Introduction Commodities have always been a part of our day to day existence as oneof the finest investment avenues

available. But we have been unaware of them. Thewheat in our bread, the Cotton in our clothes, our gold jewels, the oil that runs our cars, etc,are all traded across the world in major exchanges.India has a long history of trade in commodity derivatives; this sector remained underdeveloped due to the control over and intervention in commodities prices by the government for many years. Th e production, supply and distribution of many agricultural commodities are still governed by the state and forwards and futurest r a d i n g a r e s e l e c t i v e l y i n t r o d u c e d w i t h s t r i n g e n t c o n t r o l s . F r e e t r a d e i n m a n y commodity items is restricted under t h e E s s e n t i a l C o m m o d i t i e s A c t , 1 9 5 5 a n d t h e Agriculture Productive Marketing Committees Acts of the various state governments. The Bombay Cotton Trade Association set up the first commoditye x c h a n g e i n I n d i a a n d f o r m a l l y o r g a n i z e d f u t u r e s t r a d i n g i n c o t t o n i n 1 8 7 5 . Subsequently, many exchanges came up in different parts of the country for futurestrading in various commodities. The Gujarati Vyapari Mandali came into existence in1900, which undertook futures trading in oilseeds for the first time in the country. TheCalcutta Hessian exchange ltd and the East India Jute Association Ltd were set up in1919 and 1927 respectively for futures trade in raw jute. A future trading in cotton wasorganized in Mumbai under the auspices of East India cotton Association in 1921.Simultaneously, several exchanges were set up in major agricultural centers in NorthIndia before the World War broke out and they were mostly engaged in wheat futuresuntil it was prohibited in 1921. The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etcw e r e e s t a b l i s h e d d u r i n g t h i s p e r i o d . T h e G o v e r n m e n t o f I n d i a b a n n e d t r a d i n g i n commodity futures in the year 1966 in essential commodities. As a result of this, all thec o m m o d i t y f u t u r e s i n t h e y e a r 1 9 6 6 , i n o r d e r t o h a v e a n e f f e c t i v e c o n t r o l o v e r t h e Khusro Committeee in 1980, the Government, reintroduced futures trading in someselected commodities. As a result of this, all the commodity exchanges went out of business and many trades started resorting to unofficial and informal trading in futures On the recommendation of the Khusro committee in 1 9 8 0 , t h e G o v e r n m e n t reintroduced futures trading in some s e l e c t e d c o m m o d i t i e s i n c l u d i n g c o t t o n , j u t e potatoes etc. As a part

of economic reforms, the government of India appointed an expert committee on forward markets under the chairmanship of K N Kabra in the year 1993.The committee submitted its report in 1944 and recommended for thereintroduction of futures, with a wider coverage of and scope for more agriculturalc o m m o d i t i e s . I n o r d e r t o g i v e a t h r u s t t o t h e a g r i c u l t u r a l s e c t o r , t h e N a t i o n a l Agricultural Policy 2000 envisa g e d e x t e r n a l a n d d o m e s t i c m a r k e t r e f o r m s a n d t h e dismantling of all controls and regulations on the agricultural commodity market. Ita l s o p r o p o s e d e n l a r g e m e n t o f t h e c o v e r a g e o f f u t u r e s m a rket to reduce widefluctuations in commodity prices and f o r h e d g i n g t h e r i s k a r i s i n g f r o m p r i c e fluctuations.In the budget speech delivered on 28 February 2002, the thenFinance Minister announced an expansion of futures and forward trading to cover all a g r i c u l t u r a l commodities. This was followed by the removal of the ban on futurestrading on 27 (out of 81 items) in oilseeds, oils and their cakes in August 2002.Subsequently, in February 2003, the Government removed the prohibition on ther e m a i n i n g 5 4 c o m m o d i t i e s a l s o u n d e r t h e F o r w a r d t r a d i n g i n g e n e r a l a n d t h e agricultural sector in particular, The Securities Contracts (Regulation) Act, 1956, wasa l s o a m e n d e d i n A u g u s t 2 0 0 3 t o p r o v i d e f o r c o m m o d i t y d e r i v a t i v e s E x c h a n g e (NCDEX ) and Multi Commodity Exchange (MCX), Mumbai, 1 National status was given to these exchanges so that they would beautomatically permitted to conduct futures trading in all commodities subject to thec l e a r a n c e o f b y l a w s a n d contract specifications by the FMC, While the NMCE,Ahmedabad commenced futures trading in November 2 0 0 2 , M C X a n d N C D E X , Mumbai commenced operations in October and December 2003 respectively. Over the ages, commodities have been the basis for trade and industry.T h e y h a v e s p u r r e d c o m m e r c e , e n c o u r a g e d e x p l o r a t i o n a n d a l t e r e d t h e h i s t o r i e s o f nation. Today they play a very important role in the world economy with billion of dollars of these commodities traded each day of exchanges across the world, so much so that today the commodity market are roughly 4-5 times the size of the equity market,where ever they are actively traded.Futures trading play a key

role in the marketing of many important agricultural commodities and their products. And yet this institution is still perhaps theleast understood and often the most condemned part of the entire marketing system. Inour own country as well as in those like the U.S.A. and the U.K., where active Futuresmarkets exist, a theoretical debate has been going on for quite some time as to their roleand functions. Much of the discussion has naturally centered on the Effects of futurestrading on prices. Some affirm that it helps to stabilize prices while others argue that because of the existence of speculation which is inherent in it; its price effects are oftendestructive. Little empirical evidence, however, has yet been produced in support of either view. The present study is a modest attempt in that direction. Trade in commodity futures contracts via the organized exchangescurrently seen in the United States goes back to the 1860s. The basic concept is mucholder. There are records of trade in contractual obligations, similar to the modern dayfutures contracts, in China and Japan in earlier centuries.The current widespread and growing interest in commodity futuresemerged during the 1970s. Extreme price variability in the grains, oilseeds, fibers, andlivestock commodities brought with it a sense of urgency and a need for mechanisms tomanage age exposure to price risk. Instability in the economy late in the decade andinto the early 1980s brought double-digit inflation, a prime interest rate that exceeded20 percent, and widespread uncertainty. Farm policy moved away from approaches that p e g g e d s p e c i f i c p r i c e s f o r k e y a g r i c u l t u r a l c o m m o d i t i e s a n d toward a posture thatwould allow U.S. prices to trade in futures c o n t r a c t s f o r s u c h d i v e r s e i t e m s a s t h e agricultural commodities, treasury bills, lumber, foreign currencies, copper, and heatingoil.Options on futures contracts can remove two related and major barrier tothe use of commodity futures in the forward-pricing of agricultural commodities. The first is the producers constant fear that forward prices of future sales have been set toolow or that forward prices (i.e., costs) of futures purchases have been set too high.Producers often equate bad outcomes, in terms of opportunity costs, with bad decisions. Even if the forward price established is profitable, there is a tendency for p r o d u c e r s t o v i e w t h e h e d g e s e t e a r l y a t r e l a t i v e l y l o w p r i c e s ( o r a t r e l a t i v e l y h i g h costs) to be a bad decision. If the futures side of the hedge loses money, the Tendencyis to view the hedge as a mistake and to talk about losing money with the hedge.Second and related barrier to direct use of the futures markets is the need tomanage a margin account

and answer margin calls as the market rallies against a short position in the futures. Neither producers nor their lenders have always understood theneed for a special and additional credit line to answer margin calls. There are countlessexamples of producers being forced to offset short hedges due to the inability or lack of a willing creditor to provide the needed margin funds. Often, the market turns lower after the upward price move that forced the producer to offset the short hedges. A lossis incurred in the futures account and than the producer is without price protection as the market turns and trends lower.In the budget speech delivered on 28 February 2002, the then Financem i n i s t e r a n n o u n c e d a n e x p a n s i o n o f f u t u r e s a n d f o r w a r d t r a d i n g t o c o v e r a l l agricultural commodities. This was followed by the removal of the ban on futurestrading on 27 (out of 81 items) in oilseeds, oils and their cakes in August 2002.Subsequently, in February 2003, the Government removed t h e p r o h i b i t i o n o n t h e remaining 54 commodities also under the Forward Contract (Regulation) Act, 1952,thus removing the statutory hurdles in futures trading in general and the agricultural sector in particular. The Securities Contracts (Regulation) Act, 1956 was also amendedin August 2003 to provide for commodity derivatives.Soon thereafter, the Forward Markets Commission granted p e r m i s s i o n t o t h r e e n a t i o n a l m u l t i c o m m o d i t y e x c h a n g e s v i a N a t i o n a l M u l t i - Commodity Exchange of India Ltd. (NMCE), Ahmedabad, National Comm odity &Derivatives Exchange (NCDEX) and Multi-commodity Exchanges (MCX), Mumbai National status was given to these exchanges so that they would beautomatically permitted to conduct futures trading in all commodities subject to thec l e a r a n c e o f b y l a w s a n d c o n t r a c t s p e c i f i c a t i o n b y t h e F M C . W h i l e t h e N M C E , Ahmedabad commenced futures trading i n N o v e m b e r 2 0 0 2 , M C X a n d N C D E X , Mumbai commenced operation in October and December 2003 respectively CHAPTER 2 2.1 Introduction 7

Unknown to us the commodities that have always been a Part of our dayto day existence are also one of the finest Investment avenues available. The wheat inour bread, the Cotton in our cloths, our gold jewels, the oil that runs our cars, etc; areall trades across the world in major exchanges.Over the ages, commodities have been the basis for trade and industry. Theyhave spurred commerce, encouraged exploration and altered the histories of nation.Today they play a very important role in the world economy with billion of dollars of these commodities traded each day of exchanges across the world, so much so thattoday the commodity market are roughly 4-5 times the size of the equity market, whereever they are actively traded. 2.2 Statement of the problems Primary commodity prices and their markets are known to behavedifferently from those of the manufactured goods or services. Theoretical analysiss u g g e s t s t h a t c o m m o d i t y p r i c e s w i l l f a l l r e l a t i v e t o o t h e r s b e c a u s e o f t h e i n e l a s t i c demand.Thus, the real income of the commodity producers falls because inelastic demand prevents them from offsetting price movements with volume changes.The prime reason for extra volatility in commodity prices in the presence of naturalshocks that are not predictable and mostly relat e to the previous years production or consumption in price, followed by a slow or rapid reduction depending on the nature of the commodity. Commodity price cycles mostly have flat bottoms with occasionalsharp peaks.The following are four important commodity price problems:a ) S h o r t - t e r m f l u c t u a t i o n s : T h e s e a r e c o m m o n a m o n g t h e a g r i c u l t u r e p r o d u c t s , either within a year due to seasonal variations or from year to year because of abnormal weather variations and conditions. b ) M e d i u m term changes: As seen often in oil or other mineral m a r k e t s , responding to multi-year business cycles in the world economy. ) Permanent changes: These are affecting one or a few coun t r i e s o w i n g t o technological changes or the discovery of a new t e c h n o l o g y w h i c h a l t e r s competitiveness. d) Long-term declining commodity prices: Normally, the behavior of commodity p r i c e s w e l l i s s h o r t - t e r m i n n a t u r e a n d s h o w a s u d d e n r i s e o r f a l l a n d t h i s asymmetric behavior tends to impose costs on any scheme

meant for balancing p r i c e f l u c t u a t i o n s . A l l t h i s e x p o s e s p r o d u c e r s t o t h e d u a l p r o b l e m o f l o w e r returns and higher risks. 2.1 Need of the study There have been a large number of studies made in the field of investment andc r e a t i o n o f p o r t f o l i o s . A l l t h e s t u d i e s m a d e a r e i n r e f e r e n c e w i t h i n c o m e l e v e l s i n general. Income levels even though same but the field of work and the life style of a particular segment differ from others, which in turn affects the saving and investment priorities. 2.3 Review of literature Futures trading are a device for protection against the pricefluctuations which normally arise in the course of marketing of commodities. Stockiest, processors and manufacturers utilize the futures contract to transfer the price risk faced by them. This use of the futures market is commonly known as hedging.A futures contract is a highly standardize contract, which is invariably entered into for the basis variety, but against which other varieties within as t i p u l a t e d r a n g e c a n a l s o d e l i v e r e d w i t h a p p r o p r i a t e p r e m i e r o r d i s c o u n t s f o r t h e differences in thei r qualities from the basis during a period which, in futures market parlance, is called the delivery month. Wherever a futures market is organized, two markets operate side by side, viz., the spot and the futures.For purposes of hedging, those who have bought stocks and are,therefore, long in the ready market sell in the futures market while those who have soldt h e a c t u a l c o m m o d i t y a n d a r e s h o r t s i n t h e r e a d y m a r k e t a r e b u y e r s i n t h e f u t u r e s market. Benefits of review of literature As the study is being formulated on general public it is very much essential tounderstand the elements that affect this segment and what are the criteria that thissegment follows to safeguard their commodity future.Review of Literature helped in understanding preferences and the outlook of general public towards investment. At the same time the theory also helped inunderstanding the concept of portfolio creation.The review of literature was beneficial for the successful completion of the project work and to carry out the survey in the right direction. The literature reviewupdates the knowledge of the researcher on portfolio creation techniques and the needof the individual. It benefited in the learning of the profile of the respondents and their preferences. 2.4 Scope of the study This study focuses on futures alone among derivative. Among futures,only commodity future has been assessed. The main focus on potential investors and those who invest regularlycommodity futures there return, risk and expectation towards commodity futures of thisstudy is

to assesTo examine the various risk factors in using commodity futures by inflationand price fluctuation, and to evaluate the future trading on price and price variation 2.5 Objectives of the study 1.To examine the various risk factors in u sing commodity future.2.To study the influence of futures trading, on price and price variation3.To evaluate the effectiveness of the various measures of commodity futures asinvestment avenues in India 2.6 Hypothesis statement: Testing: For hypothesis testing Chi square test is used. The total no of respondents who are involved in the survey are 60 out of which 45 respondents areregular investors in commodity futures remaining 15 were potential investorsHypothesis to be tested: Ho-Commodity futures are not excellent vehicle for investment Hi-Commodity future are excellent vehicle for investment 2.7 Methodology According to Clifford woody research comprises of defining, r e d e f i n i n g problem, formulating hypothesis or suggested solution, collecting, organizing andevaluating data, making deductions and reading conclusions to determine whether theyfit the formulating hypothesis.It is a way to systematic solution of the research problem. The researcher needsto understand the assumption underlying various techniques and procedures that will bea p p l i c a b l e to certain problem. This means that it is necessary for the r e s e a r c h e r t o design its methodology.T h e r e a r e v a r i o u s f a c t o r s s u c h a s the personal factors as well as the marketfactors that motivate a person to save and invest. Thus, the q u e s t i o n n a i r e w i l l b e directed towards the respondents to give the feed back about their savings interest andthe various investment opportunities they are aware about and it also give respondentsto rethink about their investment criteria and upgrade it to maximize their returns. 7.1 Sampling All items under study in any field of survey are known as a u n i v e r s e o r population. A complete enumeration of all items in the population is census enquiry,which is not practically possible. Thus sample design is done which basically refers tothe definition plan defined by any data collection for obtaining a sample from a given population.

7.2 Sampling Technique This study is purposive in nature as the research is concentrating on the variousissues that are related to general investment avenue .Research is not trying to reach aconclusion by making any assumption and findings are based on the responses of therespondents that enrich our database with a focus on the creation of certain portfolios ingeneral investment avenueConvenient Sampling approach is adopted here. This is due to the fact that therespondents were available only at the colleges and only at the duty time, to get theclear idea of their approach the nearest colleges were selected and the study was made.7.3 Sampling unit The sample size consists of different units like businessman, professionals,government employees, and private employees .others and head of departments of various streams. Thus the population selected was of faculties consisting of both malesand females of different age groups, holding different qualifications. 7.4 Sampling size The sample size consists of 60 respondents of various financial institutions. Thesample size is drawn using convenience sampling method. 7.5 Sample design Sample design or sample procedure refers to a definite plan followed for thec o l l e c t i o n o f s a m p l e f r o m a g i v e n p o p u l a t i o n . T h e p r o c e s s f o l l o w e d w a s , f i r s t l y a questionnaire was prepared with the objective in mind. The respondent from variousfinancial institutions were determined. The second step includes convenience samplingw h e r e b y t h e s e l e c t e d p o p u l a t i o n w a s c o n s i d e r e d a n d t h e q u e s t i o n n a i r e w a s administered .6 Instruments An open-ended questionnaire has been administered, supported by a personalinterview to draw detailed explanations on the investment pattern. The instrument usedto collect the data from primary source is structured questionnaires which consist of n u m b e r o f q u e s t i o n s p r i n t e d i n a s y s t e m a t i c f o r m . I n f o r m a t i o n w a s c o l l e c t e d f r o m regular investors and potential investors. 7.7 Tools for data collection In dealing with real life problems it is often found that data at hand areinadequate, and hence, it becomes necessary to collect data that are

appropriate. Thedata can be of two types- Primary data and Secondary data.In this study the Primary data is collected by means of personnelinterview with the help of questionnaires which is designed in such a manner that thefaculties of all streams can use it easily. T h e s e c o n d a r y d a t a a r e t h o s e data which already exist. This data is also animportant input for the study, and in this case the secondary data is collected f r o m various records, magazines, text books, internet, discussion with various in housefaculties etc. 7.8 Limitations of the study Only a percentage of total investors in each financial inst i t u t e c o u l d b e interviewed but the analysis is generalized. Some of the potential investors were reluctant to disclose their financial dataand the personal details. The findings and conclusions drawn out of the study will reflect only existingtrends in the sector. The accuracy and authenticity of the observations made and conclusions drawnl a r g e l y d e p e n d u p o n t h e c o r r e s p o n d i n g a c c u r a c y a n d a u t h e n t i c i t y o f t h e information supplied by the respondents at large.The respondents being investors, who are basically very busy people,most of them were in hurry during the survey. So some errors may have occurred infilling of the questionnaires. 7.9 Plan of the analysis The data collected through questionnaire and the secondary data available wasexamined in detail; it was further classified and tabulated for the purpose of analysis togeneralize percentages.Based upon the information and objectives of the study, conclusionsw e r e d r a w n , s u g g e s t i o n s a n d r e c o m m e n d a t i o n s a r e m a d e w h i c h c a n b e u s e d i n providing appropriate training and development programs. Graphs and Charts have been used wherever necessary.The tabulated data is being graphically represented for the better analysis. Software use for data analysis MS Word MS Excel

 SPSS Factor analysis Factor analysis is a general term for several specific computationaltechniques. All have the objective of reducing to a manageable number many variablesthat belong together and have overlapping measurement characteristics.The predictor- criterion relationship that was found in the dependencesituation is replaced by a matrix of inter correlations among several variables, none of which is viewed as being dependent on another. For example, one may have data on 100 employees with scores on six attitude scale items Method Factor analysis begins with the construction of a new set of variables basedon the relationships in the correlation matrix. While this can be done in a number of ways, the most frequently used approach is principal components analysis. This methodt r a n s f o r m s a s e t o f v a r i a b l e s i n t o a n e w s e t o f c o m p o s i t e v a r i a b l e s o r p r i n c i p a l components that are not correlated with each other. These linear combinations of variables, called factors, account for thev a r i a n c e i n t h e d a t a a s a w h o l e . T h e b e s t c o m b i n a t i o n m a k e s u p t h e f i r s t p r i n c i p a l component and is the first factor. The second principal component is defined as the bestlinear combination of variablesFor explaining the variables not accounted for by the first factor. In turn,there may be a third, fourth, and component, each being the best linear combination of variables not accounted for by the previous factors . Cross tabulation Cross tabulation is a technique for comparing two classificationvariables, such as gender and selection by ones company for an overseas assignment.The technique uses tables having rows and columns that correspond to the levels or values of each variables categories.An example of a computergenerated cross-tabulation. This table hastwo rows for gender and two columns for assignment selection. The combination of thevariables with their values produces four cells. Each cell contains a count of the casesof the joint classification and also the row, column, and total percentages. The number of row cells and column cells is often used to designate the size of the table, as in this2*2 table.The cells are individually identified by their row and column numbers,as illustrated. Row and column totals, called marginal, appear at the bottom and right margins of the table. They show the counts and percentages of the separate rows andcolumns

When tables are constructed for statistical testing, we call themc o n t i n g e n c y t a b l e s , a n d t h e t e s t d e t e r m i n e s i f t h e c l a s s i f i c a t i o n v a r i a b l e s a r e independent. Of course, tables may be larger than 2*2

CHAPTER 3 17

Industry profile For a market to succeed, it must have all three kinds of participantshedgers, speculators and arbitragers. The confluence of these participantsensures liquidity and efficient price discovery on the market. Commodity markets giveo p p o r t u n i t y f o r a l l t h r e e kinds of participants. In this chapter we look at the use o f commodity derivatives for hedging, speculation and arbitrage.HEDGINGMany participants in the commodity futures market are hedgers. Theyuse the futures market to reduce a particular risk that they face. This risk might relate tothe price of wheat or oil or any other commodity that the person deals in. Th e classichedging example is that of wheat farmer who wants to hedge the risk of fluctuations inthe price of wheat around the time that his crop is ready for harvesting. By selling hiscrop forward, he obtains a hedge by locking in to a predetermined price.Hedging does not necessarily improve the financial outcome; indeed, itcould make the outcome worse. What it does however is, that it makes the outcomem o r e c e r t a i n . H e d g e r s c o u l d b e g o v e r n m e n t i n s t i t u t i o n s , p r i v a t e c o r p o r a t i o n s l i k e financial institutions, trading companies and even other participants in the value chain,for instance farmers, extractors, ginners, processors etc., who are influenced by the commodity prices.SHORT HEDGEA short hedge is a hedge that requires a short position in futures contracts.As we said, a short hedge is appropriate when the hedger already owns the asset, or islikely to own the asset and expects to sell it at sometime in the future. For example, ashort hedge could be used by a cotton farmer who expects the cotton crop to be readyfor sale in the next

two months.A short hedge can also be used when the asset is not owned at themoment but is likely to be owned the future. For example, an exporter who knows thathe or she will receive a dollar payment three months later. He makes a gain if the dollar increases in a value relative to the rupee and makes a loss if the dollar decreases invalue relative to the rupee. A short futures position will give him the hedge he desires.LONG HEDGEHedges that involve taking a long position in futures contract areknown as long hedges. A long hedge is appropriate when a company knows it will haveto purchase a certain asset in the future and wants to lock in a price now.SPECULATIONAn entity having an opinion on the price movements of a givencommodity can speculate using the commodity market. While the basics of speculationapply to any market, speculation in commodities is not as simple as speculating on stocks in the financial market.For a speculator who thinks the shares of a given company will rise, itis easy to buy the shares and hold them for whatever duration he wants to. However,commodities are bulky products and come with all the costs and procedures of handlingthese products. The commodities futures mar kets provide speculators with an easymechanism to speculate on the price of underlying commodities.To trade commodity futures on the NCDEX, a customer must open afutures trading account with a commodity derivatives broker. Buying futures simplyinvolves putting in the margin money. This enables futures traders to take a position inthe underlying commodity without having to actually hold that commodity. With the purchase of futures contract on a commodity, the holder essentially makes a legally binding promise or obligation to buy the underlying security at some point in the future. Speculation: Bearish commodity, sell futures Commodity futures can also be used by a speculator who believes thatthere is likely to be excess supply of a particular commodity in the near future andhence the prices are likely to see a fall. How can he trade based on this opinion? In theabsence of a deferral product, there wasnt much he could do to profit from his opinion.Today all he needs to do is sell commodity futures. ARBITRAGEA central idea in modern economics is the law of one price. This states thatin a competitive market, if two assets are equivalent from the point of view of risk andreturn, they should sell at the same price. If the price of the same asset is different intwo markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly.This activity termed as arbitrage, involves the simultaneous purchase ands a l e o f t h e s a m e o r e s s e n t i a l l y s i m i l a r s e c u r i t y i n t w o d i f f e r e n t m a r k e t s f o r advantageously different prices. The

buying cheap and selling expensive continues till prices in the two markets reach equilibrium. Hence, arbitrage helps to equalize pr icesand restore market efficiency.Indian commodity exchange and progressThe Bombay Cotton Trade Association set up the first commoditye x c h a n g e i n I n d i a a n d f o r m a l l y o r g a n i z e d f u t u r e s t r a d i n g i n c o t t o n i n 1 8 7 5 . Subsequently, many exchanges came up in different parts of the country for futurestrading in various commodities. The Gujarati Vyapari Mandali came into existence in1900, which undertook futures trading in oilseeds for the first time in the country.The Calcutta Hessian exchange ltd and the East India Jute AssociationLtd were set up in 1919 and 1927 respectively for futures trade in raw jute. Futurestrading in cotton were organized in Mumbai under the auspices of East India cottonA s s o c i a t i o n i n 1 9 2 1 . S i m u l t a n e o u s l y , s e v e r a l e x c h a n g e s w e r e s e t u p i n m a j o r agricultural centers in North India b e f o r e t h e W o r l d W a r b r o k e o u t a n d t h e y w e r e mostly engaged in wheat futures until it was prohibited in 1921. The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etcw e r e e s t a b l i s h e d d u r i n g t h i s p e r i o d . T h e G o v e r n m e n t o f I n d i a b a n n e d t r a d i n g i n commodity futures in the year 1966 in essential commodities. As a result of this, all thec o m m o d i t y f u t u r e s i n t h e y e a r 1 9 6 6 , i n o r d e r t o h a v e a n e f f e c t i v e c o n t r o l o v e r t h e Khusro Committeee in 1980, the Government, reintroduced futures trading in someselected commodities. As a result of this, all the commodity exchanges went out of business and many trades started resorting to unofficial and informal trading in futures On the recommendation of the Khusro committee in 1980, theG o v e r n m e n t r e i n t r o d u c e d f u t u r e s t r a d i n g i n s o m e s e l e c t e d c o mmodities includingcotton, jute potatoes etc. As a part of e c o n o m i c r e f o r m s , t h e g o v e r n m e n t o f I n d i a appointed an expert committee on forward markets under the chairmanship of K NKabra in the year 1993. Rules governing commodity derivatives exchanges The trading of commodity derivatives on the NCDEX is regulated byForward Markets Commission (FMC). Under the Forward Contracts (Regulation) Act,1 9 5 2 , f o r w a r d t r a d i n g i n c o m m o d i t i e s n o t i f i e d under section 15 of the Act can bec o n d u c t e d o n l y o n t h e e x c h a n g e s , w h i c h a r e g r a n t e d r e c o g n i t i o n b y t h e c e n t r a l government.All the exchanges, which deal with

forward contracts, are required to obtaincertificate of registration from the FMC. Besides, they are subjected to various laws of the land like the companies Act, Stamp Act, Contracts Act, Forward commission Act and various other legislations, which impinge on their working.Forward Markets Commission provides regulatory oversight in order toe n s u r e f i n a n c i a l i n t e g r i t y , m a r k e t i n t e g r i t y a n d t o p r o t e c t a n d p r o m o t e i n t e r e s t o f customers/ non-members. It prescribes the following regulatory measures: 1. Limit on net open position as on the close of the trading hours. Some times limitis also imposed on intra- day net open position. The limit is imposed operator-wise, and in some cases, also member-wise.2 . C i r c u i t - f i l t e r s o r l i m i t o n p r i c e f l u c t u a t i o n s t o a l l o w c o o l i n g o f m a r k e t i n t h e event of abrupt upswing or downswing in prices.3.Special margin deposit to be collected on outstanding purchases or sales when price moves up or down sharply above or below the previous day closing price.B y m a k i n g f u r t h e r p u r c h a s e s / s a l e s r e l a t i v e l y c o s t l y , t h e p r i c e r i s e o r f a l l i s sobered down. This measure is imposed only on the request of the exchange. 4. Circuit breakers or minimum/maximum prices these are prescribed to preventfutures prices from falling below as rising above not warranted by prospectivesupply and demand factors. 5. Skipping trading in certain derivatives o f the contract, closing the market for aspecified period and even closing out the contract Case Processing Summary Valid N 60 Cases Missing N Percent 5 7.7% Total N 65

Income*age Table No 1 Income * age Cross tabulation

Percent 92.3%

Percent 100%

INFERENCE: According to the survey most of the investors are falling under thereincome more than375000 and age group 50 & above are regular investors amongo t h e r a g e a n d i n c o me g r o u p b e c a u s e i t c o u ld b e t h e y a r e mo r e a w a r e a b o u t trading system and their annual income also high.