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AN INVESTOR PERCEPTION IN DERIVATIVE MARKET

AT CHENNAI

A PROJECT REPORT

Submitted to the

SCHOOL OF MANAGEMENT

In partial fulfillment of the requirements

for the award of the degree

of

MASTER OF BUSINESS ADMINSTRATION

By

RAJESHKUMAR.S (35080455)

Under the guidance of

Mrs.J.Devi Manohari

Asst.professor

SRM SCHOOL OF MANAGEMENT

SRM UNIVERSITY

KATTANKULATHUR 603 203

MAY2010

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SCHOOL OF MANAGEMENT

SRM UNIVERSITY

SRM Nagar, Kattankulathur-603203

Phone: 044-27452270, 27417777, Fax: 044-27453903

[email protected], website: www.srmuniv.ac.in

________________________________________________________________________

BONAFIDE CERTIFICATE

Certified that this project report titled An investor perception in derivative

market at chennai is the bonafide work ofMr. Rajeshkumar .S who carried out the

research under my supervision. Certified further, that to the best of my knowledge the

work reported herein does not from part of any other project report or dissertation on the

basis of which a degree or award was conferred on an earlier occasion on this or any

other candidate.

Signature of the supervisor Signature of the HOD

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ACKNOWLEDGEMENT

First of all let me take this opportunity to sincerely thankDR. (Mrs.) JAYSHREE,

Dean, SRM School of Management, for having providing me with this

golden opportunity to have an industry interface and do my project at PSB

securities Pvt. Ltd.

I express my sincere gratitude to Mrs.J.Devi Manohari , my faculty

guide, whose able guidance and help played a key role towards the

completion of the project.

Categorically, I deem it an opportunity to express my gratitude towards the staff of PSB

securities. I would like to extend my thanks to Mr. P.B Subramaniyan (Director)and

Mr.Karthik my organizational guide for providing me an opportunity and continuous

guidance throughout the project.

(Rajeshkumar.S)

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TABLE OF CONTENTSCHAPTER

NO

CONTENT PAGE NO

CHAPTER 1

1.1 Introduction 10

CHAPTER 2

2.1 Objectives 25

2.2 Scope of the study 26

2.3 Limitations of the study 27

CHAPTER 3

3.1 Research methodology 28

CHAPTER 4

4.1 Company profile 30

CHAPTER 5

5.1 Analysis and interpretation 32

CHAPTER 6

6.1 Findings 67

CHAPTER 7

7.1 Suggestions 69

CHAPTER 8

8.1 Conclusion 70

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LIST OF TABLES

S.no Name Pg.no

1Gender of The Respondents

32

2

Respondents Awareness Towards Derivative Segment33

3

Investors Preference Towards Derivative Segment34

4

Investors Preference Towards Derivative Product35

5

Participants Of Derivative Product36

6

Investors Preference Towards Number Of Contracts37

7

Investors Attractive Reasons For Investing In DerivativeSegment

38

8Risk Management Of Derivative User

39

9

Respondents Level Of Interest In Knowing AboutDerivative Segment

40

10

Level Of Agreeableness / DisagreeablenessOf Non Derivative Users

41

11

Gender Of The Respondents Towards Users And Non Users42

12

Age Level Of The Respondents43

13

Educational Qualification Of The Respondents44

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s.no Name Pg no

14Occupation Of The Respondents

45

15

Income Level Of The Respondents46

16

Period Of Investment Of the Respondents47

17

Income Level And Percentage Of Investment48

18

Percentage Of Investment Of Users And Non Users49

19

Derivative Participants Preference Towards Its Product50

20

Derivative Participants Preference Towards Number OfContracts

51

21

Level Of Perception Of Derivative Users Towards Gender52

22

Level Of Perception Of Derivative Users Towards Education53

23

Level Of Perception Of Derivative Users Towards Occupation54

24Ranking Among Sectors For Investing

55

25Risk Factors For Investing In Derivative Market

56

26Reasons For Not Investing In Derivative Market

57

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ChiSquare Analysis

27

Gender And Users Towards Derivative Market58

28

Awareness And Interest Towards Investing In DerivativeMarket

59

29

Age Level And Gender Of The Investors60

30Gender And Awareness Towards Derivative Market

61

31Income Level And Users Towards Derivative Market

62

32Age Level And Percentage Of Investment

63

33Risk Factors For Investing In Derivative Market

64

34Investors Preference Towards Different Sectors For Investing

65

35Reasons For Not Investing In Derivative Market

66

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LIST OF CHARTS/FIGURES

S.no Name Pg.no

1

Gender of The Respondents32

2

Respondents Awareness Towards Derivative Segment33

3

Investors Preference Towards Derivative Segment34

4

Investors Preference Towards Derivative Product35

5

Participants Of Derivative Product36

6

Investors Preference Towards Number Of Contracts37

7

Investors Attractive Reasons For Investing In Derivative

Segment

38

8

Risk Management Of Derivative User39

9

Respondents Level Of Interest In Knowing AboutDerivative Segment

40

10

Level Of Agreeableness / DisagreeablenessOf Non Derivative Users

41

11

Gender Of The Respondents Towards Users And Non Users42

12

Age Level Of The Respondents43

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13

Educational Qualification Of The Respondents

44

14

Occupation Of The Respondents45

15

Income Level Of The Respondents46

16

Period Of Investment Of the Respondents47

17

Income Level And Percentage Of Investment48

18

Percentage Of Investment Of Users And Non Users49

19

Derivative Participants Preference Towards Its Product50

20

Derivative Participants Preference Towards Number OfContracts

51

21Level Of Perception Of Derivative Users Towards Gender

52

22

Level Of Perception Of Derivative Users Towards Education53

23

Level Of Perception Of Derivative Users Towards Occupation54

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CHAPTER 1

INTRODUCTION

1.1 DERIVATIVES MARKETS:

1.1.1 GLOBAL DERIVATIVES MARKETS:

'By far the most significant event in finance during the past decade has been the

extraordinary development and expansion of financial derivatives. These instrumentsenhance the ability to differentiate risk and allocate it to those investors most able and

willing to take it - a process that has undoubtedly improved national productivity growth

and standards of living.' -- Alan Greenspan, Chairman, Board of Governors of the US

Federal Reserve System.

The past decade has witnessed an explosive growth in the use of financial

derivatives by a wide range of corporate and financial institutions. The following factors

which have generally been identified as the major driving force behind growth of

financial derivatives are the,

Increased volatility is asset prices in financial markets; the increased integration

of national financial markets with the international markets; the marked improvement in

communication facilities and sharp decline in their costs; the development of more

sophisticated risk management strategies; and the innovation in the number of financial

assets, leading to higher return, reduced risk as well as transaction cost as compared to

individual financial assets. The growth in derivatives has run in parallel with increasing

direct reliance of companies on the capital markets as the major source of long term

funding. In this respect, derivatives have a vital role to play in enhancing shareholder

value by ensuring access to the cheapest source of funds. Furthermore, active use of

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derivative instrument allows the overall business risk profile to be modified, thereby

providing the potential to improve earnings quality by offsetting undesired risk.

Financial derivatives have changed the face of finance by creating new ways to

understand, measure, and manage financial risks. Critics believe that derivatives create

risks that are uncontrollable and not well understood .some critics liken derivatives to

gene splicing: potentially useful, but very dangerous, especially if used by a neophyte or

a madman without proper safeguards.

Futures history can be traced back to middle ages where markets were meant to

address the needs of the farmers and the merchants. The Chicago Board of Trade (CBOT)

was established in 1848 to bring farmers and merchants together. Initially, its main task

was to standardize the quantities and qualities of the grains that were traded. The first

futures type contract developed was called "to-arrive contract". The CBOT now offers

futures contracts on many different underlying assets in commodities and financial

markets.

Many other exchanges in the world now offer futures contracts. Eurex, the

German-Swiss derivatives exchange, was the worlds biggest financial futures exchange

at the end of 1999, overtaking the Chicago Board of Trade for the first time after a huge

increase in contracts traded in 1999. Eurex traded more than 379 million contracts during

1999, 53% more than in 1998. This is expected to be well above the comparable figure

for the CBOT, where officials are expecting a fall of about 10% from the 1998 total,

when a record 281.2 million contracts were traded.

LIFFE, the London market, is also expecting a sharp fall in volumes to some 120 million

contracts, compared with 194 million in 1998. MATIF, the French derivatives market

traded 183 million contracts in 1999, more than double its 1998 total. LIFFE lost its

European lead when trading in the futures contracts on 10 year German government

bonds (bunds) migrated to the electronic Eurex system two years ago. Like the CBOT,

trading volumes are also likely to be lower at the Chicago Mercantile Exchange, the

second biggest US futures market.

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1.1.2 DERIVATIVES: AN INNOVATIVE TOOL IN THE INDIAN MARKET

Keeping in view the experience of even strong and developed economies the

world over, it is no denying the fact that financial market is extremely volatile by nature.

Indian financial market is not an exception to this phenomenon. The attendant risk arising

out of the volatility and complexity of the financial market is an important concern for

financial analysts. As a result, the logical need is for those financial instruments which

allow fund managers to better manage or reduce these risks.

Out of various risks, Credit Risk and Interest Rate risk are the two core risks

which are commonly acknowledged by various categories of Financial Institutions

particularly banks. Effective management of these core risks is a critical factor in

comprehensive risk management and is essential for the long term financial health of

business organizations, especially banks.

With gradual liberalization of Indian financial system and the growing integration

among markets, the risks associated with operations of banks and All India Financial

Institutions have become increasingly complex, requiring strategic management. In

keeping with spirit of the guidelines on Asset-Liability Management (ALM) systems and

on integrated risk management systems, it is very much required to design riskmanagement architecture, taking into consideration the size, complexity of business, risk

philosophy, market perception and the level of capital. In addition, fine-tuning the risk

management system to deal with credit and market risk is also the need of the hour. For

enabling the banks and the financial institutions, among others, to manage their risk

effectively, the concept of derivatives comes into picture.

The concept of derivatives is not new to the Indian market, derivatives in

commodity market has long history over 100 years. In 1875, first future exchange was set

up in Mumbai under the Bombay cotton trade association. A future market for oil seeds

non- established in1900. Future market in Hapur (1913) and future market in Mumbai

in1920. The first step towards re-introduction of derivatives in India was the

promulgation of securities, law (amed) ordinance, 1991.

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DERIVATIVES DEFINED:

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

basic variables, called bases (underlying asset, index, or reference rate), in a contractual

manner. The underlying asset can be equity, forex, commodity or any other asset. For

example, wheat farmers may wish to sell their harvest at a future date to eliminate the

risk of a change in prices by that date. Such a transaction is an example of a derivative.

The price of this derivative is driven by the spot price of wheat which is the underlying.

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines

Derivative to include

1. A security derived from a debt instrument, share, loan whether secured or unsecured,

risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying

securities.

Derivatives are securities under the SC(R) A and hence the trading of derivatives is

governed

By the regulatory framework under the SC(R) A.

TYPES OF DERIVATIVES:

Some of the basic derivatives products widely used in the financial markets are as under:

FORWARDS:

Forward contract is different from a spot transaction, where payment of price and

delivery of commodity concurrently take place immediately the transaction is settled. In a

forward contract the sale/purchase transaction of an asset is settled including the price

payable, not for delivery/settlement at spot, but at a specified future date. India has a

strong dollar-rupee forward market with contracts being traded for one, two, Six month

expiration. Daily trading volume on this forward market is around $500 million a day.

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FUTURES:

A futures contract has been defined as "a standardized, exchange-traded

agreement specifying a quantity and price of a particular type of commodity (soybeans,

gold, oil, etc.) to be purchased or sold at a pre-determined date in the future. On contract

date, delivery and physical possession take place unless the contract has been closed out.

Futures are also available on various financial products and indexes today. A futures

contract is thus a forward contract, which trades on an exchange. S&P CNX Nifty futures

are traded on National Stock Exchange. This provides them transparency, liquidity,

anonymity of trades, and also eliminates the counter party risks due to the guarantee

provided by National Securities Clearing Corporation Limited.

OPTIONS:

Options are the standardized financial contracts that allows the buyer (holder) of

the options, i.e. the right at the cost of option premium, not the obligation, to buy (call

options) or sell (put options) a specified asset at a set price on or before a specified date

through exchanges under stringent financial security against default.

WARRANTS:

Options generally have lives of Upto one year; the majority of options traded on

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 Upto three years.

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BASKETS:

Basket options are options on portfolios of underlying assets. The underlying

asset is usually a moving average of a basket of assets. Equity index options are a form of

basket options.

SWAPS:

Swaps are private agreements between two parties to exchange cash fl ows in the

future according to a prearranged formula. They can be regarded as portfolios of forward

contracts. The two commonly used swaps are:

INTEREST RATE SWAPS:

These entail swapping only the interest related cash flows between the Parties in

the same currency.

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.

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DERIVATIVE PARTICIPANTS:

HEDGERS:

Hedgers for protecting (risk-covering) against adverse movement. Hedging is a

mechanism to reduce price risk inherent in open positions. Derivatives are widely used

for hedging. A Hedge can help lock in existing profits. Its purpose is to reduce the

volatility of a portfolio, by reducing the risk.

SPECULATORS:

Speculators to make quick fortune by anticipating/forecasting future market

movements. Hedgers wish to eliminate or reduce the price risk to which they are already

exposed. Speculators, on the other hand are those classes of investors who willingly take

price risks to profit from price changes in the underlying. While the need to provide

hedging avenues by means of derivative instruments is laudable, it calls for the existence

of speculative traders to play the role of counter-party to the hedgers. It is for this reason

that the role of speculators gains prominence in a derivatives market.

ARBITRAGEURS:

Arbitrageurs to earn risk-free profits by exploiting market imperfections.

Arbitrageurs profit from price differential existing in two markets by simultaneously

operating in the two different markets.

DEVELOPMENT OF INDIAN DERIVATIVE MARKET:

1995:Promulgation of the Securities Laws (Amendment) Ordinance 1995 withdrawingprohibition on options in securities.

November 1996: SEBI set up a 24 member committee under the chairmanship of Dr. L.

C. Gupta with a view to develop regulatory framework for derivatives trading in India.

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March 1998:L C Gupta Committee submitted its report recommending, inter-alia, thatderivatives be declared as securities so that regulatory framework applicable for trading

of securities could also be applicable for derivatives.

June 1998: SEBI set up a Committee under the Chairmanship of Prf. J. R. varma torecommend measures for risk containment in derivatives market in India.

December 1999:Securities Contract Regulation Act was amended to include derivativeswithin the purview of securities. Regulatory framework was developed for governing the

trading of derivatives.

June 2000:Derivative trading started in India.2001: SEBI permitted the derivative segment of National Stock Exchange (NSE) andBombay Stock Exchange (BSE) and their clearing house/corporation to commence

trading and settlement in approved derivatives contract.

Approval and commencement of trading in index futures contract based on S&P CNX

Nifty and BSE-30 (Sensex) index as well as for trading in futures on individual securities.

Approval and commencement of trading in index options based on S&P CNX Nifty andBSE-30 (Sensex) index as well as for trading in options on individual securities.

March 2003:RBI issued a draft Guidelines for introduction of credit derivatives in India.2002- 2003: In pursuance of the recommendations of the Working Group on RupeeDerivatives (Chairman: Shri Jaspal Bindra), banks and primary dealers were permitted to

undertake transactions in exchange traded interest rate derivatives in June 2003.

In the first phase, only interest rate futures have been introduced and banks were allowed

to hedge interest rate risk inherent in the government securities, portfolio. Accordingly,

trading in interest rate futures contracts in notional 10-year GOI Bonds, notional 91-day

Treasury Bills and 10-year zero coupon bonds commenced at NSE in June 2003.

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July 2003: Authorized Dealers in Foreign Exchange were permitted to offer foreigncurrency-rupee options w.e.f. July 07, 2003 to residents and non-residents for hedging

currency exposures.

GROWTH OF DERIVATIVE MARKET IN INDIA:

The derivative market has a massive growth in the Indian stock market over the

past years. The following figure represents the evolution of financial derivatives product

in the Indian stock market.

FFIINNAANNCCIIAALL DDEERRIIVVAATTIIVVEESS EEVVOOLLUUTTIIOONN OOFF PPRROODDUUCCTTSS

EquityIndex

options

Stockoptions

Stockfutures

Sectoralindices

InterestRate

futures

EquityIndex

futures

Dec 2002June 2000 July 2001 Nov 2001 June 2003June 2001

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USAGE OF DERIVATIVES:

The derivatives perform a number of economic functions and their usages, inter-alia, are

Transferring the risk from risk averse people to risk oriented people Discovery of future as well as current prices

Changing the nature of asset or liability without incurring the cost of selling one

portfolio and buying another or vice versa

Exploiting market discrepancies through arbitrage

Speculation

INTRODUCTION TO FUTURES AND OPTIONS:

In recent years, derivatives have become increasingly important in the field of

finance. While futures and options are now actively traded on many exchanges and

considered as one of the important market in the stock exchanges.

INTRODUTION TO FUTURES:

Futures markets were designed to solve the problems that exist in forwardmarkets. A futures contract is an agreement between two parties to buy or sell an asset at

a certain time in the future at a certain price. But unlike forward contracts, the futures

contracts are standardized and exchange traded. To facilitate liquidity in the futures

contracts, the exchange specifies certain standard features of the contract. It is a

standardized contract with standard underlying instrument, a standard quantity and

quality of the underlying instrument that can be delivered, (or which can be used for

reference purposes in settlement) and a standard timing of such settlement.

A futures contract may be offset prior to maturity by entering into an equal and

opposite transaction. More than 99% of futures transactions are offset this way.

The standardized items in a futures contract are:

Quantity of the underlying

Quality of the underlying

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THE FIRST FINANCIAL FUTURES MARKET:

Merton Miller, the 1990 Nobel laureate had said that financial futures represent

the most significant financial innovation of the last twenty years. The first exchange that

traded financial derivatives was launched in Chicago in the year 1972. A division of the

Chicago Mercantile Exchange, it was called the International Monetary Market (IMM)

and traded currency futures.

The brain behind this was a man called Leo Melamed, acknowledged as the

father of financial futures who was then the Chairman of the Chicago Mercantile

Exchange. Before IMM opened in 1972, the Chicago Mercantile Exchange sold contracts

whose value was counted in millions. By 1990, the underlying value of all contracts

traded at the Chicago Mercantile Exchange totaled 50 trillion dollars. These currency

futures paved the way for the successful marketing of a dizzying array of similar products

at the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board

Options Exchange. By the 1990s, these exchanges were trading futures and options on

everything from Asian and American stock indexes to interestrate swaps, and their

success transformed Chicago almost overnight into the risktransfer capital of the world.

INTRODUCTION TO OPTIONS:

Options are fundamentally different from forward and futures contracts. An

option gives the holder of the option the right to do something. The holder does not have

to exercise this right. In contrast, in a forward or futures contract, the two parties have

committed themselves to doing something. Whereas it costs nothing(except margin

requirements) to enter into a futures contract, the purchase of an option requires an up

front payment.

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HISTORY OF OPTIONS:

Although options have existed for a long time, they were traded OTC, without

much knowledge of valuation. The first trading in options began in Europe and the US as

early as the seventeenth century. It was only in the early 1900s that a group of firms set

up what was known as the put and call Brokers and Dealers Association with the aim of

providing a mechanism for bringing buyers and sellers together. If someone wanted to

buy an option, he or she would contact one of the member firms. The firm would then

attempt to find a seller or writer of the option either from its own clients or those of other

member firms. If no seller could be found, the firm would undertake to write the option

itself in return for a price.

This market however suffered from two deficiencies. First, there was no

secondary market and second, there was no mechanism to guarantee that the writer of the

option would honor the contract. In 1973, Black, Merton and Scholes invented the famed

Black-Scholes formula. In April 1973, CBOE was set up specifically for the purpose of

trading options. The market for options developed so rapidly that by early 80s, the

number of shares underlying the option contract sold each day exceeded the daily volume

of shares traded on the NYSE. Since then, there has been no looking back.

INDEX DERIVATIVES:

Index derivatives are derivative contracts which derive their value from an

underlying index. The two most popular index derivatives are index futures and index

options. Index derivatives have become very popular worldwide.

In his report, Dr.L.C.Gupta attributes the popularity of index derivatives to the

advantages they offer.

Institutional and large equity-holders need portfolio-hedging facility. Index

derivatives are more suited to them and more costeffective than derivatives

based on individual stocks. Pension funds in the US are known to use stock index

futures for risk hedging purposes.

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Index derivatives offer ease of use for hedging any portfolio irrespective of its

composition.

Stock index is difficult to manipulate as compared to individual stock prices,

more so in India, and the possibility of cornering is reduced. This is partly

because an individual stock has a limited supply, which can be cornered.

Stock index, being an average, is much less volatile than individual stock prices.

This implies much lower capital adequacy and margin requirements.

Index derivatives are cash settled, and hence do not suffer from settlement delays

and problems related to bad delivery, forged/fake certificates.

The L.C.Gupta committee which was setup for developing a regulatory framework for

derivatives trading in India had suggested a phased introduction of derivative products in

the following order:

1. Index futures

2. Index options

3. Options on individual stocks

Requirements for an index derivatives market are:

Index:

The choice of an index is an important factor in determining the extent to which

the index derivative can be used for hedging, speculation and arbitrage. A well

diversified liquid index ensures that hedgers and speculators will not be vulnerable to

individual or industry risk.

Clearing corporation settlement guarantee:

The clearing corporation eliminates counterparty risk on futures markets. The

clearing corporation interposes itself into every transaction, buying from the seller and

selling to the buyer. This insulates a participant from credit risk of another.

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Education and certification:

The need for education and certification in the derivatives market can never be

overemphasized. A critical element of financial sector reforms is the development of a

pool of human resources with strong skills and expertise to provide quality intermediation

to market participants.

With the entire above infrastructure in place, trading of index futures and index

options commenced at NSE in June 2000 and June 2001 respectively. Index future is

offered by majority of the investor the following are the salient features of index future

contract.

RISK MANAGEMENT IN DERIVATIVES:

The risks which are generally seen in derivatives are generally of four types:

(a) Credit risk:

This is the risk of loss due to a default of the counter party in honoring its

commitment in a transaction .If the counter party is situated in another country, this also

involves country risk , which is the risk of the counter party not honoring its commitment

because of the restrictions imposed by the government though counter part itself is

capable to do so.

(b) Market risk:

This is the risk of loss due to change in market prices. price risk can increase

further due to market liquidity risk, which arises when large position in individual

instruments or exposures reach more than a certain percentage of the market, instrument

or issue. Such a large position could be potentially illiquid and not be capable of being

replaced or hedged out at the current market value and as a result may be assumed to

carry extra risk.

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(c) Legal risk:

Legal risk is the risk that the organization will suffer financial loss either because

contracts or individual provisions there of are unenforceable or inadequately documented,

or because the precise relationship with the counterpart is unclear.

(d) Operations risk:

The organization may be exposed to financial loss either through human error,

mis judgment, negligence and malfeasance, or through uncertainty, misunderstanding and

confusion as to responsibility and authority.

This should be the following measures to reduce disasters with derivatives:-

(1) At the level of exchanges, position limits and surveillance procedures should be

sound.

(2) At the level of clearing houses, margin requirements should be stringently enforced,

even when dealing is with large institutions.

(3) At the level of individual companies with positions in the market, modern risk

measurement systems should be established alongside the creation of capabilities in

trading in derivatives. The basic idea, which should be steadfastly used when thinking

about returns, is that risk also merits measurement.

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CHAPTER 2

OBJECTIVES, SCOPE AND

LIMITATIONS OF THE STUDY

2.1 OBJECTIVES

To study the investors perception level and attitude towards derivative

segment

To understand the profile of the investors

To analyze the investing habits of the investor towards derivative market.

To analyze the factors influencing the investor in choosing the types of

derivative Segment

To analyze investors risk preferences towards derivative market.

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2.2SCOPE OF THE STUDY

India is now one of the fastest economically growing nations. With its vast

economy, Indians have a lot of options to invest their savings.

This study undertaken for PSB securities ltd aims to study the investors

perception towards derivative market. The study would also analyze the awareness level

of investors in this segment.

The study has been done by preparing a questionnaire which contains prospective

questions put forth to the investors .The responses help in analyzing the profile and

investing habits of the investor and factors influencing the investor in investing in

derivative segment.

All this would help in giving suggestions to PSB securities ltd, in strengthening

their marketing efforts and in determining the market potential for investments in

derivative market.

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2.3LIMITATIONS OF THE STUDY

The area of the study is limited to the investors of PSB securities. Hence the

results may not be true for other geographical locations.

Validity and Reliability of the data depends on the truthfulness of the

responses from the public.

Time at the disposal of the researcher is limited.

The size of the sample compared to the population is very small and hence

it may not represent the whole population.

A structured questionnaire was the basis for collecting the data, so it has the

usual deficiencies attached to this technique of data collection.

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CHAPTER 3

3.1 RESEARCH METHODOLOGY

Business research is a systematic inquiry that provides information to guide

business decisions and aimed to solve managerial problems. Business research is of

recent origin and is largely supported by business organizations that hope to achieve

competitive advantages.

Research methodology is a way to systematically solve the research

problems. It may be understood as a science of studying how research is done

scientifically. It includes the overall research design, the sampling procedure, data

collection method and analysis procedure.

3.1.1 RESEARCHDESIGN

Research design stands for advance planning of the methods to be adopted for

collecting the relevant data and the techniques to be used in analysis, keeping in view the

objectives of the research and availability of time.

Descriptive research includes surveys and fact-finding enquiries of different

kinds. The major purpose of this research is description of state of affairs as it exits at

present.

In this survey the design used is descriptive in nature. The information is

collected from the individuals and analyzed with the help of different statistical tools, for

describing the relationship between various types of variables, pertaining to different

investment options. Moreover Cross table Analysis has been done for processing the data

and information is derived to meet the objectives of the study.

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3.1.2 METHOD OF DATA COLLECTION

Structured Questionnaire method is used as an instrument for collecting

information from the individuals. A Pilot study was conducted based on which a few

changes were made in the Questionnaire.

3.1.3 SAMPLING DESIGN

Since the populations of consumers of Investments are large in number,

researcher was unable to collect information from all individuals due to limitation of

time. So part of the population is taken for analyzing and generating the findings, which

may be applicable for total market.

3.1.4 Sampling Unit

The number of items selected from the population constitutes the sample

size. The respondents of the study are present and future investors.

3.1.5 Sample Size

The sample size taken for the study is 150

3.1.6 Sampling Method

Sampling design is to clearly define set of objects, technically called the

universe to be studied. This research has finite set of universe and the sampling design

used in the study is probability sampling.

Simple Random sampling method is used for the collection of data.

3.1.7 STATISTICAL TOOLS:

The data has been mainly analyzed by using the following methods and tests.

Cross Tabulation and Percentage method supplemented by appropriate charts. Percentage

Analysis, Ranking Method, Chi Square Test.

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CHAPTER-4

COMPANY PROFILE

4.1 ABOUT PSB SECURITIES LTD:

PSB Securities Limited operating with brand name Apollo Money is one

of the countrys fastest upcoming stock broking firm, promoted by Mr. P.B

Subramaniyan who was the founder director and who was instrumental in successfully

managing Apollo Sindhoori Capital Investments Limited since incorporation of the

company till it was taken over by Aditya Birla Group , now called as Aditya Birla

Money Limited.

The promoter has an impressive track record in terms of business acumen,

penchant for technology, customer centric approach was instrumental in making Apollo

Sindhoori Capital Investments Limited a technologically strong and vibrant, that enabled

the company to record phenomenal growth, established presence at over 800 locations,

which included over 200 own branches and 600 franchisees and more than 175000 client

base. With just Rs100 lakhs investments the company was valued at Rs350 Crores when

it was ultimately taken over by Birlas.

This company is managed by team of well known experienced professionals from

the capital market industry, having a clear focus on providing long term value addition to

clients by maintaining highest standards of excellence and ethics

Apollo Money has its member ship of NSE, BSE, in the avenues of Equities &

Derivatives, NSECDS Currency segment, MCX Commodities segment & CDSL Depository participant making it as a fully fledged broking house.

The company is focused on retail market by offering advanced technology, lowest

brokerage in the industry and friendliest and efficient service thus making the

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unparalleled value for our customers The Management believes in partnership model in

its vision of creating financial supermarket.

The services of Apollomoney.com shall consists of Stock Broking, Commodity

Broking, DP-Services, Distribution of Mutual Fund ,Insurance both life and non-life

insurance. The company has tied up with multiple Institutions for Banking, in order to

ensure the clients get instantaneous exposure against their bank balances

Apollo Money website facilitates various options of Equity Trading under

different schemes Viz Cash and Carry, Margin Intra Day Square-up (MIS) and Normal

Trading. The investors will also have the option of simultaneously availing the Branch

Service and centralized call centre. The investor will also have special window for doing

Arbitrage trading either with cash/with existing securities. We have specialized in the art

of guiding you with opportunities to earn with no risk, low risk and high return high risk.

The Apollomoney.com vision is to provide and guide the Investors for long and short

term Investments.

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CHAPTER 5

DATA ANALYSIS AND INTERPRETATION

5.1ANALYSIS OF DATA

TABLE 5.1.1

GENDER OF THE RESPONDENTS

GENDER NO OF

RESPONDENTS

%

Male 120 80

Female 30 20

Total 150 100.0

FIG.5.1.1

GENDER OF THE RESPONDENTS

Male

80%

20%

female

Mf

INFERENCE:

From the above table it is identified that, 80% of the respondents are male and 20% of therespondents were female.

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TABLE 5.1.2

RESPONDENTS AWARENESS TOWARDS DERIVATIVE SEGMENT

AWARENESS NO OF

RESPONDENTS

%

Aware 90 60

Unaware 60 40

Total 150 150

FIG.5.1.2

RESPONDENTS AWARENESS TOWARDS DERIVATIVE SEGMENT

Aware60%

Unaware40% Aware

INFERENCE:

From the above table it is identified that, 60% of the respondents are aware and 40% ofthe respondents were unaware about the derivatives market.

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TABLE 5.1.3

INVESTORS PREFERENCE TOWARDS DERIVATIVE SEGMENT

DERIVATIVE SEGMENT NO OF RESPONDENTS %

Futures 29 69

Options 13 31

TOTAL 42 100

FIG.5.1.3

INVESTORS PREFERENCE TOWARDS DERIVATIVE SEGMENT

Futures69%

Options

31%

Future

s

INFERENCE:

From the above table it is identified that, 69% of the derivative users prefer futures forinvesting and 31% of the derivative users prefer options.

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TABLE 5.1.4

INVESTORS PREFERENCE TOWARDS DERIVATIVE PRODUCT

PRODUCTS NO OF

RESPONDENTS

%

Stock index futures 5 11.9

Stock index options 3 7.14

Futures on individual stock 24 57.14

Options on individual stock 10 23.81

Total 42 100.0

FIG.5.1.4

INVESTORS PREFERENCE TOWARDS DERIVATIVE PRODUCT

0

10

20

30

40

50

60

Stock indexfutures

Stock indexoptions

Futures onindividual

stock

Options onindividual

stock

11.9

7.14

57.14

23.81

%

INFERENCE:

From the above table it is identified that, 57.14% of the investors who invest in derivativesegment preferred towards futures on individual stock and 23.81%of them invest inoptions on individual stock

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TABLE 5.1.5

PARTICPANTS OF DERIVATIVE PRODUCT

PARTICIPANTS NO OFRESPONDENTS %

Speculator 14 33.33

Hedger 18 42.86

Other 10 23.81

Total 42 100.0

FIG.5.1.5

PARTICPANTS OF DERIVATIVE PRODUCT

33.33

42.86

23.81

0

5

10

15

20

25

30

35

40

45

%

speculator Hedger other

INFERENCE:

From the above table it is identified that, 42.86% of the investor participate as hedger inthe derivative market and 33.33% of them as a speculator.

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TABLE 5.1.6

INVESTORS PREFERENCE TOWARDS NUMBER OF CONTRACTS

CONTRACTS NO OF

RESPONDENT

S

%

1-3 contracts 32 76.19

3 -5 contracts 7 16.67

Above 6 contracts 3 7.14

Total 42 100.0

FIG.5.1.6

INVESTORS PREFERENCE TOWARDS NUMBER OF CONTRACTS

76.19

16.67

7.14

0

10

20

30

40

50

60

70

80

%

1-3 contracts 3 -5 contracts Above 6 contracts

INFERENCE:

From the above table it is identified that, 76.19% of the derivative users prefer to enteronly 1 -3 contracts at a time and 16.67% would like to enter 3 -5 contracts at a time.

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TABLE 5.1.7

INVESTORS ATTRACTIVE REASONS FOR INVESTING IN DERIVATIVE

SEGMENT

ATTRACTIVE REASONS NO OF

RESPONDENTS

%

Diversification of risk 13 30.95

Cash generation 11 26.19

Potential for capital gain 11 26.19

Other 7 16.67

Total 42 100.0

FIG.5.1.7

INVESTORS ATTRACTIVE REASONS FOR INVESTING IN DERIVATIVE

SEGMENT

TABLE 5.1.8

0

5

10

15

20

25

30

35

Diversification of riskCash generationPotential for capital gain other

30.95

26.19 26.19

16.67

%

INFERENCE:

From the above table it is identified that, 30.95% of the derivative users attractivereasons for investing is diversification of risk and 26.19 %were for potential for capitalgain and cash generation

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TABLE 5.1.8

RISK MANAGEMENT OF DERIVATIVE USER

MANAGEMENT OFRISK NO OFRESPONDENT

S

%

Moderately wellprepared 18 42.86

Mixed 21 50

Poor 3 7.14

Total 42 100

FIG.5.1.8

RISK MANAGEMENT OF DERIVATIVE USER

TABLE.5.1.9

42.86

50

7.14

0

5

10

15

20

25

30

35

40

45

50

percentage

MODERATELY

WELL

MIXED POOR

INFERENCE:

From the above table it is identified that, 50% of the derivative users would manage riskin market with the mixed proportion.

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TABLE5.1.9

RESPONDENTS LEVEL OF INTEREST IN KNOWING ABOUT

DERIVATIVE SEGMENT

INTEREST LEVEL NO OF

RESPONDENTS

%

Very much 61 56.48

To some extent 38 35.19

Not at all 9 8.33

Total 108 100.0

FIG 5.1.9

RESPONDENTS LEVEL OF INTEREST IN KNOWING ABOUT

DERIVATIVE SEGMENT

56.48

35.19

8.33

0

10

20

30

40

50

60

%

Very much To some extent Not at all

INFERENCE:

From the above table it is identified that, 56.48% of the non derivative users areinterested in knowing about derivative segment.

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TABLE 5.1.10

LEVEL OF AGREEABLENESS / DISAGREEABLENESS

OF NON DERIVATIVE USERS

PARAMETERS NO OF

RESPONDENTS

%

Strongly disagree 23 21.3

Disagree 12 11.11

Nether agree nor disagree 22 20.37

Agree 39 36.11

Strongly agree 12 11.11

Total 108 100.0

FIG.5.1.10

LEVEL OF AGREEABLENESS / DISAGREEABLENESS

OF NON DERIVATIVE USERS

0

5

10

15

20

25

30

35

40

Strongly disagreeDisagreeNether agree nor disagreeAgree Strongly a gree

21.3

11.11

20.37

36.11

11.11

%

INFERENCE:

From the above table it is identified that, 36.11% of the non derivative users wereagree that this market is suitable for FII, mutual funds and corporate.

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TABLE.5.1.11

GENDER OF THE RESPONDENTS TOWARDS USERS AND NON -USERS

S.No.GENDER

DERIVATIVE

USER

NON DERIVATIVE

USER

No. of

Respondents

% No. of

Respondents

%

1 Male 36 85.7 84 84

2 Female 6 14.3 24 24

Total 42 100.0 108 100.0

FIG.5.1.11

GENDER OF THE RESPONDENTS TOWARDS USERS AND NON - USERS

0

10

20

30

40

50

60

70

80

90

derivative user non derivative user

85.784

14.3

24

%male

female

INFERENCE:

From the above table it is identified that 85.7% of the derivative users aremale and 14.3 % of them were female and in non derivative users 84% are maleand 24 %are female.

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TABLE 5.1.12

AGE LEVEL OF THE RESPONDENTS

S.No. AGE LEVELDERIVATIVE USER NON DERIVATIVE USER

No. of

Respondents

% No. of

Respondents

%

1 Below 25 Yrs 1 2.38 9 8.33

2 26-35 Yrs 7 16.67 28 25.93

3 36-45Yrs 14 33.33 25 23.15

4 46-55 Yrs 13 30.95 29 26.85

5 Above 55Yrs 7 16.67 17 15.74

Total 42 100.0 108 100.0

FIG.5.1.12

AGE LEVEL OF THE RESPONDENTS

2.38

8.33

16.67

25.93

33.33

23.15

30.95

26.85

16.67

15.74

0

5

10

15

20

25

30

35

%

Below 25 Yrs 26-35 Yrs 36-45Yrs 46-55 Yrs Above 55Yrs

derivative users Non derivative users

INFERENCE:

From the above table it is identified that,33.33% of derivative users are under the agegroup of 36-45 years and in non derivative users 26.85% of them were under 46 -55yrs.

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TABLE 5.1.13

EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

S.No. EDUCATIONALQUALIFICATION

DERIVATIVE USER NON DERIVATIVE USERNo. of

Respondents

% No. of

Respondents

%

1 School 4 9.52 31 28.7

2 Degree 15 35.71 29 26.85

3 Professional 12 28.57 27 25

4 Others 11 26.2 21 19.45

Total 42 100.0 108 100.0

FIG.5.1.13

EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

0

5

10

15

20

25

30

35

40

School Degree Professional Others

9.52

35.71

28.57

26.228.7

26.8525

19.45

%


INFERENCE:

From the above table it is identified that, 35.71% of the derivative users are degreeholders and 28.7% of non derivative users were school.

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TABLE 5.1.14

OCCUPATION OF THE RESPONDENTS

S.

No. OCCUPATION

DERIVATIVE USER NON DERIVATIVE USER

No. of Responses % No. of

Responses

%

1 Salaried 8 19.05 43 39.82

2 Self employed 12 28.57 24 22.22

3 Business 13 30.95 24 22.22

4 Other 9 21.43 17 15.74

Total 42 100.0 108 100.0

FIG.5.1.14

OCCUPATION OF THE RESPONDENTS

19.05

39.82

28.57

22.22

30.95

22.22 21.43

15.74

0

5

10

15

20

25

30

35

40

%

Salaried Self employed Business Other


INFERENCE:

From the above table it is identified that, 30.95% of the derivative users are doingbusiness and 39.82%of non derivative users are salaried.

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TABLE 5.1.15

INCOME LEVEL OF THE RESPONDENTS

S.No. ANNUALINCOME

DERIVATIVE USER NON DERIVATIVE USERNo. of Responses % No. of

Responses

%

1 Below Rs.1lakhs 2 4.76 31 28.7

2 Rs.1 - 3 lakhs 14 33.33 22 20.37

3 Rs.3 - 5 lakhs 14 33.33 33 30.56

4 Above Rs.5 lakhs 12 28.57 22 20.37

Total 42 100.0 108 100.0

FIG.5.1.15

INCOME LEVEL OF THE RESPONDENTS

4.76

28.7

33.33

20.37

33.33

30.56

28.57

20.37

0

5

10

15

20

25

30

35

%

Below Rs.1lakhs Rs.1 - 3 lakhs Rs.3 - 5 lakhs Above Rs.5

lakhs


INFERENCE:

From the above table it is identified that, 33.33% of the derivative users are under theincome group of Rs. 1-5 lakhs and in non derivative users 30.56%of them are underRs.3 -5 lakhs.

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TABLE 5.1.16

PERIOD OF INVESTMENT OFTHE RESPONDENTS

S.

No.

PERIOD OF

INVST

DERIVATIVE USER NON DERIVATIVE USER

No. of Responses % No. ofResponses

%

1 Less than 1 year 0 0 14 12.96

2 1 -3 year 11 26.19 30 27.78

3 3 -5 years 12 28.57 35 32.41

4 More than 5 year 19 45.24 29 26.85

Total 42 100.0 108 100.0

.

FIG.5.1.16

PERIOD OF INVESTMENT OFTHE RESPONDENTS

0

5

10

15

20

25

30

35

40

45

50

Less than 1

year

1 -3 year 3 -5 years More than 5

year

0

26.1928.57

45.24

12.96

27.78

32.41

26.85

%

Derivative users Non derivative users

INFERENCE:

From the above table it is identified that, 45.24% of derivative users were investing for aperiod of more than 5 years and 32.41% of non derivative users are investing for a periodof 3 years

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TABLE 5.1.17

INCOME LEVEL AND PERCENTAGE OF INVESTMENT

PERCENTAGE OF INVESTMENTINCOME LEVEL Below 10% 10 -20% 20 -30% Above 30%

Less than 1 lakhs 18.37 27.45 17.24 23.81

1 -3 lakhs 20.41 27.45 20.69 28.57

3 -5 lakhs 30.61 29.41 37.93 28.57

More than 5lakhs 30.61 15.69 24.14 19.05

TOTAL 100.0 100.0 100.0 100.0

FIG.5.1.17

INCOME LEVEL AND PERCENTAGE OF INVESTMENT

18.37

20.41

30.61 30.61

27.45

27.45 29.41

15.69

17.24

20.69

37.93

24.14 23.81

28.57 28.57

19.05

0

5

10

15

20

25

30

35

40

%

Below 10% 10 -20% 20 -30% Above 30%

Less than 1 lakhs 1 -3 lakhs 3 -5 lakhs More than 5lakhs

INFERENCE:

From the above table it is identified that, investors whose income level less thanRs.1 lakhs invest 10 -20%of their saving in this share market, Rs.1 -3 lakhs invest above30%of their savings towards share market, Rs.3 -5 lakhs invest about 20 -30%of theirsavings in this market and more than Rs.5 lakhs invest only below 10%.

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TABLE.5.1.18

PERCENTAGE OF INVESTMENT OF USERS AND NON USERS

S.No. PERCENTAGEOF INVESTMENT

DERIVATIVE USER NON DERIVATIVE USERNo. of

Respondents

% No. of

Respondents

%

1 Below 10% 16 38.1 33 30.56

2 10 - 20% 17 40.48 34 31.48

3 20 - 30% 8 19.05 21 19.44

4 Above 40% 1 2.38 20 18.52

Total 42 100.0 108 100.0

FIG.5.1.18

PERCENTAGE OF INVESTMENT OF USERS AND NON USERS

38.1

30.56

40.48

31.48

19.05

19.44

2.38

18.52

0

5

10

15

20

25

30

35

40

45

%

Below 10% 10 - 20% 20 - 30% Above 40%

Derivative users Non derivative users

INFERENCE:

From the above table it is identified that, 40.48% of derivative users and 31.48% of nonderivative users invest about 10 -20%.

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TABLE.5.1.19

DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS ITS PRODUCT

DERIVATIVE PRODUCTSDERIVATIVE

PARTICIPANTS

INDEX

FUTURE

INDEX

OPTION

INDIVDUAL

STK FUTURE

INDIVIDUAL

STK OPTION

speculator 40 33.33 25 50

Hedger 60 33.33 54.17 10

others 0 33.33 20.83 40

TOTAL 100.0 100.0 100.0 100.0

FIG.5.1.19

DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS ITS PRODUCT

40

33.33

25

50

60

33.33

54.17

10

0

33.33

20.83

40

0

10

20

30

40

50

60

%

speculator trader others

INDEX FUTURE INDEX OPT ION INDIVDUAL STK FUTURE INDIVIDUAL STK OPTION

INFERENCE:

From the above table it is identified that, 60%of the hedger invest in index futures,33.33%of them in index option and 54.17% in individual stock futures and 50%of themas speculator in individual stock option.

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TABLE 5.1.20

DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS NUMBER OF

CONTRACTS

DERIVATIVE

PARTICIPANTS

1-3

CONTRACTS

3-6

CONTRACTS

ABOVE 6

CONTRACTS

speculator 34.38 28.57 33.33

Hedger 40.62 42.86 66.67

others 25 28.57 0

TOTAL 100.0 100.0 100.0

FIG.5.1.20

DERIVATIVE PARTICIPANTS PREFERENCE TOWARDS NUMBER OFCONTRACTS

34.38

28.57

33.33

INFERENCE:

From the above table it is identified that, 40.62% of investors enter into 1-3 contracts,42.86% of them are opting for 3-6 contracts and 75% of them are opting for more than6 contracts.

40.6242.86

66.67

25

28.57

0

0

10

20

30

40

50

%

60

70

speculator trader others

1 -3 contracts 3 -6 contracts above6 contracts

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TABLE 5.1.21

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS GENDER

LEVEL OF PERCEPTIONGENDER LOW MEDIUM HIGH

male 77.78 86.36 90.9

female 22.22 13.64 9.1

total 100.0 100.0 100.0

FIG.5.1.21

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS GENDER

INFERENCE:

From the above table it is identified that, the level of perception is high towards malegeneration with 90.9% and low level of perception of 77.73%.

77.73

22.22

86.36

13.64

90.9

9.1

0

10

20

30

40

50

60

70

80

90

%

100

LOW MEDIUM HIGH

male

female

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TABLE 5.1.22

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS EDUCATION

LEVEL OF PERCEPTIONEDUCATION LOW MEDIUM HIGH

school 11.11 9.1 9.1

degree 44.45 31.82 36.36

profession 33.33 22.72 36.36

other 11.11 36.36 18.18

TOTAL 100.0 100.0 100.0

FIG.5.1.22

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS EDUCATION

TABLE 4.1.23

11.119.1 9.1

44.45

31.82

36.36

33.33

22.72

36.36

11.11

36.36

18.18

0

5

10

15

20

25

30

35

40

45

%

school degree profession other

LOW MEDIUM HIGH

INFERENCE:

From the above table it is identified that, 36.36% of degree holders andprofessionals were of under high level of perception and 36.36% of others with mediumlevel of perception.

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TABLE 5.1.23

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS

OCCUPATION

LEVEL OF PERCEPTIONEDUCATION LOW MEDIUM HIGH

salary 22.22 22.73 9.1

self-employed 11.11 31.82 36.36

business 33.33 31.82 27.27

other 33.33 13.63 27.27

TOTAL 100.0 100.0 100.0

FIG.5.1.23

LEVEL OF PERCEPTION OF DERIVATIVE USERS TOWARDS

OCCUPATION

0

5

10

15

20

25

30

35

40

LOW MEDIUM HIGH

22.2222.73

9.1

11.11

31.82

36.36

33.3331.82

27.27

33.33

13.63

27.27

%

salary self-employed business other

INFERENCE:

From the above table it is identified that, 36.36% of the self employed peoplewere with high level of perception and 31.82%of both self employed and business peoplewere with medium level of perception.

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RANKING ANALYSIS

TABLE 5.1.24

RANKING AMONG SECTORS FOR INVESTING

S.No SECTORS WEIGHTAGESCORE

WEIGHTEDAVERAGE

RANK

1 IT sector 627 4.13 2

2 banking sector 677 4.46 1

3 Pharmaceuticalsector

293 1.93 4

4 Auto sector 205 1.35 5

5 Cement sector 326 2.15 3

6 Others 149 .98 6

INFERENCE:

From the above table, it is inferred that,

The Respondents have ranked banking sector as First in respect to their

preference in investing.

The Respondents have rankedIT sector as Second in respect to their preference

in investing.

The Respondents have ranked cement sector as Third in respect to their


The Respondents have ranked pharma sector as fourth in respect to their


The Respondents have ranked Automobile sector as fifth in respect to their


The Respondents have rankedother sector as sixth in respect to their preference

in investing.

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TABLE 5.1.25

RISKFACTORS FOR INVESTING IN DERIVATIVE MARKET

RISK FACTORS WEIGHTAGESCORE

WEIGHTEDAVERAGE

RANK

Liquidity risk 136 3.24 3

Asset volatility 152 3.62 1

Hard to determine the best

opportunities

76 1.81 5

Risk of making poor

investment

141 3.36 2

Risk of poor professional

advice

124 2.96 4

INFERENCE:


The derivative users have rankedasset volatility as first among the major riskfactors

The derivative users have rankedrisk of making poor investment as secondamong the major risk factors

The derivative users have rankedliquidity risk as third among the major riskfactors

The derivative users have rankedrisk of poor professional advice as fourthamong the major risk factors

The derivative users have rankedhard to determine the best opportunity asfifth among the major risk factors

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TABLE 5.1.26

REASONS FOR NOT INVESTING IN DERIVATIVE MARKET

FACTORS WEIGHTAGESCORE

WEIGHTEDAVERAGE

RANK

High level of risk 493 4.6 1

Lot size 209 1.95 5

Contract specifications 228 2.13 4

uncertainty 356 3.32 2

Huge amount of investment 321 2.97 3

INFERENCE:


The non derivative users have rankedhigh level of risk as first among the

reasons for not investing in this market.

The non derivative users have rankeduncertainty as second among the reasons

for not investing in this market.

The non derivative users have rankedhuge amount of investment as third

among the reasons for not investing in this market.

The non derivative users have rankedcontract specifications as fourth among

the reasons for not investing in this market.

The non derivative users have rankedlot size as fifth among the reasons for not

investing in this market.

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CHISQUARE ANALYSIS

TABLE 5.1.27

GENDER AND USERS TOWARDS DERIVATIVE MARKET

S.NO GENDER DERRIVATIVE

USER

NON DERIVATIVE

USER

TOTAL

1. Male 36 84 120

2. Female 6 24 30

TOTAL 42 108 150

Null Hypothesis (H0) - There is no significant relationship between

the users and gender

Alternative Hypothesis (H1) - There is close significant relationship

between users and gender

CHI-SQUARE (2) CALCULATION:

Calculated2

value = 1.19

Degree of freedom = 1

Table value = 3.84

Level of Significance = 5%

INFERENCE

It is found from the above analysis that calculated chi-square value less than

the table value at 1 degree of freedom and null hypothesis accepted. So, we conclude

that, there is no significant relationship between the users and gender.

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TABLE5.1.28

AWARENESS AND INTEREST TOWARDS INVESTING IN DERIVATIVE

MARKET

S.NO AWARENESS INTERESTED NOT INTERESTED TOTAL

1. Aware 42 48 90

2. Unaware 40 20 60

TOTAL 42 108 150

Null Hypothesis (H0) - There is no significant relationship between

Awareness and interest towards derivative

market

Alternative Hypothesis (H1) - There is close significant relationship

between Awareness and interest towards

derivative market

CHI-SQUARE (2

) CALCULATION:

Calculated2 value = 5.81


Table value = 3.84


INFERENCE

It is found from the above analysis that calculated chi-square value less than

the table value at 1 degree of freedom and null hypothesis rejected. So, we conclude that,

there is close significant relationship between awareness and interest towards derivative

market

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TABLE5.1.29

AGE LEVEL AND GENDER OF THE INVESTORS

S.NO AGE LEVEL MALE FEMALE TOTAL

1 Below 35 Yrs 28 17 45

2 35-45 Yrs 32 7 39

3 Above 45 yrs 60 6 66

TOTAL 120 30 150

Null Hypothesis (H0) - There is no significant relationship between gender

and age level of the investors

Alternative Hypothesis (H1) - There is close significant relationship between

gender and Age level of the investors


Calculated2

value = 13.90


Table value = 5.991


INFERENCE

It is found from the above analysis that calculated chi-square value greater

than the table value at 2 degree of freedom and null hypothesis rejected. So, we conclude

that, there is close significant relationship between gender and age level of the investors.

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TABLE 5.1.30

GENDER AND AWARENESS TOWARDS DERIVATIVE MARKET

S.NO GENDER AWARE UNAWARE TOTAL

1 Male 77 43 120

2 female 13 17 30

TOTAL 90 60 150

Null Hypothesis (H0) - There is no significant relationship between gender

and awareness towards derivative market


gender and awareness towards derivative

market



Degree of freedom = 4Table value = 9.488


INFERENCE



that, there is close significant relationship between gender and awareness towards

derivative market

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TABLE 5.1.31

INCOME LEVEL AND USERS TOWARDS DERIVATIVE MARKET

S.NO ANNUAL

INCOME

DERIVATIVE

USERS

NON

DERIVATIVE

USERS

TOTAL

1 Less than 1 lakhs 2 31 33

2 1 -3 lakhs 14 22 36

3 3 -5 lakhs 14 33 47

4 Above 5 lakhs 12 22 34

Total 42 108 150

Null Hypothesis (H0) - There is no significant relationship between Income

level and users towards derivative market


income level and users towards derivative

market




Table value = 7.815


INFERENCE



that, there is close significant relationship between income level and users towards

derivative market

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TABLE 5.1.32

AGE LEVEL AND PERCENTAGE OF INVESTMENT

AGE LEVEL OF THE INVESTORSS.NO PERCENTAGE

OF

INVESTMENT

Below 35Yrs

35-45 Yrs Above 45yrs

TOTAL

1. Below 10% 20 9 20 49

2. 10% -20% 8 21 22 51

3. 20%- 30% 8 6 15 29

4. Above 30% 9 3 9 21

TOTAL 45 39 66 150

Null Hypothesis (H0) - There is no significant relationship between age

level and percentage of investment

Alternative Hypothesis (H1) - There is close significant relationship between age

level and percentage of investment


Calculated2

value = 14.17


Table value = 12.592


INFERENCE



that, there is close significant relationship between age level and percentage of

investment

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TABLE 5.1.33

RISKFACTORS FOR INVESTING IN DERIVATIVE MARKET

RISK FACTORS OBSERVED

FREQUENCY

EXPECTED

FREQUENCY

Liquidity risk 136 125.8

Asset volatility 152 125.8

Hard to determine the best

opportunities

76 125.8

Risk of making poor investment 141 125.8

Risk of poor professional advice 124 125.8

Null Hypothesis (H0) - The investors have no preference among the major

risk factors

Alternative Hypothesis (H1) - The investors have particular preference among the

major risk factors

CHI-SQUARE (2) CALCULATION:Calculated2 value = 27.86


Table value = 9.488

Level of Significance = 0.05

INFERENCE



that, the investors have particular preference among the major risk factors.

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TABLE 5.1.34

INVESTORS PREFERENCE TOWARDS DIFFERENT SECTORS FOR

INVESTING

SECTORS OBSERVED

FREQUENCY

EXPECTED

FREQUENCY

IT sector 627 379.5

Banking sector 677 379.5

Pharmaceutical sector 293 379.5

Auto sector 205 379.5

Cement sector 326 379.5

Others 149 379.5

Null Hypothesis (H0) - The investors have no preference among various

Sectors

Alternative Hypothesis (H1) - The investors have preference among various

Sectors



Table value = 11.070


INFERENCE

It is found from the above analysis that calculated chi-square value greater than

the table value at 5 degree of freedom and null hypothesis rejected. So, we conclude that,

the investors have particular preference among various sectors.

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TABLE 5.1.35

REASONS FOR NOT INVESTING IN DERIVATIVE MARKET

RISK FACTORS OBSERVED

FREQUENCY

EXPECTED

FREQUENCY

High level of risk 493 321.4

Lot size 209 321.4

Contract specifications 228 321.4

uncertainty 356 321.4

Huge amount of investment 321 321.4

Null Hypothesis (H0) - The investors have particular no reasons for not

investing in derivative market.

Alternative Hypothesis (H1) - The investors have particular reasons for not

investing in derivative market.



Table value = 9.488


INFERENCE



that, the investors have particular preference among the factors for not investing in

derivative Market.

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CHAPTER 6

6.1 FINDINGS

Among the total number of respondents 80%of them were male and 20%of them

are female.

85.7% of derivative users and 84% of non derivative users were male.14.3 %of

derivative users and 24%of non derivative users were female.

30.95% of the derivative users are doing business and 39.82%of non derivative

users are salaried.

33.33% of the derivative users are under the income group of Rs.1- 5lakhs and in

non derivative users 30.56%of them are under Rs.3 -5 lakhs.

Investors whose income level less than Rs.1 lakhs invest 10 -20%of their saving

in this share market, Rs.1 -3 lakhs invest above 30%of their savings towards share

market, Rs.3 -5 lakhs invest about 20 -30%of their savings in this market andmore than Rs.5 lakhs invest only below 10%.

60%of the hedger invests in index futures, 33.33%of them in index option and

54.17% in individual stock futures and 50%of them as speculator in individual

stock option.

50% of the derivative users would manage risk in market with the mixed

proportion and 42% of them try to manage in well prepared manner.

56.48% of the non derivative users are very much interested in knowing about

derivative segment and 35.19 are interested to some extent.

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The level of perception of derivative users is high towards male generation with

90.9% and low level of perception of 77.73%.

36.36% of degree holders and professionals were of under high level of

perception and 36.36% of others with medium level of perception.

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CHAPTER-7

7.1 SUGGESTIONS

1. Among the respondents, the awareness of derivative segment is high but they

were not interested in investing in this segment. Reasons for not investing are that

they feel it is too riskier, so the company can provide protective measures for

safeguarding them and they can give guidance and better support.

2. Most of the respondents agreed that if they are provide with guidance and support

they would invest in this market. Companies can make use of this and make many

seminars to awake the people regarding their investment.

3. There are some relationships identified in this study. They could use this

information to their further studies to identify the target market.

4. Many of them feel that derivative market is suitable for FII, mutual fund and

corporates, the company should make the retail investors clear that investing in

derivative market is very easy

5. Though the majority of the investors were male the company can go for

canvassing the females especially housewifes for investing in this market which

would be a suitable one for them.

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CHAPTER-8

8.1 CONCLUSION:

The study was conducted in PSB securities ltd, a stock broking company.

The study revealed that the investors have greatest preference for safety.

Most of the respondents have invested in cash segment than in derivative segment.

The level of awareness of derivative market regarding the investors is high,

but not interested in investing because of high level of risk. Since many investors

expressed their interesting learning more about the derivative segment.

The statistical analysis of data has given insight into investor demographics

and their investment preferences.

Based on the investor profile and investor preferences, suggestions have been

made for the company to increase its market penetration.

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APPENDIX

QUESTIONNAIRE

Dear sir/madam,

I am Rajeshkumar.S, final year MBA student in SRM University, Chennai and I

am conducting a research as a part of my MBA curriculum. I assure you that the

information collected will be used only for curriculum purpose.

QUESTIONNAIRE:

General Information.

Name :

Address :

1. Gender:

Male F Female F

2. Age:

Below 25 F 26-35 F 36-45 F

46-55 F above 55 F

3. Marital Status:

Married F Unmarried F

4. Educational qualification:

School F Degree F Professional F OtherF

5. Occupation:

Salaried F Self employedF Business Fother F

6. What is your gross household income per year?

Below 1lakh F 1lakh -3 lakhs F

3 lakhs -5 lakhs F Above 5 lakhs F

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7. How long you have been investing in the stock market?

Less than 1year F 1-3 Years F

3-5 Years F More than 5years F

8. Out of your earnings and savings how much amount have you invested in this market?

Below 10% F 10% -20% F 20%-30% F Above 30% F

9. For investing which of the following sectors do you favour most?

Sectors Rank them accordingly(1-5)

IT sector

banking sector

Pharmaceutical sector

Auto sector

Cement sector

Others

10. Are you aware of derivative segment in stock market?

Yes F No F (if No go to question number 19)

Derivative users:

11. Do you invest in derivatives market?

Yes F No F (if No go to question number 20)

12. Which of the following are the most attractive reasons for investing in

Derivative market?

Diversification of risk F Cash generation F

Potential for capital gains F other F

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13. Which of the following do you favour most?

Stock index futures F Stock index options F

Futures on individual stock F Options on individual stockF

14. In case of first four products mentioned in previous question will you like to

participate as?

Speculator F Hedger F Other F

15. How many contracts would you normally trade at any one time?

1-3contracts F 3-6contracts F above 6 contracts F

16. What are the factors do you consider while entering into a new contract?

Factors Please put tick mark

Contract period

Contract value

Lot sizeLevel of risk to be taken

Company information

Settlement basis

Expiry date

Initial margin

Strike price

Professional advice

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17. In your view, which of the following are the major risk factors in derivatives market?

Risk factors Rank them accordingly(1-5)

Liquidity risk

Asset volatility

Hard to determine the best opportunities

Risk of making a poor investment

Risk of poor professional advice

18. How well do you think to manage your risk in the market?

Moderately well prepared and better F Mixed F Poor F

Non derivative users:

19. Do you feel interested in learning about derivative segment?

Very Much F To Some Extent F Not At All F

20. List out the major reasons for not investing in it?

Reasons Rank them accordingly(1-5)

High level of risk

Lot size

Contracts specifications

Uncertainty

Huge amount of investment

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21. Would you like to invest in derivatives segment in future?

Yes F No F

22. Do you agree or disagree with this statement?

Derivatives market is more appropriate only for Corporate, High net worth investor and

mutual fund industry.

Strongly disagree F

Disagree F

Neither agrees nor disagrees F

Agree F

Strongly agree F

23. Are you satisfied with the service provided by your member?

Yes F No F

Thank you

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BIBLIOGRAPHY

Websites:

www.nseindia.com

www.bseindia.com

www.derivativesportal.com

www.derivativeindia.com

www.kotaksecurities.com

www.indiabulls.com

www.investmentz.com

V.k. Bhalla Investment Management S.chand & company ,12 th editions

New Delhi.

Kothari C.R 'Research Methodology', methods & techniques, New Age

International Pvt ltd, second edition, New Delhi.

Punithavathy pandian , Security analysis and Portfolio Management,

Himalaya Publishing House, sixth edition.

Richard I. Levin - David S. Rubin Statistics for Management

Prentice Hall of India Pvt ltd, Seventh edition, New Delhi
http://www.indiabulls.com/http://www.investmentz.com/http://www.investmentz.com/http://www.indiabulls.com/

Documents

Derivative Mkt