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    Summer Training Project Report

    On

    ANALYSIS AND INVESTMENT MANAGEMENT AT

    INDIAINFOLINE

    Submitted for the partial fulfillment of the award

    of

    Master of Business Administration

    DEGREE(Session : 2011 - 2013)

    SUBMITTED BY*Ashish Kesarwani

    *1103270037

    UNDER THE GUIDANCE OFInternal Guide : Mrs. Tanu Shrivastav

    School Of Management

    ABES ENGINEERING COLLEGE ,

    GHAZIABAD

    AFFILIATED TO

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    MAHAMAYA TECHNICAL UNIVERSITY , NOIDA

    DECLARATION

    I ASHISH KESARWANI hereby declare that the work which is being presented in this report entitled

    SECURITY ANALYSIS AND INVESTMENT MANAGEMENT AT INDIAINFOLINE is an authentic

    record of my own work carried out under the supervision of Mrs. TANU SHRIVASTAV.

    The matter embodied in this report has not been submitted by me for the award of any other degree .

    Dated : Ashish Kesarwani

    MBA Department

    This is to certify that the above statements made by the candidate are correct to the best of my knowledge

    Prof. Rakesh Passi Tanu Shrivastav

    Head of department Designation :Asstt. professor

    Department : MBA

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    ACKNOWLEDGEMENT

    Any purpose and its fulfillment require deep routed efforts for its completion. Many characters play a

    vital role. This is more when a project undertaken is directly to a cause.

    . My sincere gratitude goes to Mr. Rajesh Shah (Branch manager) my organizational guide

    without whose help this project would have seemed impossible.

    I would like to thankProf. RakeshPassi (Head of Department) andProf.Tanu shrivastava,

    our Project guide , not only for giving me the opportunity to work on this project, but also for providing us

    with sound guidance and the necessary facilities to carry out the project.

    Finally we would like to thank all those who were directly and indirectly (

    Supporting staff of IIFL. and my friends)concerned in making my project

    successful. To put it in a nutshell a difficult and arduous journey was made simple

    and quiet enjoyable due to their support.

    It has been of great learning to be on the job-training and doing the project simultaneously, whic

    enriched my knowledge and developed my outlook for becoming a better professional. I feel great pleasur

    in submitting this project report to India Info line Securities Pvt. Ltd(Ghaziabad)

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    TABLE OF CONTENTS

    Chapter 1

    1. Introduction

    2. Need of the study

    3. Scope of study

    4. Objective of study

    Chapter 2

    1. Research methodology

    2. limitations

    Chapter 3

    1. Descriptive work on subtopic of study

    Chapter 4

    1. Data analysis and interpretation

    Chapter 5

    1. Conclusions and suggestions

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    Chapter 6

    1. Bibliography

    Chapter 7

    1. Appendices

    PART I

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    CHAPTER-16

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    Introduction:

    This summer project which is on how to create and manage portfolio, and know the investor perceptio

    about investment in capital market which is most useful for me. This project Increase my knowledge an

    ability to understand external forces of environment.

    Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retirin

    early (or of being able to retire at all)? Do you know that you should invest, but don't know where to start?

    The act of committing money or capital to an endeavor with the expectation of obtaining an additiona

    income or profit.

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    It's actually pretty simple: investing means putting your money to work for you. Essentially, it's a differen

    way to think about how to make money. Growing up, most of us were taught that you can earn an incom

    only by getting a job and working. And that's exactly what most of us do. There's one big problem wit

    this: if you want more money, you have to work more hours. However, there is a limit to how many hours

    day we can work, not to mention the fact that having a bunch of money is no fun if we don't have th

    leisure time to enjoy it .

    You can't create a duplicate of yourself to increase your working time, so instead, you need to send a

    extension of yourself - your money - to work. That way, while you are putting in hours for your employer

    or even mowing your lawn, sleeping, reading the paper or socializing with friends, you can also be earning

    money elsewhere. Quite simply, making your money work for you maximizes your earning potentia

    whether or not you receive a raise, decide to work overtime or look for a higher-paying job.

    There are many different ways you can go about making an investment. This includes putting money int

    stocks,bonds,mutual funds, or real estate (among many other things), or starting your own business. Sometime

    people refer to these options as "investment vehicles," which is just another way of saying "a way to invest." Each o

    these vehicles has positives and negatives, which we'll discuss in a later section of this tutorial. The point is that

    doesn't matter which method you choose for investing your money, the goal is always to put your money to work so

    earns you an additional profit. Even though this is a simple idea, it's the most important concept for you t

    understand.

    The world of finance can be extremely intimidating, but we firmly believe that the stock market and greate

    financial world won't seem so complicated once you learn some of the language and major concepts.

    COMPANY PROFILE

    History:

    8

    http://www.investopedia.com/terms/s/stock.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/s/stock.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/m/mutualfund.asp
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    India Infoline Ltd., was founded in 1995 by a group of professional with impeccable educationa

    qualifications and professional credentials. Its institutional investors include Intel Capital (world's) leadin

    technology company, CDC (promoted by UK government), ICICI, TDA and Reeshanar.

    India Infoline group offers the entire gamut of investment products including stock broking, Commoditie

    broking, Mutual Funds, Fixed Deposits, GOI Relief bonds, Post office savings and life Insurance. Indi

    Infoline is the leading corporate agent of ICICI Prudential Life Insurance Co. Ltd., which is India' No.

    Private sector life insurance company.

    Www.indiainfoline.com has been the only India Website to have been listed by none other tha

    Forbes in it's 'Best of the Web' survey of global website, not just once but three times in a row an

    counting... A must read for investors in south Asia is how they choose to describe India Infoline. It ha

    been rated as No.l the category of Business News in Asia by Alexia rating.

    Stock and Commodities broking is offered under the trade name 5paisa. India Infoline Commoditie

    pvt Ltd., a wholly owned subsidiary of India Infoline Ltd., holds membership of MCX and NCDEX

    Main Objects of the Company:

    Main objects as contained in its Memorandum or Association are:

    1. To engage or undertake software and internet based services, data processing IT enabled service

    software development services, selling advertisement space on the site, web consulting and relate

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    services including web designing and web maintenance, software product development an

    marketing, software supply services, computer consultancy services, E-Commerce of all type

    including electronic financial intermediation business and E-broking, market research, business an

    management consultancy.

    2. To undertake, conduct, study, carry on, help, promote any kind of research, probe, investigation

    survey, developmental work on economy, industries, corporate business houses, agricultural an

    mineral, financial institutions, foreign financial institutions, capital market on matters related t

    investment decisions primary equity market, secondary equity market, debentures, bond, venture

    capital funding proposals, competitive analysis, preparations of corporate / industry profile etc. an

    trade / invest in researched securities

    VISION STATEMENT OF THE COMPANY:

    Our vision is to be the most respected company in the financial services space In India.

    Products: the India Infoline pvt ltd offers the following products

    A. E-broking.

    B. Distribution

    C. Insurance

    D. PMS

    E. Mortgages

    A. E-Broking:

    It refers to Electronic Broking of Equities, Derivatives and Commodities under the brand name of 5paisa

    1. Equities

    2. Derivatives

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    3. Commodities

    B. Distribution:

    1. Mutual funds

    2. Govt of India bonds.

    3. Fixed depositsC. Insurance:

    1. Life insurance policies

    2. General Insurance

    3. Health Insurance Policies.

    THE CORPORATE STRUCTURE

    The India Infoline group comprises the holding company, India Infoline Ltd, which has 5 wholly

    owned subsidiaries, engaged in distinct yet complementary businesses which together offer a who

    bouquet of products and services to make your money grow.

    The corporate structure has evolved to comply with oddities of the regulatory framework but sti

    beautifully help attain synergy and allow flexibility to adapt to dynamics of different businesses.

    The parent company, India Infoline Ltd owns and managers the web properties www.Indiainfoline.com an

    www.5paisa.com. It also undertakes research Customized and off-the-shelf.

    Indian Infoline Securities Pvt. Ltd. is a member of BSE, NSE and DP with NSDL. Its busines

    encompasses securities broking Portfolio Management services.

    India Infoline.com Distribution Co. Ltd., Mobilizes Mutual Funds and other personal investment product

    such as bonds, fixed deposits, etc.

    India Infoline Insurance Services Ltd. is the corporate agent of ICICI Prudential Life Insurance, engaged i

    selling Life Insurance, General Insurance and Health Insurance products.

    India Infoline Commodities Pvt. Ltd. is a registered commodities broker MCX and offers futures trading incommodities.

    India Infoline Investment Services Pvt Ltd., is proving margin funding and NBFC services to the customer

    of India Infoline Ltd.,

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    Pictorial Representation of India Infoline Ltd

    Management of India Infoline Ltd.,:

    India Infoline is a professionally managed Company. The promoters who run the company/s day

    to-day affairs as executive directors have impeccable academic professional track records.

    Nirmal Jain, chairman and Managing Director, is a Chartered Accountant, (All India Rank 2); Co

    Account, (All India Rank l) and has a post-graduate management degree from IIM Ahmedabad. He had

    successful career with Hindustan Lever, where he inter alia handled Commodities trading and expor

    business. Later he was CEO of an equity research organization.

    R. Venkataraman, Director, is armed with a post- graduate management degree from IIM

    Bangalore, and an Electronics Engineering degree from IIT, Kharagpur. He spent eight fruitful years i

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    equity research sales and private equity with the cream of financial houses such as ICICI group, Barclay

    de Zoette and G.E. Capital

    The non-executive directors on the board bring a wealth of experience and expertise. Satpal khatta

    Reeshanar investments, Singapore The key management team comprises seasoned and qualifie

    professionals.

    Mukesh Sing- Director, India Infoline Securities Pvt Ltd.

    Seshadri Bharathan- Director, India Infoline. Com Distribution Co Ltd

    S Sriram- Vice President, Technology

    Sandeepa Vig Arora- Vice President, Portfolio Management Services

    Dharmesh Pandya- Vice President, Alternate Channel

    Toral Munshi- Vice President, Research

    Anil Mascarenhas- Chief Editor

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    INTRODUCTION:

    The India infoline was founded by a group of professionals in 1995, a seemingly distant past in the Interne

    age. Our meticulous research was published and distributed in printed form to a client base comprising th

    who's who of Indian business including leading MNCs, investment banks and consulting firms. The qualit

    of research was highly acclaimed and soon became the industry benchmark. Over the last few years, ou

    research coverage has grown to cover practically all companies, economy and financial markets. Th

    breadth and depth of our content is unmatched - stock markets, mutual funds, personal finance, taxatio

    and economy.

    We saw an opportunity to expand our client base, from a few hundreds to several millions and als

    to complete the value chain. In early 1999, when Internet penetration in India was at its infancy and th

    future unknown, we took the hard decision of killing our earlier business model and embracing the Interne

    We discontinued delivery of reports in printed form and made available quality research at the click of

    mouse. Thus, was born www.indiainfoline.com? The site has emerged as the most popular website o

    Indian business and finance. A publication, no less than Forbes has chosen us in their Best of the Web

    under the Asian Investing category.

    The India Info line group, comprising the holding company, Angel Broking Ltd and its wholl

    owned subsidiaries offers the entire gamut of investment products ranging from Equities and derivative

    trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixe

    deposits, GoI bonds and other small savings instruments. Angel Broking also owns and manages th

    websites, www.indiainfoline.com and www.5paisa.com. Angel Broking Ltd is a company listed on bot

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    the leading stock exchanges in India namely the Stock Exchange, Mumbai stock exchange (BSE) and th

    National Stock Exchange (NSE). Angel Broking is a forerunner in the field of equity research. Ange

    Brokings research is acknowledged by none other than Forbes as Best of the Web and a must read fo

    investors in Asia.

    India Info lines research is available not just over the internet but also on international wire services lik

    Bloomberg (Code: IILL), Thomson First Call and Internet Securities where it is amongst the most rea

    Indian brokers. The Angel Broking group has a significant presence across the country owing to its 12

    offices across 45 cities across India. All these offices are networked and are connected with the corporat

    office in Mumbai. The group has invested significantly in technology and research, the results of which ar

    there for everyone to see. The 5paisa trading interface is one of the most advanced platforms available t

    retail investor in India.

    The group has memberships on BSE and NSE for equities trading and on MCX and NCDEX fo

    commodities trading. It has a SEBI license for Portfolio Management under which, various schemes ar

    offered which have been consistently beating the benchmark indices since inception. Angel Broking is th

    one-stop shop for all investment needs for the Indian retail investor, from advice to execution, from east t

    west, online or offline.

    To be the premier provider of investment advisory and financial planning services in India

    To be a leading investment intermediary for transactions through both online and offline medium.

    5PAISA PRODUCTS &CHARGES

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    Main Products

    Investor Terminal

    Trader Terminal 2005

    Diet ODIN

    Investor/Trader & Diet ODIN Terminal

    On all the terminals, investors get facility to buy and sell Stocks in NSE and BSE and Futures an

    Options through NSE

    InvestorTerminal

    Investor Terminal is recommended for infrequent investors, who fall into the "Buy and Hold

    school of investing, made very popular by Warren Buffet - the Oracle of Omaha.

    Its a trading interface which works behind proxy and firewalls as they access the Internet and th

    stock markets from their work place, where a direct connection is difficult because of corporate IT

    security policies.

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    Trader Terminal 2005

    Trader Terminal is for the dedicated day traders, who churn their portfolio on minor movements i

    the market, sometimes several times a day.

    The Trader Terminal offers

    Lightning fast order execution

    Monitoring of marked to market positions on a minute-to-minute basis

    Diet ODIN

    The Diet ODIN terminal provides the facility to trade not only in cash as well as derivatives bu

    also in the commodities segment in the Multi-Commodity Exchange (MCX) and the Nationa

    Commodity & Derivatives Exchange (NCDEX);

    Though it doesnt provide charting features, it provides a cleaner interface for faster orde

    execution, a facet well appreciated by the true-blue trader of today.

    Customer Category

    Investor

    Trader

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    Brokerage- Investor

    Investor

    One-time registration fees Rs.555

    Minimum Initial Margin Rs.5000/-

    Trading Brokerage (Cash) 0.10%

    Delivery Brokerage 0.50%

    F&O Brokerage 0.10%

    Minimum Per Share(Trading) 5 Paisa

    Minimum Per Share(Delivery) 5 Paisa

    Registration of Investor

    Registration charge of Rs.555 is once payable and non refundable. This charge cannot be waived o

    under any circumstances.

    Account cannot be opened without the minimum initial margin of Rs. 5000 and any point of tim

    the ledger balance of the client should be minimum Rs. 5000.

    If the client has a debit balance then stock value minus debit has to worth a minimum Rs. 5000.

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    Client can withdraw funds from the account but has to maintain a minimum ledger balance of Rs

    5000

    If the minimum balance is not maintained then the account will be frozen and client cannot operat

    both trading and demat account. The account can be re-activated by payment of Rs. 50 p.m.

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    Brokerage- Trader

    Quarterly Annual

    Registration fees Rs. 3000/- Rs. 8000/-

    Minimum Initial Margin Rs. 5000/- Rs. 5000/-

    Trading Brokerage (Cash) 0.05% 0.05%

    Delivery Brokerage 0.25% 0.25%

    F&O Brokerage 0.05% 0.05%

    Minimum Per Share (Trading) 1paisa 1paisa

    Minimum Per Share (Delivery) 5paisa 5paisa

    Terminalsoffered

    An Investor and Trader can opt for any of the products we offer

    Investor Terminal

    Trader Terminal 2005

    Diet ODIN

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    An Investor that has opted for TT5 can be de-activated if the brokerage earned is no

    sufficient. Our Audit team will keep a check on this and produce a monthly list of such

    customers

    Under the Investor or Trader scheme a client can also choose offline trading.

    Depository Charges

    Account opening charges - Nil

    Annual maintenance charges - Nil

    Custody / Holding charges - Nil

    Transaction Credit - Nil

    Transaction Debit - 0.05% of transaction value (Minimum Rs.15/ Maximum

    Rs.100/-)

    DP charges mentioned above are the same for Investor and Trader. If the client opens onl

    a demat account then the client will be Charged annual maintenance charge of Rs. 250

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    India info line securities pvt ltd is a technology oriented company offering integrated Equit

    analysis, Stock trading, Depository & Insurance services, Margin Trading facilities back by real time ris

    management system and fast trade execution. India info line also provides its clients with valuable real

    time information, access to breaking news and market happening along with in-depth and insightfu

    analysis.

    Someoftheuniquefeaturesare:-

    Trading via branch network, telephone and internet account.

    Customized products for lending against shares.

    Automated extended margin trading facility.

    Integrated trading and Depository Account.

    Technology transforming desktops into NEAT like terminal for Internet trading.

    One screen for cash and derivatives trading.

    Facility to buy today & tomorrow itself.

    Real time online fund transfer & Exposure updating facility with HDFC bank.

    Equity research department, which studies the market and provides information.

    Up-to-date news, data and analysis via Indiainfoline.com

    Customized insurance services.

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    Equity analysis report to support your investment decisions.

    Features of power India info line

    Live streaming quotas

    Fast order entry.

    Tic-by-tic live charts.

    Technical analysis.

    Live news and alerts

    Extensive reports for real time accounting.

    Benefits of trading with India info line

    Personal relationship manager-24/7

    Most competitive brokerage & DP charges

    Only one time account opening charges and no annual maintenance charges.

    Margin trading of 3 times the cash deposited for delivery based trade.

    Margin trading of 6 times the cash deposited for intra-day based trade.

    Margin trading of 2 times the approved category A based shares deposited for delivery based trade

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    Margin trading of 4 times the approved category A-based shares deposited for intra-day.

    Buy today sell tomorrow for all securities.

    Management of portfolio and advises.

    Charges:

    Rs. 555/- one time payment for account opening for equity trading and DP-online trading.

    0.5% for delivery based trading.

    0.1% for intra-day trading.

    RS.750/- additional one time charge for the installation of PIB-optional.

    Equity analysis @ Rs. 500/- pm or Rs. 6000/-annual. optional.

    Postregistrationservices:

    Deliver and receive chaques, securities & place orders.

    Obtain market information.

    Get access to IPO via the book building rout as well as to all the fixed price issues.

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    Documents required for account opening are:

    2 passport size photographs

    Identity proof-photocopy of the following:

    a) Passport

    b) PAN card

    c) Voter ID

    d) Driving license

    e) Ration card

    Address proof-photocopy of any one driving license/passport/ration card/voter card/telephone

    bill/electricity bill/bank statement

    Initial chaques in favors of India info line securities Ltd.

    Besides this India info line also offers insurance and mutual funds to .suits your varying needs. We

    distributed unit linked insurance products ofBirla Sun life and TATA AIG. Further we also offer a

    bouquet ofMutual fund of all major assets management companies.

    Need of Study:

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    SCOPE OF THE STUDY:

    The study is limited to Derivatives With special reference to Futures in the Indian context and th

    IndiaInfoline has been taken as representative sample for the study.

    The study cannot be said as totally perfect, any alteration may come. The study has only made humbl

    attempt at evaluating Derivatives Markets only in Indian Context. The study is not based on th

    International perspective of the Derivatives Markets.

    Objectives of the Study:

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    To understand the concept of the Financial Derivatives such as Futures and Options.

    To examine the advantage and the disadvantages of different strategies along with situations.

    To study the different ways of buying and selling of Options.

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    PART II

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    CHAPTER-2

    RESEARCH

    METHODOLOGY

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    RESEARCH METHODOLOGY:RESEARCH METHODOLOGY:

    Research in Common parlance refers to the search for knowledge. One can also define research a

    a Scientific and Systematic search for pertinent information of a specific topic, it is the pursuit o

    truth with the help of study , observation , comparison and experiment.

    RESEARCH DESIGN:

    Research design is actually the blue print of the research project and when implemented mus

    bring out the information required for solving the identified problem. The research design indicate

    the method of research (i.e method of information gathering , the instruments of research, th

    method of sampling etc.). The Choice of research design depends upon the depth and extent o

    data required the cost benefits of research, the urgency of work and the time available fo

    Completing it.

    RESEARCH OBJECTIVE:

    The purpose of research is to acquire knowledge about the financial products of India Infoline.

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    DATA COLLECTION:

    The data used for the project can be divided into two major forms:

    1) Primary Data

    2) Secondary Data

    Primary Data was collected by getting the feedback forms filled by the people we met in th

    organizations visited. We also used to write our daily reports based on our experiences of that particula

    day and maintained a record of the companys reaction on the product, as well as the presentation.

    Secondary Data was collected by going through several websites of the companies on the Internet lik

    www.nseindia.com,www.5paisa.com,www.indiainfoline.com etc. Information about the companies and th

    industry was also collected by going through financial papers and magazines like Econom

    Times,Business World,Business Today.etc.

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    Limitations:

    The study was conducted in Hyderabad only.

    As the time was limited, study was confined to conceptual understanding o

    Derivatives market in India.

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    CHAPTER 3

    DESCRIPTIVE

    WORK ON

    SUBTOPIC

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    DESCRIPTIVE WORK ON SUBTOPIC

    STOCK MARKET BASICS

    Meaning of stock

    Stock is a share in the ownership of a company. It represents a claim on the company's asset

    and earnings

    Whether you say shares, equity or stock, it all means the same thing.

    If a company wants to growmaybe build more factories, hire more people or develop new

    productsit needs money. It could get a loan from a bank. By issuing stock, a company can raise mone

    without going into debt. People who buy the stock are giving the company the money it needs to grow. No

    every company can issue stock. A business owned by one person (a proprietorship) or a few people (

    partnership) cannot issue stock. Only a business corporation can issue stock. A corporation has a specia

    legal status. Like a school, its existence does not depend on the people who run it. Under the law it i

    separate from the people associated with it, and has special legal rights and responsibilities as well as it

    own unique name.

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    When the price of a particular stock rises, that stock is said to be "up," meaning up in price. When the pric

    falls, the stock is said to have gone "down. The terms "up" and "down" are also used to describe the ris

    and fall of the market as a whole. Stock market

    The stock market is the market for the trading of company stock, both those securities listed on

    stock exchange as well as those only traded privately. Although common, the term 'the stock market' is

    somewhat abstract concept for the mechanism that enables the trading of company stocks. It is also used t

    describe the totality of all stocks, especially within one country. In simple words:

    Place where business of buying and selling stock takes place

    The stock market is not a specific place, though some people use the term "Dalaal Street

    Types of stocks

    Equity

    Preference

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    Market segments

    Primary market

    -Channel for creation of new securities

    Secondary market

    -The new securities issued in the primary market are traded the secondary market

    Stock exchange

    The Bombay Stock Exchange (BSE)

    National Stock Exchange of India Ltd (NSE)

    Trading on BSE and NSE

    To provide Transparency, Efficiency and Depth to market, BSE and NSE provide Screen Base

    Trading on Trading Platforms called BOLT and NEAT.

    These platforms provide Trading Facility to Brokers, Sub-brokers and their clients throug

    thousands of trading terminals spread throughout the nation

    BSE and NSE provide trading facility on two segments which are

    - Cash Segment and

    - Derivative Segment

    NEAT CASH

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    BOLT

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    BOLT

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    Markettiming

    Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays an

    holidays declared by the exchange in advance).

    The market timings of the equities segment are:

    Normal market open : 09:55 hours

    Normal market close : 15:30 hours

    The closing session is held between 15.50 hours and 16.00 hours in NSE and 15.40 hours and 15.50 hours

    in BSE

    Index

    Number which measures the change in a set of values over a period of time.

    Stock index represents the change in value of a set of stocks which constitute the index

    A good stock market index is one which captures the behavior of the overall equity market

    It has to be well diversified yet highly liquid

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    Important market index

    A market index is very important for its use as

    A barometer for market behavior

    As a benchmark portfolio performance

    A passive fund management in index funds

    An underlying for index futures and options

    Types of indexes

    Price weighted index

    Equally weighted index

    Market capitalization weighted index

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    Major Indices in India

    S&P CNX Nifty

    Sensex

    The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index o

    30 stocks representing a sample of large, well-established and financially sound companies. It is th

    oldest index in India and has acquired a unique place in the collective consciousness of investors. Th

    index is widely used to measure the performance of the Indian stock markets. SENSEX is considered t

    be the pulse of the Indian stock markets as it represents the underlying universe of listed stocks at Th

    Stock Exchange, Mumbai. Further, as the oldest index of the Indian Stock market, it provides tim

    series data over a fairly long period of time (since 1978-79

    S&P CNX Nifty

    S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used

    for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

    S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint

    venture between NSE and CRISIL. IISL is India's first specialised company focused upon the index as a

    core product. IISL has a Marketing and licensing agreement with Standard & Poor's (S&P), who are world

    leaders in index services.

    The traded value for the last six months of all Nifty stocks is approximately 48.15% of the traded

    value of all stocks on the NSE

    Nifty stocks represent about 59.32% of the total market capitalization as on June 30, 2008.

    Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.14%

    S&P CNX Nifty isprofessionally maintained and is ideal for derivatives tradingList of S&P CNX Nifty stocks

    42

    http://www.nse-india.com/content/indices/ind_niftylist.csvhttp://www.nse-india.com/content/indices/ind_niftytrading.htmhttp://www.nse-india.com/content/indices/ind_indexfunds.htmhttp://www.nse-india.com/content/indices/ind_iisl.htmhttp://www.nse-india.com/content/indices/ind_ic_2007.csvhttp://www.nse-india.com/content/indices/ind_niftymaintenance.htmhttp://www.nse-india.com/content/indices/ind_niftylist.csvhttp://www.nse-india.com/content/indices/ind_niftylist.csvhttp://www.nse-india.com/content/indices/ind_niftytrading.htmhttp://www.nse-india.com/content/indices/ind_indexfunds.htmhttp://www.nse-india.com/content/indices/ind_iisl.htmhttp://www.nse-india.com/content/indices/ind_ic_2007.csvhttp://www.nse-india.com/content/indices/ind_niftymaintenance.htmhttp://www.nse-india.com/content/indices/ind_niftylist.csv
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    Constituents list

    of S&P CNX

    Nifty

    Company Name Industry Symbol

    ABB Ltd. ELECTRICAL EQUIPMENT ABB

    ACC Ltd. CEMENT AND CEMENT PRODUCTS ACC

    Ambuja

    Cements Ltd.CEMENT AND CEMENT PRODUCTS

    AMBUJACEM

    Bharat Heavy

    Electricals Ltd.

    ELECTRICAL EQUIPMENTBHEL

    Bharat

    Petroleum

    Corporation Ltd.

    REFINERIES

    BPCL

    Bharti Airtel

    Ltd.

    TELECOMMUNICATION - SERVICESBHARTIARTL

    Cairn India Ltd. OIL EXPLORATION/PRODUCTION CAIRN

    Cipla Ltd. PHARMACEUTICALS CIPLA

    DLF Ltd. CONSTRUCTION DLF

    Dr. Reddy's

    Laboratories

    Ltd.

    PHARMACEUTICALS

    DRREDDY

    GAIL (India)

    Ltd.

    GASGAIL

    Grasim

    Industries Ltd.

    CEMENT AND CEMENT PRODUCTS

    GRASIMHCL

    Technologies

    Ltd.

    COMPUTERS - SOFTWARE

    HCLTECH

    HDFC Bank

    Ltd.BANKS

    HDFCBANK

    Hero Honda

    Motors Ltd.

    AUTOMOBILES - 2 AND 3 WHEELERSHEROHONDA

    Hindalco

    Industries Ltd.

    ALUMINIUMHINDALCO

    Hindustan

    Unilever Ltd.

    DIVERSIFIEDHINDUNILVR

    Housing

    Development

    Finance

    Corporation Ltd.

    FINANCE - HOUSING

    HDFC

    I T C Ltd. CIGARETTES ITC

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    ICICI Bank Ltd. BANKS ICICIBANK

    Idea Cellular

    Ltd.

    TELECOMMUNICATION - SERVICESIDEA

    Infosys

    Technologies

    Ltd.

    COMPUTERS - SOFTWARE

    INFOSYSTCH

    Larsen &Toubro Ltd.

    ENGINEERINGLT

    Mahindra &

    Mahindra Ltd.

    AUTOMOBILES - 4 WHEELERSM&M

    Maruti Suzuki

    India Ltd.

    AUTOMOBILES - 4 WHEELERSMARUTI

    NTPC Ltd. POWER NTPC

    National

    Aluminium Co.

    Ltd.

    ALUMINIUM

    NATIONALUM

    Oil & Natural

    Gas CorporationLtd.

    OIL EXPLORATION/PRODUCTION

    ONGC

    Power Grid

    Corporation of

    India Ltd.

    POWER

    POWERGRID

    Punjab National

    Bank

    BANKSPNB

    Ranbaxy

    Laboratories

    Ltd.

    PHARMACEUTICALS

    RANBAXY

    Reliance

    Communications

    Ltd.

    TELECOMMUNICATION - SERVICES

    RCOM

    Reliance

    Industries Ltd.

    REFINERIESRELIANCE

    Reliance

    Infrastructure

    Ltd.

    POWER

    RELINFRA

    Reliance

    Petroleum Ltd.

    REFINERIESRPL

    Satyam

    Computer

    Services Ltd.

    COMPUTERS - SOFTWARE

    SATYAMCOMP

    Siemens Ltd. ELECTRICAL EQUIPMENT SIEMENS

    State Bank of

    India

    BANKSSBIN

    Steel Authority

    of India Ltd.

    STEEL AND STEEL PRODUCTSSAIL

    Sterlite METALS STER

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    Industries

    (India) Ltd.

    Sun

    Pharmaceutical

    Industries Ltd.

    PHARMACEUTICALS

    SUNPHARMA

    Suzlon Energy

    Ltd.

    ELECTRICAL EQUIPMENT

    SUZLON

    Tata

    Communications

    Ltd.

    TELECOMMUNICATION - SERVICES

    TATACOMM

    Tata

    Consultancy

    Services Ltd.

    COMPUTERS - SOFTWARE

    TCS

    Tata Motors Ltd.AUTOMOBILES - 4 WHEELERS TATAMOTORS

    Tata Power Co.

    Ltd.

    POWERTATAPOWER

    Tata Steel Ltd. STEEL AND STEEL PRODUCTS TATASTEEL

    Unitech Ltd.CONSTRUCTION

    UNITECHWipro Ltd. COMPUTERS - SOFTWARE WIPRO

    Zee

    Entertainment

    Enterprises Ltd.

    MEDIA & ENTERTAINMENT

    ZEEL

    LegalFramework

    Securities Contract (Regulation) Act,1956

    Securities Contracts (Regulation) Rules,1957

    SEBI Act 1992

    SEBI (Stock Broker and Sub-Brokers) Rules and Regulations,1992

    The Depositories Act,1996

    Indian Contracts Act,1872

    Indian Companies Act,1956

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    Market Segments

    Rolling Settlement

    Limited physical market

    Institutional Segment

    Trade for Trade Segment

    Clearing and Settlement

    Stock Markets follow a system of settling trades on T+2 basis, which means

    Transactions done on Monday are to be settled by Wednesday by way of giving securities or funds.

    Providing of securities or funds to

    Exchange / Clearing Corporation is called Pay-In.

    Receiving securities or funds from Exchange / Clearing Corporation is called pay-out

    Sometimes trades dont get settled because of short or bad delivery or company objection.

    In such cases, trade is settled through auction of securities

    .

    If a trade remains unsettled even after auction, then Exchange carries Close Out

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    Margins and Risk Management

    It is of paramount importance that investors have faith smooth functioning of stock Markets.

    Exchanges achieve this by putting in place a comprehensive Risk Management system and margi

    requirements.

    Margin Requirement

    MTM- Mark to Market margin

    Volatility Margin

    Gross Exposure Margin

    SPAN margin

    Risk Management

    Capital Adequacy requirement.

    Additional Base Capital

    Intra-Day Trading and Exposure limits

    On-line Exposure monitoring

    Settlement Guarantee Fund

    Inspection of Books

    Penalties

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    Frequently used terms

    Margin Money

    Bull and Bear

    Settlement Cycle

    Squared transaction

    Delivery Transaction

    Positions - + (buy) & - (sell)

    Prices- Last traded price, closing price, opening price, average price

    Pay-in & pay-out

    Bid and offer

    Short selling

    Long position

    Auction

    Settlement Number

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    CAPITAL MARKETS

    Segments of the Capital Market

    Primary market

    -Channel for creation of new securities

    Secondary market

    -The new securities issued in the primary market are traded the secondary market

    Primary Market

    This is part of the financial market where enterprises issue their new shares and bonds. It

    characterized by being the only moment when the enterprise receives money in exchange for selling it

    financial assets. In simple words:

    The primary market provides the channel for creation of new securities.

    Primary market provides opportunity to issuers of securities; Government as well as corporates, t

    raise resources to meet their requirements of investment.

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    Classification of Issues

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    Initial Public Offer

    Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue o

    securities or an offer for sale of its existing securities or both for the first time to the public. Thi

    paves way for listing and trading of the issuers securities.

    A follow on public offering (Further Issue) is when an already listed company make

    either a fresh issue of securities to the public or an offer for sale to the public, through an offe

    document.

    Pricing of an Issue

    Fixed Price

    Price discovery through Book Building Process

    Book Building Process

    Book Building is basically a process used in IPOs for efficient price discovery.

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    It is a mechanism where, during the period for which the IPO is open, bids are collected from

    investors at various prices, which are above or equal to the floor price. The offer price is determine

    after the bid closing date.

    Rights Issue

    Rights Issue is when a listed company which proposes to issue fresh securities to its existin

    shareholders as on a record date.

    The rights are normally offered in a particular ratio to the number of securities held prior to th

    issue and generally issued at a price lower than the currently traded market price of the share

    Preferential Issue

    A Preferential issue is an issue of shares or of convertible securities by listed companies to a selec

    group of persons which is neither a rights issue nor a public issue.

    This is a faster way for a company to raise equity capital.

    Private placement can be done with a maximum of 50 investors.

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    Secondary Market

    The market where securities are traded after they are initially offered in the primary market. Mos

    trading is done in the secondary market. In simple words:

    Secondary market refers to a market where securities are traded after being initially offered to th

    public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done i

    the secondary market.

    Secondary market comprises of equity markets and the debt markets.

    Role of Secondary Market

    For the general investor, the secondary market provides an efficient platform for trading of hi

    securities.

    For the management of the company, secondary equity markets serve as a monitoring and contro

    conduitby facilitating value-enhancing control activities

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    Stock Exchange

    The stock exchanges in India, under the overall

    supervision of the regulatory authority, the Securities and

    Exchange Board of India (SEBI),provide a trading

    platform, where buyers and sellers can meet to transact in

    Securities.

    Role of Stock Exchange

    Facilitate Listing of Securities

    Register members -Stock Brokers, sub brokers

    Make and enforce bye-laws

    Provide trading platform to investors

    Manage risk in securities transactions

    Provide indices

    Leading Stock Exchanges

    National Stock Exchange (NSE)

    The Stock Exchange, Mumbai (BSE)

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    National Stock Exchange (NSE)

    NSE, promoted by leading financial institutions, was incorporated in 1992 as a corporate entity.

    Trading in Equities and Debt Market commenced in 1994.

    It is the largest exchange in the country in terms of volume of trading.

    It enjoys leadership position among exchanges in India.

    The Stock Exchange, Mumbai (BSE)

    The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Nativ

    Share and Stock Brokers Association

    It is the oldest stock exchange in Asia.

    It has evolved over the years into its present status as the premier Stock Exchange in the country.

    It is the first Stock Exchange in the Country to get recognition from the Govt. of India under th

    Securities Contracts (Regulation) Act, 1956.

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    Capital Market Instruments

    Equity shares

    Preference shares

    Futures and Options

    Debentures/Bonds

    Government securities

    Equity Shares

    Equity shares represent proportionate ownership in a company. Investors who own equity shares i

    a company are entitled to ownership rights such as

    Share in the profits of the company ( in the form of dividends )

    Share in the residual funds after liquidation / winding up of the company

    Voting rights

    Reasons for buying equities

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    Owning equity in a company means owning part of that company. Each part is known as a share.

    If a company has issued 100 shares of stock, and you bought one, you own 1% of that company

    People who own stock are called stockholders, or shareholders.

    Stockholders hope the company will earn money as it grows. If a company earns money, th

    stockholders share the profits. Over time, people usually earn more from owning stock than from

    leaving money in the bank, buying bonds, or making other investments.

    Preference Shares

    Preferential shareholders enjoy a preferential right over equity shareholders with regards to :

    Receipt of dividend

    Receipt of residual funds after liquidation

    Futures and Options

    Future and Options are derivative products whose value is derived from the value of one or mor

    basic variables

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    Underlying Asset can be Equity, Forex, commodity or any other asset.

    Debentures/ Bonds

    Debt instruments issued by corporate and government

    Debentures and bonds can have many variations depending upon redemption, charge, convertibilit

    etc.

    Government Securities

    The Central Government and the State Governments issue securities periodically for the purpose o

    raising loans from the public. There are two main types of Government securities:

    Dated Securities: These securities have a maturity period of more than 1 year

    Treasury Bills: These have a maturity period of less than 1 year

    Regulatory Framework

    Main legislations governing the capital market

    Securities Contract (Regulations) Act,1956

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    Companies Act, 1956

    Securities Exchange Board of India Act, 1992

    Depositories Act,1996

    Role of SEBI

    SEBI was set up to

    develop and regulate capital market

    protect interest of investors

    register various participants

    make rules for participants

    regulate stock exchanges

    prohibit fraudulent and unfair practices

    promote investors education

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    LISTING REQUIREMENTS

    [I] Minimum Listing Requirements for new companies

    (A) Minimum Capital:

    1. New companies can be listed on the Exchange, if their issued & subscribed equity capital after th

    public issue is Rs.10 crores. In addition to this the issuer company should have a post issue ne

    worth (equity capital + free reserves excluding revaluation reserve) of Rs.20 crores.

    2. For new companies in high technology ( i.e. information technology, internet, e-commerc

    telecommunication, media including advertisement, entertainment etc.) the following criteria wi

    be applicable regarding there hold limit:

    i. The total income/sales from the main activity, which should be in the field of information

    technology, internet, e-commerce, telecommunication, media including advertisement,

    entertainment etc. should not be less than 75% of the total income during the two

    immediately preceding years as certified by the Auditors of the company.

    ii. The minimum post-issue paid-up equity capital should be Rs.5 Crores.

    iii. The minimum market capitalization should be Rs.50 Crores. (The capitalization will b

    calculated by multiplying the post issue subscribed number of equity shares with the Issu

    price).

    iv. Post issue net worth (equity capital + free reserves excluding revaluation reserve) of Rs.2

    Crores.

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    (B) Minimum Public offers:

    As per Rule 19(2) (b) of the Securities Contracts (Regulation) Rules, 1957, securities of a compan

    can be listed on a Stock Exchange only when at least 25% of each class or kind of securities is offered t

    the public for subscription.

    In case of IPOs by unlisted companies in the IT& entertainment sector, at least 10% of the securitie

    issued by the company may be offered to the public subject to the following:

    Minimum 20 lakhs securities are offered to the public (excluding reservation, firm allotment an

    promoters contribution)

    The size of the offer to the public is minimum 50 crores.

    For this purpose, the term "offered to the public" means only the portion offered to the public and doe

    not include reservations of securities on firm or competitive basis.

    SEBI may, however, relax this condition on the basis of recommendations of stock exchange(s), only i

    respect of a Government company defined under Section 617 of the Companies Act, 1956.

    [II] Minimum Listing Requirements for companies listed on other stock exchanges

    1. The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the direc

    listing norms for companies listed on others The Company should have minimum issued and paid u

    equity capital of Rs. 3 crores.

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    2. The Company should have profit making track record for last three years. The revenues/profits arisin

    out of extra ordinary items or income from any source of non-recurring nature should be exclude

    while calculating distributable profits.

    3. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excludin

    revaluation reserves).

    4. Minimum market capitalization of the listed capital should be at least two times of the paid up capital.

    5. The company should have a dividend paying track record for the last 3 consecutive years and th

    minimum dividend should be at least 10%.

    6. Minimum 25% of the company's issued capital should be with Non-Promoters shareholders as pe

    Clause 35 of the Listing Agreement. Out of above Non Promoter holding no single shareholder shoul

    hold more than 0.5% of the paid-up capital of the company individually or jointly with others except i

    case of Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies an

    Non-Resident Indians.

    7. The company should sign an agreement with CDSL & NSDL for demat trading.

    [III] Minimum Requirements for companies delisted by this Exchange seekin

    relisting of this Exchange

    The companies delisted by this Exchange and seeking relisting are required to make a fresh publi

    offer and comply with the prevailing SEBI's and BSE's guidelines regarding initial public offerings.

    [IV] Permission to use the name of the Exchange in an Issuer Company's prospectus

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    The Exchange follows a procedure in terms of which companies desiring to list their securitie

    offered through public issues are required to obtain its prior permission to use the name of the Exchange i

    their prospectus or offer for sale documents before filing the same with the concerned office of th

    Registrar of Companies. The Exchange has since last three years formed a "Listing Committee" to analys

    draft prospectus/offer documents of the companies in respect of their forthcoming public issues o

    securities and decide upon the matter of granting them permission to use the name of "Bombay Stoc

    Exchange Limited" in their prospectus/offer documents. The committee evaluates the promoters, company

    project and several other factors before taking decision in this regard.

    [V] Submission of Letter of Application

    As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on th

    Exchange is required to submit a Letter of Application to all the Stock Exchanges where it proposes t

    have its securities listed before filing the prospectus with the Registrar of Companies.

    [VI] Allotment of Securities

    As per Listing Agreement, a company is required to complete allotment of securities offered to th

    public within 30 days of the date of closure of the subscription list and approach the Regional Stoc

    Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of allotment. I

    case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issu

    failing which interest at the rate of 15% shall be paid to the investors.

    [VII] Trading Permission

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    As per Securities and Exchange Board of India Guidelines, the issuer company should complete th

    formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working

    days of finalization of Basis of Allotment.

    A company should scrupulously adhere to the time limit for allotment of all securities and dispatc

    of Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of al

    the Exchanges whose names are stated in its prospectus or offer documents. In the event of listin

    permission to a company being denied by any Stock Exchange where it had applied for listing of it

    securities, it cannot proceed with the allotment of shares. However, the company may file an appeal befor

    the Securities and Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Ac

    1956.

    [VIII] Requirement of 1% Security

    The companies making public/rights issues are required to deposit 1% of issue amount with th

    Regional Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of th

    company not resolving the complaints of investors regarding delay in sending refund orders/shar

    certificates, non-payment of commission to underwriters, brokers, etc.

    [IX] Payment of Listing Fees

    All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of ever

    financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time.

    The schedule of listing fees for the year 2004-2005, prescribed by the Governing Board of th

    Exchange and approved by the Securities and Exchange Board of India is given hereunder toc

    Exchange(s) and seeking listing at BSE. These norms are applicable with immediate effect.

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    [X] Compliance with Listing Agreement

    The companies desirous of getting their securities listed are required to enter into an agreement wit

    the Exchange called the Listing Agreement and they are required to make certain disclosures and perform

    certain acts. As such, the agreement is of great importance and is executed under the common seal of

    company. Under the Listing Agreement, a company undertakes, amongst other things, to provide facilitie

    for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice o

    closure of transfer books and record dates, to forward copies of unabridged Annual Reports and Balanc

    Sheets to the shareholders, to file Distribution Schedule with the Exchange annually; to furnish financia

    results on a quarterly basis; intimate promptly to the Exchange the happenings which are likely t

    materially affect the financial performance of the Company and its stock prices, to comply with th

    conditions of Corporate Governance, etc.

    The Listing Department of the Exchange monitors the compliance of the companies with the provisions o

    the Listing Agreement, especially with regard to timely payment of annual listing fees, submission o

    quarterly results, requirement of minimum number of shareholders, etc. and takes penal action against th

    defaulting companies.

    [XI] "Z" Group

    The Exchange has introduced a new category called "Z Group" from July 1999 for companies wh

    have not complied with and are in breach of provisions of the Listing Agreement. The number o

    companies placed under this group as at the end of May, 2001

    New Direct listing norms

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    The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the direc

    listing norms for companies listed on other Stock Exchange(s) and seeking listing at BSE. These norms ar

    applicable with immediate effect.

    1. The company should have minimum issued and paid up equity capital of Rs. 3 crores.

    2. The Company should have profit making track record for last three years. The revenues/profit

    arising out of extra ordinary items or income from any source of non-recurring nature should b

    excluded while calculating distributable profits.

    3. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excludin

    revaluation reserves).

    4. Minimum market capitalization of the listed capital should be at least two times of the paid u

    capital.

    5. The company should have a dividend paying track record for the last 3 consecutive years and th

    minimum dividend should be at least 10%.

    6. Minimum 25% of the company's issued capital should be with Non-Promoters shareholders as pe

    Clause 35 of the Listing Agreement. Out of above Non Promoter holding no single shareholde

    should hold more than 0.5% of the paid-up capital of the company individually or jointly wit

    others except in case of Banks/Financial Institutions/Foreign Institutional Investors/Oversea

    Corporate Bodies and Non-Resident Indians.

    7. The company should have at least two years listing record with any of the Regional Stoc

    Exchange.

    8. The company should sign an agreement with CDSL & NSDL for demat trading.

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    9. The company should have minimum issued and paid up equity capital of Rs. 3 crores.

    10. The Company should have profit making track record for last three years. The revenues/profi

    arising out of extra ordinary items or income from any source of non-recurring nature should b

    excluded while calculating distributable profits.

    11. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excludin

    revaluation reserves).

    12. Minimum market capitalization of the listed capital should be at least two times of the paid u

    capital.

    13. The company should have a dividend paying track record for the last 3 consecutive years and th

    minimum dividend should be at least 10%.

    [XII] Cash Management Services (CMS) - Collection of Listing Fees

    As a further step towards simplifying the system of payment of listing fees, the Exchange has

    entered into an arrangement with HDFC Bank for collection of listing fees, from 141 locations, situated all

    over India. Details of the HDFC Bank branches, are available on our website site www.bseindia.com as

    well as on the HDFC Bank website www.hdfcbank.com The above facility is being provided free of cost t

    the Companies.

    TYPES OF SECURITIES TRADED IN COMPANY

    Shares

    Commodities

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    Mutual fund

    Life insurance

    SHARES

    Meaning: - A share or stock is a document issued by a company, which entitles its holder to be one o

    the owners of the company. A share is issued by a company or can be purchased from the stock market.

    By owning a share you can earn a portion and selling shares you get capital gain. So, your return i

    the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold

    the share at a price below your buying price.

    Procedure for doing trading in shares:

    Every transaction in the stock exchange is carried out through licensed members calle

    brokers. To trade in shares, you have to approach a broker However, since most stock exchange broke

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    deal in very high volumes, they generally do not entertain small investors. These brokers have a network o

    sub-brokerswho provide them with orders.

    The general investors should identify a sub-broker for regular trading in shares and place his orde

    for purchase and sale through the sub-broker. The sub/broker will transmit the order to his broker who wi

    then execute it

    .

    Derivatives

    Introduction

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    A derivative is a contract/product that has no independent value i.e.: it derives its value from th

    underlying asset. Underlying asset can be securities, commodities, bullion, currency, live stock or anythin

    else.

    A derivative is a financial instrument whose value depends on other, more basic, underlyin

    variables. The variables underlying could be prices of traded securities and stock, prices of gold or copper

    prices of oranges to even the amount of snow that falls on a ski resort.

    Derivatives have become increasingly important in the field of finance. Options and futures ar

    traded actively on many exchanges. Forward contracts, swaps and different types of options are regularl

    traded outside exchanges by financial institutions, banks and their corporate clients in what are termed a

    over-the-counter markets i.e. there is no single market place or an organized exchange

    In other words, derivatives means forward, futures, option or any other hybrid contract of pr

    determined fixed duration, linked for the purpose of contract fulfillment to the value of specified real o

    financial asset or to index of securities.

    In the international market, various derivatives products are traded. To start with, we need t

    understand three products, namely forward, futures and options.

    Concept

    Derivative is a product whose value is derived from the value of one or more basic variables.

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    Underlying Asset can be Equity, Forex, commodity or any other asset.

    Types of Derivatives

    Forwards

    Futures

    Options

    SWAPS

    Forwards

    A forward contract is a customized contract between two entities, where settlement takes place on

    specific date in the future at todays pre-agreed price. Forward contract is a one to one bipartit

    contract, which is to be performed in future at the terms decided today. Forward contracts are bein

    used in India on large scale in the foreign exchange market to cover the currency risk.

    Forward contracts being negotiated by the parties on one to one basis, offer the tremendous flexibility

    to them to articulate the contract in terms of price, quantity, quality, delivery time and place. However

    forward contracts suffer from poor liquidity and default risk

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    Futures

    Future contracts are the organized/standardized contracts in terms of quantity, quality, delivery time

    and place for settlement on any date in future. These contracts are traded on exchanges. Futures trading

    entail liquid investments that allow investors to purchase or sell assets at specified prices or at later

    dates. Based upon the anticipated price of the future, futures contracts can be drawn up for various

    markets. In simple words:

    A future is contracting to buy or sell an underlying asset at a specified future date, at a specified

    price.

    These contracts are traded and settled on exchanges.

    Future contracts can be on individual scrips or indices.

    Reasons for buying Futures contracts

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    Procedure for work in future

    Futures trading occur on exchange, allowing investors the right and obligation to buy and sell. Th

    contracts are regulated so the investors can turn their investments into money right away. Some standar

    conditions include guaranteeing the delivery month and location, the quantity and quality of th

    commodities, as well as the last day to trade. In order to end the futures contract, the holder must either sel

    the long position or purchase back the short position. Cash settlement, expiry, and physical delivery ar

    three ways to complete the transaction of a futures contract.

    Futures terminology

    Spot Price

    Futures Price

    Expiry Date

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    Reasons for BUYING futures

    contracts

    Reasons for SELLING futures

    contracts

    Hedgers To lock in a price and thereby obtain

    protection against rising prices

    To lock in a price and thereby obtain

    protection against declining prices

    Speculators To profit from rising prices To profit from declining prices

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    Contract Cycle -One month

    -Two month

    -Three month

    Options

    An option is a contract, which gives the buyer (holder) the right, but not the obligation, to buy or sel

    specified quantity of the underlying assets, at a specific (strike) price on or before a specified tim

    (expiration date). The underlying may be physical commodities like wheat/ rice/ cotton/ gold/ oil o

    financial instruments like equity stocks/ stock index/ bonds etc. In simple words:

    Options are derivative instruments where one party has a right to buy/sell the underlying while the

    other party has an obligation to buy/sell

    The person with the right is called the buyer of the option. The person with the obligation is called

    the writer of the option.

    Risks in Options

    The risk/ loss of an option buyer is limited to the premium that he has paid. An option holder wh

    neither sells his option in the secondary market nor exercises it prior to its expiration loses his entir

    investment (Premium), in the option. The risk of an Options Writer however is unlimited where his gain

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    are limited to the Premiums earned. The writer of an uncovered call is in an extremely risky position an

    may incur large losses if the value of the underlying asset increases above the exercise price. The potentia

    loss is unlimited for the writer of an uncovered call. When a physical delivery uncovered call is assigned a

    exercise, the writer will have to purchase the underlying asset to meet his call obligation and his loss wi

    be the excess of the purchase price over the exercise price of the call reduced by the premium received fo

    writing the call. (In the case of a cash-settled option, the loss will be the cash settlement amount reduced b

    the premium.) As with writing uncovered calls, the risk of writing put options is substantial. The writer of

    put option bears a risk of loss if the value of the underlying asset declines below the exercise price, an

    such loss could be substantial if the decline is significant. The writer of a put bears the risk of a decline in

    the price of the underlying interest-potentially to zero. Since the leverage inherent in an option can caus

    the impact of price changes in the underlying asset to be magnified in the price of the option, a writer of a

    option that is uncovered and unhedged may have a significantly greater risk than a short seller of th

    underlying interest.

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    Types of Options

    Based on the right:

    - Call option

    - Put option

    Call Option: A call option gives the holder (buyer/ one who is long call), the right to bu

    specified quantity of the underlying asset at a specified price on or before a specified time. Th

    seller (one who is short call ) however, has the obligation to sell the underlying asset if the buyer o

    the call option decides to exercise his option to buy. The buyer of a call option acquires the right bu

    not the obligation to purchase a particular futures contract at a stated price on or before a particula

    date.

    Put Option: A Put option gives the holder (buyer/ one who is long Put), the right to sell specifie

    quantity of the underlying asset at a specified price on or before a specified time. The seller (on

    who is short Put) however, has the obligation to buy the underlying asset if the buyer of the pu

    option decides to exercise his option to sell.

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    CALL OPTIONS PUT OPTIONS

    Option buyer or option holder Buys the right to buy the

    underlying asset at the specified

    price

    Buys the right to sell the

    underlying asset at the specified

    price

    Option seller or option writer Has the obligation to sell the

    underlying asset (to the option

    holder) at the specified price

    Has the obligation to buy the

    underlying asset (to the option

    holder) at the specified price.

    Based on the exercise:

    - American ( Individual Securities)

    - European (S&P CNX Nifty)

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    Procedure for using Options

    If you anticipate a certain directional movement in the price of a stock, the right to buy or sell that stock a

    a predetermined price, for a specific duration of time can offer an attractive investment opportunity. Th

    decision as to what type of option to buy is dependent on whether your outlook for the respective securit

    is positive (bullish) or negative (bearish). If your outlook is positive, buying a call option creates th

    opportunity to share in the upside potential of a stock without having to risk more than a fraction of it

    market value. Conversely, if you anticipate downward movement, buying a put option will enable you t

    protect against downside risk without limiting profit potential. Purchasing options offer you the ability t

    position yourself accordingly with your market expectations in a manner such that you can both profit an

    protect with limited risk. Once you have purchased an option contract, you can do one of the following:

    You can sell an option of the same series as the one you had bought & close out your position in

    that option at any time, or;

    You can exercise the option on the expiration day in case of European Option or on or before th

    expiration day in case of an American option.

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    ITM/ATM/OTM:

    CALL OPTION PUT OPTION

    In-the-money Strike price < Spot price of

    underlying asset

    Strike price > Spot price of

    underlying asset

    At-the-money Strike price = Spot price of

    underlying asset

    Strike price = Spot price of

    underlying asset

    Out-of-the-money Strike price > Spot price of

    underlying asset

    Strike price < Spot price of

    underlying asset

    Futures V/s Options

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    The major differences in Futures and Options are as under:

    Futures Options

    Futures are agreements/contracts to buy or sell

    specified quantity of the underlying assets at a

    price agreed upon by the buyer & seller, on or

    before a specified time. The buyer is obligated to

    buy/sell the underlying asset.

    Unlike futures, the buyer in case of options

    enjoys the right & not obligation, to buy or sell

    the underlying asset.

    Futures contracts are highly leveraged positions

    with unlimited risk for both the buyer as well as

    the seller.

    In case of options, for a buyer (or holder of the

    option), the downside is limited to the premium

    (option price) he has paid while the profits may

    be unlimited. For a seller or writer of an option,

    however, the downside is unlimited while profits

    are limited to the premium he has originally

    received from the buyer.

    The Futures contracts prices are affected only by

    the prices of the underlying asset.

    The prices of options are however; affected by

    prices of the underlying asset, time remaining for

    expiry of the contract & volatility of the

    underlying asset.

    It costs nothing to enter into a futures contract. There is a cost of entering into an options

    contract, termed as Premium.

    Benefits of trading in F&O

    Transfer of risk

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    Incentive to make profit with minimal amount of risk capital

    Lower transaction costs

    Liquidity, price discovery

    Eliminates security specific risks

    Power to leverage

    Margin

    SPAN Margin

    -Initial margin

    -Mark to market margin

    Exchange requires customer to maintain margin with broker.

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    Meaning of commodities

    Commodities are broadly defined as natural resources, chemicals and physical products you can touch

    taste, smell, grow, mine, consume or deliver. In simple words:

    Commodity includes all kinds of goods.

    FERA defines "goods" as "every kind of movable property

    Other than actionable claims, money and securities".

    Goods with commercial value traded widely in bulk; usually a raw material or primary produce, fo

    processing;

    Agricultural commodities: food grains, fibers, oilseeds complex, sugar, plantation crop

    horticulture crops;

    Non-agro commodities: Base metals, precious metals; industrial products: crude;

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    Concept of Derivatives

    Derivative is a product whose value is derived from the value of one or more basic variables.

    Underlying Asset can be Equity, Forex, commodity or any other asset.

    Commodity & Financial derivatives

    In Financial derivatives all contracts are

    cash settled

    In Commodities derivatives the seller

    has the option to give physical delivery

    at an accredited warehouse

    In Financial derivatives the concept of

    varying quality of asset does not exist

    In Commodities derivatives the quality

    of the asset of the underlying can vary

    largely.

    Indian Commodity Market

    - An Overview

    History

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    The futures markets were developed initially to help agricultural producers and consumers manage the

    price risks they faced harvesting, marketing and processing food crops each year. The modern futures

    industry still serves those markets. In simple words:

    Organized commodities trading started in 1875 - Bombay Cotto

    Trade Association

    The government had banned futures trading in 1975, saying

    Excessive speculation had driven prices up.

    It allowed trading to resume three years later but restricted it

    To a few commodities. Trading in some other commodities

    Resumed only in 1997

    In 2004, Government of India allowed the Multi Commodity

    Exchange and the National Commodity and Derivatives

    Exchange Ltd. to set up new bourses with a national reach and

    Launch online trading in a range of commodities.

    Facts - India

    Agriculture - 26% of GDP

    Agro commodities thriving

    Huge domestic consumption market

    One of the Worlds largest importer of gold, edible oils

    Third largest producer of cotton

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    Leading coffee / tea / sugar producer

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    Marketstructure

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    Ministry of Consumer Affairs, Food &

    Public Distribution

    Forward Market Commission

    Outcry ExchangesOnline Exchanges

    MCXMumbai

    NCDEXMumbai

    NMCEAhmedabad

    NBOTIndore

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    List of Commodities

    Energy

    Products

    Bullion

    Products Metals Agricultural Products

    Crude Oil

    Furnace Oil

    Gold

    Silver

    Copper

    Tin

    Nickel

    Steel

    Arabica & Robusta Coffee,

    Wheat, Chana, Sugar, Rice,

    Guar Seed, Jute Sacking,

    Pepper, Castor Seed, Guar

    Gum, Raw Jute, Urad, Yellow

    Peas, Turmeric, Soymeal

    Crude Palm Oil, Cotton,

    Mustard Seed, Mustard Oil

    Soybean, Refined Soy Oilgur,

    Maize, Raw Silk, Cocoon,

    Jeera, Chilly, Cashew,

    Cottonseed Oilcake, Sesame

    Seed, Tur, Metha Oil, Kapas.

    Market participants

    Traders - Speculators, Hedgers, Arbitrageurs, Investors

    Producers - Farmers, Manufacturers

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    Consumers - Jewelers, Textile Mills, etc

    Market Timings

    Bullion/ Metals Trading: 10.00am to 12.00pm

    Agro Commodities: 10.00am to 5.00pm

    MCX

    MCX an independent and de-mutulised multi commodity exchange inaugurated in the year Novembe

    2003, has permanent recognition from Government of India for facilitating online trading, clearing an

    settlement operations for commodity futures markets across the country.

    Key shareholders of MCX include Financial Technologies (I) Ltd., State Bank of India & associates,

    Fidelity International, National Stock Exchange of India Ltd., National Bank for Agriculture and Rural

    Development, HDFC Bank, SBI Life Insurance Co. Ltd., Union Bank of India, Canara Bank, Bank of

    India, Bank of Baroda and Corporation Bank.

    NCDEX

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    NCDEX is a public limited company incorporated on April 23, 2003 NCDEX is a nation-leve

    technology driven de-mutualized on-line commodity exchange with an independent Board o

    Directors and professionals not having any vested interest in commodity markets

    Key promoted of NCDEX includes ICICI Bank Limited (ICICI Bank), Life Insurance Corporatio

    of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and Nationa

    Stock Exchange of India Limited (NSE). Punjab National Bank (PNB), CRISIL Limited (formerl

    the Credit Rating Information Services of India Limited), Indian Farmers Fertilizer Cooperativ

    Limited (IFFCO) and Canara Bank

    Procedure for Trading in Commodities

    Futures

    A future is contracting to buy or sell an underlying asset at a specified future date, at a specified price.

    These contracts are traded and settled on exchanges.

    Future contracts can be on individual scrips or indices.

    Products Offered

    Online Trading

    Diet Odin for customer

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    Offline Trading

    Branch/Franchise/RM places order using Dealer Odin

    Clients can trade on both on MCX and NCDEX

    Brokerage Structure

    ONLINE OFFLINE

    Registration fees Rs.500 Rs.500

    Minimum Initial Margin Rs. 25000 Rs.25000

    Trading Brokerage 0.05% 0.10%

    Delivery Brokerage 0.25% 0.50%

    Other Charges

    Exchange Charges: Rs.4 per lac

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    Stamp Duty:Rs.1 per lac

    Service Tax: 10.2%

    Reasons for trade in commodities

    Driven by demand and supply

    True reflector of economic activity

    Impervious to intangibles like management quality or sentiments

    Not impacted by statements

    Physical settlement

    Internationally driven market

    Comparison of India Asset Market

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    MUTUAL FUND

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    History of Mutual Fund in India

    Unit Trust of India (UTI) was the first mutual fund set up in India in the year 1963. In early 1990s

    Government allowed public sector banks and institutions to set up mutual funds. UTI has an extensiv

    marketing network of over 40,000 agents all over the country.

    In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives o

    SEBI are to protect the interest of investors in securities and to promote the development of and t

    regulate the securities market.

    In 1995, the RBI permitted private sector institutions to set up Money Market Mutual Fund

    (MMMFs). They can invest in treasury bills, call and notice money, commercial paper, commercial bill

    accepted/co-accepted by banks, certificates of deposit and dated government securities having unexpire

    maturity up to one year.

    As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds t

    protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafte

    mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulation

    were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issue

    guidelines to the mutual funds from time to time to protect the interests of investors.

    All mutual funds whether promoted by public sector or private sector entities including thos

    promoted by foreign entities are governed by the same set of Regulations. There is no distinction i

    regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEB

    The risks associated with the schemes launched by the mutual funds sponsored by these entities are o

    similar type.

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    MEANING

    Mutual fund is Investment Company that pools money from shareholders and invests in a variety o

    securities, such as stocks, bonds and money market instruments. Most open-end mutual funds stand read

    to buy back (redeem) its shares at their current net asset value, which depends on the total market value o

    the fund's investment portfolio at the time of redemption. Most open-end mutual funds continuously offe

    new shares to investors. Also known as an open-end investment company, to differentiate it from a closed

    end investment company. Mutual funds invest pooled cash of many investors to meet the fund's state

    investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund

    current net asset value: total fund assets divided by shares outstanding.

    In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to th

    investors and investing funds in securities in accordance with objectives as disclosed in offer document.

    Investments in securities are spread across a wide cross-section of industries and sectors and thu

    the risk is reduced. Diversification reduces the risk because all stocks may not move in the same directio

    in the same proportion at the same time. Mutual fund issues units to the investors in accordance wit

    quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits o

    losses are shared by the investors in proportion to their investments. The mutual funds normally come ou

    with a number of schemes with different investment objectives which are launched from time to time. I

    India, A mutual fund is required to be registered with Securities and Exchange Board of India (SEB

    which regulates securities markets before it can collect funds from the public.

    In Short, a mutual fundis a common pool of money in to which investors with common investmen

    objective place their contributions that are to be invested in accordance with the stated investment objectiv

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    of the scheme. The investment manager would invest the money collected from the investor in to asset

    that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would inves

    equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc . Mutu

    Fund is a suitable investment for the common man as it offers an opportunity to invest in a diversified

    professionally managed basket of securities at a relatively low cost.

    Many people may also want to consider mutual funds which have specific social agendas, i

    addition to making a profit. A number of environmentally-friendly mutu