specific industry that consists of several individual companies. How has the company been faring over the past few years? Seek information on its current operations, managerial capabilities, growth plans, its past performance vis-à-vis its competitors etc.  Financial Analysis: If performance of an industry as well as of the company seems good, then check, if at the current price, the share is a good to buy or not. For this, look at the financial performance of the company and certain key financial parameters like Earnings per Share (EPS), P/E ratio, current size of equity etc. for arriving at the estimated future price. This is termed as Financial Analysis. For that you need to understand financial statements of a company i.e. balance Sheet and Profit and Loss Account contained in the Annual Report of a company. 2.10 Types of investment: (i) Short term Investment- It is an investment made by the investor for very short period of time i.e. for one to three years. Such as investment in bank, money market, liquid funds etc. (ii) Long Term Investment – When investor invests money for more than three to five years then it is called long term investment. Such as investment in bonds, mutual funds, fixed bank deposits, PPF, insurance etc Projectskart.com Page 28
  • 29. Projectskart.com investors on different products 2.11 Investor: Investor is a person or an organization that invest money in various investment sources for specific objective. Attitude of investment is different in each alternative. E.g. financial market have different attitude towards risk and return. Some investors are risk averse, while some have an affinity of risk. The risk bearing capacity of investor is a function of personal, economical, environment, and situational factors such as income, family size, expenditure pattern, and age. A person with higher income is assumed to have higher risk- bearing capacity. Thus investor can be classified as risk skiers, risk avoiders, or risk bearers. 2.12 Categories of Investors While there are as many investing styles as there are investors, most people fall more or less into one of three broad categories: conservative, moderate, aggressive.  Conservative investors Generally, conservative investors feel that safeguarding what they have is their top priority. These investors want to avoid risk — particularly the risk of losing any principal (their original investment) — even if that means they’ll have to settle for very modest returns. Conservative investors allocate most of their portfolios to bonds, such as Treasury notes or high- rated municipal bonds, and cash equivalents, such as CDs and money market accounts. They’re generally reluctant to invest in stocks, which may lose value, especially over the short term. When conservative investors do venture into stocks they‘re often inclined to choose blue chips or other large-cap stocks with well-known brands because they tend to change value more slowly than other types of stock and often pay dividend income.  Moderate investors Moderate investors want to increase the value of their portfolios while protecting their assets from the risk of major losses. For example, a moderate investor might use an allocation model that has 60% in stock, 30% in bonds, and 10% in cash equivalents. While they will tend to favor blue chip and other large-cap stocks, they may be willing to invest a modest portion of their principal in higher risk securities — such as international stock, small-caps, and volatile sector funds — in order to increase their potential for higher returns. Projectskart.com Page 29
  • 30. Projectskart.com investors on different products  Aggressive investors Aggressive investors concentrate on investments that have the potential for significant growth. They are willing to take the risk of losing some of their principal, with the expectation that they will realize greater returns. Aggressive investors might allocate from 75 to 95% of their portfolios to individual stocks and stock mutual funds. While large- and small-cap stocks and funds may make up the core of their portfolios, many aggressive investors will have significant holdings in more speculative stocks and funds, such as emerging market and sector mutual funds. Since aggressive investors focus on growth, they are usually less inclined to hold income producing securities, such as bonds. An aggressive investing style is definitely not for the faint of heart. It’s best suited for investors with a long-term investing horizon of 15 years or more, who are willing to make a long-term commitment to the stocks they buy. But history has shown that an aggressive investing approach, combined with a well diversified portfolio, and the patience to stick to a long-term buy-and-hold investing strategy through inevitable market downturns, can be the most profitable in the long run. Before making any investment, one must ensure to: o Obtain written documents explaining the investment o Read and understand such documents o Verify the legitimacy of the investment o Find out the costs and benefits associated with the investment o Assess the risk-return profile of the investment o Know the liquidity and safety aspects of the investment o Ascertain if it is appropriate for your specific goals o Compare these details with other investment opportunities available o Examine if it fits in with other investments you are considering or you have already made o Deal only through an authorized intermediary o Seek all clarifications about the intermediary and the investment o Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment. Projectskart.com Page 30
  • 31. Projectskart.com investors on different products 2.13 Investment Avenues: In India, numbers of investment avenues are available for the investors. Some of them are marketable and liquid while others are non-marketable and some of them also highly risky while others are almost risk less. The investor has to choose Proper Avenue among them, depending upon his specific need, risk preference, and return expected Investment avenues can broadly be categorized under the following heads o Corporate securities Equity shares Preference shares Debenture/Bonds GDR’s/ADR’s o Deposit in bank and non banking companies o Post office deposits and certificate o Life insurance policies o Provident fund schemes o Government and semi-government securities o Mutual fund and schemes o Real estate (i)Corporate securities: (a) Equity share Total equity capital of a company is divided into equal units of small denominations, each called a share. The holders of such shares are members of the company and have voting rights. When company makes profit shareholder receives their share of the profit in form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companies share goes up in the market. Investor can invest in shares either primary market offerings or in the secondary market. (b) Preference shares Preference share as that part of share capital of the Company which enjoys preferential right as to: (a) payment of dividend at a fixed rate during the lifetime of the Company; and (b) the return Projectskart.com Page 31
  • 32. Projectskart.com investors on different products of capital on winding up of the Company. It is lie in between pure equity and debt. But preference shares cannot be traded, unlike equity shares, and are redeemed after a pre-decided period. Also, Preferential Shareholders do not have voting rights. These are issued to the public only after a public issue of ordinary shares. Preference shares also get traded in the market and give liquidity to investor. Investor can opt for this type of investment when their risk performance is very low. (c) Debentures and Bonds It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date. Many types of debenture and bonds have been structured to suit investors with different time needs. Though having higher risk as compared to bank fixed deposits, bonds and debentures do offer higher returns. Debenture instruments require scanning the market and choosing specific securities that will cater to investment objectives of the investor. (d) Depository Receipts (GDRs/ADRs) Global depository receipts are the instrument in the form of a depository receipts or certificate created by the overseas depository bank outside India and issued to non-resident investors against ordinary shares. A GDR issued in America, is an American Depositary Receipts. As investors seek to diversify their equity holdings, the option of GDRs and ADR’s is very lucrative, while investing in such securities, investors should identify the capitalization and risk characterizes of the instrument and the companies’ performance in the home country. (e) Warrants A warrant is a certificate giving its holder rights to purchase securities at a stipulated price within a specified time limit. The warrants act as a value addition because holder of the warrant has the right but not the obligation to investing in equity at the indicated rate. An option contract often sold with another security. For instance, corporate bonds may be sold with warrants to buy common stock of that corporation. Warrants are generally detachable. Options Projectskart.com Page 32
  • 33. Projectskart.com investors on different products generally have lives of up to one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called Warrants and are generally traded over-the counter (ii) Savings bank account with commercial bank Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options: Savings Bank Account is often the first banking product investors use, which offers low interest (3.5% ), making them only marginally better than fixed deposits. (iii) Bank fixed deposits Fixed Deposits with Banks are also referred to as term deposits. Fixed Deposits in banks are for those investors, who have low risk appetite. Bank FDs is likely to be lower than money market fund returns. Fixed deposits may be recurring deposits where in savings are deposited at regular intervals or fixed deposits of varying maturities or with the varying notice periods such as 15 days, etc. The interest rates on these deposits vary depending on the maturity period, from 4 to 9%. In general, it is lower for fixed deposits of shorter term and higher for fixed deposits of longer term. If the deposit period is less than 90 days, the interest is paid on maturity; otherwise it is paid quarterly. (iv) Company fixed deposits For a manufacturing company the term of deposits can be one to three years, whereas for non-banking finance company it can vary between 25 months to five years. A manufacturing company can mobilize, by way of fixed deposits, an amount equal to 25 percent of its net worth from the public and an additional amount equal to 10 percent of its net worth from its share holders. A non banking finance company, however can mobilize a higher amount. The interest rates on company deposits are higher than those on bank fixed deposits. (v) Post Office Time Deposits (POTDs): Similar to fixed deposits of commercial banks, POTDs can be made in multiples of Rs 50without any limit. The interest rates on POTDs are, in general, slightly higher than those on bank deposits. The interest is calculated half-yearly and paid annually. No withdrawal is Projectskart.com Page 33
  • 34. Projectskart.com investors on different products permitted upto 6 months. After 6 months, withdrawals are permitted. However, on withdrawals made between 6 months and 1 year, no interest is payable. On withdrawals after 1 year, but before the term of deposit, interest is paid for the period the deposit has been held, subject to a penal deduction of 2%. A POTD account can be pledged. Deposits in 10 years to 15 years Post Office Cumulative Time Deposit Account can be deducted before computing the taxable income under Section 80c. (vi) Monthly Income Scheme of the Post Office: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any Post Office. It provides an interest rate of 8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in multiples of Rs. 1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs. 6, 00,000/-(if held jointly) during a year. It has a maturity period of 6 years. A bonus of 5% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 1% is levied from the principal amount if withdrawn prematurely. The 5% bonus is also denied. (vii) Life insurance policies Insurance companies offer many investment schemes to investors. These schemes promote saving and additionally provide insurance cover. LIC is the largest life insurance company in India. Some of its schemes include life policies, convertible whole life assurance policy, endowment assurance policy, jeevan Saathi, money back policy etc. Insurance policies, while catering to the risk compensation to be faced in the future by investor, also have the advantage of earning a reasonable interest on their investment insurance premiums. (viii) Public Provident Fund: A long-term savings instrument with a maturity of 15 years it can be made in monthly installments with a minimum of Rs.100 and a maximum of Rs.60,000 per annum and interest payable at 8% per annum compounded annually. It is not transferable, but has nomination facility. One withdrawal per financial year can be made any time after 5 years from the end of the year in which the subscription is made. Withdrawal is limited to 50% at the end of the 4th year. All subscription of PPF are completely free and balances in PPF are not taken into account for wealth tax purpose. Projectskart.com Page 34
  • 35. Projectskart.com investors on different products (ix) Government and semi-government securities It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date. The government issues securities in the money market and in the capital market. Money market instruments are traded in Wholesale Debt Market (WDM) trades and retail segments. Instruments traded in the money market are short term instruments such as treasury bills and convertible bonds. (x) Mutual fund These are funds operated by an investment company, which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification. Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds, which are short term instruments. On the basis of objective we can categories mutual funds as equity funds/growth funds, diversified funds, sector funds, index funds, tax saving funds, debt/income funds, liquid funds/money market funds, gift funds, balanced funds. And on the basis of flexibility we can categories them as open-ended funds, close-ended funds and interval funds. (xi) Real Estate Investment in real estate also made when the expected returns are very attractive. Buying property is an equally strenuous investment decisions. Real estate investment is often linked with the future development plans of the location. At present investment in real assets is booming Projectskart.com Page 35
  • 36. Projectskart.com investors on different products there are various investment source are available for investment which are directly or indirectly investing real estate. (xii) Bullion investment The bullion offers investment opportunity in the form of gold, silver, and other metals; specific categories of metals are traded in the metal exchange. The bullion market presents an opportunity for an investor by offering returns and the end value of future. It has been absurd that on several occasions, when stock market failed, the gold market provided a return on investments. 2.14 Sources of study for investors: A look out for new investment opportunities helps investors to beat the market. There are many sources from which investors can gather the required information. Such as; (i) Financial institutions Corporate house, government bodies and mutual funds are the main source of investment information. Many of these enterprises have their own website and post investment related information on their websites. (ii) Financial market Stock exchange and regulated bodies also provide useful information to investor to make their investment decisions. With respect to secondary market, the Securities and Exchange Board of India uses various modes to promote investors education and takes great effort to achieve an investor friendly secondary market in India. The Reserve Bank of India also provide useful information relating to the prevent interest rates and non-banking financial intermediaries that mobiles money through deposit schemes. (iii) Financial service intermediaries These are intermediaries who promote securities among the public. Many of these intermediaries are the agencies of specific instruments especially tax saving instruments. These intermediaries offer to share their commission from there concerned organization with the individual investor thus investor get additional advantages while investing through intermediaries. Projectskart.com Page 36
  • 37. Projectskart.com investors on different products (iv) Media Press sources such as financial newspapers, financial magazine, business news channel, websites etc. provide information related to investment to the public. Besides information on securities, these sources also provide analysis of information and in certain instance suggest suitable investment decisions to be made by investor. The foregoing discriminations about stock market and investment having under stood its important and its unique optimization in the money market. 3.1 INDUSTRY SCENARIO: A. Introduction: Basically, Securities markets provide a channel for allocation of savings by an individual or an organization to those who have a productive need for them. So, a security market can be said a location where the savers meet the real investors who need the fund. The savers and investors are constrained by the economy’s abilities to invest and save respectively which thus helps market in enhancing savings and investment in the economy. The dynamics of the economic, political, cultural and environmental activities within the country and rest of the world therefore affect Stock Market. A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008. [1] The total world derivatives market has been estimated at about $791 trillion face or nominal value, [2] 11 times the size of the entire world economy. [3] The value of the derivatives market, because it is stated in terms of notional values, cannot be directly Projectskart.com Page 37
  • 38. Projectskart.com investors on different products compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. B. Brief History: Indian Share Market is the oldest Asian stock market incorporated in 1875. The name of the first share trading association in India was Native Share and Stock Broker’ Association which later came to be known as Bombay Stock Exchange. This association started with 318 members. The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dallas Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sect oral indices. Projectskart.com Page 38
  • 39. Projectskart.com investors on different products Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999). The past decade has been quite remarkable for the Securities market in India with the boom in the economy fuelled by better banking system. It has grown exponentially and the market has also witnessed fundamental institutional changes. There have also been significant improvements in efficiency, transparency and safety. However global economic activity decelerated towards the end of the calendar year resulting in investment concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the effects of this slowdown spilled over into developing economies also and we are looking ahead with some degree of concern over the prospects in the near future. In recent days economic collapsed in variation of the foreign investors fund main effect of the Indian economy in 2008-2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the month of 8th July 2009. In other side National Stock Exchange (NSE) 3,974 is in the same month of 2009. Since the markets has taken up word moment from 9th July 2009 from the low of 3,974 to 4,578 on 24th July 2009 due to the Sharpe recovery in global economy as well as the 1st quarter Results of all major company which has been announced better than expectations, Hence Indian markets are one of the fastest emerging markets in world and attracted by many Foreign intuitional investors. Projectskart.com Page 39
  • 40. Projectskart.com investors on different products C. The Regulatory Authority: SEBI The rise in number of investors was also leading to an increase in malpractices on part of the companies, brokers, merchant bankers, investment consultants and various other agencies involved in new issues. This led to erosion of investor confidence. The Government and the stock exchanges Realizing this, Securities Exchange Board of India (SEBI) was constituted were helpless as the existing legal framework was just not enough. By the Government of India in 1992  The Major Functions Of SEBI:  To promote fair dealings by the issuers of securities and ensure a market place where funds can be raised at relatively low costs.  To provide protection to the investors and safeguard their rights and interests such that there is steady flow of savings into the market.  Registration and regulation of stock brokers, sub-brokers, registrar to all issue, merchant bankers, underwriters, portfolio managers and such other intermediaries who are associated with securities market  Prohibit insider trading in securities.  To regulate and develop a code of conduct and fair practices by the intermediaries involved in the stock market etc.  Outlook 2009-10 The Indian markets traded in a very narrow range during April amidst mixed cues coming from global and domestic markets. While the markets were hurt by the sovereign debt default concerns of Greece and SECs allegations against Goldman Sachs, it found some comfort from good set of FY 2009-2010earnings numbers declared by India Inc... India’s industrial output, as measured by the Index of Industrial Production (IIP), grew by 15.1% as against an annual gain of 16.7% in January 2010, and17.6% in December 2009. Industrial production grew by a mere 0.2% in the same month last year. Manufacturing output rose by 16% as against a mere 0.2% in February 2009, while Mining production was at 12.2% Projectskart.com Page 40
  • 41. Projectskart.com investors on different products versus (-) 0.2% in the year-ago period. Electricity sector output expanded by 6.7%compared to just 0.7% in the same month a year Consumer Durables production expanded by 29.9%in February 2010 as against 6% in the same period in 2009. Output in Capital Goods grew by 44.4% in February 2010 as against 11.8% for the same month of 2009. The growth rate in Basic Goods category stood at 8.4% versus a contraction of 0.1% in the year-ago period. Interrmediates Goods' output rose by15.6% in the month under review versus (-) 3% in the year-ago period. As many as 14 out of the 17 industry groups showed a positive growth during February 2010 compared to the corresponding month of the previous year. 3.2 COMPANY PROFILE: Company History & Background Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL) was established in the year 1986 with a view to offer a one-stop solution to Indian entities for their needs in financial services. Over the last two decades it has achieved the distinction of being amongst the most trusted and reputed brokerage houses in India. It provides a complete bouquet of products in equity, debt, commodities, forex, depository, derivatives and allied services in India. Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL) is the most trusted and reputed brokerage house for providing investment-related services in the capital market and money market and depository services in India. The company is jointly promoted by noted stock market professionals, Mr. Asit C. Mehta and Mrs. Deena A. Mehta, and is a part of the Mumbai-based Nucleus Group of Companies. The other group companies are engaged in IT and IT related services such as development of databases, back-office applications for banks, corporate document management solutions and geographical information systems (GIS). Projectskart.com Page 41
  • 42. Projectskart.com investors on different products ACMIIL has pan-India presence through its branches, business associates, and marketing agents. You can also become a part of this growing business and assist us in increasing investor base, spreading investor education, and providing capital market services to clients.  Vision, mission & quality: Envisioned to be the “Trusted Financial Intermediary”, the group has etched out a very specific corporate purpose – “To reach appropriate financial products, services and solutions to every Indian entity.”  Purpose To reach appropriate financial products, services and solutions to every Indian entity.  Our Belief That every household can, should, and will need to participate in the financial markets directlyor indirectly to protect their financial interests  That regulatory/legal compliance ensures economic sustainability.  That transparency and fairness are the cornerstones of all dealings.  That knowledge rather than capital is the key driver of this business.  That product, process, and technology led innovations are necessary preconditions for continuously adding value for all our constituents.  The firsts to our credit:  First limited liability Company to acquire membership on Bombay Stock Exchange.  First multiple seat holder and multiple exchange members.  First to achieve the ISO quality certification for business processes.  First to receive a CRISIL grading for quality of operations and services.  Company Managing Director Mrs. Deena Mehta was the first lady to be elected to the governing board of the Stock Exchange Mumbai and first and only lady to be the President of Stock Exchange, Mumbai.  Values, Relationship…core to our business Projectskart.com Page 42
  • 43. Projectskart.com investors on different products We are currently expanding our business in the retail and institutional segments on the domestic and overseas (NRI/FII) fronts. We have select positions open for marketing, sales, research, back office operations, and business development activities. At Asit C. Mehta, we aim to select a candidate whose goals are aligned with ours. Knowledge about the product, a conceptual understanding of the financial markets, a thirst to innovate, desire to grow within the company, meticulousness towards the task on hand, an ability to design and follow process are all qualities valued in the company. We foster a culture that rewards talent, initiative, hard work, and accountability and nurtures teamwork.  Shareholders Asit C Mehta Investment Interrmediates Ltd. (ACMIIL) is incorporated as a publicly held limited liability company in India under the Indian Companies Act, 1956. The company was incorporated in the year 1993 under the new enabling provisions for limited liability stock broking companies framed by the Government to encourage limited liability company in this area. ACMIIL was first such company on the Bombay Stock Exchange. Currently, the company is mostly held by its founder shareholders as follows:  Mr.Asit C Mehta  Mrs.Deena Asit Mehta  Mr.Kirit H Vora  Nucleus Netsoft & GIS (India) Ltd.  Service standards & compliance: In order to institutionalize business processes, our company has moved to a documented customer-centric quality management system. This has ensured that the entire organization is driven by the common objective of delivering quality brokerage services that would create a unique brand and top-of-the-mind recall. We are the first brokerage house to be certified under ISO 9001:2000 for the Equity and Debt segments. We are also first stock brokerage house to be graded under the Broker Grading service by Credit Rating & Information Services of India Ltd. (CRISIL) for our quality of operations and services provided to clients. Projectskart.com Page 43
  • 44. Projectskart.com investors on different products 3.3 ORGANISATION STRUCTURE: DESIGNATION NAME Chairman and Managing Director Mr. Asit C. Mehta Chief Executive Officer Mrs. Deena Asit Mehta Whole-Time Director Mr. Kirit H Vohra Chief Operating Officer Mr. Kirit H Vohra Chief Technological Officer Mr. Kamal Goel Chief Officer Wealth centre Mr. T .S Netrajan Chief Manager Co-operative commodities Mr. Vidia Chief Financial Manager Mr. Veerendra Thakur Chief Officer Human Resources Mr. V. Vishvanath Senior Vp Operation Mr. T .S Netrajan Branch Manager Mr. Kapadia Unit Manager Mr. B.P Shanthish Projectskart.com Page 44
  • 45. Projectskart.com investors on different products MEMBERSHIP: • Cash Market: BSE, NSE • Derivatives: BSE, NSE • Debt: NSE • Foreign Exchange: Accredited by FEDAI • PMS under SEBI License • Merchant Banking: Approved by SEBI under Category I • Commodities: NCDEX MCX, DGCX, EAST INDIA Clearing Bank: State Bank of India Reach and Access (as on July 01, 2009) Investment Centre’s: 665 (branches, franchisee, etc.) States & UT covered: 26 Employees: 1002 3.4 PRODUCTS AND SERVICES: · Equity – Initial Public Offering (IPO) · Equity – Secondary trading (cash and derivative) · Equity – PMS · Equity – Online Trading · Equity – Depository Services · Equity – Investment Advisory (fundamental and technical) · Equity – Mutual Fund · Equity - Arbitrage · Commodity - Derivatives · Debt – Government Securities · Debt – Primary Placements Projectskart.com Page 45
  • 46. Projectskart.com investors on different products · Debt – Advisory · Debt – Mutual Funds · Debt – Relief bonds, etc. · Forex – Interbank broking · Merchant Banking – Amalgamation & Mergers · Merchant Banking – Private Equity Merchant Banking – Public Offering.  Our services:  Equity and Derivatives Trading: Equity trading is offered to retail clients through different channels in the Bombay Stock Exchange (BSE) & the National Stock Exchange of India (NSE), for the cash and the derivatives segments. Investors are serviced through a PAN India network of over 650 associates / locations comprising of 585 franchisee and 65 company branches. (as on July 2009)  Online Trading: Investmentz.com is our trading portal that offers online trading to retail investors in the BSE and NSE cash and derivatives segments. The investors can do their own trading through a browser- based interface as well as a streamer-based solution called Live exchange. This service is also available through an Interactive Voice Response (IVR) facility for those clients who are unable to access the Internet service at any time. The company has tied up with leading nationalized, private and co-operative banks to offer share-trading services to the banks' customers. A seamless gateway has been established between the banking and depository software of the bank.  Institutional Desk: Equity trade execution services are provided to institutional investors both domestic and FII by our institutional desk. Research and market.  Investment Banking: Projectskart.com Page 46
  • 47. Projectskart.com investors on different products ACMIIL has been granted a Category I Merchant Banking license by SEBI. It offers services in mergers, amalgamations, private equity, public offerings and a full gamut of investment banking services.  Commodity Trading Service are Provided Through Our Associate: Asit C. Mehta Commodity Services Pvt. Ltd. The company is member of India’s premier commodity exchanges, namely, the Multi Commodity Exchange of India Ltd. (MCX), the National Commodity & Derivatives Exchange, India (NCDEX) and the East India Cotton Exchange Association (EICA). The online trading portal also provides facility to trade on NCDEX. One of the group company is a member of Dubai Gold & Commodity Exchange (DGCX).  Inter-Bank Forex Desk: Our associate company, Asit C Mehta Forex Pvt. Ltd., undertakes inter-bank forex order execution. Accredited by the Foreign Exchange Dealers’ Association of India (FEDAI), the company is empanelled with approximately 60 banks and has a reasonable presence in the market.  Support Services  Research: Investors are provided with extensive information on markets and companies through hourly market reviews, periodic market commentary and recommendations, which enable them to make informed decisions. The company firmly believes that providing continuous and accurate decision making tools can add substantial value to its investors.  Advisory Services: Projectskart.com Page 47
  • 48. Projectskart.com investors on different products Advisory services are provided as a value-added service to all retail and institutional clients. This service is delivered through the hourly, daily, weekly, fortnightly and monthly publication of fundamental and technical research. Calls are made through broadcast services on our private VSAT network, SMS and e-mail.  Accounts Information: Accounts information to the retail clients is provided through access on our website. This assists clients in knowing details about their trading accounts and their resultant obligations through various reports like Bill, Contract, Financial Ledger, Transaction Register, Stock Register, Portfolio Tracker, Stock holding position, etc. E-contracts are generated for investors giving trade details.  Other services:  Price Ticker ACMIIL, in association with Capital Market Publications, presents the equity/derivative/commodity price ticker for easy desktop access to capital market information. The prices reflected are generally delayed by five minutes, and any additional delay (if any) depends on the user’s connectivity and computer system configuration. You can customize the ticker as per your individual needs.  Alertz As our registered client, Investmentz.com provides you with ‘Alertz’ facility on your email SMS and assists you in your investment decision, thus enriching your capital market investment experience through us. Investmentz.com’s Alertz service keeps you informed about stock prices through email and SMS. You may activate the Email Alertz service and track your selected stocks/indices without monitoring the trading terminal during market hours. It is now very easy to track the prices of your selected stocks without deviating from normal activities .The SMS Alertz service is Projectskart.com Page 48
  • 49. Projectskart.com investors on different products available for trade confirmation, fund pay-in and pay-out, market views/calls, etc, to clients who actively use our trade execution services. As general information, Investmentz.com does not guarantee any accuracy of generation, databases, and delivery timings, and does not make any claims of any nature in this matter The critical components to avail the Alertz service are: a) Internet connectivity / bandwidth speed at your end, b) Information feed available from the exchange, c) Computing speed of the Alertz, and d) Speed of your Internet Service provider (ISP) and/or domain provider and/or Telecom service provider (TSP).  Advice Me To service general retail investor and assistance them in systematic creation of wealth, we could try to provide you with some basic / brief investment idea on stock of your interest. You could ask us an investment question related to a particular stock or sector and we would see that brief research (fundamental / technical) input could be provided on that stock or sector. Whatever may be our research input on your inquiry, still the final investment decision would need to be taken by you as you know your investment profile & habits, risk appetite, income – cash flow, person / family / social obligation, etc.  Potential Growth Areas: India is amongst the least affected countries in the 2008 global meltdown. May 2009 general election in the country provided a fairly stable government. We see great potential for the country in general and financial market in particular in the years to come. Investor participation, product innovations, volume growth is likely to be in exponential proportion. Our company is well poised to build a great institution in India to service the Indian and global investors for their financial services needs The company has created a strong organization driven by processes to handle multifold volume growth.  Do not disturb: To service our clients and aide them in wealth creation process, we at Asit C Mehta Investment Interrmediates Ltd. keep on sending information about our products and services, information related to capital market investment, etc. This information might be sent / conveyed to you via Projectskart.com Page 49
  • 50. Projectskart.com investors on different products letter, newsletter, email, phone; SMS, etc. based on our assumption that you would need this information and benefit you in your wealth creation process. But, at times, you might need privacy and wish us not to contact you for such information. We would take the precaution and see not to disturb you by excluding your contact details from our marketing list. Kindly provide your details so as to not disturb you.  Message Board: Welcome to our new website! We are pleased to announce some exciting new features, an improved user-friendly design and services to benefit our esteemed customers. We have also taken steps to ensure faster loading of pages.  User-friendly design: No part of the website is more than three clicks away. This ensures speedy access to whatever information you may need.  Easy Trading: We have two options for trading: Quick Trade and Regular Trade. Quick Trade enables you to transact in any share quickly by presenting only the most relevant information. Regular Trade gives you full information about the share, enabling you to take an informed decision.  New features: We've added some exciting new features like Advise Me and Online Purchase of Mutual Funds and IPOs.  Knowledge Center: Investor Education and Empowerment is essential for inculcating correct investment habits. We undertake various initiatives to educate investors and enable them to make informed investment decisions based on their investment profiles, risk appetites, and return expectations. Three important parts of our Investor Education and Awareness Program are: Market Wisdom series, Video broadcasts of Investment Education Topics, and the Nucleus Investmentz newsletter. We also conduct activities such as seminars, exhibitions, etc. Projectskart.com Page 50
  • 51. Projectskart.com investors on different products  Market Wisdom This is an Investor Empowerment series comprising material prepared to assist investors as they just step into the capital market or when they are in the middle of various curves in the wealth creation process. The various market wisdom series for general investor education and awareness some of them are as follows: Why do we need financial planning? Investors guide to share markets Safety, liquidity and returns What is Stock market? Equity or Mutual funds? The first step How to select your broker? Why is the stock market not a gambling den? Do operators run the stock market? Why do prices go up and down in the stock market? A Lesson in Options and Futures Sensex 12000...12800...13000...What to do? Dividend: What does it mean to investor? Margins and investors Hedge funds Dabba trading Exchange- traded funds Basics of commodities futures market Settlement of trades.. Investor grievance redressal mechanism Risk associated with equity investments etc.  Investor Education Topics We have been conducting the Investor Education and Awareness program via video broadcasts through our own network (branches and business associates), which is spread over 600 locations across 25 states and union territories in India. Speakers with industry expertise participate in Projectskart.com Page 51