Comparison of Stock Market with other Investment Options India Bulls Securities Ltd.

Summer Training Project Report

(Submitted in partial fulfillment of the requirement for the award of the degree of MBA)

SUBMITTED BY LOVEKESH VERMA (6525) MBA III (2006--2008) ERoll No. (0581483906)

MAHARAJA AGARSEN INSTITUTE OF TECHNOLOGY PSP AREA, ROHINI SECTOR -22, NEW DELHI-85

Certificate

THIS IS TO CERTIFY THAT THIS IS A BONAFIDE RECORD OF THE PROJECT WORK DONE BY MR.LOVEKESH VERMA IN PARTIAL FULFILLMENT OF MBA PROGRAMME. This Report Or Similar Report has not been submitted for any other examination and does not form part of any other course undergone by the candidate.

DATE:-

SIGNATURE OF CANDIDATE

SIGNATURE OF PROJECT GUIDE

Name: Mr. Anshul Aggarwal Designation: Vice President, Indiabulls Securities Ltd

ACKNOWLEDGMENT

Before we get into thick of the things I would like to add a few heartfelt words for the people who were part of this project in numerous wayspeople who gave unending support right from the stage. The project idea was conceived and the people whose constant guidance and encouragement served as a beacon light and crowned my efforts with success. I express my deep sentiments of gratitude to revered guide Mrs. Manju Gupta and Mr. Anshul Aggarwal(Vice President, IBSL) for their keen and personal interest, guidance and moral support throughout the entire period of this project work without which it would not have been possible to accomplish this work. Finally I sincerely thank my all those colleagues and others who helped me directly or indirectly in accomplishment of this project.

Date:

Lovekesh verma (6525)

Certificate Acknowledgment

I II

TABLE OF CONTENTS

1. 2.

Executive Summary Introduction Objective

3.

Research Methodology Statement of Problem Sample design Data Collection Tools

4.

Company Profile Overview of different investment options

5. 6. 7. 8.

Data Analysis Findings Conclusions and Recommendation Limitations

9. 10.

Bibliography Annexure Questionnaire

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY The purpose of this project was to measure the awareness level of a selected number of investors about the stock market as an investment options. The factors involved in choosing the investment options of the investors are studied and the reasons of investors to not to invest in stock market are studied. Fifty investors randomly picked were interviewed. In this project report, the introduction of different investment options is provided initially. The different options like fixed deposits, Stock market, Mutual funds are described. Then the objectives of the project are presented and the research methodology succeeds after that. Finally the findings of the project report stating the lack of awareness of investors about the stock market investment are presented. The lack of appropriate funds to invest in stock market also contributes to the lack of interest in stock market.

INTRODUCTION

INTRODUCTION Instead of putting your money into cold storage, put it to work for you by investing. Whether you open a savings account, invest directly in the stock market or make use of some other investment option, your "extra" money can make more money for you.

Just how lucrative are your investments? That depends on the plan you choose as well as the amount of risk you're willing to take. But whether you're a risk-taker or a play-it-safer, there are options to help your nest egg grow. Stock Market Investing in stocks allows you to own part of a business. One share of stock represents a share of ownership in a company. Companies make shares available when they want to raise money to fund further growth and development. These shares are often publicly traded on a stock exchange and can vary widely in price from day to day. Unlike more secure investments, investing in stocks gives you no guarantee of a return. Since your profit is linked to the profitability of the company and the whims of the stock market, you could lose money if the value of the stock slips below what you originally paid. To buy stocks, you most likely will work with a broker. Many different services such as research and adviceare offered by pricey full-serve brokerages, or you can opt for more affordable discount brokerages. And some discount brokers will offer you the option to trade online. The upside? While the average annual percentage return on stock investments has been lower than in previous years, it is still higher than other types of investments. The downside? There's quite a bit of risk involved with buying stocks, because just as easily as your stock's value can increase it can decrease, meaning you lose money. Savings Accounts Savings accounts are the safest of investments. Usually insured, your money is available to you when you need it. Your bank pays you a fee known as interest for allowing them to use it. The upside? You can withdraw your money at any time with no penalty. Also, there's practically no risk involved. The downside? Interest rates are typically very lowaround 1.5 percentand sometimes barely keep up with the rate of inflation. Certificates of Deposit Want to get a slightly higher interest rate in exchange for investing your money for a specified amount of time? These accounts are called Certificates of Deposit (CDs) and range in length up to several years.

The upside? CDs are very safe investments because they offer low risk. The longer you agree to keep your money in the bank or financial institution, the higher your interest rate. The downside? There are costly penalties for withdrawing your money earlyso don't invest money you may need access to. Also, since your interest rate is locked in, you won't earn more if interest rates later go up. Money Market Fund When you open a money market fund, your bank spreads the money you invest over a number of CDs and other short-term investments. You retain access to your money, and your investment is relatively secure with a fixed income rate. The upside? These are generally safe investments, and you can redeem your shares of a money market fund at any time with no penalty. The downside? You get about the same (usually low) return as you would on a CDand sometimes lower than a CD. You may also be required to keep a minimum balance in your account, and may be charged fees if you slip below that minimum. Mutual Funds A mutual fund allows you to pool your money with other investors to buy stock in a number of companies. The mutual fund manager, who oversees investments in the fund, selects the companies based on the investment philosophy of the fund. The upside? Because your money is distributed among various stocks, the risk is lowereven if one stock bombs, you're still OK if the other stocks increase in value. The downside? Many mutual funds require a minimum investment. You may also pay a fee, called a "load," to have your fund managed by someone else. In addition, there may be a specified "holding time" during which you won't be able to sell the stocks in your fund. As a result, mutual funds are a great deal less "liquid" than other investment optionsmeaning you won't be able to convert your investments back to cash easily if you need the money. Bonds Bonds are like IOUs that large organizations make out to investors. With a bond, your investment is really a long-term loan. Bonds are referred to as "fixedincome" securities because the amount of income the bond earns is set when you

buy it. When you purchase a bond, you receive a document recording the amount lent, the interest rate and how often interest is paid. The upside? The risk can be minimal, depending upon the source of the bond. The downside? Bonds don't offer a very high return on your investment. And in some cases, the bond is not insured, which means you may have no guarantee that you will make money on your investment. If you purchase a bond from a company that later goes bankrupt, you'll lose your investmentso you need to investigate carefully before investing in corporate bonds.

OBJECTIVES OF STUDY

OBJECTIVE

To find out the investors awareness about the stock market investment in comparison to other investment options. To find out the reasons that discourages the investors to invest in stock market.

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

STATEMENT OF PROBLEM

There are number of investment options in front of investors while choosing to invest. Whether you open a savings account, invest directly in the stock market or make use of some other investment option, your "extra" money can make more money for you. One of the option is Stock market but the problem area is lack of knowledge of investment option in stock market. People think that stock market investment is a risky profile and compared it to the gambling. Thus sacrificing the advantages they can get after choosing the stock market as an investment option.

SAMPLE DESIGN

SAMPLING PLAN The sampling plan includes two decisions: 1. Sampling unit: Sampling unit means, Who is to be surveyed?

2. Sampling size: Sampling size means, How many people should be surveyed? Large samples give more reliable results than small samples. In our research, the sampling unit consists of individual investors. Sample size is 50.

SAMPLING TECHNIQUES USED FOR THE STUDY Selective random: People were randomly selected. Sampling Area: The research was carried out in New Delhi.

DATA COLLECTION TOOLS

PRIMARY SOURCE

the Questionnaire: The method used for purpose of collecting data was Questionnaire Method. In our case we used Structured-questioning method. Questionnaire was made filled by meeting personally to all the respondents.

Discussion:

The discussion connects the various aspects of the data analysisShows the commonalities across various respondents, uniqueness, inconsistencies, etc., and identifies the limits to the study resulting from the design and data analysis.

SECONDARY SOURCE Secondary source of collecting data is internet. Material present at various websites, which is in relation to this industry, is helpful in completing the project. Along with this some material was also provided by company itself, such as vision of company etc. Another secondary source of collecting data is through various books and journals.

DESCRIPTIVE RESEARCH: Main tool used under research methodology is Descriptive research which includes surveys and fact-finding enquiries of different kinds. Here major purpose is the description of the state of affairs, as it exists at present.

STATISTICAL TECHNIQUE USED TO ANALYZE DATA

1. HISTOGRAM ANALYSIS 2. PIE CHART ANALYSIS

COMPANY PROFILE

About Indiabulls
Indiabulls is Indias leading Financial Services and Real Estate company having over 640 branches all over India. Indiabulls serves the financial needs of more than 4,50,000 customers with its wide range of financial services and products from securities, derivatives trading, depositary services, research & advisory services, consumer secured & unsecured credit, loan against shares and mortgage & housing finance. With around 4000 Relationship Managers, Indiabulls helps its clients to satisfy their customized financial goals. Indiabulls through its group companies has entered Indian Real Estate business in 2005. It is currently evaluating several large-scale projects worth several hundred million dollars. Indiabulls Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock Exchange and Luxembourg Stock Exchange. The market capitalization of Indiabulls is around USD 2,350 million (25th April 2007). Consolidated net worth of the group is around USD 510 million (31st March 2007). Indiabulls and its group companies have attracted USD 500 million of equity capital in Foreign Direct Investment (FDI) since March 2000. Some of the large shareholders of Indiabulls are the largest financial institutions of the world such as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon Capital. Business of the company has grown in leaps and bounds since its inception. Revenue of the company grew at a CAGR of 159% from FY03 to FY07. During the same period, profits of the company grew at a CAGR of 184%. Indiabulls became the first company to bring FDI in Indian Real Estate through a JV with Farallon Capital Management LLC, a respected US based investment firm. Indiabulls has demonstrated deep understanding and commitment to Indian Real Estate market by winning competitive bids for landmark properties in Mumbai and Delhi.

Growth Story
Indiabulls has emerged as one of the leading and fastest growing financial company in less than two year, since its initial public offering in September 2004. It has a market capitalization of around 2,350 million (25th April 2007) and consolidated net worth of the group is around USD 510 million. 2000-01 Indiabulls Financial Services Ltd. established Indias one of the first trading platforms with the development of an in house team. 2001-03 Indiabulls expands its service offerings to include Equity, F&O, Wholesale Debt, Mutual fund, IPO distribution and Equity Research. 2003-04 Indiabulls ventured into Insurance distribution and commodities trading. Company focused on brand building and franchise model. 2004-05 Indiabulls came out with its initial public offer (IPO) in September 2004. Indiabulls started its consumer finance business. Indiabulls entered the Indian Real Estate market and became the first company to bring FDI in Indian Real Estate. Indiabulls won bids for landmark properties in Mumbai. 2005-06 Indiabulls has acquired over 115 acres of land in Sonepat for residential home site development. Merrill Lynch and Goldman sac, one of the renowned investment banks in the world have increased their shareholding in Indiabulls. Indiabulls is a market leader in securities brokerage industry, With around 31% share in online trading, Farallon Capital and its affiliates, the worlds largest hedge fund committed Rs. 2000 million for Indiabulls subsidiaries Viz. Indiabulls Credit Services Ltd. and Indiabulls Housing Finance Ltd. Steel Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd. acquired 8.2% stake in Indiabulls Credit Services Ltd.

2006-07 Indiabulls entered in a 50/50 joint venture with DLF, Kenneth Builders & Developers (KBD). KBD has acquired 35.8 acres of land from Delhi Development Authority through a competitive bidding process for Rs 450 crore to develop residential apartments. Indiabulls Financial Services Ltd. is included in the prestigious Morgan Stanley Capital International Index (MSCI). Farallon Capital has agreed to invest Rs. 6,440 million in Indiabulls Financial Services Ltd. Indiabulls ventured into commodity brokerage business. Indiabulls has received an in principle approval from Government of India for development of multi product SEZ in the state of Maharashtra. Dev Property Development plc., has subscribed to new shares and has also acquired a minority shareholding from the Company. Indiabulls Financial Services Ltd. Board resolves to Amalgamate Indiabulls Credit Services Limited and demerge Indiabulls Securities Limited.

Power Indiabulls
Regardless of how the market is performing or which way the economic winds are blowing, you, as a trader, are researching, charting, crafting a strategy, buying and selling. You are getting in, getting out and moving on to the next trade. Choose from a comprehensive offering of accounts, platforms and products. Customize our technology and services to support the way you work. Advance Trading Tools Trade smarter on Power IndiabullsTM Click for Demo - Choose from a broad spectrum of sophisticated trading tools using a fast desktop Trading Software Trading just got faster. Features of Power IndiabullsTM: Live Streaming Quotes Fast Order Entry Tic by Tic Live Charts Technical Analysis Live News and Alerts Extensive Reports for Real-time Accounting Indiabulls Equity AnalysisTM

Get full access to Indiabulls Equity AnalysisTM, our objective, fact-based approach to rating stocks.

Equity Research
Equity research forms an integral part of the share trading experience. Equity research decides the stance one would take in the share trading industry. Forecasting scrip performance requires much more characteristics and skills than just advance arithmetical ability. It requires split-hair analysis of the market. To do so one also needs to have excellent understanding of the market. Supported by valid, fact-based and reliable research inputs and published results, our research desk picks out stocks, analyzes its future scope and give a timely recommendation.

Commodities
Indiabulls Group offers a wide array of financial services to its customers. Indiabulls Commodities Private Limited (ICPL) a 100% subsidiary of Indiabulls Financial Services Limited offers commodity brokerage services to its customers. ICPL is a registered Trading-cum-Clearing member of Multi Commodity Exchange of India Ltd. (MCX) and National Commodity and Derivatives Exchange Ltd (NCDEX). These two Commodity Exchanges have shown a phenomenal growth in trading volumes. Significant trading as well as arbitrage opportunities exists for informed players in the futures market. ICPL is the right partner for you if you are keen on tapping opportunities being presented by this nascent commodities futures market. We offer a clearly differentiated product to our clients with a strong focus on research. Our commodities research team has a rich research experience in the commodities markets. The specialized services provided by our research team include daily intraday reports, reports on Agri-commodites & Metals, weekly & medium term market outlook and arbitrage strategies. Our retail branch network is one of the largest retail branch networks in the private financial services sector and provides our customers with an unmatched distribution and service capability.

Our flagship INDIABULLS PROFESSIONALTM network spread over more than 640 Indiabulls offices in 113 cities offers real-time prices, detailed data and news, intelligent analytics and electronic trading capabilities, right at you fingertips.

Depository Services
Indiabulls is a depository participant with the National Securities Depository Limited and Central Depository Services (India) Limited for trading and settlement of dematerialized shares. Indiabulls performs clearing services for all securities transactions through its accounts. We offer depository services to create a seamless transaction platform execute trades through Indiabulls Securities and settle these transactions through the Indiabulls Depository Services. Indiabulls Depository Services is part of our value added services for our clients that create multiple interfaces with the client and provide for a solution that takes care of all your needs.

Consumer Finance
Indiabulls being a retail focused organization fulfills the credit need of a large percentage of population in India. The key aspect of Indiabulls business model is to provide an extremely unique customer experience. The blend of power of the Internet with personalized services allows Indiabulls to expand its geographical coverage and capture a greater share in the highly competitive retail market. We offer consumer loans, home loans, personal loans, securities brokerage, and other financial products and services to retail customers from across 640 Indiabulls offices in 127 leading cities of the country.

Overview of different investment options WHAT IS STOCK MARKET

The term 'the stock market' is a concept for the mechanism that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the

bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly 'over-the-counter'). It must be noted though that the derivatives market, because it is stated in terms of notional outstanding amounts, cannot be directly compared to a stock or fixed income market, which refers to actual value. The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together. The stock market in the India includes the trading of all securities listed on the BSE, the NSE, as well as on the many regional exchanges. Trading Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals. Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. Market participants Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular

corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees (they then went to 'negotiated' fees, but only for large institutions).However, corporate governance (at least in the West) has been greatly affected by the rise of institutional 'owners.' Importance of stock market Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'tre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The stock market, individual investors, and financial risk Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables). The behavior of the stock market From experience we know that investors may temporarily pull financial prices away from their long term trend level. Over-reactions may occur so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. New theoretical and empirical arguments have been put forward against the notion that financial markets are efficient. Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact.

Irrational behavior Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors and mass panic. Furthermore, the stock market comprises a large amount of speculative analysts, or pencil pushers, who have no substantial money or financial interest in the market, but make market predictions and suggestions regardless. Over the shortterm, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market difficult to predict. Stock market index The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices. Such indices are usually market capitalization (the total market value of floating capital of the company) weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment. Leveraged Strategies Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale. Short selling In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. Margin buying In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United

States, the margin requirements have been 50% for many years A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. Fixed Deposits Definition A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above, thereby earning a higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited, premature withdrawal before maturity period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India. A good investment strategy requires choosing the right mix of safe and risky investments. Among safe investments, fixed deposits, FDs, are the most popular today. With FDs you deposit a lump sum of money for a fixed period ranging from a few weeks to a few years and earn a pre-determined rate of interest. FDs are offered by both banks and companies though putting your money with the latter is generally considered riskier. Features Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. The banks are free to offer varying interests in fixed deposits of different maturities. Interest is compounded once a quarter, leading to a somewhat higher effective rate.

The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-. Before opening a FD account, try to check the rates of interest for different banks for different periods. It is advisable to keep the amount in five or ten small deposits instead of making one big deposit. In case of any premature withdrawal of partial amount, then only one or two deposit need be prematurely encashed. The loss sustained in interest will, thus, be less than if one big deposit were to be encashed. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. The thing to consider before investing in an FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away your real returns. What are the advantages and disadvantages of FDs? Bank deposits are the safest investment after Post office savings because all bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get a loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The interest charged will be 2% more than the rate of interest earned by the deposit. With effect from A.Y. 1998-99, investment on bank deposits, along with other specified incomes, is exempt from income tax up to a limit of Rs.12, 000/- under Section 80L. Also, from A.Y. 1993-94, bank deposits are totally exempt from wealth tax. The 1995 Finance Bill Proposals introduced tax deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/- and above per annum. The main advantage is that FDs from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India , RBI, the banking regulator in India. Note that company FDs isn't as safe as bank FDs because if the company goes bankrupt you may lose your money. Make sure you check the credit rating of a company before investing in its FDs. You should be especially wary of companies which offer interest rates significantly higher than the average to attract your money. The other advantage of FDs is that you have the option of receiving regular income through the interest payments that are made every month or quarter. This option is especially useful for retirees.

On the flip side, a fixed deposit won't give you the same returns that you may get in the stock markets. For instance a stock-portfolio may rise 20-30 per cent in a good year whereas a fixed deposit typically earns only 7-10 per cent. A fixed deposit also doesn't offer protection against inflation. If inflation rises steeply during the maturity of the FD your inflation adjusted return will fall. Say, for example, the inflation when you deposited the money at a fixed return of 8 per cent per annum is 3 per cent. Now when your FD matures say after 2 years, the inflation increases to say 5 per cent. In this case, your inflation adjusted returns is only 3 per cent (8-5). Had inflation remained at 3 per cent by the time your deposit matured, your real rate of return would be 5 per cent (8-3). Interest rates on FDs The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the maturity period (duration) of the FD and the amount invested. Interest rate also varies between each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its maturity. Some banks have facility to pay interest every quarter or every month, but the interest paid may be at a discounted rate in case of monthly interest. The Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years. Duration 15-30 days 30-45 days 46-90 days 91-180 days 181-365 days 1-2 years 2-3 years 3-5 years Effective Return Interest rate (%) per annum 4 -5 % 4.25-5 % 4.75--5.5 % 5.5-6.5 % 5.75-6.5 % 6-8 % 6.25-8 % 6.75-8

Before you invest in FDs you need to understand the concept of effective return which is higher than the rate of interest on the FD. Effective return is relevant if you choose to reinvest your interest every year which means that you will be earning compound interest. For example suppose you invest Rs 1,000 in a fixed deposit with 8 per cent interest which is paid quarterly.In the first quarter (after 3 months) you will earn an interest of Rs 20 which is re-invested and continues to earn interest in the remaining three quarters. Similarly the interest you earn in the second (after 6 months) and third quarter (after 9 months) is also reinvested and earns interest. At the end of the year because of compound interest you will receive Rs 1,082.4 meaning that your effective return is 8.24 per cent rather than 8 per cent. What happens if you break a fixed deposit? Breaking a fixed deposit means withdrawing the money before the maturity expires. This may be necessary if you urgently require the funds or if there are better investment opportunities elsewhere. You will have to pay a cost; for instance you may receive an interest rate 1 per cent lower than the stated interest rate on the FD. An alternative to breaking a fixed deposit is taking a loan against the FD. Such loans are quite easy to obtain with amounts ranging up to 90 per cent of the principal and accumulated interest. Are there better alternatives to FDs? Obviously mutual funds and stocks can offer higher returns but the main issue is whether there are low risk investment products which offer a better return than FDs. Many financial experts believe that fixed maturity plans (FMP) offer exactly such a superior alternative. Fixed maturity plans are similar to FDs in that they have a pre-determined tenure (say 3 years like the maturity of an FD) ranging from a few weeks to a few years. Your money is invested in fixed-income assets like governments bonds and money-market instruments which carry a low risk.

3.

Mutual Funds

Introduction As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. More than 80 million people, or one half of the households in America, invest in mutual funds. Originally, mutual funds were heralded as a way for the little guy to get a piece of the market. Instead of spending all your free time buried in the financial pages of the Wall Street Journal, all you had to do was buy a mutual fund and you'd be set on your way to financial freedom. As you might have guessed, it's not that easy. What Are They? The Definition A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Advantages of Mutual Funds: Professional Management - The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions. Liquidity - Just like an individual stock, a mutual

fund allows you to request that your shares be converted into cash at any time. Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis. Disadvantages of Mutual Funds: Professional Management - Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section. Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability. Mutual funds vs. other investments Mutual funds offer several advantages over investing in individual stocks. For example, the transaction costs are divided among all the mutual fund shareholders, who also benefit by having a third party (professional fund managers) apply their expertise, dedicate their time to manage and research investment options. However, despite the professional management, mutual funds are not immune to risks. They share the same risks associated with the investments made. If the fund invests primarily in stocks, it is usually subject to the same ups and downs and risks as the stock market.

DATA ANALYSIS

DATA ANALYSIS

1. Do you invest in stock market? [1] Yes [2] No

42% 58%

Yes No

Chart above clearly shows that 42% of the surveyed investors invest in stock market, 58% people do not invest in stock market.
2. What kind of Financial instruments do you invest in? [1] Fixed Deposits [2] Bonds [3] Mutual Funds [4] Equity

Chart above clearly shows that only 26% of the surveyed investors invest in stock market, 30% people invest in mutual funds, 34% invest in Fixed Deposits, 10% invest in Bonds. This clearly shows that majority of the investors still prefer Fixed Deposits compared to other investment options. 26% investors invest in stock market shows that investors have inclination in investing in stock market.
3. What is your total income per annum? [1] Below 1 lakh [2] 1 3 lakh [3] More than 3 lakh

Chart above shows that the surveyed people are a mix of investors having different total income per annum.
4. How would you rate your risk profile? [1] High [2] Medium [3] Low

Chart above clearly shows that 55% of the surveyed investors rate their risk profile as medium, 12% people rate as high risk and 30% people thinks that they have a low risk profile of investment.

5. What appropriate rate of return you expect from your investment? [1] 10-20% [2] 20-30% [3] 30-50%

Chart above clearly shows that only 26% of the surveyed investors expect their rate of return to be between 30 -50% and the previous chart shows that 26% people have invested in stock market thus indicating that investors who have invested in the equity are expecting 30-50% return, 42% people expects the rate of return between 10-20%.
6. How would you rate your knowledge about stock market? [1] Excellent [2] Very good [3] Good [4] Poor

Chart above clearly shows that 56% of the surveyed investors have poor knowledge of stock market, 36% people has good knowledge of stock market, 8 % people thinks they have excellent or vary good knowledge of stock market. This shows that people generally are unaware of investment in stock market compared to other investment options like Fixed deposits.
7. Are you aware of Online Share Trading? [1] Yes [2] No

Chart above clearly shows that 54% of the surveyed investors have poor knowledge of stock market, 36% people has good knowledge of stock market, 8 % people thinks they have excellent or vary good knowledge of stock market. This shows that people generally are unaware of investment in stock market compared to other investion options like Fixed deposits
8. What do you think about investing in stock market? [1] Ideal Investment [2] Risky Investment [3] Gambling

Chart above clearly shows that 54% of the surveyed investors rate stock market investment a risky investment, 36% people rate the stock market investment as gambling, only 10 % people thinks it to be ideal investment. This shows that a large percentage of people associate investment in stock market with high risk.

9. How would you rate investing in stock market on the basis of returns? [1] Excellent [2] Very good [3] Poor [4] Cant say

Chart above clearly shows that 18% of the surveyed investors rate stock market investment as excellent on the basis of returns, 26% people rate as very good, 32 % people thinks they do not have any knowledge about the expected returns in the stock market. This shows that 44% people generally thinks stock market investment as a high returns investment and rest are unaware of the returns in stock market.

FINDINGS

FINDINGS

People prefer to invest in stock market for higher returns. Investors who are willing to take high risk are willing to invest in stock market. People in general have less knowledge of stock market. People are unaware of the online trading in stock market. People are wary of the up and down performance of stock market investment. Stock market investments resulted in higher returns as compared to other investment options in the previous years, but associated with higher risks. The lack of appropriate funds to invest in stock market also contributes to the lack of interest in stock market.

Recommendations And Suggestions

Recommendations And Suggestions

Investors are generally unaware of investment in stock market. The knowledge about the stock market in general and the pros and cons of investing in stock market must be provided in a large scale. People generally associate stock market investment to high risk even gambling. Such kind of misbelieves must be tried to remove from the minds of investors by educating them more on stock market.

Limitations

LIMITATIONS OF THE STUDY

The time constraint was one of the factors, which lead to a limited sample size. Customers of a particular area are only included, which ultimately leads to a limited opinion. The full efforts were made to convince the respondents, but they were sometimes not cooperative with us due to their busy schedule. Few of the respondents hesitated while giving responses and there might some chances of biased-ness in the respondents. Relative understanding of customers regarding the questions. Sometimes respondents tried to give information of which they were not aware fully, some guesses were made and sometimes despite a willingness to co-operate, many respondents were unable to give accurate information.

Bibliography

BIBLIOGRAPHY
Internet/ web sources www.google.com www.wikipedia.com www.indiabulls.com www.bseindia.com www.nseindia.com Books An overview of Indian financial market - Author J.S. Ahuja

Annexure

QUESTIONNAIRE Good ( morning, afternoon, night). I am conducting a survey comparing stock market investment with other investment options. The information you provide will be treated confidentially. We hope that you will be willing to help us with this study.

1. Do you invest in stock market? [1] Yes [2] No 2. What kind of Financial instruments do you invest in? [1] Fixed Deposits [2] Bonds [3] Mutual Funds [4] Equity 3. What is your total income per annum? [1] Below 1 lakh [2] 1 3 lakh [3] More than 3 lakh 4. How would you rate your risk profile? [1] High [2] Medium [3] Low 5. What appropriate rate of return you expect from your investment? [1] 10-20% [2] 20-30% [3] 30-50%

6. How would you rate your knowledge about stock market? [1] Excellent [2] Very good [3] Good [4] Poor 7. Are you aware of Online Share Trading? [1] Yes [2] No 8. What do you think about investing in stock market? [1] Ideal Investment [2] Risky Investment [3] Gambling 9. How would you rate investing in stock market on the basis of returns? [1] Excellent [2] Very good [3] Poor [4] Cant say