A Project Report On
Submitted in partial fulfillment for the degree of Management of Business Administration
FACULTY OF MANAGEMENT STUDIES MOHANLAL SUKHADIA UNIVERSITY UDAIPUR (RAJASTHAN) 2009-2011 Submitted by
Introduction:
Indian stock market is one of the oldest in Asia. Its history dates back to nearly 200 year ago. The earliest records of security dealing in India are meager and obscure. The East India company was the dominate institution in those days and business in its loan securities used to be transacted towards the close of the 18th century.By1830’s business stocks and shares in Bank and cotton presses took place in Bombay. Though the trading list was broader in 1839. There were only half a dozen broker recognized by banks and merchants during 1840and 1850. The 1850’s witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field &by1860the number of brokers increased into 60. Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture. In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished to do so. This implies that ownership in business has to be “broken up” into a lager number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures.
A person holding assets (securities/ funds), either to meet his liquidity needs or to reshuffle his holding in response to changes in his perception about risk &return of the assets, decided to buy/sell order the securities. He selects a broker and instructs him to place buy/sell order on an exchange. The order is converted to a trade as soon as it finds a matching sell/buy order. At the end of the trade cycle, the traders are netted to determine the obligations of the trading member’s Securities/ funds and acquires ownership of the securities.
A Securities translation Cycle is presented above, just because of this Transaction cycle, the whole business of Securities and stock broking has emerged. And as an resituate his holding in response to changes in his perception about risk and return of the assets, decides to buy or sell the securities He selects a broker and instructs him to place buy/sell order. The order is converted to a trade as soon as it finds a matching sell/buy order. At the end of the trade cycle, the traders are netted to determine the obligations of the trading member’s securities and receives securities /funds and acquire ownership of the Securities. A Securities transaction cycle is presented above. Just because of this Transaction cycle, the whole business of securities and stock Broking has emerged. And as an Extension of Stock Broking, the business of Online stock broking/online trading/ E-Broking has emerged. At the end of the American civil war, the broker who thrived out of civil war in 1874,found a place in a street (now appropriately called as Dalal Street ) where establishment in Bombay, The “Native Share& Stock Brokers’ Association “ (Which is alternatively known as “ The Stock Exchange”) acquired a premise in the same street and it was inaugurated in 1899. The stock Exchange at Bombay was consolidated.
Stock Market
A stock represents partial ownership of a company – the smallest share possible. Company's issues stocks to raise capital and investors who buy stock are actually buying a portion of the company. Ownership, even a small share, gives investors rights to a say in how the company is run and a share in the profits and losses. Stock trading is done on stock markets like the New York Stock Exchange (NYSE) or Bombay Stock Exchange (BSE) .This means that only companies listed on a public exchange have shares that can be bought and sold on the open market. Because stocks must be bought and sold on a stock market, an individual investor needs a broker to make transactions for him. Brokers take orders to buy or sell a certain stock.
Dematerialization:
Dematerialization is the process by which physical share certificates are Cancelled and credited in electronic form in the client's account on a Highly secure system at the depository.
Depository:
A depository is similar to a bank. It holds securities like shares, Debentures, bonds, Government Securities, Commercial Papers, units etc. of Investors in electronic form and provides services related to transactions In securities. Depository is the one, where all the securities are kept in Demat form of all the clients having their demat account.
SEBI (Securities and Exchange Board of India):
The regulatory body for all participants in the securities and derivatives markets in India. The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).
Role of SEBI:
The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith and incidental too.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government representing the ministries of finance and law, one member from the Reserve Bank of India and two other members appointed by the central government. As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets; registration and regulation of the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market
Formalities for registering as a client :
All investors should register themselves with registered trading members/sub-brokers by: 1. Filling a Client Registration Form, and 2. Signing a Member-Constituent Agreement (copy available with all NSE trading members) The Member-Constituent Agreement contains the terms and conditions including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker.
Brokerage and other charges
As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (subbrokerage cannot exceed 1.5% of the trade value).
Additional charges other than brokerage The trading member can charge:
1. Service tax @ 5% of the brokerage 2. Transaction charges levied by NSE 3. Penalties arising on behalf of client (investor) The brokerage and service tax is indicated separately in the contract note.
What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The breaking up of total ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be easily bought and sold.
TYPE OF SHARE:
Equity Share
Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 20, 00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.
Preference shares
Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of liquidation. Like common stock, preference shares represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. The main benefit to owning preference shares are that the investor has a greater claim on the company's assets than common stockholders.
Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders
Face value:
The nominal value of a security stated by the issuer, it is the original cost of the stock shown on the certificate. Also known as "par value" or simply "par".
Market value:
The market value of a company is determined by multiplying the number of equity shares that it has issued by their market price. This market value is further multiplied by the free-float factor to determine the free-float market value.
Dividend
A distribution of a portion of a company's earnings decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Bonus shares
They are additional shares issues given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.
What is electronic trading?
Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically.
How many Exchanges are there in India?
The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 20 other regional Exchanges, connected via the InterConnected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems.
EXCHANGE:
NSE
INTRODUCTION:
The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. NSE introduced for the first time in India, fully automated screen based trading. It provides a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest or liquidate investments in securities. Sponsored by the industrial development bank of India, the NSE has been co-sponsored by other development/ public finance institutions, LIC, GIC, banks and other financial institutions such as SBI Capital Market, Stockholding corporation, Infrastructure leasing and finance and so on. NSE started equity trading on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.7 cores in November 1994 to Rs.6797 cores in February 2001 with an average of 9.6 lakh trades on a daily basis. During the year 2000-2001, NSE reported a turnover of Rs.13, 39,510 cores in the equities segment accounting for 45% of the total market. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system, which transcends geographical barriers. Having operationalised both the debt and equity markets, the NSE is planning for a derivative market, which will provide futures and options in equity. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella, namely, To set up a nationwide trading facility for equities, debt.
BSE
INTRODUCTION : VISION OF BSE
“Emerge as the premier Indian stock exchange by establishing global benchmarks" COMMODITY EXCHANGES
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association", as a voluntary non-profit making association. It has evolved over the years into its present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. The Exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI nominees, a Reserve Bank of India nominee, six public representatives and an Executive Director is the apex body, which decides the policies and regulates the affairs of the Exchange. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. The average daily turnover of the Exchange during the year 2000-2001 (April-March) was Rs.3984.19 cores and average number of daily trades was 5.69 lakhs. However, the average daily turnover of the Exchange during the year 2001- 2002 has declined to Rs. 1244.10 cores and number of average daily trades during the period to 5.17 lakhs.
The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX , is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporative entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified Bombay Stock Exchange Limited (BSE) which was founded in 1875 with six brokers has now grown into a giant institution with over 874 registered Broker-Members spread over 380 cities across the country. Today, BSE's Wide Area Network (WAN) connecting over 8000 BSE Online Trading (B OLT) System Trader Work Stations (TWS) is one of the largest of its kind in the country. With a view to provide efficient and integrated services to the investing public through the members and their associates in the operations pertaining to the Exchange, Bombay Stock Exchange Limited (BSE) has set up a unique Member Services and Development to attend to the problems of the Broker-Members. Member Services and Development Department is the single point interface for interacting with the Exchange Administration to address to Members' issues. The Department takes care of various problems and constraints faced by the Members in various products such as Cash, Derivatives, Internet Trading, and Processes such as Trading, Technology, Clearing and Settlement, Surveillance and Inspection, Membership, Training, Corporate Information, etc.PERSONALIZED SERVICE PROVIDER Member Services and Development has put in place the concept of 'Relationship Managers' whereby an Officer is responsible for providing comprehensive services to a group/ set of Members allotted to him/her. The Relationship Managers maintain a comprehensive database on the members and their associates. A distinct feature of the functioning of the Relationship Manager is attending to the diverse problems of the Members at one stop by co-coordinating with various departments thus saving valuable time and energy for the Members. This synergetic effort will benefit both the Exchange and its members in consolidating the business and exploiting the opportunities.
There are three categories:
• • • NCDEX MCX NMCE
The three exchanges are: 1. National Commodity & Derivatives Exchange Limited (NCDEX) 2. Multi Commodity Exchange of India Limited (MCX) 3. National Multi-Commodity Exchange of India Limited (NMCEIL) All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India.
National Commodity & Derivatives Exchange Limited (NCDEX)
National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and had commenced its operations on December 15, 2003.This is the only commodity exchange in the country promoted by national level institutions. It is promoted by ICICI Bank Limited, Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). It is a professionally managed online multi commodity exchange. NCDEX is regulated by Forward Market Commission and is subject tend to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations.
Multi Commodity Exchange of India Limited(MCX)
Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX), is an independent and de-utilized exchange with a permanent recognition from Government of India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures markets across the country. MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors’ Association of India, Pulses Importers Association and Shetkari Sanghatana.
National Multi-Commodity Exchange of India Limited (NMCEIL)
National Multi Commodity Exchange of India Limited (NMCEIL) is the first de- mutualzed, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organize trading in the edible oil complex. It has operationalised from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2000. Commodity exchange in India plays an important role where the prices of an commodity are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the market judged upon the prices. Others never had a say. Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, end-users, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market. A big difference between a typical auction, where a single auctioneer announces the bids, and the Exchange is that people are not only competing to buy but also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone else’s lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do.
Sensex:
The Sensex is an index that is composed of only 30 stocks. This means that the level of index at any point of time (say 17985 points as on July 13) reflects the market value of its component stocks relative to a base period Sensex value = Current free-float market value of constituents stocks/Index Divisor
Hypothetical Example Step 1 The Base Period Day 1
Stock
A B C
Share Price (Rs.)
20.00 30.00 40.00
No. of Shares
50,000,000 100,000,000 150,000,000
Market Value (Rs .)
1,000,000,000.00 3,000,000,000.00 6,000,000,000.00 10,000,000,000.00
Total Market Capi talization
Note: Base Period Value / Base Divisor = Rs.10,000,000,000.00 = 100.00
Step 2 Index Value as on Day 2
Stock
A B C
Share Price (Rs.)
22.00 33.00 44.00
No. of Shares
50,000,000 100,000,000 150,000,000
Market Value (Rs.)
1,100,000,000.00 3,300,000,000.00 6,600,000,000.00 11,000,000,000.00
Total Market Capitalization
11,000,000,000.00 Index = -------------------------- = 1.10 * 100 = 110 10,000,000,000.00
What should a stock market index be?
A stock market index should capture the behavior of the overall equity market. Movements of the index should represent the returns obtained by "typical" portfolios in the country.
Kind of averaging:
For technical reasons, it turns out that the correct method of averaging is to take a weighted average, and give each stock a weight proportional to its market capitalization. Suppose an index contains two stocks A and B. A has a market capitalization of Rs.1000 crore and B has a market capitalization of Rs.3000 crore. Then we attach a weight of 1/4 to movements in A and 3/4 to movements in B.
Initial public offering
An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. IPO’s are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Settlement related Issues
Account Period Settlement:
An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.
Rolling Settlement:
In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.
Beta
A measure of responsiveness of a security or portfolio to move in the stock market as a whole. It Measures systematic risk.
Day trades
Trades that are opened and closed on the same day.
Auction
The securities are put up for auction by the Exchange on account of non-delivery of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery, bad deliveries not rectified and company objections not rectified by them.
Buy
1. A recommendation to purchase a specific security. 2. To acquire an asset in exchange for currency.
Sell
1. A recommendation to sell a particular security. 2. The process of liquidating an asset in exchange for money.
Price-time priority
The system arranges all orders in the priority of price and within price by time. You have, let us say, placed a buy order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So, anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy
shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first
Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.
Short Position
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
Short Covering
The act of purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price. Also referred to as buy to cover or buy back. Bear marketA market in which prices are declining
Bear market
A market in which prices are falling.
Bull market
A market in which prices are rising
Inside information
Private and confidential information, usually acquired through a position of trust that is likely to have an impact on security prices when made public.
CIRCUIT BREAKERS
Circuit breaker means trading is halted for a specified period in stocks or / and stock index futures, if the market price moves out of a pre-specified band. Circuit filters do not result in trading halt but no order is permitted if it falls out of the specified price range
Derivatives
Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex),commodity or any other assets. Derivatives are financial contracts, which derive their value off a spot price time-series, which is called "the underlying". The underlying asset can be equity, index, commodity or any other asset. Some common examples of derivatives are Forwards, Futures, Options and Swaps. Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.
Importance of derivatives
There are several risks inherent in financial transactions. Derivatives are used to separate risks from traditional instruments and transfer these risks to parties willing to bear these risks. The fundamental risks involved in derivative business include:
Futures & Options market
Futures Market:
The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists because buyers and sellers of goods wish to lock in prices for future delivery, but market conditions can make the actual futures contract fluctuate considerably in value. Most investors in the futures market are not interested in the actual goods - only in the profit that can be realized in trading the contracts. Long/ short positions: In simple terms, long and short positions indicate whether you have a net over-bought position (long) or over-sold position (short).
Contract:
The standard unit of trading for futures markets.
Contract month:
The month in which futures contracts may be satisfied by making or accepting delivery.
Options Market:
The Options Market is similar to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a certain time frame.
Call Options:
A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock will rise, allowing him to buy it at less than market value. The seller of the call option expects that the price of the stock will not rise, or at least is willing to accept a partial loss of profits made from selling the call option.
Put Options:
An option to sell a stock is called a 'put option'. This gives the holder the right (but not the obligation) to sell a particular stock within a certain time period at a certain price. In this situation the buyer is expecting the price of the stock to fall but does not want to sell outright in case the price rebounds. The seller feels that the price is stable or is willing to acquire the stock at the low price.
Strike Price/ Exercise Price:
The Price at which the option has to be exercised. That is the stated price per share for which the underlying security may be purchased in the case of a call, or sold in the case of a put, by the option holder upon exercise of the option contract.
Expiration Date:
Date on which the option expires.
Exercise Date:
Date on which the option gets exercised by the option holder/buyer.
Option Premium: - The price paid by the option buyer to the option seller for granting the
option.
Intrinsic Value of an option:
The intrinsic value of an option is defined as the amount by which an option is in-the-money or the immediate exercise value of the option when the underlying position is marked-to-market. For a call option: Intrinsic Value = Spot Price - Strike Price For a put option: Intrinsic Value = Strike Price - Spot Price
The intrinsic value of an option must be a positive number or 0. It cannot be negative. For a call option, the strike price must be less than the price of the underlying asset for the call to have an intrinsic value greater than 0. For a put option, the strike price must be greater than the underlying asset price for it to have intrinsic value.
Time value:
The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value. This is often referred to as premium
Out-of-the-money:
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security
At-The-Money:
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security.
In-the-money:
A call option is in-the-money if the strike price is less than the market price of the underlying security. A put option is in-the-money if the strike price is greater than the market price of the underlying security.
Trading cycle:
The options contract will have a maximum of three months trading cycle- the near month (one), the next month (two) and the far month (three). New contract will be introduced on the next trading day following the expiry of the near month contract
Expiry day:
The last Thursday of the expiry month or the previous trading day if the last Thursday is a trading holiday.
Roll over:
Liquidation for a futures position, and the establishment of a similar position in a more distant delivery month. This is also called a switch. When a hedger switches their futures position to a more distant delivery month this can be called ‘rolling the hedge forwards’
Hedging:
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.
Hedge funds:
A hedge fund is a term commonly used to describe any fund that isn’t a conventional investment fund, i.e., it uses strategies other than investing long. For example Short selling, Using arbitrage, Trading derivatives.
Impact of the U.S. mortgage crisis and fed rate cut on Sensex:
The word ‘sub-prime’ rocked stock markets the world over in August. Investor confidence was shaken badly from Wall Street to Dalal Street, from problems in US sub prime mortgages. The Sensex crashed from 15870(24 July) to 13780(17 august)about 2100 points. The sub-prime mayhem resulted in the withdrawal of over Rs 7,500 crore of investments from the Indian markets by foreign institutional investors (FIIs). Fed rate: The BSE Sensex was up by 248 points on 20th august just on the next trading session after fed rate cut. and another cut in fed rate and the Discount rate on the 18th of September by 50bps to 4.75% and 5.25% respectively caused markets globally to move up sharply and sensex moved up sharply by 654 point on 19th September. FII interest reverted to India as early as the last week of August when they brought equity worth around Rs 1,000 crore in a single day (27 August). They bought equity worth another Rs 1,000 crore in the first few days of September
Company Address: Greshma Shares &Stocks Ltd. rd 301, 3 Floor, Riddhi Siddhi Complex, Near ICICI Bank, Madhuban, Udaipur-313001 Tel:0294-6451121/22/23/24/25/26 Fax: 0294-6451128
COMPANY PROFILE:
Greshma Shares & Stocks Ltd
The Greshma Group is one of the leading retail broking houses in India, providing the investors state-of-the-art services in capital markets in the country. The Group is headed by Jayesh N. Shah who bring with them industry expertise and strong business acumen. The Group has memberships of Bombay Stock Exchange Limited, National Stock Exchange of India Limited, Multi Commodity Exchange of India Limited, National Commodity and Derivatives Exchange Limited and is also a depository participant of NSDL and CDSL. Retail as well as institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPO’s, insurance, depository services and PMS.
OUR ANCHOR:
Jayesh N. Shah, the chief promoter of the Company is a Chartered Accountant who has had over 23 years of exposure in Capital Market. He was a member of the Bombay Stock Exchange in his individual capacity before he co founded Joindre Capital Services Limited, a listed broking Company in 1995. He became, a whole time Director in Sunidhi Securities and Finance Limited in 2001. “Greshma” is the result of his vision to create one of the most trusted and respected business houses in the financial space. It has been his passion to set up a professionally run one stop finance Shoppe to provide intelligent & innovative solutions for the financial needs of the investor community. Easwara Narayanan, the CEO of the Group of Companies carries with him marketing and administrative experience of 27 years in the insurance industry. His last stint was as President at Bajaj Allianz General Insurance Company Limited heading the South and West Zones. He is acclaimed for his high level of professional integrity and proven ability in building organizations and managing teams.
Harshad T. Parekh, an Engineer by qualification carries with him 25 years experience in the Capital Market in various capacities. His acknowledged expertise in Risk Management has stood all the organizations he has worked for in good stead. Sameer Parekh, an Engineer and Graduate in Management Studies from the United States has had varied exposure in IT, Logistics and for the last three years in the Capital Market.
OUR TEAM
Mr. Suvinya Sharma, a qualified Chartered Accountant and CISA (USA) with 15 years experience in Capital and Commodities Markets heads our group Company handling commodities, GRESHMA COMMODITIES PRIVATE LIMITED. Mr. Charul Shah, a Certified Financial Planner with the experience of handling substantial portfolios for over 10 years, heads our Wealth Management Company, GRESHMA WEALTH ADVISORS PRIVATE LIMITED, as its whole time Director. Mr. Kamlesh Gandhi, a rank holder Chartered Accountant, with 29 years experience in the financial sector in various capacities is our Chief Financial Officer. Astute management of finances and strict adherence to financial discipline are his forte.. Mr. Dinesh Shah, who heads our Operations carries with him exposure over 15 years in various capacities and enjoys an uncanny reputation for effective management of systems and processes. Ms. Elsy Anil, who heads our Research Department, has been a Research Analyst for 10 years in the Capital Market in reputed organizations like Batliwala & Karani and HSBC Securities. Her expertise in valuation and objectivity of outlook are a great value adds to the Company. Mr. Jathin N. Shah, a former Director of Joindre Capital Services Limited who has handled various profiles in Capital Markets is in charge of Risk Management. He enjoys a reputation for unwavering focus and methodical approach to matters.
PRODUCT AND SERVICES:
Product:--
Service:
? ? ? ? ? ? ? ? ? ? ? Daily research report and market review(High Noon& Eagle Eye) Pre-market Report (Morning cuppa) Daily trading calls based on Technical Analysis Cool trading products (Daring Derivatives and Market Strategy) Personalised Advice Live Market information Depository service: Demat and Remat transactions Derivative trading (Future and option) Commodities Trading IPOs &Mutual funds Distribution Internet-based Online trading: Speed Trade
Mission
1. We shall strive to deliver value for money to the customer in all our business segments. 2. Fostering a Customer centric approach. 3. Facilitating Ease of transaction by leveraging technology. 4. Providing Professional and unbiased counseling. 5. Ensuring Transparent dealings . 6. To provide Services in the Segment of investment: (a)Equity (b)Debt (c)Commodity (d) Currency future
Vision
To be the most trusted business house adopting a professional approach par excellence and heralding new standards in the quality of services. To be one of the most preferred organizations for wealth maximization of all our stake holders including customers, employees and channel partners. To create management systems that adopts global standards of corporate governance Corporate Social Responsibility.
Value:
? Customer First. ? Pursuit of Excellence. ? Fairness to all Stakeholders. ? Transparent and Ethical conduct of business. ? Leveraging all business opportunities. ? Team work, based on mutual trust. ? Continuous Innovation.
Business Segment
1)
Greshma Share’s &stock Ltd
? Equities Trading - Cash and Derivatives ? Long-term Investing - Direct Equities & Mutual Fund ? Internet Trading ? Currency Future ? Arbitrage ? Depository Services
2) Greshma Commodity pvt. Ltd.
3) Greshma Wealth Advisors Pvt.Ltd
? Financial Planning: (Cover comprehensive Investment, Insurance, Retirement and Tax Planning) ? Wealth Advisors: (Wealth maximization by maintaining optimum asset allocation based on risk profile) We have dedicated teams that cater to our Institutional, HNI and Retail Clients
Our Network
? We will have a pan India presence through a network of Regional Offices, Branch Offices, Sub Brokers, Authorized Persons and Remises. Starting with 50 offices in the first year of our operations, we have a plan in place for a steady increase of this to 500 over the next five years. Our Regional Offices in Ahmadabad, Coimbatore and Thrissur are already functional
Our system
? We have the NOW software of NSE and the ODIN software of Financial Technologies as the Front End software for trades. The LD software of Apex Soft cell supports our accounting and back office operations. These programmers are time tested, robust, versatile and eminently scalable. We have an experienced IT team managing the systems, 24/7.
MUTUAL FUND:
History of the Indian Mutual Fund Industry:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.
Concept of a Mutual Fund:
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most 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. The flow chart below describes broadly the working of a mutual fund:-
Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.
Advantages of Mutual Funds:
1. Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. 2. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
5. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. 6. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience. 7. Affordability A single person cannot invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 8. Choice of Schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 9. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. 10. Tax Benefits Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. What’s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs. 10,000 in the scheme in a year.
Disadvantages of mutual funds
Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments. However, even mutual funds have some inherent drawbacks. Understand these before you commit your money to a mutual fund. 1. No assured returns and no protection of capital If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. A scheme cannot make any guarantee of return, without stating the name of the guarantor, and disclosing the net worth of the guarantor. The past performance of the assured return schemes should also be given. 2. Restrictive gains Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. Assume, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation. 3. Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. 4. Management risk When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.
Strength
Weakness
Opportunities
Threats
SEBI/AMFI have taken an active role in protecting investors interest through regulations certifications and code of conduct
Limited channels of Mutual fund investment distribution i.e. banks and as a % of Household agent account for more savings invested in than 70% of distribution financial assets is less of mutual funds than 1%
Large number of substitutes available to Indian investorDeposit, equities and real estate.
Open product architecture i.e. distributors offer a range of Mutual fund products to choose from
Lack of effort of wealth Because of the economic In India low risk investment managers in educating the growth, investors are products like PPF offer high market about the mutual actively diversifying their returns. products has been the income into various cause of low penetration funds.
Has often added as a counterbalance to equity market volatility and market liquidity
Absence of global policiesMutual funds in India on global mutual funds permitted to invest up to 10 % of the net assets abroad in foreign securities
As more foreign players enter India through the JV route, investors in India will need to educate themselves about abroad risks
Frequently used terms:
• Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. • Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. • Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a backend load. This is also called Bid Price. • Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. • Sales Load
Is a charge collected by a scheme when it sells the units.Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes. • Repurchase or ‘Back-end’ Load
Is a charge collected by a scheme when it buys back the units from the unit holders.
Types of mutual fund schemes:
A wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. By structure: a) open-ended schemes b) close-ended schemes c) interval schemes By investment objective: a) growth schemes b) income schemes c) Balanced schemes d) money market schemes Other schemes: a) Tax saving schemes b) special schemes c) index schemes d) sector specific schemes
Organization of a Mutual Fund
The structure of mutual funds in India is governed by SEBI (Mutual Fund) Regulations, 1996. In India, is mandatory to have a three tier structure of Sponsor-Trustee-Asset Management Company.
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The sponsor establishes the mutual fund and registers the same with SEBI. Sponsor appoints the Trustees, custodians and the AMC with prior approval of SEBI and in accordance with SEBI Regulations. Sponsor must have a 5-year track record of business interest in the financial markets. Sponsor must have been profit making in at least 3 of the above 5 years. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.
Custodian
A custodian is an agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for them.
Individual Scheme Analysis
Section I- Thematic Funds- Infrastructure Mutual funds constantly come out with different schemes. Infrastructure funds are part of a mutual fund category called thematic funds. While sectoral funds invest in particular sectors like, say, information technology, power, metals, oil and gas, etc, thematic funds invests in themes like infrastructure, consumption-led categories like the retail industry and outsourcing companies. India needs to invest large amounts in areas like Roads, Ports, Power, and Telecom etc. to sustain high economic growth. Apart from government spending, it will also require private participation to make significant progress on developing infrastructure. New initiatives such as Public-Private participation, increase in FDI limits and adequate funding support from the government have provided a tremendous boost to the system and therefore companies engaged in this sector have delivered robust performance in the last couple of years. Today, there is a huge buzz about the Great Indian Gold Rush and its three themes -infrastructure, consumption and outsourcing. Of these three, infrastructure funds have caught the fancy of a lot of mutual funds; many new funds have been launched in this category in the last couple of years. Infrastructure, as a theme, covers several sectors like power utilities, power equipment and construction companies. Unlike technology sector mutual funds (at best, technology sector funds could buy stocks from telecom and media besides the software stocks it traditionally invests in), infrastructure funds are not restricted to a few sectors. We have made an attempt to compare the thematic infrastructure schemes of a few AMCs.
ICICI Prudential Infrastructure Fund Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Sankaran Naren To provide capital appreciation and income distribution to unit holders by investing predominantly in equity/equity related securities of the companies belonging to infrastructure development and the balance in debt securities and money market instruments including call money. 31st May, 2010 Rs. 1,711.81 Crores Rs. 10 Growth option : Rs. 19.19 Dividend option : Rs. 14.91 Rs. 5000 1.93% S&P CNX Nifty
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Expense Ratio Benchmark
Style Box:
Portfolio:
Portfolio as on 30th April, 2010 (% to NAV) Auto Ancillaries 3.72 Banks 12.32 Cement 0.3 Construction 8.77 Dredging 2.07 Ferrous Metals 13.6 Hotels 2.1 Industrial Capital Goods 9.41 Industrial Products 5.21 Non-Ferrous Metals 1.52 Oil 5.91 Petroleum Products 7.29 Power 5.59 Telecom Services 2.43 Transportation 2.8 CPs & CDs 1.1 Term Deposits 10.67 Cash, Call, CBLO & Reverse Repo 5.12 Other Current Assets 0.07 Total 100
Understanding the portfolio: The fund is well diversified in both its stock and sectoral exposures. It is a multi-sector fund and therefore has a much lesser concentration risk than a typical sector fund. The fund normally holds 35-40 stocks in its portfolio spread across 14-20 sectors, a large number when compared to most other thematic funds. Approximately 83% of the funds are invested in equities of infrastructure related companies. Closely analyzing the equity portfolio, we notice that a considerably high investment has been made in the banking sector. This points out that the fund manager is able to recognize the growth potential of the Banking sector in the Indian context. Due to this, the scheme enjoys the benefits of investing in the booming services sector. The portfolio consists of several wellreputed companies of India viz. Jindal Steel, SAIL, Tata Steel, BHEL, Reliance Industries, Tata Power, etc. It is noticed that exposure to Auto has been reduced to zero, as holdings in Ferrous Metals (Sesa Goa) has been replaced with Tata Steel. The portfolio is skewed towards large cap as the fund seeks to maximize the risk-return payoff. The Scheme also exhibits term-deposits, CPs & CDs to reputed organizations like Allahabad Bank, UTI, IDBI etc.
Comparing the Benchmark The graph below indicates the movement of Rs. 10000 invested at inception vis-à-vis the benchmark performance.
Performance Record
Our View The fund largely invests in equities from the infrastructure sector. However, what distinguishes it from a typical sector fund is its pervasive definition of the infrastructure sector. The fund house has taken the liberty of including sectors like banking & financial services among a host of others for defining its area of investment. The large number of stocks in the portfolio may reduce the fund's vulnerability to the fluctuations in each of its holdings. However, it may also prevent spectacular performance from one or two of its stocks from showing up in the performance. The scheme’s portfolio strategy is governed by its investment objective. In our opinion, the fund can add value to informed investors who have a view on the infrastructure sector and a flair for medium to high risk investment avenues.
UTI Infrastructure Fund Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Sanjay Dongre To provide Capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies which form part of Infrastructure Industries. 9th March, 2010 Rs. 812.19 Crores Rs. 10
Inception Date Fund Size Face Value (Rs./Unit)
NAV (as on 30th March, Growth option : Rs. 25.99 2007) Dividend option : Rs. 18.99 Minimum Investment Benchmark Rs. 5000 BSE 100
Style Box:
Portfolio:
Portfolio as on 30th March, 2010(% to NAV) Industrial Capital Goods 32.22 Telecommunications -service 11.37 Construction 9.54 Petroleum Products 9.06 Cement 7.56 Power 6.32 Net Current Assets 4.44 Oil 3.74 Ferrous Metals 2.85 Finance 2.62 Industrial Products 2.29 Consumer Durables 2.28 Unclassified 2.17 Deposit With Bank 1.09 Auto And Ancillaries 0.95 Consumer Non Durables 0.83 Chemicals 0.51 Non-ferrous Metals 0.16 Total 100
Understanding the Portfolio UTI Infrastructure Fund is positioned to follow a top down approach keeping in mind the economic scenario. The fund’s Endeavour is to pick sectors, which are expected to perform better and select fundamentally strong companies in those sectors. The scheme’s performance is highly linked with the overall economic growth of the country as the sectors in which the scheme invests are directly linked to the GDP growth of India.
The fund has invested almost 93% of its corpus in Equities. Due to this, the risk in such a scheme may be perceived as higher. The Fund portfolio reveals heavy investment in Basic/Engineering sector, closely followed by communication sector. Further, it has a relatively very low investment in the rapidly growing Auto Ancillaries sector.
Our View: The scheme has invested in equities of on 20-25 companies. This indicates higher exposure to company-specific risk. The scheme’s performance is highly linked with the overall economic growth of the country as the sectors in which the scheme invests are directly linked to the GDP growth of India. During the month of March 2007, the fund has under performed its benchmark index BSE 100. The ongoing monetary tightening in the economy has negative impact on sector, which has resulted in the underperformance. Although, Engineering & Construction companies are likely to show strong quarterly numbers as well as strong order book position, which are more than 2-3 times of yearly revenues in coming quarters.
DSP Merrill Lynch T.I.G.E.R Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Soumendra Nath Lahiri An open ended diversified equity Scheme, seeking to generate capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of corporates, which could benefit from structural changes brought about by continuing liberalization in economic policies by the Government and/or from continuing investments in infrastructure, both by the public and private sector 27th April, 2009 Rs. 1499.86 Crores Rs. 10 Growth - Rs. 34.1240 Dividend - Rs. 19.311 Rs. 5000 BSE 100
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Benchmark
Portfolio:
Portfolio as on 30th April, 2010 Industrial Capital Goods 20.11 Construction 8.9 Petroleum Products 7.83 Banks 7.63 Power 7.22 Media & Entertainment 6.97 Telecom Services 6.47 Ferrous Metals 5.74 Finance 4.67 Transportation 3.94 Industrial Products 3.66 Oil 3.38 Cement 2.73 Pharmaceuticals 2.57 Retailing 1.65 Engineering 0.72 Textiles & Textile Products 0.95 Non-Ferrous Metals 0.45 Consumer Durables 0.42 Debt Instruments 2.51 Cash & Cash Equivalents 1.48 Total 100
Understanding the Portfolio: DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex was around 7,500 and the India economy had begun to witness high growth. DSP India T.I.G.E.R. Fund is aimed at benefiting from the exponential growth that India is likely to witness in the coming decade. The Scheme began with a decent corpus of around Rs 200 crores and has been able to accumulate Rs 1,007 crores as of May 2006. DSP India T.I.G.E.R. is the first fund of its kind that covers infrastructural areas, giving the common investor a chance to make the most of the ongoing economic reforms. The Fund House is very bullish on the Indian Economy and believes that the improved GDP growth in the future shall strengthen the markets further, on the back of continuing economic reforms.
Better market capitalization will result from unlocking as well as creation of value, which the Fund aims at capturing. The fund has a well-diversified portfolio, consisting of about 61 stocks. Capital goods stocks, on an average, accounted for 23 per cent of the portfolio the past year and the top three sectors cornered 40 per cent of the assets. The fund reduced exposure to the cement sector earlier this year, pruning holdings from 13 per cent to 4.5 per cent. This strategy helped it contain losses during the post-Budget correction.
Our View: DSPML T.I.G.E.R's. NAV has grown 18 per cent for the past year and outpaced its benchmark BSE-100 by 3 percentage points. However, it has trailed the ICICI Pru Infrastructure Fund. In the same period, it outperformed peers such as Tata Infrastructure and Birla Infrastructure Fund. The fund's performance has, however, been relatively consistent, trailing the benchmark in just seven of the past 24 months on a monthly return basis. Though impacted by the midcap meltdown in May, it staged a recovery subsequently. However, the T.I.G.E.R Fund has a relatively diversified portfolio and thus carries a moderate risk profile. Investors also have to keep in mind that infrastructure theme funds usually have an exposure of 30-40 per cent to mid-cap stocks (market capitalization less than Rs 5,000 crore), leading to a higher risk profile. Concentrated bets on sectors such as capital goods also add to the fund's risk level. Hence, risk-averse investors may find diversified funds a better alternative.
Caninfrastructure Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Umesh Kamath To generate income / capital appreciation by investing in equities and equity related instruments of companies in the infrastructure sector. 11th September, 2009 Rs. 81.5677 Rs. 10 Growth - Rs. 15.05 Dividend - Rs. 12.86 Rs. 5000 BSE 100
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Benchmark
Portfolio as on 31st May, 2010 Construction Basic/Engineering Energy Diversified Technology Metal & Metal Products Chemicals Services Cash & Cash Equivalents T-Bills
21.29 20.88 16.01 14.71 7.11 4.77 2.17 2.12 8.51 2.44 Total 100
A Comparative Study ICICI Prudential: Prudential ICICI Asset Management Company Limited is an investment management company and a 55:45 joint venture between Prudential Corporation plc, UK, and ICICI Ltd.,India. Both companies are financial giants, and each is a major player in its field. Prudential Corporation plc, UK was incorporated in 1848, as a provider of insurance products. Through its investments, it controls approximately 4% of all the listed shares on the second largest stock exchange in the world, the London Stock Exchange, making it one of the largest institutional investors in the UK. ICICI Ltd. was established in 1955 by the World Bank, the Government of India and representatives of Indian industry, to promote the industrial development of India by providing project and corporate finance to Indian industry. Prudential ICICI Asset Management Company Limited has been incorporated with a capital of Rs 65 crore. This investment - way above the stipulated norm of Rs 10 crore, represents a strategic long-term commitment, on the part of both partners, to the rapidly expanding financial services sector in India. In a short span of 14 months, Prudential ICICIs product portfolio has grown from 2 closed ended funds to 8 open ended funds and 2 closed ended funds. UTI UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual Fund. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on February 3 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands. UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset Management Company presently manages a corpus of over Rs. 34500 Crore. The fund managers are also ably supported with a strong in-house equity research department. To ensure better management of funds, a risk management department is also in operation. DSP Merrill Lynch DSP Merrill Lynch Asset Management (India) Ltd., has been set up by DSPML and MLAM, to act as the Asset Management Company (AMC) to the Fund. The AMC has been appointed as the Investment Manager to the fund, MLAM holds 40% of the paid up share capital of the AMC, while the balance 60% (approximately), is held by DSPML. DSP Merrill Lynch, originally called DSP Financial Consultants Ltd., traces its origins to DS Purbhoodas & Co., a securities and brokerage firm with over 130 years of experience in the Indian market. After a decade long association, DSP Merrill Lynch & Co. Inc. took up a 40% stake in DSPFC and the name was changed to DSPML Ltd.
DSPML is a full fledged financial services organization with a broad employee base and offices in Mumbai, New Delhi, Calcutta, Chennai, Bangalore, Hyderabad and Cochin. MLAM is a unit of Merrill Lynch Asset Management Group, the money management arm of ML & Co. It is based in Princeton, N.J., USA and offers a wide range of investment products in virtually all U.S. domestic and international asset classes and in major capital markets of the world. Merrill Lynch Investment Managers investment philosophy is designed to seek consistent, long-term strategic performance results. Its disciplined value oriented approach to managing its clients portfolios has been with the primary objective of seeking consistent returns over a long period. The name of DSP Merrill Lynch Asset Management (India) Ltd. has been changed to DSP Merrill Lynch Investment Managers Ltd. w.e.f 20th July, 2000. Canbank Mutual: Canbank Investment Management Services Ltd., a wholly owned subsidiary of Canara Bank, has been set up as per the Securities and Exchange Board of India (Mutual Funds) Regulations, 1933. Investment Management Agreement has been signed between Canbank Mutual Fund and the Investment Manager, whereby the Investment Manager is empowered to manage the affairs of Canbank Mutual Fund and operate its various Schemes. The sponsorCanara Bank, is a leading Nationalized Bank operating in India and abroad, through its network of branches in India and offices in London, Moscow, UAE and Hong Kong. Canbank Mutual Fund was one of the pioneers of the Mutual Fund Movement in India. Canbank Mutual Fund has launched 20 Schemes since its inception. Of the twenty Schemes, five Schemes have been fully redeemed so for and remaining fifteen Schemes are being managed by the Investment Manager.
Comparative Performance Study: Scheme v/s BSE Sensex Scheme CanInfrastructure DSP Merrill Lynch Tiger Fund ICICI Prudential Infrastructure Fund UTI Infrastructure Fund Asset Management Company Canbank Mutual Fund DSP Merrill Lynch Mutual Fund ICICI Prudential Mutual Fund UTI Mutual Fund Scheme Returns 27.39 52.35 44.56 40.02 Index Returns 34.91 43.47 36.34 31.80 Difference -7.52 8.88 8.22 8.22
Scheme v/s NSE Nifty Scheme Asset Management Scheme Returns 27.39 44.56 Index Returns 32.25 33.38 Difference -4.86 11.18
Company CanInfrastructure Canbank Mutual Fund ICICI Prudential ICICI Prudential Infrastructure Fund Mutual Fund
As evident from the performance analysis of the mutual fund schemes in question, we can clearly see that Caninfrastructure has underperformed when it comes to comparison with its own benchmark i.e. BSE-100. Moreover, when we compare it with a common platform using the BSE Sensex or NSE Nifty, too, it has shown a relatively low performance. Further, from the point of view of investment returns, we hereby observe that, ICICI Prudential Infrastructure have performed satisfactorily and seem to have generated returns well above the Exchange indices. If numbers are to be considered, DSPML T.I.G.E.R shows the highest returns since inception. Thus, from analysis of the past performance since inception of the schemes in question, we may recommend DSPML T.I.G.E.R to investors with an expectation that the positive performance will be maintained even in future by the fund scheme.
Conclusion:
One should note markets and asset classes do not move in tandem. The investor has to spread his investment among different types of asset classes and markets—stocks and bonds, domestic and foreign markets— so that he can position yourself to seize opportunities as the performance cycle shifts from one market or asset class to another. This spread helps him to get a consistent and better return which will help him to fulfill his financial commitment. The asset allocation should vary according to the investment style and goals of an investor. For this an investor should take help a Financial Advisor as he has the better knowledge about the various assets which gives better and consistent return, and if the asset is not performing well then he can make the necessary changes in the asset allocation in the portfolio.
doc_429561315.doc
Submitted in partial fulfillment for the degree of Management of Business Administration
FACULTY OF MANAGEMENT STUDIES MOHANLAL SUKHADIA UNIVERSITY UDAIPUR (RAJASTHAN) 2009-2011 Submitted by
Introduction:
Indian stock market is one of the oldest in Asia. Its history dates back to nearly 200 year ago. The earliest records of security dealing in India are meager and obscure. The East India company was the dominate institution in those days and business in its loan securities used to be transacted towards the close of the 18th century.By1830’s business stocks and shares in Bank and cotton presses took place in Bombay. Though the trading list was broader in 1839. There were only half a dozen broker recognized by banks and merchants during 1840and 1850. The 1850’s witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field &by1860the number of brokers increased into 60. Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture. In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished to do so. This implies that ownership in business has to be “broken up” into a lager number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures.
A person holding assets (securities/ funds), either to meet his liquidity needs or to reshuffle his holding in response to changes in his perception about risk &return of the assets, decided to buy/sell order the securities. He selects a broker and instructs him to place buy/sell order on an exchange. The order is converted to a trade as soon as it finds a matching sell/buy order. At the end of the trade cycle, the traders are netted to determine the obligations of the trading member’s Securities/ funds and acquires ownership of the securities.
A Securities translation Cycle is presented above, just because of this Transaction cycle, the whole business of Securities and stock broking has emerged. And as an resituate his holding in response to changes in his perception about risk and return of the assets, decides to buy or sell the securities He selects a broker and instructs him to place buy/sell order. The order is converted to a trade as soon as it finds a matching sell/buy order. At the end of the trade cycle, the traders are netted to determine the obligations of the trading member’s securities and receives securities /funds and acquire ownership of the Securities. A Securities transaction cycle is presented above. Just because of this Transaction cycle, the whole business of securities and stock Broking has emerged. And as an Extension of Stock Broking, the business of Online stock broking/online trading/ E-Broking has emerged. At the end of the American civil war, the broker who thrived out of civil war in 1874,found a place in a street (now appropriately called as Dalal Street ) where establishment in Bombay, The “Native Share& Stock Brokers’ Association “ (Which is alternatively known as “ The Stock Exchange”) acquired a premise in the same street and it was inaugurated in 1899. The stock Exchange at Bombay was consolidated.
Stock Market
A stock represents partial ownership of a company – the smallest share possible. Company's issues stocks to raise capital and investors who buy stock are actually buying a portion of the company. Ownership, even a small share, gives investors rights to a say in how the company is run and a share in the profits and losses. Stock trading is done on stock markets like the New York Stock Exchange (NYSE) or Bombay Stock Exchange (BSE) .This means that only companies listed on a public exchange have shares that can be bought and sold on the open market. Because stocks must be bought and sold on a stock market, an individual investor needs a broker to make transactions for him. Brokers take orders to buy or sell a certain stock.
Dematerialization:
Dematerialization is the process by which physical share certificates are Cancelled and credited in electronic form in the client's account on a Highly secure system at the depository.
Depository:
A depository is similar to a bank. It holds securities like shares, Debentures, bonds, Government Securities, Commercial Papers, units etc. of Investors in electronic form and provides services related to transactions In securities. Depository is the one, where all the securities are kept in Demat form of all the clients having their demat account.
SEBI (Securities and Exchange Board of India):
The regulatory body for all participants in the securities and derivatives markets in India. The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).
Role of SEBI:
The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith and incidental too.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government representing the ministries of finance and law, one member from the Reserve Bank of India and two other members appointed by the central government. As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets; registration and regulation of the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market
Formalities for registering as a client :
All investors should register themselves with registered trading members/sub-brokers by: 1. Filling a Client Registration Form, and 2. Signing a Member-Constituent Agreement (copy available with all NSE trading members) The Member-Constituent Agreement contains the terms and conditions including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker.
Brokerage and other charges
As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (subbrokerage cannot exceed 1.5% of the trade value).
Additional charges other than brokerage The trading member can charge:
1. Service tax @ 5% of the brokerage 2. Transaction charges levied by NSE 3. Penalties arising on behalf of client (investor) The brokerage and service tax is indicated separately in the contract note.
What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The breaking up of total ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be easily bought and sold.
TYPE OF SHARE:
Equity Share
Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 20, 00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.
Preference shares
Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of liquidation. Like common stock, preference shares represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. The main benefit to owning preference shares are that the investor has a greater claim on the company's assets than common stockholders.
Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders
Face value:
The nominal value of a security stated by the issuer, it is the original cost of the stock shown on the certificate. Also known as "par value" or simply "par".
Market value:
The market value of a company is determined by multiplying the number of equity shares that it has issued by their market price. This market value is further multiplied by the free-float factor to determine the free-float market value.
Dividend
A distribution of a portion of a company's earnings decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Bonus shares
They are additional shares issues given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.
What is electronic trading?
Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically.
How many Exchanges are there in India?
The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 20 other regional Exchanges, connected via the InterConnected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems.
EXCHANGE:
NSE
INTRODUCTION:
The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. NSE introduced for the first time in India, fully automated screen based trading. It provides a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest or liquidate investments in securities. Sponsored by the industrial development bank of India, the NSE has been co-sponsored by other development/ public finance institutions, LIC, GIC, banks and other financial institutions such as SBI Capital Market, Stockholding corporation, Infrastructure leasing and finance and so on. NSE started equity trading on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.7 cores in November 1994 to Rs.6797 cores in February 2001 with an average of 9.6 lakh trades on a daily basis. During the year 2000-2001, NSE reported a turnover of Rs.13, 39,510 cores in the equities segment accounting for 45% of the total market. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system, which transcends geographical barriers. Having operationalised both the debt and equity markets, the NSE is planning for a derivative market, which will provide futures and options in equity. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella, namely, To set up a nationwide trading facility for equities, debt.
BSE
INTRODUCTION : VISION OF BSE
“Emerge as the premier Indian stock exchange by establishing global benchmarks" COMMODITY EXCHANGES
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association", as a voluntary non-profit making association. It has evolved over the years into its present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. The Exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI nominees, a Reserve Bank of India nominee, six public representatives and an Executive Director is the apex body, which decides the policies and regulates the affairs of the Exchange. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. The average daily turnover of the Exchange during the year 2000-2001 (April-March) was Rs.3984.19 cores and average number of daily trades was 5.69 lakhs. However, the average daily turnover of the Exchange during the year 2001- 2002 has declined to Rs. 1244.10 cores and number of average daily trades during the period to 5.17 lakhs.
The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX , is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporative entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified Bombay Stock Exchange Limited (BSE) which was founded in 1875 with six brokers has now grown into a giant institution with over 874 registered Broker-Members spread over 380 cities across the country. Today, BSE's Wide Area Network (WAN) connecting over 8000 BSE Online Trading (B OLT) System Trader Work Stations (TWS) is one of the largest of its kind in the country. With a view to provide efficient and integrated services to the investing public through the members and their associates in the operations pertaining to the Exchange, Bombay Stock Exchange Limited (BSE) has set up a unique Member Services and Development to attend to the problems of the Broker-Members. Member Services and Development Department is the single point interface for interacting with the Exchange Administration to address to Members' issues. The Department takes care of various problems and constraints faced by the Members in various products such as Cash, Derivatives, Internet Trading, and Processes such as Trading, Technology, Clearing and Settlement, Surveillance and Inspection, Membership, Training, Corporate Information, etc.PERSONALIZED SERVICE PROVIDER Member Services and Development has put in place the concept of 'Relationship Managers' whereby an Officer is responsible for providing comprehensive services to a group/ set of Members allotted to him/her. The Relationship Managers maintain a comprehensive database on the members and their associates. A distinct feature of the functioning of the Relationship Manager is attending to the diverse problems of the Members at one stop by co-coordinating with various departments thus saving valuable time and energy for the Members. This synergetic effort will benefit both the Exchange and its members in consolidating the business and exploiting the opportunities.
There are three categories:
• • • NCDEX MCX NMCE
The three exchanges are: 1. National Commodity & Derivatives Exchange Limited (NCDEX) 2. Multi Commodity Exchange of India Limited (MCX) 3. National Multi-Commodity Exchange of India Limited (NMCEIL) All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India.
National Commodity & Derivatives Exchange Limited (NCDEX)
National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and had commenced its operations on December 15, 2003.This is the only commodity exchange in the country promoted by national level institutions. It is promoted by ICICI Bank Limited, Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). It is a professionally managed online multi commodity exchange. NCDEX is regulated by Forward Market Commission and is subject tend to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations.
Multi Commodity Exchange of India Limited(MCX)
Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX), is an independent and de-utilized exchange with a permanent recognition from Government of India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures markets across the country. MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors’ Association of India, Pulses Importers Association and Shetkari Sanghatana.
National Multi-Commodity Exchange of India Limited (NMCEIL)
National Multi Commodity Exchange of India Limited (NMCEIL) is the first de- mutualzed, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organize trading in the edible oil complex. It has operationalised from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2000. Commodity exchange in India plays an important role where the prices of an commodity are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the market judged upon the prices. Others never had a say. Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, end-users, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market. A big difference between a typical auction, where a single auctioneer announces the bids, and the Exchange is that people are not only competing to buy but also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone else’s lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do.
Sensex:
The Sensex is an index that is composed of only 30 stocks. This means that the level of index at any point of time (say 17985 points as on July 13) reflects the market value of its component stocks relative to a base period Sensex value = Current free-float market value of constituents stocks/Index Divisor
Hypothetical Example Step 1 The Base Period Day 1
Stock
A B C
Share Price (Rs.)
20.00 30.00 40.00
No. of Shares
50,000,000 100,000,000 150,000,000
Market Value (Rs .)
1,000,000,000.00 3,000,000,000.00 6,000,000,000.00 10,000,000,000.00
Total Market Capi talization
Note: Base Period Value / Base Divisor = Rs.10,000,000,000.00 = 100.00
Step 2 Index Value as on Day 2
Stock
A B C
Share Price (Rs.)
22.00 33.00 44.00
No. of Shares
50,000,000 100,000,000 150,000,000
Market Value (Rs.)
1,100,000,000.00 3,300,000,000.00 6,600,000,000.00 11,000,000,000.00
Total Market Capitalization
11,000,000,000.00 Index = -------------------------- = 1.10 * 100 = 110 10,000,000,000.00
What should a stock market index be?
A stock market index should capture the behavior of the overall equity market. Movements of the index should represent the returns obtained by "typical" portfolios in the country.
Kind of averaging:
For technical reasons, it turns out that the correct method of averaging is to take a weighted average, and give each stock a weight proportional to its market capitalization. Suppose an index contains two stocks A and B. A has a market capitalization of Rs.1000 crore and B has a market capitalization of Rs.3000 crore. Then we attach a weight of 1/4 to movements in A and 3/4 to movements in B.
Initial public offering
An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. IPO’s are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Settlement related Issues
Account Period Settlement:
An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.
Rolling Settlement:
In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.
Beta
A measure of responsiveness of a security or portfolio to move in the stock market as a whole. It Measures systematic risk.
Day trades
Trades that are opened and closed on the same day.
Auction
The securities are put up for auction by the Exchange on account of non-delivery of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery, bad deliveries not rectified and company objections not rectified by them.
Buy
1. A recommendation to purchase a specific security. 2. To acquire an asset in exchange for currency.
Sell
1. A recommendation to sell a particular security. 2. The process of liquidating an asset in exchange for money.
Price-time priority
The system arranges all orders in the priority of price and within price by time. You have, let us say, placed a buy order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So, anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy
shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first
Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.
Short Position
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
Short Covering
The act of purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price. Also referred to as buy to cover or buy back. Bear marketA market in which prices are declining
Bear market
A market in which prices are falling.
Bull market
A market in which prices are rising
Inside information
Private and confidential information, usually acquired through a position of trust that is likely to have an impact on security prices when made public.
CIRCUIT BREAKERS
Circuit breaker means trading is halted for a specified period in stocks or / and stock index futures, if the market price moves out of a pre-specified band. Circuit filters do not result in trading halt but no order is permitted if it falls out of the specified price range
Derivatives
Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex),commodity or any other assets. Derivatives are financial contracts, which derive their value off a spot price time-series, which is called "the underlying". The underlying asset can be equity, index, commodity or any other asset. Some common examples of derivatives are Forwards, Futures, Options and Swaps. Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.
Importance of derivatives
There are several risks inherent in financial transactions. Derivatives are used to separate risks from traditional instruments and transfer these risks to parties willing to bear these risks. The fundamental risks involved in derivative business include:
Futures & Options market
Futures Market:
The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists because buyers and sellers of goods wish to lock in prices for future delivery, but market conditions can make the actual futures contract fluctuate considerably in value. Most investors in the futures market are not interested in the actual goods - only in the profit that can be realized in trading the contracts. Long/ short positions: In simple terms, long and short positions indicate whether you have a net over-bought position (long) or over-sold position (short).
Contract:
The standard unit of trading for futures markets.
Contract month:
The month in which futures contracts may be satisfied by making or accepting delivery.
Options Market:
The Options Market is similar to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a certain time frame.
Call Options:
A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock will rise, allowing him to buy it at less than market value. The seller of the call option expects that the price of the stock will not rise, or at least is willing to accept a partial loss of profits made from selling the call option.
Put Options:
An option to sell a stock is called a 'put option'. This gives the holder the right (but not the obligation) to sell a particular stock within a certain time period at a certain price. In this situation the buyer is expecting the price of the stock to fall but does not want to sell outright in case the price rebounds. The seller feels that the price is stable or is willing to acquire the stock at the low price.
Strike Price/ Exercise Price:
The Price at which the option has to be exercised. That is the stated price per share for which the underlying security may be purchased in the case of a call, or sold in the case of a put, by the option holder upon exercise of the option contract.
Expiration Date:
Date on which the option expires.
Exercise Date:
Date on which the option gets exercised by the option holder/buyer.
Option Premium: - The price paid by the option buyer to the option seller for granting the
option.
Intrinsic Value of an option:
The intrinsic value of an option is defined as the amount by which an option is in-the-money or the immediate exercise value of the option when the underlying position is marked-to-market. For a call option: Intrinsic Value = Spot Price - Strike Price For a put option: Intrinsic Value = Strike Price - Spot Price
The intrinsic value of an option must be a positive number or 0. It cannot be negative. For a call option, the strike price must be less than the price of the underlying asset for the call to have an intrinsic value greater than 0. For a put option, the strike price must be greater than the underlying asset price for it to have intrinsic value.
Time value:
The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value. This is often referred to as premium
Out-of-the-money:
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security
At-The-Money:
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security.
In-the-money:
A call option is in-the-money if the strike price is less than the market price of the underlying security. A put option is in-the-money if the strike price is greater than the market price of the underlying security.
Trading cycle:
The options contract will have a maximum of three months trading cycle- the near month (one), the next month (two) and the far month (three). New contract will be introduced on the next trading day following the expiry of the near month contract
Expiry day:
The last Thursday of the expiry month or the previous trading day if the last Thursday is a trading holiday.
Roll over:
Liquidation for a futures position, and the establishment of a similar position in a more distant delivery month. This is also called a switch. When a hedger switches their futures position to a more distant delivery month this can be called ‘rolling the hedge forwards’
Hedging:
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.
Hedge funds:
A hedge fund is a term commonly used to describe any fund that isn’t a conventional investment fund, i.e., it uses strategies other than investing long. For example Short selling, Using arbitrage, Trading derivatives.
Impact of the U.S. mortgage crisis and fed rate cut on Sensex:
The word ‘sub-prime’ rocked stock markets the world over in August. Investor confidence was shaken badly from Wall Street to Dalal Street, from problems in US sub prime mortgages. The Sensex crashed from 15870(24 July) to 13780(17 august)about 2100 points. The sub-prime mayhem resulted in the withdrawal of over Rs 7,500 crore of investments from the Indian markets by foreign institutional investors (FIIs). Fed rate: The BSE Sensex was up by 248 points on 20th august just on the next trading session after fed rate cut. and another cut in fed rate and the Discount rate on the 18th of September by 50bps to 4.75% and 5.25% respectively caused markets globally to move up sharply and sensex moved up sharply by 654 point on 19th September. FII interest reverted to India as early as the last week of August when they brought equity worth around Rs 1,000 crore in a single day (27 August). They bought equity worth another Rs 1,000 crore in the first few days of September
Company Address: Greshma Shares &Stocks Ltd. rd 301, 3 Floor, Riddhi Siddhi Complex, Near ICICI Bank, Madhuban, Udaipur-313001 Tel:0294-6451121/22/23/24/25/26 Fax: 0294-6451128
COMPANY PROFILE:
Greshma Shares & Stocks Ltd
The Greshma Group is one of the leading retail broking houses in India, providing the investors state-of-the-art services in capital markets in the country. The Group is headed by Jayesh N. Shah who bring with them industry expertise and strong business acumen. The Group has memberships of Bombay Stock Exchange Limited, National Stock Exchange of India Limited, Multi Commodity Exchange of India Limited, National Commodity and Derivatives Exchange Limited and is also a depository participant of NSDL and CDSL. Retail as well as institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPO’s, insurance, depository services and PMS.
OUR ANCHOR:
Jayesh N. Shah, the chief promoter of the Company is a Chartered Accountant who has had over 23 years of exposure in Capital Market. He was a member of the Bombay Stock Exchange in his individual capacity before he co founded Joindre Capital Services Limited, a listed broking Company in 1995. He became, a whole time Director in Sunidhi Securities and Finance Limited in 2001. “Greshma” is the result of his vision to create one of the most trusted and respected business houses in the financial space. It has been his passion to set up a professionally run one stop finance Shoppe to provide intelligent & innovative solutions for the financial needs of the investor community. Easwara Narayanan, the CEO of the Group of Companies carries with him marketing and administrative experience of 27 years in the insurance industry. His last stint was as President at Bajaj Allianz General Insurance Company Limited heading the South and West Zones. He is acclaimed for his high level of professional integrity and proven ability in building organizations and managing teams.
Harshad T. Parekh, an Engineer by qualification carries with him 25 years experience in the Capital Market in various capacities. His acknowledged expertise in Risk Management has stood all the organizations he has worked for in good stead. Sameer Parekh, an Engineer and Graduate in Management Studies from the United States has had varied exposure in IT, Logistics and for the last three years in the Capital Market.
OUR TEAM
Mr. Suvinya Sharma, a qualified Chartered Accountant and CISA (USA) with 15 years experience in Capital and Commodities Markets heads our group Company handling commodities, GRESHMA COMMODITIES PRIVATE LIMITED. Mr. Charul Shah, a Certified Financial Planner with the experience of handling substantial portfolios for over 10 years, heads our Wealth Management Company, GRESHMA WEALTH ADVISORS PRIVATE LIMITED, as its whole time Director. Mr. Kamlesh Gandhi, a rank holder Chartered Accountant, with 29 years experience in the financial sector in various capacities is our Chief Financial Officer. Astute management of finances and strict adherence to financial discipline are his forte.. Mr. Dinesh Shah, who heads our Operations carries with him exposure over 15 years in various capacities and enjoys an uncanny reputation for effective management of systems and processes. Ms. Elsy Anil, who heads our Research Department, has been a Research Analyst for 10 years in the Capital Market in reputed organizations like Batliwala & Karani and HSBC Securities. Her expertise in valuation and objectivity of outlook are a great value adds to the Company. Mr. Jathin N. Shah, a former Director of Joindre Capital Services Limited who has handled various profiles in Capital Markets is in charge of Risk Management. He enjoys a reputation for unwavering focus and methodical approach to matters.
PRODUCT AND SERVICES:
Product:--
Service:
? ? ? ? ? ? ? ? ? ? ? Daily research report and market review(High Noon& Eagle Eye) Pre-market Report (Morning cuppa) Daily trading calls based on Technical Analysis Cool trading products (Daring Derivatives and Market Strategy) Personalised Advice Live Market information Depository service: Demat and Remat transactions Derivative trading (Future and option) Commodities Trading IPOs &Mutual funds Distribution Internet-based Online trading: Speed Trade
Mission
1. We shall strive to deliver value for money to the customer in all our business segments. 2. Fostering a Customer centric approach. 3. Facilitating Ease of transaction by leveraging technology. 4. Providing Professional and unbiased counseling. 5. Ensuring Transparent dealings . 6. To provide Services in the Segment of investment: (a)Equity (b)Debt (c)Commodity (d) Currency future
Vision
To be the most trusted business house adopting a professional approach par excellence and heralding new standards in the quality of services. To be one of the most preferred organizations for wealth maximization of all our stake holders including customers, employees and channel partners. To create management systems that adopts global standards of corporate governance Corporate Social Responsibility.
Value:
? Customer First. ? Pursuit of Excellence. ? Fairness to all Stakeholders. ? Transparent and Ethical conduct of business. ? Leveraging all business opportunities. ? Team work, based on mutual trust. ? Continuous Innovation.
Business Segment
1)
Greshma Share’s &stock Ltd
? Equities Trading - Cash and Derivatives ? Long-term Investing - Direct Equities & Mutual Fund ? Internet Trading ? Currency Future ? Arbitrage ? Depository Services
2) Greshma Commodity pvt. Ltd.
3) Greshma Wealth Advisors Pvt.Ltd
? Financial Planning: (Cover comprehensive Investment, Insurance, Retirement and Tax Planning) ? Wealth Advisors: (Wealth maximization by maintaining optimum asset allocation based on risk profile) We have dedicated teams that cater to our Institutional, HNI and Retail Clients
Our Network
? We will have a pan India presence through a network of Regional Offices, Branch Offices, Sub Brokers, Authorized Persons and Remises. Starting with 50 offices in the first year of our operations, we have a plan in place for a steady increase of this to 500 over the next five years. Our Regional Offices in Ahmadabad, Coimbatore and Thrissur are already functional
Our system
? We have the NOW software of NSE and the ODIN software of Financial Technologies as the Front End software for trades. The LD software of Apex Soft cell supports our accounting and back office operations. These programmers are time tested, robust, versatile and eminently scalable. We have an experienced IT team managing the systems, 24/7.
MUTUAL FUND:
History of the Indian Mutual Fund Industry:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.
Concept of a Mutual Fund:
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most 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. The flow chart below describes broadly the working of a mutual fund:-
Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.
Advantages of Mutual Funds:
1. Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. 2. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
5. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. 6. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience. 7. Affordability A single person cannot invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 8. Choice of Schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 9. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. 10. Tax Benefits Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. What’s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs. 10,000 in the scheme in a year.
Disadvantages of mutual funds
Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments. However, even mutual funds have some inherent drawbacks. Understand these before you commit your money to a mutual fund. 1. No assured returns and no protection of capital If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. A scheme cannot make any guarantee of return, without stating the name of the guarantor, and disclosing the net worth of the guarantor. The past performance of the assured return schemes should also be given. 2. Restrictive gains Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. Assume, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation. 3. Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. 4. Management risk When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.
Strength
Weakness
Opportunities
Threats
SEBI/AMFI have taken an active role in protecting investors interest through regulations certifications and code of conduct
Limited channels of Mutual fund investment distribution i.e. banks and as a % of Household agent account for more savings invested in than 70% of distribution financial assets is less of mutual funds than 1%
Large number of substitutes available to Indian investorDeposit, equities and real estate.
Open product architecture i.e. distributors offer a range of Mutual fund products to choose from
Lack of effort of wealth Because of the economic In India low risk investment managers in educating the growth, investors are products like PPF offer high market about the mutual actively diversifying their returns. products has been the income into various cause of low penetration funds.
Has often added as a counterbalance to equity market volatility and market liquidity
Absence of global policiesMutual funds in India on global mutual funds permitted to invest up to 10 % of the net assets abroad in foreign securities
As more foreign players enter India through the JV route, investors in India will need to educate themselves about abroad risks
Frequently used terms:
• Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. • Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. • Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a backend load. This is also called Bid Price. • Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. • Sales Load
Is a charge collected by a scheme when it sells the units.Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes. • Repurchase or ‘Back-end’ Load
Is a charge collected by a scheme when it buys back the units from the unit holders.
Types of mutual fund schemes:
A wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. By structure: a) open-ended schemes b) close-ended schemes c) interval schemes By investment objective: a) growth schemes b) income schemes c) Balanced schemes d) money market schemes Other schemes: a) Tax saving schemes b) special schemes c) index schemes d) sector specific schemes
Organization of a Mutual Fund
The structure of mutual funds in India is governed by SEBI (Mutual Fund) Regulations, 1996. In India, is mandatory to have a three tier structure of Sponsor-Trustee-Asset Management Company.
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The sponsor establishes the mutual fund and registers the same with SEBI. Sponsor appoints the Trustees, custodians and the AMC with prior approval of SEBI and in accordance with SEBI Regulations. Sponsor must have a 5-year track record of business interest in the financial markets. Sponsor must have been profit making in at least 3 of the above 5 years. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.
Custodian
A custodian is an agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for them.
Individual Scheme Analysis
Section I- Thematic Funds- Infrastructure Mutual funds constantly come out with different schemes. Infrastructure funds are part of a mutual fund category called thematic funds. While sectoral funds invest in particular sectors like, say, information technology, power, metals, oil and gas, etc, thematic funds invests in themes like infrastructure, consumption-led categories like the retail industry and outsourcing companies. India needs to invest large amounts in areas like Roads, Ports, Power, and Telecom etc. to sustain high economic growth. Apart from government spending, it will also require private participation to make significant progress on developing infrastructure. New initiatives such as Public-Private participation, increase in FDI limits and adequate funding support from the government have provided a tremendous boost to the system and therefore companies engaged in this sector have delivered robust performance in the last couple of years. Today, there is a huge buzz about the Great Indian Gold Rush and its three themes -infrastructure, consumption and outsourcing. Of these three, infrastructure funds have caught the fancy of a lot of mutual funds; many new funds have been launched in this category in the last couple of years. Infrastructure, as a theme, covers several sectors like power utilities, power equipment and construction companies. Unlike technology sector mutual funds (at best, technology sector funds could buy stocks from telecom and media besides the software stocks it traditionally invests in), infrastructure funds are not restricted to a few sectors. We have made an attempt to compare the thematic infrastructure schemes of a few AMCs.
ICICI Prudential Infrastructure Fund Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Sankaran Naren To provide capital appreciation and income distribution to unit holders by investing predominantly in equity/equity related securities of the companies belonging to infrastructure development and the balance in debt securities and money market instruments including call money. 31st May, 2010 Rs. 1,711.81 Crores Rs. 10 Growth option : Rs. 19.19 Dividend option : Rs. 14.91 Rs. 5000 1.93% S&P CNX Nifty
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Expense Ratio Benchmark
Style Box:
Portfolio:
Portfolio as on 30th April, 2010 (% to NAV) Auto Ancillaries 3.72 Banks 12.32 Cement 0.3 Construction 8.77 Dredging 2.07 Ferrous Metals 13.6 Hotels 2.1 Industrial Capital Goods 9.41 Industrial Products 5.21 Non-Ferrous Metals 1.52 Oil 5.91 Petroleum Products 7.29 Power 5.59 Telecom Services 2.43 Transportation 2.8 CPs & CDs 1.1 Term Deposits 10.67 Cash, Call, CBLO & Reverse Repo 5.12 Other Current Assets 0.07 Total 100
Understanding the portfolio: The fund is well diversified in both its stock and sectoral exposures. It is a multi-sector fund and therefore has a much lesser concentration risk than a typical sector fund. The fund normally holds 35-40 stocks in its portfolio spread across 14-20 sectors, a large number when compared to most other thematic funds. Approximately 83% of the funds are invested in equities of infrastructure related companies. Closely analyzing the equity portfolio, we notice that a considerably high investment has been made in the banking sector. This points out that the fund manager is able to recognize the growth potential of the Banking sector in the Indian context. Due to this, the scheme enjoys the benefits of investing in the booming services sector. The portfolio consists of several wellreputed companies of India viz. Jindal Steel, SAIL, Tata Steel, BHEL, Reliance Industries, Tata Power, etc. It is noticed that exposure to Auto has been reduced to zero, as holdings in Ferrous Metals (Sesa Goa) has been replaced with Tata Steel. The portfolio is skewed towards large cap as the fund seeks to maximize the risk-return payoff. The Scheme also exhibits term-deposits, CPs & CDs to reputed organizations like Allahabad Bank, UTI, IDBI etc.
Comparing the Benchmark The graph below indicates the movement of Rs. 10000 invested at inception vis-à-vis the benchmark performance.
Performance Record
Our View The fund largely invests in equities from the infrastructure sector. However, what distinguishes it from a typical sector fund is its pervasive definition of the infrastructure sector. The fund house has taken the liberty of including sectors like banking & financial services among a host of others for defining its area of investment. The large number of stocks in the portfolio may reduce the fund's vulnerability to the fluctuations in each of its holdings. However, it may also prevent spectacular performance from one or two of its stocks from showing up in the performance. The scheme’s portfolio strategy is governed by its investment objective. In our opinion, the fund can add value to informed investors who have a view on the infrastructure sector and a flair for medium to high risk investment avenues.
UTI Infrastructure Fund Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Sanjay Dongre To provide Capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies which form part of Infrastructure Industries. 9th March, 2010 Rs. 812.19 Crores Rs. 10
Inception Date Fund Size Face Value (Rs./Unit)
NAV (as on 30th March, Growth option : Rs. 25.99 2007) Dividend option : Rs. 18.99 Minimum Investment Benchmark Rs. 5000 BSE 100
Style Box:
Portfolio:
Portfolio as on 30th March, 2010(% to NAV) Industrial Capital Goods 32.22 Telecommunications -service 11.37 Construction 9.54 Petroleum Products 9.06 Cement 7.56 Power 6.32 Net Current Assets 4.44 Oil 3.74 Ferrous Metals 2.85 Finance 2.62 Industrial Products 2.29 Consumer Durables 2.28 Unclassified 2.17 Deposit With Bank 1.09 Auto And Ancillaries 0.95 Consumer Non Durables 0.83 Chemicals 0.51 Non-ferrous Metals 0.16 Total 100
Understanding the Portfolio UTI Infrastructure Fund is positioned to follow a top down approach keeping in mind the economic scenario. The fund’s Endeavour is to pick sectors, which are expected to perform better and select fundamentally strong companies in those sectors. The scheme’s performance is highly linked with the overall economic growth of the country as the sectors in which the scheme invests are directly linked to the GDP growth of India.
The fund has invested almost 93% of its corpus in Equities. Due to this, the risk in such a scheme may be perceived as higher. The Fund portfolio reveals heavy investment in Basic/Engineering sector, closely followed by communication sector. Further, it has a relatively very low investment in the rapidly growing Auto Ancillaries sector.
Our View: The scheme has invested in equities of on 20-25 companies. This indicates higher exposure to company-specific risk. The scheme’s performance is highly linked with the overall economic growth of the country as the sectors in which the scheme invests are directly linked to the GDP growth of India. During the month of March 2007, the fund has under performed its benchmark index BSE 100. The ongoing monetary tightening in the economy has negative impact on sector, which has resulted in the underperformance. Although, Engineering & Construction companies are likely to show strong quarterly numbers as well as strong order book position, which are more than 2-3 times of yearly revenues in coming quarters.
DSP Merrill Lynch T.I.G.E.R Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Soumendra Nath Lahiri An open ended diversified equity Scheme, seeking to generate capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of corporates, which could benefit from structural changes brought about by continuing liberalization in economic policies by the Government and/or from continuing investments in infrastructure, both by the public and private sector 27th April, 2009 Rs. 1499.86 Crores Rs. 10 Growth - Rs. 34.1240 Dividend - Rs. 19.311 Rs. 5000 BSE 100
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Benchmark
Portfolio:
Portfolio as on 30th April, 2010 Industrial Capital Goods 20.11 Construction 8.9 Petroleum Products 7.83 Banks 7.63 Power 7.22 Media & Entertainment 6.97 Telecom Services 6.47 Ferrous Metals 5.74 Finance 4.67 Transportation 3.94 Industrial Products 3.66 Oil 3.38 Cement 2.73 Pharmaceuticals 2.57 Retailing 1.65 Engineering 0.72 Textiles & Textile Products 0.95 Non-Ferrous Metals 0.45 Consumer Durables 0.42 Debt Instruments 2.51 Cash & Cash Equivalents 1.48 Total 100
Understanding the Portfolio: DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex was around 7,500 and the India economy had begun to witness high growth. DSP India T.I.G.E.R. Fund is aimed at benefiting from the exponential growth that India is likely to witness in the coming decade. The Scheme began with a decent corpus of around Rs 200 crores and has been able to accumulate Rs 1,007 crores as of May 2006. DSP India T.I.G.E.R. is the first fund of its kind that covers infrastructural areas, giving the common investor a chance to make the most of the ongoing economic reforms. The Fund House is very bullish on the Indian Economy and believes that the improved GDP growth in the future shall strengthen the markets further, on the back of continuing economic reforms.
Better market capitalization will result from unlocking as well as creation of value, which the Fund aims at capturing. The fund has a well-diversified portfolio, consisting of about 61 stocks. Capital goods stocks, on an average, accounted for 23 per cent of the portfolio the past year and the top three sectors cornered 40 per cent of the assets. The fund reduced exposure to the cement sector earlier this year, pruning holdings from 13 per cent to 4.5 per cent. This strategy helped it contain losses during the post-Budget correction.
Our View: DSPML T.I.G.E.R's. NAV has grown 18 per cent for the past year and outpaced its benchmark BSE-100 by 3 percentage points. However, it has trailed the ICICI Pru Infrastructure Fund. In the same period, it outperformed peers such as Tata Infrastructure and Birla Infrastructure Fund. The fund's performance has, however, been relatively consistent, trailing the benchmark in just seven of the past 24 months on a monthly return basis. Though impacted by the midcap meltdown in May, it staged a recovery subsequently. However, the T.I.G.E.R Fund has a relatively diversified portfolio and thus carries a moderate risk profile. Investors also have to keep in mind that infrastructure theme funds usually have an exposure of 30-40 per cent to mid-cap stocks (market capitalization less than Rs 5,000 crore), leading to a higher risk profile. Concentrated bets on sectors such as capital goods also add to the fund's risk level. Hence, risk-averse investors may find diversified funds a better alternative.
Caninfrastructure Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Umesh Kamath To generate income / capital appreciation by investing in equities and equity related instruments of companies in the infrastructure sector. 11th September, 2009 Rs. 81.5677 Rs. 10 Growth - Rs. 15.05 Dividend - Rs. 12.86 Rs. 5000 BSE 100
Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 30th April, 2007) Minimum Investment Benchmark
Portfolio as on 31st May, 2010 Construction Basic/Engineering Energy Diversified Technology Metal & Metal Products Chemicals Services Cash & Cash Equivalents T-Bills
21.29 20.88 16.01 14.71 7.11 4.77 2.17 2.12 8.51 2.44 Total 100
A Comparative Study ICICI Prudential: Prudential ICICI Asset Management Company Limited is an investment management company and a 55:45 joint venture between Prudential Corporation plc, UK, and ICICI Ltd.,India. Both companies are financial giants, and each is a major player in its field. Prudential Corporation plc, UK was incorporated in 1848, as a provider of insurance products. Through its investments, it controls approximately 4% of all the listed shares on the second largest stock exchange in the world, the London Stock Exchange, making it one of the largest institutional investors in the UK. ICICI Ltd. was established in 1955 by the World Bank, the Government of India and representatives of Indian industry, to promote the industrial development of India by providing project and corporate finance to Indian industry. Prudential ICICI Asset Management Company Limited has been incorporated with a capital of Rs 65 crore. This investment - way above the stipulated norm of Rs 10 crore, represents a strategic long-term commitment, on the part of both partners, to the rapidly expanding financial services sector in India. In a short span of 14 months, Prudential ICICIs product portfolio has grown from 2 closed ended funds to 8 open ended funds and 2 closed ended funds. UTI UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual Fund. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on February 3 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands. UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset Management Company presently manages a corpus of over Rs. 34500 Crore. The fund managers are also ably supported with a strong in-house equity research department. To ensure better management of funds, a risk management department is also in operation. DSP Merrill Lynch DSP Merrill Lynch Asset Management (India) Ltd., has been set up by DSPML and MLAM, to act as the Asset Management Company (AMC) to the Fund. The AMC has been appointed as the Investment Manager to the fund, MLAM holds 40% of the paid up share capital of the AMC, while the balance 60% (approximately), is held by DSPML. DSP Merrill Lynch, originally called DSP Financial Consultants Ltd., traces its origins to DS Purbhoodas & Co., a securities and brokerage firm with over 130 years of experience in the Indian market. After a decade long association, DSP Merrill Lynch & Co. Inc. took up a 40% stake in DSPFC and the name was changed to DSPML Ltd.
DSPML is a full fledged financial services organization with a broad employee base and offices in Mumbai, New Delhi, Calcutta, Chennai, Bangalore, Hyderabad and Cochin. MLAM is a unit of Merrill Lynch Asset Management Group, the money management arm of ML & Co. It is based in Princeton, N.J., USA and offers a wide range of investment products in virtually all U.S. domestic and international asset classes and in major capital markets of the world. Merrill Lynch Investment Managers investment philosophy is designed to seek consistent, long-term strategic performance results. Its disciplined value oriented approach to managing its clients portfolios has been with the primary objective of seeking consistent returns over a long period. The name of DSP Merrill Lynch Asset Management (India) Ltd. has been changed to DSP Merrill Lynch Investment Managers Ltd. w.e.f 20th July, 2000. Canbank Mutual: Canbank Investment Management Services Ltd., a wholly owned subsidiary of Canara Bank, has been set up as per the Securities and Exchange Board of India (Mutual Funds) Regulations, 1933. Investment Management Agreement has been signed between Canbank Mutual Fund and the Investment Manager, whereby the Investment Manager is empowered to manage the affairs of Canbank Mutual Fund and operate its various Schemes. The sponsorCanara Bank, is a leading Nationalized Bank operating in India and abroad, through its network of branches in India and offices in London, Moscow, UAE and Hong Kong. Canbank Mutual Fund was one of the pioneers of the Mutual Fund Movement in India. Canbank Mutual Fund has launched 20 Schemes since its inception. Of the twenty Schemes, five Schemes have been fully redeemed so for and remaining fifteen Schemes are being managed by the Investment Manager.
Comparative Performance Study: Scheme v/s BSE Sensex Scheme CanInfrastructure DSP Merrill Lynch Tiger Fund ICICI Prudential Infrastructure Fund UTI Infrastructure Fund Asset Management Company Canbank Mutual Fund DSP Merrill Lynch Mutual Fund ICICI Prudential Mutual Fund UTI Mutual Fund Scheme Returns 27.39 52.35 44.56 40.02 Index Returns 34.91 43.47 36.34 31.80 Difference -7.52 8.88 8.22 8.22
Scheme v/s NSE Nifty Scheme Asset Management Scheme Returns 27.39 44.56 Index Returns 32.25 33.38 Difference -4.86 11.18
Company CanInfrastructure Canbank Mutual Fund ICICI Prudential ICICI Prudential Infrastructure Fund Mutual Fund
As evident from the performance analysis of the mutual fund schemes in question, we can clearly see that Caninfrastructure has underperformed when it comes to comparison with its own benchmark i.e. BSE-100. Moreover, when we compare it with a common platform using the BSE Sensex or NSE Nifty, too, it has shown a relatively low performance. Further, from the point of view of investment returns, we hereby observe that, ICICI Prudential Infrastructure have performed satisfactorily and seem to have generated returns well above the Exchange indices. If numbers are to be considered, DSPML T.I.G.E.R shows the highest returns since inception. Thus, from analysis of the past performance since inception of the schemes in question, we may recommend DSPML T.I.G.E.R to investors with an expectation that the positive performance will be maintained even in future by the fund scheme.
Conclusion:
One should note markets and asset classes do not move in tandem. The investor has to spread his investment among different types of asset classes and markets—stocks and bonds, domestic and foreign markets— so that he can position yourself to seize opportunities as the performance cycle shifts from one market or asset class to another. This spread helps him to get a consistent and better return which will help him to fulfill his financial commitment. The asset allocation should vary according to the investment style and goals of an investor. For this an investor should take help a Financial Advisor as he has the better knowledge about the various assets which gives better and consistent return, and if the asset is not performing well then he can make the necessary changes in the asset allocation in the portfolio.
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