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Awareness About Derivative and Its Comparison With Equity

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					                                 A
                    PROJECT REPORT ON


“AWARENESS ABOUT THE DERIVATIVE AND ITS
              COMPARISON WITH EQUITY”
                       UNDERTAKEN AT:




   ANAND RATHI FINANCIAL SERVICES LTD.
  Submitted in the partial fulfillment of the Requirement of the awards of

             MASTER OF BUSINESS ADMINISTRATION




EXTERNEL GUIDE:                                  INTERNAL GUIDE:
Mr.JAGDISH PALIWAL                               Mr. ALOK KUMAGUPTA
  (BRANCH HEAD)                                      H.O.D (MBA)


                            SUBMITTED BY:
                          ANKIT CHOUDHARY
                           ROLL No. 0908570009




          S.D. COLLEGE OF MAMAGEMENT STUDIES BHOPA ROAD,
                         MUZAFFARNAGAR




                                                                             1
                               DECLARATION


I, ANKIT CHOUDHARY hereby declare that the project report entitled
“AWARENESS ABOUT THE DERIVATIVE AND ITS COMPARISON WITH
EQUITY” is based on my own work and my indebtedness to other work/
publications, if any have been duly acknowledged at the relevant place.




PLACE: MUZAFFARNAGAR
DATE:

                                                           ANKIT CHOUDHARY




                                                                          2
                          ACKNOWLEDGEMENT

To acknowledge is very great way to show your gratitude towards the persons
who have contributed in your success in one or other way.

I find words inadequate to express my gratitude to Mr. JAGDISH PALIWAL for
providing me an opportunity to carry out my winter project as such a well reputed
and leading stock broking company ANAND RATHI FINANCIAL Services
Limited.


At the very outset of the training I deem it is my pious duty to express my sincere
thanks also to branch head Mr. Jagdish Paliwal for his continuous guidance and
supervision and support during the project.


I would like to thank Mr. ALOK KUMAR GUPTA (H.O.D MBA) who has guided
me for my project work and provided encouragement through out my training
period.
This study could not have been successful without the valuable input of the
customer of ANAND RATHI.




                                                                                 3
                                      PREFACE


I know that Project is for the development and enhancement of the knowledge in
this particular field. It can never be possible to make a mark in today’s
competitive era only with theoretical knowledge when industries are developing
at global level, practical knowledge of administration and management of
business is very important. Hence, practical study is of great importance to MBA
student.


With a view to expand the boundaries of thinking, I have undergone MBA
Summer Project at Anand Rathi Financial Services Ltd I have made a
deliberate to collect the required information and fulfill project objective.




                                                                                4
                     TABLE OF CONTENTS

Sr.No. SUBJECT                                                Page
                                                               No.
1     Industry profile                                         6-17


2     Company profile        ---------   Anand Rathi Financial 18-39
      Services Ltd
3     Financial derivatives:                                  40-70
            1. Introduction about derivatives
            2   Risk Associated With Derivatives
            3   Functions of derivative market
            4   Participants of derivative market
            5   Types of derivatives
            6   Emergence of derivative trading in India
            7   Introduction of forward
            8   Introduction to futures
            9   Introduction to options
            10 Types of options
            11 Pricing with regard to option
            12 Difference between derivative and equity


4     RESEARCH METHODOLOGY                                    71-73
5     DATA ANALYSIS                                           73-88
6     FINDINGS                                                  89
7     CONCLUSION                                                90
8     RECOMENDATION                                             91
9     BIBLIOGRAPHY & APPENDIX                                 92-
                                                              100



                                                                       5
                           INDUSTRY PROFILE:

HISTORY OF THE STOCK BROKING INDUSTRY

Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago.


In 1887, they formally established in Bombay, the "Native Share and Stock
Brokers' Association" (which is alternatively known as "The Stock Exchange"). In
1895, the Stock Exchange acquired a premise in the same street and it was
inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Thus in the same way, gradually with the passage of time number of exchanges
were increased and at currently it reached to the figure of 24 stock exchanges.


This was followed by the formation of associations /exchanges in Ahmadabad
(1894), Calcutta (1908), and Madras (1937).
In order to check such aberrations and promote a more orderly development of
the stock market, the central government introduced a legislation called the
Securities Contracts (Regulation) Act, 1956. Under this legislation, it is
mandatory on the part of stock exchanges to seek government recognition. As of
January 2002 there were 23 stock exchanges recognized by the central
Government.    They       are   located    at   Ahmadabad,   Bangalore,   Baroda,
Bhubaneswar, Calcutta, Chennai,(the Madras stock Exchanges ), Cochin,
Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Ludhiana,
Mangalore, Mumbai(the National Stock Exchange or NSE), Mumbai (The Stock
Exchange),    popularly     called   the   Bombay    Stock   Exchange,    Mumbai
(OTCExchange of India), Mumbai (The Inter-connected Stock Exchange of
India), Patna, Pune, and Rajkot. Of course, the principle bourses are the National
Stock
Exchange and The Bombay Stock Exchange, accounting for the bulk of the
business done on the Indian stock market.


                                                                                  6
BSE (BOMBAY STOCK EXCHANGE)

      The Stock Exchange, Mumbai, popularly known as "BSE" was
established in 1875 as "The Native Share and Stock Brokers Association". It
is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was
established in 1878. It is the first Stock Exchange in the Country to have obtained
permanent recognition in 1956 from the Govt. of India under the Securities
Contracts (Regulation) Act, 1956.




      A Governing Board having 20 directors is the apex body, which decides
the policies and regulates the affairs of the Exchange. The Governing Board
consists of 9 elected directors, who are from the broking comm
Unity (one third of them retire ever year by rotation), three SEBI nominees, six
public representatives and an Executive Director & Chief Executive Officer and a
Chief Operating Officer.




                                                                                 7
NSE (NATIONAL STOCK EXCHANGE)

    NSE was incorporated in 1992 and was given recognition as a stock
exchange in April 1993. It started operations in June 1994, with trading on the
Wholesale Debt Market Segment. Subsequently it launched the Capital Market
Segment in November 1994 as a trading platform for equities and the Futures
and Options Segment in June 2000 for various derivative instruments.


    MCX (MULTI COMMODITY EXCHANGE)




    ‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange
with a mandate for setting up a nationwide, online multi-commodity market place,
offering unlimited growth opportunities to commodities market participants. As a
true neutral market, MCX has taken several initiatives for users in a new
generation commodities futures market in the process, become the country’s
premier exchange.


    MCX, an independent and a de-mutualized exchange since inception, is all
set up to introduce a state of the art, online digital exchange for commodities
futures trading in the country and has accordingly initiated several steps to
translate this vision into reality.




                                                                              8
NCDEX (NATIONAL COMMODITIES AND DERIVATIVES
EXCHANGE)




       NCDEX started working on 15th December, 2003. This exchange provides
facilities to their trading and clearing member at different 130 centers for contract.
In commodity market the main participants are speculators, hedgers and
arbitrageurs.


Facilities Provided By NCDEX
    NCDEX has developed facility for checking of commodity and also
       provides a wear house facility
    By collaborating with industrial partners, industrial companies, news
       agencies, banks and developers of kiosk network NCDEX is able to
       provide current rates and contracts rate.
    To prepare guidelines related to special products of securitization NCDEX
       works with bank.
    To avail farmers from risk of fluctuation in prices NCDEX provides special
       services for agricultural.
    NCDEX is working with tax officer to make clear different types of sales
       and service taxes.
    NCDEX is providing attractive products like “weather derivatives”




                                                                                    9
                       STOCK MARKET BASIC

What are corporations?
      Companies are started by individuals or may be a small circle of people.
They pool their money or obtain loans, raising funds to launch the business.
A choice is made to organize the business as a sole proprietorship where one
Person or a married couple owns everything, or as a partnership with others who
may wish to invest money. Later they may choose to "incorporate". As a
Corporation, the owners are not personally responsible or liable for any debts of
the company if the company doesn't succeed. Corporations issue official-looking
sheets of paper that represent ownership of the company. These are called stock
certificates, and each certificate represents a set number of shares. The total
number of shares will vary from one company to another, as each makes its own
choice about how many pieces of ownership to divide the corporation into. One
corporation may have only 2,500 shares, while another, such as IBM or the Ford
Motor Company, may issue over a billion
Shares. Companies sell stock (pieces of ownership) to raise money and provide
funding for the expansion and growth of the business. The business founders
give up part of their ownership in exchange for this needed cash. The
expectation is that even though the owners have surrendered a portion of the
company to the
Public, their remaining share of stock will become increasingly valuable as the
business grows. Corporations are not allowed to sell shares of stock on the open




Stock market without the approval of the Securities and Exchange Commission
(SEC). This transition from a privately held corporation to a publicly traded one is
Called going public, and this first sale of stock to the public is called an initial
public offering, or IPO.


                                                                                  10
          Why do people invest in the stock market?
When you buy stock in a corporation, you own part of that company. This gives
you a vote at annual shareholder meetings, and a right to a share of future profits.

When a company pays out profits to the shareholder, the money received is called
a "Dividend".
The corporation's board of directors choose when to declare a dividend and how
much to pay. Most older and larger companies pay a regular dividend, most newer
and smaller companies do not.



The average investor buys stock hoping that the stock's price will rise, so the
shares can be sold at a profit. This will happen if more investors want to buy stock
in a company than wish to sell. The potential of a small dividend check is of little
concern.

What is usually responsible for increased interest in a company's stock is the
prospect of the company's sales and profits going up.

A company who is a leader in a hot industry will usually see its share price rise
dramatically.

Investors take the risk of the price falling because they hope to make more money
in the market than they can with safe investments such as bank CD's or government
bonds.




                                                                                       11
What is a stock market index?
In the stock market world, you need a way to compare the movement of the
market, up and down, from day to day, and from year to year. An index is just a
benchmark or yardstick expressed as a number that makes it possible to do this
comparison. For e.g. S&P CNX Nifty is the index of NSE and SENSEX is the index
of BSE.




The price per share, like the market cap, has nothing to do with how big a
company is.




The Securities Market consists of two segments, viz. Primary market and
Secondary market. Primary market is the place where issuers create and issue
equity, debt or hybrid instruments for subscription by the public; the Secondary
market enables the holders of securities to trade them.




                                                                             12
Secondary market essentially comprises of stock exchanges, which provide
platform for purchase and sale of securities by investors. In India, apart from
the Regional Stock




Exchanges established in different centers, there are exchanges like the
National Stock Exchange (NSE) and the Over the Counter Exchange of India
(OTCEI), who provide nation wide trading facilities with terminals all over the
country. The trading platform of stock exchanges is accessible only through
brokers and trading of securities is confined only to stock exchanges.




    Corporate Securities:

The no of stock exchanges increased from 11 in 1990 to 23 now. All the
exchanges are fully computerized and offer 100% on-line trading. 9644
companies were available for trading on stock exchanges at the end of March
2002. The trading platform of the stock exchanges was accessible to 9687
members from over 400 cities on the same date.


    Derivatives Market:

Derivatives trading commenced in India in June 2000. The total exchange traded
derivatives witnessed a volume of Rs. 442,343 crore during 2002-03 as against Rs.
4018 crore during the preceding year. While NSE accounted for about 99.5% of
total turnover, BSE accounted for about 0.5% in 2002-03. The market witnessed
higher volumes from June 2001 with introduction of index options, and still higher
volumes with introduction of stock options in July 2001. There was a spurt in




                                                                                13
volumes in November 2001 when stock futures were introduced. It is believed
that India is the largest market in the world for stock futures.




    Supply and Demand

A stock's price movement up and down until the end of the trading day is strictly
a result of supply and demand. The SUPPLY is the number of shares offered
for sale at anyone one moment. The DEMAND is the number of shares
investors wish to buy at exactly that same time. What a share of a company is
worth on anyone day or at any one minute, is determined by all investors voting
with their money. If investors want a stock and are willing to pay more, the price
will go up. If investors are selling a stock and there aren't enough buyers, the
price will go down Period.




    Secondary Market Intermediaries
Stock brokers, sub-brokers, portfolio managers, custodians, share transfer
agents constitute the important intermediaries in the Secondary Market.

No stockbrokers or sub-brokers shall buy, sell or deal in securities unless he holds
a certificate of registration granted by SEBI under the Regulations made by SEBI
ion relation to them.

The Central Government has notified SEBI (Stock Brokers & Sub-Brokers) Rules,
1992 in exercise of the powers conferred by section 29 of SEBI Act, 1992. These
rules came into effect on 20th August, 1992.




                                                                                     14
       Trading Through Brokers / Traditional Method of Share
                             Trading:-

Trading in the stock exchange can be conducted only through member broker in
securities that are listed on the respective exchange. Investor intending to
buy/sell securities in the exchange has to do so only through a SEBI registered
broker/sub-broker. This is very popular concept in India for Share Trading before
the facilities like on line trading introduce.


Both the exchange have switched over from the open outcry trading system to
fully automated computerized mode of trading knows as Bolt and Neat. In this
system, the broker trade with each other through the computer network. Buyers
and sellers place their orders specifying the limits for quality and price. Those
that are not matched remain on the screen and is opened for future matching




during the day / settlement. After the advent of computerized trading the speed of
trading has increased multi-fold and a fuller view of the market is available to the
investors.
To start dealing with broker you have to fill a form with the broker. After fill all the
formalities the firm gives you a User Id no like a bank a/c no. through which you
can enter in the transaction with broker. Broker will gives all the which one
investor needed.




                                                                                     15
What is stock Broker?

“A stock broker is one who invests other people’s money until it’s all
gone.”

                                            -Woody Allen, American Film Maker


A stock broker is a person or a firm that trades on its clients behalf, you tell
them what you want to invest in and they will issue the buy or sell order. Some
stock brokers also give out financial advice that you a charged for.


It wasn’t too long ago and investing was very expensive because you had to go
through a full service broker which would give you advice on what to do and
would charge you a hefty fee for it.
There are three different types of stock brokers.


   1. Full Service Broker - A full-service broker can provide a bunch of
       services such as investment research advice, tax planning and retirement
       planning.


   2. Discount Broker – A discount broker let’s you buy and sell stocks at a low
   rate but doesn’t provide any investment advice.




   3. Direct-Access Broker- A direct access broker lets you trade directly with
   the electronic communication networks (ECN’s) so you can trade faster.
   Active traders such as day traders tend to use Direct Access Brokers




                                                                             16
                        No. of stock broker in India
9368:- Total no of share broker in the country
12687:- The no. of sub-broker.
46%:- The share of trades accounted for by NSE broker
90%: The share of On line trades clocked by segment’s top five companies


Generally there are two types of trading have been done in India which is given
below:


On line Trading / E – Broking / Modern Method


Trading through Brokers / Traditional method of Share trading.




                                                                            17
18
                        ABOUT ANAND RATHI

INTRODUCTION:-


Anand Rathi is a leading full service investment bank founded in 1994 offering a
wide range of financial services and wealth management solutions t institutions,
corporations, high–net worth individuals and families. The firm has rapidly
expanded its footprint to over 350 locations across India with international
presence in Dubai ,Hong Kong & New York. Founded by Mr. Anand Rathi and
Mr. Pradeep Gupta,the group today employs over 2,500 professionals through
out India and its international offices.
                The firm’s philosophy is entirely client centric, with a clear focus
on providing long Term value addition to clients, while maintaining the highest
standards of excellence, Ethics and professionalism. The entire firm activities are
divided across distinct client groups: Individuals, Private Clients, Corporates and
Institutions. AnandRathi has been named The Best Domestic Private Bank in
India by Asiamoney in their Fifth Annual Private Banking Poll 2009. The firm has
emerged a winner across all key segments in Asiamoney’s largest survey of high
net worth individuals in India.



              The firm’s philosophy is entirely client centric, with a clear focus on
providing long Term value addition to clients, while maintaining the highest
standards of excellence, Ethics and professionalism. The entire firm activities are
divided across distinct client groups: Individuals, Private Clients, Corporates and
Institutions. AnandRathi has been named The Best Domestic Private Bank in
India by Asiamoney in their Fifth Annual Private Banking Poll 2009. The firm has
emerged a winner across all key segments in Asiamoney’s largest survey of
high net worth individuals in India.




                                                                                       19
ANAND RATHI consultant

As the flagship company of the ANAND RATHI Group, ANAND RATHI Private
Limited has always remained at the helm of organizational affairs, pioneering
business policies, work ethic and channels of progress.

ANAND RATHI believe that they were best positioned to venture into that activity
as a Depository Participant. They were one of the early entrants registered as
Depository Participant with NSDL (National Securities Depository Limited), the
first Depository in the country and then with CDSL (Central Depository Services
Limited). Today, It service over 1Lac customer accounts in this business spread
across over 350 cities/towns in India and are ranked amongst the largest
Depository Participants in the country. With a growing secondary market
presence.




It has transferred this business to ANAND RATHI SECURITIES LIMITED
(ARSL), their associate and a member of NSE, BSE, MCX & NCDEX.




                                                                             20
                            Business Focus:-

The focus of the business is the Customer – Customer service, Customer
education, Customer support, Customer relations and last but not the least
Customer acquisition. Trade execution transparency, timely settlements, risk
monitoring and superior service shall have topmost priority, in the best interests
of all concerned.




       VISION STATEMENT

“TO BE A SHINING EXAMPLE AS A LEADER IN
INNOVATION PROFESSIONALLY”




MISSION STATEMENT
      “TO WORK TOGETHER WITH INTEGRITY & MAKE OUR
                 CUSTOMER FEEL VALUED”




                                                                               21
         CORE VALUE
   “RESPECT OUR COLLEAGUE AND THE BUSINESS ITSELF”
                       Board of Directors
                              Of
                     ANAND RATHI GROUP

          NAME                     POSITION
Mr. Anand Rathi              Founder & chairman


Mr. Pardeep Gupta          Co- Founder & vice chairman


Mr. Amit Rathi               Managing Director


Mr. P G Kakodkar                Director


Dr. S A Dave                    Direcror


Mr. C D Arha                    Director


Mr. Ajit Bhushan                Director


Mr. Rakesh Rawal          National Head-Welth management


Mr.Sujan Hajra                Chief Economist


Mr.Roy Rodrigues                 CEO


Mr.Puspen Karmakar            Vice President


Ms. Rajni Raikar              Vice President



                                                           22
                     Principal Activities Of
                    ‘ANAND RATHI GROUP’




•   ANAND RATHI Securities Private Limited

     –   Member : National Stock Exchange of India Limited

     –   Member : Bombay Stock Exchange Limited

     –   Participant : National Securities Depository Limited

     –   Participant : Central Depository Service (India) Limited




 ANAND RATHI Commodities Private Limited

                  Member - Multi Commodity Exchange of India Limited

                  Member - National Commodities and Derivatives Exchange
                   Ltd.




                                                                        23
ANAND RATHI Profile


 REGISTERED OFFICE

   11th Floor, Times Tower Kamala
   City Senapati Bapat Marg, Lower
   Parel., Mumbai - 400013, India




 MUZAFFARNAGAR BRANCH


     39-A New Mandi,
     Muzaffarnagar-251001
     PH. 0131-2605572, 2600343,3291199
     FAX. 0131-2605571




                                         24
                  Organization Chart:-

                              Anand Rathi




         Branch                               Franchise




Web               Sales                Sales Coordinator   Account Head
Dealer            Executive

                     Customer
                     Care

                     Receptionist




                                                                 25
  ANAND RATHI’s CORE SERVICES:-

  ANAND RATHI is one of India’s leading broking houses providing a complete
  life-cycle of investment solution.




                                Research Based
                                Investment Advice




 Training and                                                  Investment and
 Seminars                                                      Trading Services
                                       EQUITIES
                                  DERIVATIVES
                                 COMMODITIES




Technology Based
Investment Tools
                                                    Integrated Demat
                                                    Facility




                                                                         26
SWOT
Analysis




           27
Strength:-

   16 years of research and broking experience
   Understandings of the markets
   All financial needs under one roof
   Scalable and robust infrastructure
   Full fledge research unit comprising of both fundamental & technical
     research
   Dedicated, Qualified and Loyal staff
   Flexible Brokerage charges



Weakness:-

   Low Brand Image in the market.
   Low Professionalism
   Low Advertisements



Opportunity:-

   Large potential market for delivery and intra-day transactions.
   Open interest of the people to enter in to stock market for investing
   Attract the customers who are dissatisfied with other brokers & DPs.
   Up growing markets in commodity and forex trading




                                                                            28
Threats:-

   Decreasing rates of brokerage in the market. A Increasing competition
     against other brokers & DPs.
   Poor marketing activities for making the company known among the
     customers. A threat of loosing clients for any kind of weakness of the
     company. An Indirect threat from instable stock market, i.e., low/no profit
     of ANAND RATHI's clients would lead them to go for other broker/DP.




              “SERVICES of ANAND RATHI”




    ANAND RATHI’s Services


                                                   Offline



                                                   Online



                                              Other Services




                                                                             29
                      OFFLINE



 Offline A/c is the A/c for the investors who are
    not familiar with the use of computer.
 The A/C opening charges applied(One time)


    .


                           Online Account




     Requirement for online trading
    Linked Bank Account
   Broking Account
   Linked Depository Account


         Benefits of online trading
    Freedom from paperwork
   Instant credit and transfer
   Trade Anywhere
   Timely Advice and access to research
   Real-time portfolio tracking
   After hour orders
   Market Alerts
   Instant quotes



                                                     30
   Other Services:



               Dial-n-Trade
             Mutual Fund
             Commodity
             Derivative
             Depository Participants
             Distribution of Financial Services
             Research Based Advices
             Portfolio Management System




DnT (Dial- n –Trade)

  Dial n Trade is the name of the phone-trading facility offered by ANAND
  RATHI.


  A call center wholly dedicated to order placement / confirmation.




   Easy 2-step process for order placement.


     Step1. Enter the phone no. of branch
     Step2. And say your client code




                                                                      31
ANAND RATHI Securities Private Limited, one of the cornerstones of the ANAND
RATHI    edifice, flows freely towards attaining diverse goals of the customer
through varied services. Creating a plethora of opportunities for the customer by
opening up investment vistas is backed by research-based advisory services.
Here, growth knows no limits and success recognizes no boundaries. Helping the
customer create waves in his portfolio and empowering the investor completely is
the ultimate goal.


    Stock Broking Services

We offer trading on a vast platform; National Stock Exchange, Bombay Stock
Exchange, MCX & NCDEX. More importantly, we make trading safe to the
maximum possible extent, by accounting for several risk factors and planning
accordingly. We are assisted in this task by our in-depth research, constant
feedback and sound advisory facilities. Our highly skilled research team,
comprising of technical analysts as well as fundamental specialists, secure
result-oriented information on market trends, market analysis and market
predictions.

To empower the investor further we have made serious efforts to ensure that our
research calls are disseminated systematically to all our stock broking clients
through various delivery channels like email, chat, SMS, phone calls etc.




                                                                              32
MUTUAL FUNDS

                            Introduction:

                            Everybody talks about mutual funds, but what
                            exactly are they? Are they like shares in a company,
                            or are they like bonds and fixed deposits? Will I lose
                            all my money in funds or will I become an overnight
                            millionaire? Big questions that get answer in just five
                            minutes.


Meaning:

A mutual fund is a pool of money that is invested according to a common
investment objective by an asset management company (AMC). The AMC offers
to invest the money of hundreds of investors according to a certain objective - to
keep money liquid or give a regular income or grow the money long term.
Investors buy a scheme if it fits in with their investment goals, like getting a
regular income now or letting the money accumulate over the long term.
Investors pay a small fraction of their total funds to the AMC each year as
investment management fees.




Commodity

Organized futures market evolved in India by the setting up of "Bombay Cotton
Trade    Association    Ltd."   in     1875. In    1893,      following   widespread
discontent amongst         leading        cotton       mill         owners      and
merchants over the functioning of the Bombay Cotton Trade Association,


                                                                                  33
a separate association by the name "Bombay Cotton Exchange Ltd." was
constituted. A future trading in oilseeds was organized in India for the first time
with the setting up of Gujarati Vyapari Mandali in 1900, which carried on futures


trading in groundnut, castor seed and cotton. Before the Second World War
broke out in 1939 several futures markets in oilseeds were functioning in Gujarat
and Punjab.


There were booming activities in this market and at one time as many as 110
exchanges were conducting forward trade in various commodities in the country.
The securities market was a poor cousin of this market as there were not many
papers to be traded at that time.
The era of widespread shortages in many essential commodities resulting in
inflationary pressures and the tilt towards socialist policy, in which the role of
market forces for resource allocation got diminished, saw the decline of this
market since the mid-1960s.


This coupled with the regulatory constraints in 1960s, resulted in virtual
dismantling of the commodities future markets. It is only in the last decade that
commodity future exchanges have been actively encouraged. However, the
markets have been thin with poor liquidity and have not grown to any significant
level.




                                                                                34
Derivative

The emergence of the market for derivative products, most notably forwards, futures
and options, can be traced back to the willingness of risk-averse economic agents to
guard themselves against uncertainties arising out of fluctuations in asset prices. By
their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer
price risks by locking-in asset prices. As instruments of risk management,


these generally do not influence the fluctuations in the underlying asset prices.
However, by locking-in asset prices, derivative products minimize the impact of
fluctuations in asset prices on the profitability and cash flow situation of risk-averse
investors.




                                                                                     35
Depository Participants




   The onset of the technology revolution in financial services Industry saw the
   emergence of ANAND RATHI as an electronic custodian registered with
   National Securities Depository Ltd (NSDL) and Central Securities
   Depository Ltd (CSDL). ANAND RATHI set standards enabling further
   comfort to the investor by promoting paperless trading across the country and
   emerged as the top 3 Depository Participants in the country in terms of
   customer serviced.

Offering a wide trading platform with a dual membership at both NSDL and
CDSL, we are a powerful medium for trading and settlement of dematerialized

Shares. We have established live DPMs, Internet access to accounts and an
easier transaction process in order to offer more convenience to individual and




                                                                                  36
Corporate investors. A team of professional and the latest technological expertise
allocated exclusively to our demat division including technological enhancements
like SPEED-e; make our response time quick and our delivery impeccable. A
wide national network makes our efficiencies accessible to all.

About ANAND RATHI:

   •   Depository participant with both NSDL and CDSL

   •   Over 25 thousands clients being serviced from over 135 cities.

   •   Web enabled service to provide state of the art service delivery




    Distribution of Financial Products



The paradigm shift from pure selling to knowledge based selling drives the
business today. With our wide portfolio offerings, we occupy all segments in the
retail financial services industry.

A 1600 team of highly qualified and dedicated professionals drawn from the best
of academic and professional backgrounds are committed to maintaining high
levels of client service delivery.




This has propelled us to a position among the top distributors for equity and debt
issues with an estimated market share of 15% in terms of applications mobilized,
besides being established as the leading procurer in all public issues.




                                                                               37
To further tap the immense growth potential in the capital markets we enhanced
the scope of our retail brand, thereby providing planning and advisory services to
the mass affluent. Here we understand the customer needs and lifestyle in the
context of present earnings and provide adequate advisory services that will
necessarily help in creating wealth. Judicious




Planning that is customized to meet the future needs of the customer deliver a
service that is exemplary. The market-savvy and the ignorant investors, both find
this service very satisfactory. The edge that we have over competition is our
portfolio of offerings and our professional expertise. The investment planning for
each customer is done with an unbiased attitude so that the service is truly
customized.

Our monthly magazine, Finapolis, provides up-dated market information on
market trends, investment options, opinions etc. Thus empowering the investor to
base every financial move on rational thought and prudent analysis and embark
on the path to wealth creation.


About ANAND RATHI :

   •   Investments
          –   Equity – Primary and Secondary
          –   Fixed Income – Primary and Secondary
          –   Fixed Deposits
          –   Mutual Funds
   •           Insurance
          –   Life   : LIC, Amp Sanmar, HDFC Standard, ICICI Prulife, Om
                          Kotak, MetLife, Tata AIG, Birla Sun life
          –   General       : New India, Tata AIG, Reliance, Royal Sundaram



                                                                               38
             Portfolio Management System




The company has initiated the process of obtaining permission from SEBI for
rendering PMS Service to its clients. We are planning to start PMS Service to
High Net Worth individual and NRIs after obtaining the necessary regulatory
clearances.




                                                                          39
40
                     THEORETICAL ASPECT

                              INTRODUCTION:




      According to dictionary, derivative means ‘something which is derived
from another source’. Therefore, derivative is not primary, and hence not
independent. In financial terms, derivative is a product whose value is derived
from the value of one or more basic variables. These basic variable are called
bases, which may be value of underlying asset, a reference rate etc. the
underlying asset can be equity, foreign exchange, commodity or any asset.


      For example: - the value of any asset, say share of any company, at a
future date depends upon the share’s current price. Here, the share is
underlying asset, the current price of the share is the bases and the future value
of the share is the derivative. Similarly, the future rate of the foreign exchange
depends upon its spot rate of exchange. In this case, the future exchange rate is
the derivative and the spot exchange rate is the base.




                                                                               41
       Derivatives are contract for future delivery of assets at price agreed at the
time of the contract. The quantity and quality of the asset is specified in the
contract. The buyer of the asset will make the cash payment at the time of
delivery.


Meaning:
       Derivatives are the financial contracts whose value/price is dependent on
the behavior of the price of one or more basic underlying assets (often simply
known as the underlying). These contracts are legally binding agreements,
made on the trading screen of stock exchanges, to buy or sell an asset in future.
The asset can be a share, index, interest rate, bond, rupee dollar exchange rate,
sugar, crude oil, soybean, cotton, coffee etc.


       In the Indian Context the Security Contracts (Regulation) Act, 1956
(SC(R) A) defines “derivative” to include –
       A security derived from a debt instrument, share, loan whether secured or
unsecured, risk instrument or contract for differences or other form of security.
       A contract, which derives its value from the prices, or index of prices of
underlying securities.


                             Contracts agreement




              Cash                                          Derivatives


                                      Forward                          Others like
                                                                       Swaps, FRAs etc


               Merchandis              Futures             Options
                  ing,              (Standardized
               customized                  )

            NTSD           TSD
                                                                                    42
In financial terms derivatives is a broad term for any instrumental whose value is
derived from the value of one more underlying assets such as commodities,
forex, precious metal, bonds, loans, stocks, stock indices, etc.
      Derivatives were developed primarily to manage offset, or hedge against
risk but some were developed primarily to provide potential for high returns. In
the context of equity markets, derivatives permit corporations and institutional




      Investors to effectively manage their portfolios of assets and liabilities
through instrument like stock index futures.


For example: - The price of Reliance Triple Option Convertible Debentures
(Reliance TOCD) used to vary with the price of Reliance shares. In addition, the
price of Telco warrants depends upon the price of Telco shares. American
Depository receipts / Global Depository receipts draw their price from the
underlying shares traded in India.
Nifty options and futures. Reliance futures and options, are the most common
and popular form of derivatives.


      Although trading in agriculture and other commodities has been the
deriving force behind the development of derivatives exchanges, the demand for
products based on financial instruments such as bond, currencies, stocks and
stock indices have now for outstripped that for the commodities contracts.


      The history of the derivatives dates back to the time since the trading
came into being. The merchants entered into contracts with one another for
future delivery of specified amount of commodities at specified price. A primary
intention for contracting for future date was to keep the transaction immune to
unexpected fluctuations in price.


                                                                                   43
       Therefore, derivative products initially emerged as hedging devices
against fluctuations in commodity prices. However, the concept applied to
financial trade only in the post-1970 period due to growing instability in the
financial markets. However, since their emergence, these products have
become very popular and by 1990s, they accounted for about two-third of the
total transaction in derivative products.
    In recent years, the market for financial derivatives has grown tremendously
in terms of variety of instruments available, their complexity and turnover.


In the class of equity derivatives the world over, futures and options on stock
indices have gained more popularity than on individual stocks, especially among
institutional investors, who are major users of index-linked derivatives.


       Even small investors find these useful due to high correlation of the
popular indexes with various portfolios and ease of use.


       Early forward contracts in the US addressed merchants concerns about
ensuring that there were buyers and sellers for commodities. However “credit
risk” remained a serious problem.


1848
       A group of Chicago businessmen formed the Chicago Board of Trade
(CBOT). The primary intention of the CBOT was to provide a centralized location
known in advance for buyers and sellers to negotiate forward contracts.


1865
       The CBOT went one-step further and listed the first “exchange traded”
derivatives contract in the US; these contracts were called “future contracts”



                                                                                 44
1919
         Chicago Butter and Egg & board, a spin-off of CBOT, was reorganized to
allow futures trading. Its name was changed to Chicago Mercantile Exchange
(CME).
         The CBOT and the CME remain the two largest organized futures
exchanges, indeed the two largest “financial” exchanges of any kind in the world
today.




         The first stock index futures contract was traded at Kansas City Board of
Trade. Currently the most popular stock index futures contract in the world was
based on S&P 500 index, traded on Chicago Mercantile Exchange.
         During the mid eighties, financial futures became the most active
derivatives instruments generating volumes many times more than the


         Commodity futures. Index futures, futures on T-Bills and Euro-Dollar
futures are the three most popular future contracts traded today. Other popular
international exchanges that trade derivatives are LIFFE in England, DTB in
Germany, SGX in Singapore, TIFFE in Japan, and MATIF in France, Eurex, etc.
         India has been trading derivatives contract in silver, gold, spices, coffee,
cotton, etc for decades in the gray market. Trading derivatives contracts in
organized market was legal before Moorage Desai’s government banned
forward contracts.


         Derivatives on stocks were traded in the form of Teji and Mandi in
unorganized on exchanges. For example, now cotton and oil futures trade in
Mumbai, soybean futures trade in Bhopal, pepper futures in Kochi, coffee in
Bangalore, etc.




                                                                                  45
JUNE 2000
      National Stock Exchange and Bombay Stock Exchange started trading in
futures on Sensex and Nifty. Options trading on Sensex and
Nifty commenced in June 2001. Very soon thereafter trading began on options
and futures in 31 prominent stocks in the month of July and November
respectively.
      Option and future are the most commonly traded derivatives, but as the
understanding of financial markets and risked management continued to
improve newer derivatives were created. The family includes the host of other
product such as forward contracts. Structured notes, inverse floaters, caps &
Floors and Collar Swaps.


      The largest derivatives market in the world, are on government bonds (to
help control interest rate risk) the stock index (to help control risk that is
associated with the fluctuations in the stock market) and on exchange rates (to
cope with currency risk).




                                                                            46
                   Risk Associated With Derivatives:




      While derivatives can be used to help manage risks involved in
investments, they also have risks of their own. However, the risks involved in




      derivatives trading are neither new nor unique – they are the same kind of
risks associated with traditional bond or equity instruments.


Market Risk
      Derivatives exhibit price sensitivity to change in market condition, such as
fluctuation in interest rates or currency exchange rates. The market risk of
leveraged derivatives may be considerable, depending on the degree of
leverage and the nature of the security.




Liquidity Risk
      Most derivatives are customized instrument and could exhibit substantial
liquidity risk implying they may not be sold at a reasonable price within a
reasonable period. Liquidity may decrease or evaporate entirely during
unfavorable markets.


                                                                                 47
Credit Risk
       Derivatives not traded on exchange are traded in the over-the-counter
(OTC) market. OTC instrument are subject to the risk of counter party defaults.


Hedging Risk
       Several types of derivatives, including futures, options and forward are
used as hedges to reduce specific risks. If the anticipated risks do not develop,
the hedge may limit the fund’s total return.




FUNCTION OF DERIVATIVES MARKET:-
The derivative market performs a number of economic functions:-


    Prices in an organized derivatives market reflect the perception of market
       participants about the future and lead the prices of underlying to the
       perceived future level. The prices of derivative converge with the prices of
       the underlying at the expiration of the derivative contract. Thus,
       derivatives help in discovery of future as well as current prices.
    The derivatives market helps to transfer risks from those who have them
       but may not like them to those who have an appetite for them.
    Derivatives, due to their inherent nature, are linked to the underlying cash
       market. With the introduction of the derivatives, the underlying market
       witnesses higher trading volumes because of the participation by more
       players who would not otherwise participate for lack of arrangement to
       transfer risk.




                                                                                48
    Speculative trades shift to a more controlled environment of derivatives
      market. In the absence of an organized derivative market, speculators
      trade in the underlying cash market.
    An important incidental benefit that flows from derivatives trading is that it
      acts as a catalyst for new entrepreneurial activity.




    The derivatives have a history of attracting many bright, creative, well-
      educated people with an entrepreneurial attitude. They often energize
      others to create new businesses, new products and new employment
      opportunities, the benefit of which are immense.
    Derivatives markets help increase savings and investment in the end.
      Transfer of risk enables market participants to expand their volumes of
      activity.




PARTICIPANTS OF THE DERIVATIVE MARKET:-

      Market participants in the future and option markets are many and they
perform multiple roles, depending upon their respective positions. A trader acts
as a hedger when he transacts in the market for price risk management. He is a
speculator if he takes an open position in the price futures market or if he sells
naked option contracts. He acts as an arbitrageur when he enters in to
simultaneous purchase and sale of a commodity, stock or other asset to take
advantage of mispricing. He earns risk less profit in this activity. Such
opportunities do not exist for long in an efficient market. Brokers provide
services to others, while market makers create liquidity in the market.



                                                                                49
Hedgers
       Hedgers are the traders who wish to eliminate the risk (of price change)
to which they are already exposed. They may take a long position on, or short
sell, a commodity and would, therefore, stand to lose should the prices move in
the adverse direction.


Speculators
       If hedgers are the people who wish to avoid the price risk, speculators are
those who are willing to take such risk. These people take position in the market
and assume risk to profit from fluctuations in prices. In fact, speculators
consume information, make forecasts about the prices and put their money in
these forecasts. In this process, they feed information into prices and thus
contribute to market efficiency. By taking position, they are betting that a price
would go up or they are betting that it would go down.


       The speculators in the derivative markets may be either day trader or
position traders. The day traders speculate on the price movements during one
trading day, open and close position many times a day and do not carry any
position at the end of the day.


       They monitor the prices continuously and generally attempt to make profit
from just a few ticks per trade. On the other hand, the position traders also
attempt to gain from price fluctuations but they keep their positions for longer
durations may is for a few days, weeks or even months.


Arbitrageurs
       Arbitrageurs thrive on market imperfections. An arbitrageur profits by
trading a given commodity, or other item, that sells for different prices in different
markets. The Institute of Chartered Accountant of India, the word “ARBITRAGE”
has been defines as follows:-



                                                                                   50
       “Simultaneous purchase of securities in one market where the price there
of is low and sale thereof in another market, where the price thereof is
comparatively higher. These are done when the same securities are being
quoted at different prices in the two markets, with a view to make profit and




       carried on with conceived intention to derive advantage from difference in
prices of securities prevailing in the two different markets”


       Thus, arbitrage involves making risk-less profits by simultaneously
entering into transactions in two or more markets.




TYPES OF DERIVATIVES:-
    The most commonly used derivatives contracts are Forward, Futures and
Options. Here some derivatives contracts that have come to be used are
covered.


 FORWARD:-
           A forward contract is a customized contract between two entities,
   where settlement takes place on a specific date in the future at today’s pre-
   agreed price.


 FUTURES :-
           A futures contact is an agreement between two parties to buy or sell
   an asset at a certain time in the future at a certain price. Futures contracts
   are special types of forward contracts in the sense that the former are
   standardized exchange-traded contracts.




                                                                                51
           For example :- A, on 1 Aug. agrees to sell 600 shares of Reliance Ind.
   Ltd. @ Rs. 450 to B on 1st sep.
A, on 1st Aug. agrees to buy 600 shares of Reliance Ind. Ltd. @ Rs. 450 to B on
1st Sep.




 OPTIONS:-
           Options are a right available to the buyer of the same, to purchase or
   sell an asset, without any obligation. It means that the buyer of the option
   can exercise his option but is not bound to do so. Options are of 2 types:
   calls and puts.


1. CALLS :-
           Call gives the buyer the right, but not the obligation, to buy a given
   quantity of the underlying asset, at a given price, on or before a given future
   date.
For example :- A, on 1st Aug. buys an option to buy 600 shares of Reliance Ind.
Ltd. @ 450 Rs 450 on or before 1 st Sep. In this case, A has the right to buy the
shares on or before the specified date, but he is not bound to buy the shares.




2. PUTS :-
           Put gives the buyer the right, but not the obligation, to sell a given
   quantity of the underlying asset, at a given price, on or before a given date.
           For example :- A, on 1st Aug. buys an option to sell 600 shares of
   Reliance Ind. Ltd. @ Rs 450 on or before 1 st Sep. In this case, A has the
   right to sell the shares on or before the specified date, but he is not bound to
   sell the shares.




                                                                                    52
         In both the types of the options, the seller of the option has an
  obligation but not a right to buy or sell an asset. His buying or selling of an
  asset depends upon the action of buyer of the option. His position in both the
  type of option is exactly the reverse of that of a buyer.


 WARRANTS :-
         Options generally have lives of up to one year, the majority of options
  exchanges having a maximum maturity of nine months. Longer-dated
  options are called warrants and are generally traded over-the-counter.




 LEAPS :-
         The   acronym      LEAPS     means    Long-Term      Equity   Anticipation
  Securities. These are options having a maturity of up to three years.


 BASKET :-
         Basket options are options on portfolios of underlying assets are
  usually a moving average of a basket of assets. Equity index options are a
  form of basket options.


 SWAPS :-
         Swaps are private agreement between two parties to exchange cash
  flows in the future according to a pre arranged formula. They can be
  regarded as portfolios of forward contract. The two commonly used swaps
  are as followas:




                                                                                53
1.) INTEREST RATE SWAPS:-
            These entail swapping only the interest related cash flows between
     the parties in the same currency.
2.) CURRENCY SWAPS:-
         These entail swapping both principal and interest between the parties,
  with the cash flows in one direction being in a different currency than those in
  the opposite direction.


 SWAPTIONS :-
         Swaptions are options to buy or sell a swap that will become operative
  at the expiry of the options. Thus, a swaptions is an option on a forward
  swap. Rather than have calls and puts, the swaptions market has receiver
  swaptions and payer swaptions. A receiver swaptions is an option to receive
  fixed and pay floating. A payer swaptions is an option to pay fixed and
  receive floating Out of the above-mentioned types of derivatives forward.


     EMERGENCE OF THE DERIVATIVE TRADING IN INDIA
 Approval For Derivatives Trading
         The first step towards introduction of derivatives trading in India was
  the promulgation of the Securities Laws (Amendment) Ordinance, 1995,
  which withdrew the prohibition on options in securities. The market for
  derivatives, however, did not take off, as there was no regulatory framework
  to govern trading of derivatives. SEBI set up a 24 – member committee
  under the chairmanship of Dr. L.C.Gupta on November 18, 1996 to develop
  appropriate regulatory framework for derivatives trading in India.


         The committee submitted its report on March 17, 1998 prescribing
  necessary pre-conditions for introduction of derivatives trading in India.




                                                                               54
       The committee recommended that derivatives should be declared as
‘securities’ so that regulatory framework applicable to trading of ‘securities’
could also govern trading of securities. SEBI also set up a group in June
1998 under the chairmanship of Prof. J.R.Verma, to recommend measures
for risk containment in derivative market in India.




       The repot, which was submitted in October 1998, worked out the
operational details of margining system, methodology for charging initial
margins, broker net worth, deposit requirement and real - time monitoring
requirements.


       The SCRA was amended in December 1999 to include derivatives
within the ambit of ‘securities’ and the regulatory framework were developed
for governing derivatives trading. The act also made it clear that derivatives
shall be legal and valid only if such contracts are traded on


       a recognized stock exchange, thus precluding OTC derivatives. The
government also rescinded in March 2000, the three – decade old
notification, which prohibited forward trading in securities.


       Derivatives trading commenced in India in June 2000 after SEBI
granted the final approval to this effect in May 2000. SEBI permitted the
derivative segment of two stock exchanges, NSE and BSE, and their clearing
house/corporation to commence trading and settlement in approved
derivatives contract.




                                                                            55
          To begin with, SEBI approved trading in index future contracts based
   on S&P CNX Nifty and BSE-30 (Sensex) index. This was followed by
   approval for trading in options based on these two indices and options on
   individual securities. The trading in index options commenced in June 2001.




          Futures contracts on individual stocks were launched in November
   2001. Trading and settlement in derivatives contracts is done in accordance
   with the rules, byelaws, and regulations of the respective exchanges and
   their clearing house/corporation duly approved by SEBI and notified in the
   official gazette.
INTRODUCTION TO FORWARDS;-
Forward Contracts
              A forward contract is an agreement to buy or sell an asset on a
      specified date for a specified price. One of the parties to the contract
      assumes a long position and agrees to buy underlying asset on a certain
      specified future date for a certain specified price. The other party
      assumes a short position and agrees to sell the asset on the same date
      for the same price. The parties to the contract negotiate other contracts
      details like delivery date, price, and quantity bilaterally. The forward
      contracts are normally traded outside the exchanges.


Salient features of forward contracts are as follows:-
 They are bilateral contracts and hence exposed to counter party risk.
 Each contract is custom designed, and hence is unique in terms of contract
   size, expiration date and the asset type and quality.
 The contract price is generally not available in public domain.
 On the expiration date, the contract has to be settled by delivery of the asset.
 If the party wishes to reverse the contract, it has to compulsorily go to the
   same counter party, which often results in high prices being charged.


                                                                                56
Limitation of forward market
   Forward market worldwide is affected by several problems:-
    Lack of centralization.
    Illiquidity.
    Counter party risk.


          In the first two of these, the basic problem is that of too much flexibility
   and generality. The forward market is like a real estate market in that any two
   consenting adults can form contracts against each other. This often makes
   them design terms of the deal, which are very convenient in that specific
   situation, but makes the contract non-tradable.


          Counter party risk arises from the possibility of default by any one
   party to the transaction. When one of the two sides to the transaction
   declares bankruptcy, the other suffers. Even when forward markets trade
   standardized contracts, and hence avoid the problem illiquidity, the counter
   party risk remains a very serious.
INTRODUCTION TO FUTURES:-
Future contract is specie of forward contract. Futures are exchange-traded
contracts to sell or buy standardized financial instruments or physical
commodities for delivery on a specified date at an agreed price. Futures
contracts are used generally for protecting against rich of adverse price
fluctuations (hedging). As the terms of contracts are standardized, these are
generally not used for merchandizing purpose.
The standardized items in a futures contract are:
    Quantity of the underlying.
    Quality of the underlying.
    The date and month of delivery.
    The units of price quotation and minimum price change.
    Location of settlement.


                                                                                   57
       Futures contract performs two important functions of price discovery
and price risk management with reference to the given commodity. It is
useful to all segment of economy. It is useful to the producer because
investor can get an idea of the price likely to prevail at a future point of time
and therefore can decide between various competing commodities, the best
that suits him. It enables the consumer get an idea of the price at which the
commodity would be available at a future point of time.
       He can do proper costing and cover his purchases by making forward
contracts. The future trading is very useful to the exporters as it provides an
advance indication of the price likely to prevail and thereby help the exporter
in quoting a realistic price and thereby secure export contract in a
competitive market.
       Having entered into an export contract, it enables him to hedge his
risk by operating in futures market.




       Other benefits of futures trading are:
 Price stabilization in time of violent price fluctuations- this mechanism
   dampens the peaks and lifts up the valleys i.e. the amplitude of price
   variation is reduced.
 Leads to integrated price structure throughout the country.
 Facilitates lengthy and complex, production and manufacturing activities.
 Helps balance in supply and demand position throughout the year.
 Encourages competition and acts as a price barometer to farmers and
   other trade functionaries.



                                                                              58
FEATURE                 FORWARD CONTRACT              FUTURE CONTRACT
Operational             Traded directly between two Traded         on      the
Mechanism               parties (not traded on the exchanges.
                        exchanges).
Contract                Differ from trade to trade.   Contracts            are
Specifications                                        standardized contracts.
Counter-party           Exists.                       Exists.        However,
risk                                                  assumed       by     the
                                                      clearing corp., which
                                                      becomes the counter
                                                      party to all the trades
                                                      or        unconditionally
                                                      guarantees          their
                                                      settlement.
Liquidation             Low, as contracts are tailor High, as contracts are
Profile                 made contracts catering to standardized exchange
                        the needs of the needs of the traded contracts.
                        parties.
Price discovery         Not efficient, as markets are Efficient, as markets
                        scattered.                    are centralized and all
                                                      buyers and sellers
                                                      come to a common
                                                      platform to discover the
                                                      price.




Margins
     The   margining      system   is   based   on   the   J   R   Verma   committee
recommendations. The actual margining happens on a daily basis while online
position monitoring is done on an intra day basis. Daily margining is of two
types:


1.   Initial margins.
2.   Mark-to market profit/loss.


         The computation of initial margin on the futures market is done using the
concept of Value-at-risk (VaR). The initial margin amount is large enough to
cover a one-day loss that can be encountered on 99% of the days.


                                                                                  59
              VaR methodology seeks to measure the amount of value that a portfolio
may stand to lose within certain horizon period (one day for the clearing
corporation) due to potential changes in the underlying asset market price.
             Initial margin amount computed using VaR is collected up-front. The daily
settlement process called “mark-to-market” provides for collection of losses that
have already occurred (historic losses) whereas initial margin seeks to
safeguard against potential losses on outstanding positions. The mark-to-market
settlement is done in cash.


Settlement of Future Contract:-
             Futures contract has two types of settlement, the MTM settlement, which
happens on a continuous basis at the end of each day, and the final settlement,
which happens on the last trading day of the futures contract.




     i.      MTM Settlement
             All futures contact for each member is marked-to-market (MTM) to the
daily settlement price of the relevant futures contract at the end of each day. The
profits/losses are computes as a difference between:
1.        The trade price and the day’s settlement price for contracts executed during
          the day but not squared up.
2.        The previous day’s settlement price and the current day’s settlement price for
          brought forward contracts.




                                                                                     60
       The buy price and the sell price for the contracts executed during the day
and squared up. The clearing members (CMs) who have a loss are required to
pay the mark-to-market (MTM) loss amount in cash which is in, turn passed on
to the CMs who have made a MTM profit. This is known as daily mark-to-market
settlement. CMs are responsible to collect and settle the daily MTM
profits/losses incurred by the Trading members (TMs) and their clients clearing
and    settling   through    them.    Similarly,   TMs   are    responsible    to
collect/pay/losses/profits from/to their clients by the next day. The pay-in and
payout of the mark-to-market settlement are affected on the day following the
trade day. After completion of daily settlement computation, all the open
positions are reset to the daily settlement price. Such position becomes the
opening positions for the next day.


 ii.   FINAL SETTLEMENTS FOR FUTURES
       On the expiry of the future contracts, after the close of trading hours,
NSCCL marks all positions of CM to the final settlement price and the resulting
profits/losses is settled in cash. Final settlement loss/profits amount is
debited/credit to the relevant CM’s clearing bank account on the day following
expiry day of the contract




SETTLEMENT PRICES FOR FUTURES:-
       Daily settlement price on a trading day is the closing price of the
respective future contracts on such day. The closing price for the future
contracts is currently calculated as the last half an hour weighted average price
of a contract in the F&O segment of NSE. Final settlement price is the closing
price of the relevant underlying index/security in the capital market segment of
NSE, on the last trading day of the contract. The closing price of the underlying
Index/security is currently its last half an hour weighted average value in the
capital market segment of NSE.



                                                                              61
INTRODUCTION TO OPTIONS:-


        Options give the holder or buyer of the option the right to do something. If
the option is a call option, the buyer or holder has the right to buy the number of
shares mentioned in the contract at the agreed strike price. If the option is a put
option, the buyer of the option has a right to sell the number of shares
mentioned in the contract at the agreed strike price. The holder of the buyer
does not have to exercise this right.
        Thus on the expiry of the day of the contract the option may or may not
be exercised by the buyer. In contrast, in a futures contract, the two parties to
the contract have committed themselves to doing something at a future date. To
have this privilege of doing the transaction at a future only if it is a profitable, the
buyer of the option has to pay a premium to the seller of options.




TYPES OF OPTIONS:-
        An option is a contract between two parties giving the taker/buyer) the
right, but not obligation, to buy or sell a parcel of shares at a predetermined
price possibly on, or before a predetermined rate. To acquire this right the taker
pays a premium to the writer (seller) of the contract.
There are two types of options:
1.   Call Options
2.   Put Options




                                                                                     62
Call Options:
       Call options give the taker the right, but not the obligation, to buy the
underlying shares at a predetermined price, on or before a predetermined date.
Call Options- Long & Short Positions
       When you expect prices to rise, then you take a long position by buying
calls. You are bullish.
       When you expect prices to fall, then you take a short position by selling
calls. You are bearish.


Put Options:
       A Put Option gives the holder of the right to sell a specific number of an
agreed security at a fixed price for a period.
Put Options- Long & Short Positions
       When you expect prices to rise, then you take a long position by buying
Puts. You are bearish.
       When you expect prices to fall, then you take a short position by selling
Puts. You are bullish.
Particulars                               Call Options     Put Options
If you expect a fall in price [Bearish]   Short            Long
If you expect a rise in price [Bullish]   Long             Short




TABLE SHOWING THE DEALING OF CALL & PUT OPTION


 Call Option Holder (Buyer)               Call Option Writer (Seller)
  Pays Premium                            Receives premium
  Right to exercise & buy the             Obligation to sell shares if
    shares                                   exercised
  Profit from rising prices               Profits from falling prices or
  Limited     losses,     potentially       remaining neutral
    unlimited gains                        Potentially unlimited losses,
                                             limited gains


                                                                              63
 Put Option Holder (Buyer)                Put Option Holder (Seller)

  Pays Premium                            Receives premium
  Right to exercise & buy the             Obligation to buy shares if
   shares                                   exercised
  Profit from rising prices               Profits from rising prices or
  Limited     losses,     potentially      remaining neutral
   unlimited gains                         Potentially    limited  losses,
                                            unlimited gains



IMPORTANT CONCEPTS:-


In -the- money option:
         It is an option with intrinsic value. A call option is in the memory if the
underlying price is above the strike price. A put option is in the memory if the
underlying price is below the strike price.


Out- of- the- money:
         It is an option that has no intrinsic value, i.e. all of its value consists of
time value. A call option is out of the money if the stock price is below its strike
price.
At- the- money:
         A term that describes an option with a strike price that is equal to the
current market price of the underlying stock. But of the money if the stock price
is above its strike price.


Market Scenario                     Call Option                Put Option
Market price > strike price         In- the- money             Out- of- the- money
Market price < strike price         Out- of- the- money        In- the- money
Market price = strike price         At- the- money             At the- money
Market price ~ strike price         Near- the- money           Near- the- money




                                                                                     64
Intrinsic Value
       In a call option, if the value of the underlying asset is higher than the
strike price, the option premium has an intrinsic value and is an “in- the- money”
option. If the value of the underlying asset is lower than the strike price, the
option has no intrinsic value and is an “out- of- the- money” option. If the value of
the underlying asset is equivalent to the strike price, the call option is “at- the-
money” and has no intrinsic value or zero intrinsic value.
       In a put option, if the value of the underlying asset is lower than the strike
price, the option has an intrinsic value and is an “in- the- money” option. If the
value of the underlying asset is higher than the strike price, the option has no
intrinsic value and is “out- of- money” option.
       If the value of the underlying asset is equivalent to the strike price, the put
option is at the- money”


Time Value
       Time value is the amount an investor is willing to pay for an option, in the
hope that at some time prior to expiration its value will increase because of a
favorable change in the price of the underlying asset. Time value reduces as the
expiration draws near and on expiration day; the time value of the option is zero.
Option Price




       An option cost or price is called “premium”. The potential loss for the
buyer of an option is limited to the amount of premium paid for the contract. The
writer of the option, on the other hand, undertakes the risk of unlimited potential
loss, for premium received. Thus,
Option Price = Premium Price
       A premium is the net amount the buyer of an option pays to the seller of
the option. It does not refer to an amount above the base price, as the term




                                                                                   65
       “premium” commonly used. The of an option has two important
constituents, intrinsic value and time value.
Premium = Intrinsic value + Time

PRICING WITH REGARD TO OPTIONS:-

      The Black and Scholes Model:

       The Black and Scholes Option Pricing Model didn't appear overnight, in
fact, Fisher Black started out working to create a valuation model for stock
warrants. This work involved calculating a derivative to measure how the
discount rate of a warrant varies with time and stock price. The result of this
calculation held a striking resemblance to a well-known heat transfer equation.
Soon after this discovery, Myron Scholes joined Black and the result of their work
is a startlingly accurate option pricing model.

       Black and Scholes can't take all credit for their work; in fact their model is
actually an improved version of a previous model developed by A. James Boness
in his Ph.D. dissertation at the University of Chicago. Black and Scholes'
improvements on the Boness model come in the form of a proof that the risk-free
interest rate is the correct discount factor, and with the absence of assumptions
regarding investor's risk preferences.




      Black and Scholes Model:
       In order to understand the model itself, we divide it into two parts. The first
part, SN [d1), derives the expected benefit from acquiring a stock outright. This is
found by multiplying stock price [S] by the change in the call premium with
respect to a change in the underlying stock price [N (d1)]. The second part of the
model, Ke [-rt) N (d2), gives the present value of paying the exercise price on the




                                                                                   66
         expiration day. The fair market value of the call option is then calculated
by taking the difference between these two parts.




Assumptions of the Black and Scholes Model:-

1) The stock pays no dividends during the option's life
         Most companies pay dividends to their share holders, so this might seem
a serious limitation to the model considering the observation that higher dividend
yields elicit lower call premiums. A common way of adjusting the model for this
situation is to subtract the discounted value of a future dividend from the stock
price.

2) European exercise terms are used
         European exercise terms dictate that the option can only be exercised on
the expiration date. American exercise term allow the option to be exercised at
any time during the life of the option, making American options more valuable
due to their greater flexibility. This limitation is not a major concern because very
few calls are ever exercised before the last few days of their life. This is true
because when you exercise a call early, you forfeit the remaining time value on
the call and collect the intrinsic value. Towards the end of the life of a call, the
remaining time value is very small, but the intrinsic value is the same.




3) Markets are efficient
         This assumption suggests that people cannot consistently predict the
direction of the market or an individual stock. The market operates continuously
with share prices following a continuous into process. To understand what a
continuous into process is, you must first know that a Markov process is "one
where the observation in time period t depends only on the preceding


                                                                                  67
       observation." An into process is simply a Markov process in continuous
time. If you were to draw a continuous process you would do so without picking
the pen up from the piece of paper.




4) No commissions are charged
       Usually market participants do have to pay a commission to buy or sell
options. Even floor traders pay some kind of fee, but it is usually very small. The
fees that Individual investor's pay is more substantial and can often distort the
output of the model.

5) Interest rates remain constant and known
       The Black and Scholes model uses the risk-free rate to represent this
constant and known rate. In reality there is no such thing as the risk-free rate, but
the discount rate on U.S. Government Treasury Bills with 30 days left until
maturity is usually used to represent it. During periods of rapidly changing
interest rates, these 30-day rates are often subject to change, thereby violating
one of the assumptions of the model.




6) Returns are log normally distributed
       This assumption suggests, returns on the underlying stock are normally
distributed, which is reasonable for most assets that offer options.


   Advantages & Limitations:-

   Advantage:

 The main advantage of the Black-Scholes model is speed -- it lets you
    calculate a very large number of option prices in a very short time.



                                                                                  68
  Limitation:

 The Black-Scholes model has one major limitation: it cannot be used to
   accurately price options with an American-style exercise as it only calculates
   the option price at one point in time -- at expiration. It does not consider the
   steps along the way where there could be the possibility of early exercise of
   an American option.




 As all exchange traded equity options have American-style exercise (i.e. they
   can be exercised at any time as opposed to European options which can
   only be exercised at expiration) this is a significant limitation.
 The exception to this is an American call on a non-dividend paying asset. In
   this case the call is always worth the same as its European equivalent as
   there is never any advantage in exercising early.
 Various adjustments are sometimes made to the Black-Scholes price to
   enable it to approximate American option prices but these only works well
   within certain limits and they don't really work well for puts.




                                                                                69
            Difference between derivative and equity
                     DERIVATIVE                EQUITY
Warehousing          No warehousing is         No      warehousing     is
                     required                  required
Quality           of Derivatives    contract   Equity contract don’t have
underlying           don’t have attribute of   attribute of quality
assets               quality

Contract life        Comparatively having Having long and short
                     long contract life   contract life
Maturity date        Standardized         Standardized

Return               High                      Medium

Risk                 Very High                 Less

Liquidity            Less                      Very high

Investment           Very high                 Low
Amount

Lot size             Fixed by SEBI             Not fixed by SEBI

Time of trading      9a.m to 3.30p.m           9a.m to 3.30p.m




                                                                            70
71
RESEARCH METHODOLOGY:-


          Problem Statement:
           The topic, which is selected for the study, is “DERIVATIVE MARKET” in
the firm so the problem statement for this study will be, “AWARENESS ABOUT
THE DERIVATIVE AND ITS COMPARISION WITH EQUITY.”


          Objective of the Study:
   1. To know the awareness of the Derivative Market in Surat City.
   2. To know which one is beneficial for the investor.
   3. To find what proportion of the population are investing in such derivatives
           along with their investment pattern and product preferences.


           Research Design:
           The research design specifies the methods and procedures for
conducting a particular study. The type of research design applied here are
“DESCRIPTIVE” as the objective is to check the position of the Derivative
Market in Surat city. The objectives of the study have restricted the choice of
research design up to descriptive research design. This survey will help the firm
to know how the investors invest in the derivative segment & which factors affect
their investing behavior.


          Scope of the Study:
           The scope of the study will include the analysis of the survey, which is
being conducted to know the awareness of the Derivative Market in the city &
also doing comparison of derivatives with equity.




                                                                                72
Research Source of Data:-
There are two types of sources of data which is being used for the studies:-


    Primary Source of Data:
          Preparing a Questionnaire is collecting the primary source of data & it
was collected by interviewing the investors.


    Secondary Source of Data:
          For having the detailed study about this topic, it is necessary to have
some of the secondary information, which is collected from the following:-Books.
Magazines & Journals.
Websites.
Newspapers, etc.


Methods of Data Collection:-
          The study to be conducted is about the awareness of the Derivative
Market in the Surat City so the method of data collection used id “SURVEY
METHOD”.




DATA ANALYSIS AND INTERPRETATION:




Q.1 Are you trading in derivative market?


Objective: To know that whether the investors are trading in derivative market
or not.




                                                                               73
                                      Frequency



                                             Frequencies                 Percentage
                                     Yes     74                          37.0
                                     No      126                         63.0
                                     Total   200                         100.0




Graph:

                                                         Trading

                                     140                         126
                                     120
                 percent/frequency




                                     100
                                             74
                                     80                                 63       Frequencies
                                     60                                          Percentage
                                                  37
                                     40
                                     20
                                      0
                                              Yes                  No
                                                       Trading




Inference: from the above graph out of 200 investors, only 37% investors means
74 respondent are trading in derivative market and 63% means 126 respondents
are not trading in derivative market.




                                                                                               74
Q.2 Reasons for not investing in derivative market. {Give the rank}


Objective: To know the reason why investors are not trading in trading in
derivative market
                                                           Frequency



 Reasons                                     Frequency                          Percent
 Lack of knowledge                           26                                 20.6
 Lack of awareness                           19                                 15.1
 High risky                                  62                                 49.2
 Huge                      amount       of 17                                   13.5
 investment
 Other                                       2                                  1.6
 Total                                       126                                100.0




Graph:

                                                           Reason

                     70                                       62
 percent/frequency




                     60                                        49.2
                     50
                                                                                                Series1
                     40
                                     26                                                         Series2
                     30               20.6        19
                                                    15.1                   17
                                                                            13.5                Series3
                     20
                     10    0 0                                                          2 1.6
                      0
                          Reasons     Lack of   Lack of      High risky      Huge       Other
                                    knowledge awareness                    amount of
                                                                          investment
                                                       reasons




                                                                                                          75
Inference: From the above graphical representation you can see that 49.2%
investors think that the derivatives are high risky whereas 1.6% investors don’t
have specify their reasons for not trading in derivative market.

Q.3 what is the objective of trading in derivative market?
Objective: To know that why they are trading in derivative market.


                                                        Frequency
                                                Frequency                         Percent
Don’t trade                                     126                               63.0
Not at all preferred                            2                                 1.0
Neutral                                         2                                 1.0
Some how preferred                              5                                 2.5
Most preferred                                  65                                32.5
Total                                           200                               100


Graph:

                                                        High Return

                      140    126
                      120
  percent/frequency




                      100
                      80           63                                                   65          Frequency
                      60                                                                            Percent
                      40                                                                     32.5

                      20                    2            2             5 2.5
                                                 1            1
                       0
                            Don’t trade    Not at all    Neutral      Some how     Most preferred
                                          preferred                   preferred
                                                        preferred




                                                                                                              76
Inference: From the above graph we can see that 32.5% investors are most
preferred the objective of high return and 1% investors are neutral while they are
trading in derivative market.


Q .4what are the criteria do you taken in the consideration while investing
in derivative market?


Objective: To know that which criteria are consider by the investors while they
are investing in derivative market. Which criteria are most important for them
whether derivatives are ease in transaction, less costly, or available of different
contract or for the margin money.




                                    Frequency


                                                Frequency    Percent
                   Don’t trade                  126          63.0
                   Not at all preferred         2            1.0
                   Some         how       not
                                                4            2.0
                   preferred
                   Neutral                      16           8.0
                   Some how preferred           23           11.5
                   Most preferred               29           14.5
                   Total                        200          100.0




                                                                                77
Graph:



                                                        Ease in transaction
      percentage/frequency




                             140   126
                             120
                             100
                              80     63                                                             Frequency
                              60                                                                    Percent
                              40                                               23        29
                                                                    16           11.5      14.5
                              20             2 1          4 2            8
                               0
                                   Don’t   Not at all     Some      Neutral     Some      Most
                                   trade   preferred     how not                 how    preferred
                                                        preferred             preferred
                                                             preferred




Inference: from the above graph we can conclude that out of the 200 investors
14.5% investors are most preferred and 1% investors are not at all preferred the
ease in transaction contract.




Q-5 Give your preference of trading in derivative instrument.


Objective: To know the preference of the investors while they are trading in
derivative market.




                                                                                                                78
                                                               Frequency

                                                                                Frequency              Percent
                                   Don’t trade                                  126                    63.0
                                   Not at all preferred                         1                      .5
                                   Some how not preferred                       1                      .5
                                   Neutral                                      15                     7.5
                                   Some how preferred                           14                     7.0
                                   Most preferred                               43                     21.5
                                   Total                                        200                    100.0


Graph:



                                                               Index future

                         140    126
     percent/frequency




                         120
                         100
                          80          63                                                                       Frequency
                          60                                                                     43            Percent
                          40                                          15 7.5         14 7             21.5
                          20                   1 0.5        1 0.5
                           0
                               Don’t trade   Not at all   Some how    Neutral       Some how      Most
                                             preferred       not                    preferred   preferred
                                                          preferred
                                                               preferred




Inference: From the above graph we can see that only 0.5% investors are not at
all preferred the index future, 0.5 % investors are some how not preferred ,7.5%
investors are some how preferred 21.5% are most preferred as the preference of
their trading in derivative market.




                                                                                                                           79
Q-6 Give your preference in term of trading in derivative market?
Objective:                        To know the preference of the investors in term of trading in
derivative market.


                                                               Frequency

                                                                                      Frequency                Percent
                             Don’t trade                                              126                      63.0
                             Not at all preferred                                     4                        2.0
                             Some how not preferred                                   1                        .5
                             Neutral                                                  5                        2.5
                             Some how preferred                                       10                       5.0
                             Most preferred                                           54                       27.0
                             Total                                                    200                      100.0


Graph:



                                                                Intraday
     Frequency/percentage




                            140          126
                            120
                            100
                             80            63                                                                         frequency
                                                                                                       54
                             60                                                                                       percentage
                             40                                                                          27
                                   0 0            4 2            10.5      5 2.5            10 5
                             20
                              0
                                                               preferred




                                                                                           preferred

                                                                                                       preferred
                                         trade


                                                 preferred




                                                                            Neutral
                                                 Not at all
                                         Don’t




                                                               how not
                                                                Some




                                                                                            Some



                                                                                                         Most
                                                                                             how




                                                              preferred




                                                                                                                                   80
Inference: from the above graph we can see that 27% investors are most
preferred the intraday and 2% investors are not at all preferred the intraday.


Q-7 How much percentage of your income you trade in derivative market?
Objective: To know investors are how much percentage of their income trade in
derivative market.


                                          Frequency
                                                    Frequency         Percent
          Don’t trade                               126               63
          Less than 5%                              8                 4.0
          5%-10%                                    25                12.5
          11%-15%                                   25                12.5
          16%-20%                                   13                6.5
          More than 20%                             3                 1.5
          Total                                     200               100.0
Graph:



          More than 20%         1.5
                                3

               16%-20%           6.5
                                   13

               11%-15%            12.5
                                     25                                       Percent
                                  12.5                                        Frequency
                  5%-10%             25

           Less than 5%         4
                                 8

              Don’t trade                      63
                                                                126

                            0             50              100         150




                                                                                          81
Inference: From the above graph we can see that 12.5% investors are invest
5% to 10% income in the derivative market. While only 1.5% investors are
investing more than 20% of their income.


Q-8 what is the rate of return expected by you from derivative market?
Objective: To know the investors expectation towards their investment in
derivative market.




                                                              Frequency
                                                                     Frequency              Percent
                            Do not trade                             126                    63.0
                            5%-9%                                    21                     10.5
                            10%-13. %                                22                     11.0
                            14%-17. %                                23                     11.5
                            18%-23%                                  8                      4.0
                            Total                                    200                    100.0


Graph:



                                                        rate of return expected

                            140     126
      pecentage/frequency




                            120
                            100
                             80           63                                                          Frequency
                             60                                                                       Percent
                             40                  21             22             23
                                                      10.5           11             11.5    8   4
                             20
                              0
                                  Do not trade   5%-9%         10%-13. %      14%-17. %    18%-23%



                                                             Rate of return




                                                                                                                  82
Inference: From the above graph we can see that 11.55 investors are expect
the 14% to 17% of their investment .and 4% investors are expect the 18% to
23% rate of return.


Q-9. You are satisfied with the current performance of the derivative market


Objective: To know that investors are satisfied with the performance of the
derivative market or not.
                                                           Frequency

                                                                     Frequency           Percent
                                Do not trade                         126                 63.0
                                Strongly disagree                    8                   4.0
                                Disagree                             14                  7.0
                                Neutral                              18                  9.0
                                Agree                                25                  12.5
                                strongly agree                       9                   4.5
                                Total                                200                 100.0


Graph:



                                                     Satisfaction
   percentage/frequency




                          140   126
                          120
                          100
                           80      63                                                          Frequency
                           60                                                                  Percent
                           40                               18       25
                                           8 4     14 7          9     12.5    9 4.5
                           20
                            0
                                Do not   Strongly Disagree Neutral   Agree    strongly
                                trade    disagree                              agree



                                                      prferred




                                                                                                           83
Inference:            From the above Graph we can see that 12.5% are agree for
satisfaction and4% are strongly disagree.


Gender:
                                             Frequency

                                               Frequency          Percent
                           Male                157                78.5
                           Female              43                 21.5
                           Total               200                100.0




Graph:



                                              gender

                     180
                              157
                     160
                     140
         frequency




                     120
                     100                                                    Frequency
                                      78.5
                      80                                                    Percent
                      60                               43
                      40                                     21.5
                      20
                       0
                                   male                  female
                                             gender




Inference: From the above graph we can see that there are 157 male investors
when 43 are the female investors.



                                                                                        84
AGE:
                                              Frequency
                                                            Frequency          Percent
                            Below 20 years                  3                  1.5
                            20-25 years                     61                 30.5
                            26-30 years                     51                 25.5
                            31-35 years                     43                 21.5
                            above 35 years                  42                 21.0
                            Total                           200                100.0




Graph:

                                                     age

                   35               30.5
                   30                       25.5
                   25                                       21.5      21
         percent




                   20
                                                                                         Percent
                   15
                   10
                    5     1.5
                    0
                        below 20    20-25   26-30           31-35   above 35
                          years     years   years           years     years
                                                    years




Inference: From the above graph we can see that out of 200 investors 1.5%
investors are below 20 years,30.5% investors are 20 to 25 years,21.5% investors
are between 31 to35 years , and 21% investors are above 35 years trading in
derivative market.



                                                                                                   85
Occupation:


                                                                Frequency
                                                                             Frequency                      Percent
                              Student                                        35                             17.5
                              Employed                                       82                             41.0
                              Business                                       32                             16.0
                              Professional                                   22                             11.0
                              House wife                                     13                             6.5
                              Others                                         16                             8.0
                              Total                                          200                            100.0




Graph:



                                                                Occupation

                      45                     41
                      40
         percentage




                      35
                      30
                      25      17.5                        16
                      20                                                                                                 Percent
                      15                                               11                               8
                                                                                         6.5
                      10
                       5
                       0
                              t



                                         d




                                                                                                   rs
                                                                                  if e
                                                                       l
                           en




                                                     ss



                                                                    na
                                       ye




                                                                                                 he
                                                                                  w
                                                   ne
                         ud




                                                               io
                                        o




                                                                                               ot
                                     pl




                                                                             e
                                                                s
                                                si
                       st




                                                                             us
                                                             es
                                  em



                                              bu




                                                                           ho
                                                          of
                                                        pr




                                                                occupation




Inference:                    From                the          above                  graph             we         can    see      that
17.5% investors are students, 41% are the employed, 16% are the business,
11% investors are the professionals, 6.5% investors are the housewife, and 8%
are others, which include the retired, farmers and unemployed.


                                                                                                                                    86
ANNUAL INCOME
                                                            Frequency


                                                                             Valid              Cumulative
                                           Frequency Percent Percent                            Percent
Valid 0                                    47                  23.5          23.5               23.5
                    less than 1
                                           62                  31.0          31.0               54.5
                    lac
                    1-5 lacs               73                  36.5          36.5               91.0
                    6-10 lacs              15                  7.5           7.5                98.5
                    11-15 lacs             1                   .5            .5                 99.0
                    15      lacs     &
                                           2                   1.0           1.0                100.0
                    above
                    Total                  200                 100.0         100.0




Graph:



                                                        annual income

               40                                36.5
               35                     31
               30
  percentage




                          23.5
               25
               20                                                                                         Percent
               15
                                                               7.5
               10
                5                                                           0.5        1
                0
                           0       less than    1-5 lacs     6-10 lacs     11-15    15 lacs &
                                     1 lac                                  lacs     above
                                                           income in Rs.




                                                                                                                    87
Inference: From the above graph we can see that 23.5% investors don’t have
the income, 31% investors have less than 1 lack annual income, 36.5 %
investors have the 1to 5 lacks annual income, 7.5 % investors have the 6 to 10
lacks income, 0.5% investors have the 11 to 15 lacks annual income, and 1%
investors have the 15 lacks and above annual income.




                                                                           88
                                     FINDINGS

1. Here we found that out of 200 investors 74 means 37% investors                are
trading in derivative market whereas 126 means 63% are not trading in derivative
market.

2. Reasons for not investing in derivative market Is derivative is because lack of
awareness and knowledge, high risky, need huge amount of investment.

3. The main objective I of trading in derivative market of the investors is getting
high return.

4. Criteria for trading is considered by investors are derivatives in derivative they
get margin money and derivatives are more liquid.

5. Their attractive preference is index future and index options

6. Most of the investors are trading intraday.

7. Out of 200 investors 12.5% investors are investing 11% to 15% of their income
trading in derivative market.

8.12.5% are satisfied with derivative market

9.157male investors and 43 female investors out of 200 investors.

10.-most of the businessman and employed are trading in derivative market.




                                                                                  89
   CONCLUSION




1. The awareness regarding Derivative among investor is 78 percent.


2. In terms of investment in Derivative and Equity investors have capability of
   taking risk.


3. Investors also prefer Safety and Time Factor as the important parameter
   for investing.


4. The important factor that affecting the investor decision is based on In
   Consult With Their Broke




                                                                            90
                          RECOMMENDATION

1. Only 74 investors are trading whereas 126 are not trading .so attract them
for trading.


2.19 are lack of awareness so make them aware with the derivative .so
increase the customer.


3. Out of 126, 26 don’t have knowledge for derivative so provide them
knowledge for trading in derivative market.


4. Those who are not satisfied with the derivative by knowing their behavior of
investment make them satisfied. Because negative word mouth of the
customers fall down the business. And good word of mouth builds the
business.




                                                                            91
      BIBLIOGRAPHY




1. Donald R Cooper & Pamela S Schindler, “Business Research Methods”,
Eighth Edition, Tata McGraw-Hill, New York, 2003.
2. N D Vohra and B R Bagri, “Future and options” 2nd Edition, seventh reprint
2006 Tata McGraw-Hill Publishing Company Ltd, 2006.
  WEBSITES
                 www.5paisa.com
                 www.derivativeindia.com
                 www.anandrathi.com
                 www.bseindia.com
                 www.nseindia.com
                 www.mcx.com
                 www.ncdex.com




                                                                          92
                                 APPENDIX

Questionnaire


      Myself Ankit Choudhary student of MBA studying at S.D college of
management studies, Muzaffarnagar. I had prepared this questionnaire for
project work meant for educational purpose only.       On “Awareness about
Derivatives and Its Comparison with Equity.”


      No personal information will be disclosed in any form at anywhere.




   1. ARE YOU INVESTING IN DERIVATIVE MARKET?


        YES


        NO


2. REASON FOR NOT INVESTING IN DERIVATIVE MARKET. {GIVE THE
RANK}


         LACK OF KNOWLEDGE             LACK OF AWARENESS


         HIGH RISKY                    HUGE AMOUNT OF INVESTMENT


        OTHER




                                                                           93
 3. WHAT ARE THE OBJECTIVES OF THE INVESTING IN DERIVATIVES
 MARKET?



                5        4          3   2          1
SCALE
INSTRUMENT MOST          SOMEWHAT NUTRAL SOMEWHAT NOT     AT
                PREFERED PREFERED       NOT        ALL
                                        PREFERED   PREFERED
HIGH
RETURN
HEDGE    THE
RISK
MORE
RELIABLE
SAFE       TO
INVEST     IN
DERIVATIVE
MARKET
MORE
LIQUID




                                                         94
4. WHAT ARE THE CRITERIA DO YOU TAKEN IN THE CONSIDERATION
WHILE INVESTING IN DERIVATIVE MARKET?


  SCALE         5         4         3        2         1
  INSTRUME MOST           SOMEWH    NUTRAL   SOMEWH    NOT        AT
  NT            PREFERE   AT                 AT   NOT ALL
                D         PREFERE            PREFERE   PREFERE
                          D                  D         D
  FLEXIBILIT
  Y
  EASE     IN
  TRANSAC
  TION
  LESS
  COSTLY
  AVALABILI
  TY      OF
  DIFFEREN
  T
  CONTRAC
  T
  MARGIN
  MONEY




                                                             95
5. GIVE YOUR PREFERENCE OF INVESTMENT IN DERIVATIVE
INSTRUMENT.




SCALE    5         4         3         2         1
INSTRUME MOST      SOME      NEUTRAL   SOMEWH    NOT        AT
NT       PREFERE   HOW                 AT   NOT ALL
         D         PREFERE             PREFERE   PREFERE
                   D                   D         D
INDEX
FUTURE
STOCK
FUTURE
INDEX
OPTION
STOCK
OPTION




                                                       96
6. GIVE YOUR PREFERENCE IN TERMS OF INVESTMENT DERIVATIVE
MARKET.


SCALE      5           4          3         2         1
TERMS      MOST        SOMEWHA    NEATRUL   SOMEWHA   NOT   AT
           PREFER      T PREFER             T    NOT ALL
                                            PREFER    PREFER
SHORT
TERM
MEDIUM
TERM
LONG
TERM




7. HOW MUCH PERCERNTAGE OF YOUR INCOME YOU INVEST IN
DERIVATIVE MARKET?


        LESS THAN 5%        5% TO 10%


        11% TO 15%         16% TO 20%


     MORE THAN 20%




                                                             97
8. WHAT IS THE RATE OF RETURN EXPECTED BY YOU FROM
DERIVATIVE MARKET?


      5 % TO 9.5%        10% TO 13.5%


      14 % TO 17%        18% TO 23%


      ABOVE 23%


  9. YOU ARE SATISFIED WITH THE CURRENT PERFORMANCE OF THE
  DERIVATIVE IN TERMS OF EXPECTED RETURN.


        STRONGLY AGREE                AAGREE


         NUTRAL                         DISAGREE


        STRONGLY DISAGREE.




                                                        98
                      DEMOGRAPHIC PROFILE


NAME: …………………………………………………………


CONTACT NO: ………………………………………………


EMAIL ID: …………………………………………………….


AGE:


       BELOW 20YRS              20 TO 30 YRS


       31 TO 40 YRS             41 TO 50 YRS


       ABOVE 50




GENDER:


       MALE            FEMALE




                                               99
FROM WHICH CATEGORY DO YOU FEET MORE?


          STUDENT


          EMPLOYEED


          BUSINESS OWNER


          OTHER




INCOME {YEARLY}:


          LESS THAN 100000RS.


          100000 TO 200000RS.


          200001 TO 300000RS.


          300001 TO 400000 RS


          ABOVE 400000RS.


                        THANK YOU




                                        100

				
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