Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated

the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50
Page 1

stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).

Scope Of The Study:

This study is not only based on theoretical data but also the awareness of the investing public about futures and options to minimize risk and loss. This study gives a fair view about the potential of the futures and options market.

Objective Of The Study:

The prime objective of this research study is to know the awareness among the retail investors about futures and options.

The other Objectives:

To find out the satisfaction level of investors by investing through such derivatives How well investors utilized derivatives in minimizing their investment risk. Criteria for investment in the present scenario How the unknown segment of futures and options want to know more about this tool. To identify the potential of futures and options in the future.

Page 2

Importance of study:
Futures and options were started in India in November 1997 and is one of the integral

part of the stock market for hedging though India is overcoming the US market with respect to the volumes it is to be seen how well this has been exposed to the retail segment.

RESEARCH METHODOLOGY
Type of project study: It is a Freelance type study. Along with the study about the investors of different security dealers it has a field study with general investor analysis. Tool for collection of data: Structured questionnaire The secondary information is collected from various text books, news papers and web sites.

Respondents Size: This study is confined to 100 respondents, which includes clients of various broking houses and investing public. Sample Design: Random sampling (investors) Method of Analysis Tabulation, graphical representation and logical analysis

Page 3

 Limitations:
1. This study is mainly conducted with only a few clients of Geojit Securities, Integrated

Services, IL & FS investments and few other security dealers. Also with general public at few areas of Chikamagalore and does not take the whole of the derivative investors in India. 2. This study is restricted to 100 respondents. As the numbers of respondents are only 100,

this may not give the clear picture about all the investors attitude towards the futures and options. 3. This study is conducted bet January 2012, the respondents preference might be different

due to the changing conditions for different investment avenues.

Page 4

Industry profile
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners . Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.

Page 5

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Brse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand, has created the 'iShares BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.

BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national level stock exchange
Page 6

to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-***-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street.

In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements.

BSE also has a wide range of services to empower investors and facilitate smooth transactions: Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities.

The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 450 cities in India.

BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform.

Page 7

Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.

BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programs.

Awards
The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR). The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting. The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology Drawing from its rich past and its equally robust performance in the recent times, BSE will continue to remain an icon in the Indian capital market.

Financial Services Industry

Financial services organizations are striving to achieve increasingly ambitious profit and growth targets against a background of heightened risk, regulation and market pressures. As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.
Page 8

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises.

Customer needs and expectations are evolving in the face of increasing personal wealth, more private funding of pensions and healthcare and the desire for ever more accessible and personalized financial products and services. In turn, intense competition has squeezed industry margins and forced organizations to cut costs while still seeking to enhance the quality of client choice and service. The battle for talent is also heating up as companies seek to enhance innovation, customer loyalty and investment returns The corollary of this market evolution is increasing risk as products become more complex, organisations more diffuse and the business environment ever more uncertain. Regulation is also tightening in the wake of public and government pressure for improved governance, transparency and accountability. In this environment, the winners will be companies that can turn the challenges into opportunities to build stronger and more enduring customer relationships; sharpen process efficiency; unlock talent and creativity; use improved risk management processes to deliver more sustainable returns; and use new regulatory demands as a catalyst for strengthening the business and enhancing market confidence.

Organizations will also need to identify and concentrate on core competencies where they can exert maximum competitive advantage, be this a particular product, service, process or geographical territory. For some this will require a strategic re-orientation towards becoming a specialist niche provider. Even larger groups will need to differentiate their offering and by implication the associated brand In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or
Page 9

agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis. Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy In finance, financial markets facilitate-

The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); International trade (in the currency markets)

--and are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.

Definition of financial market

The term financial markets can be a cause of much confusion. Financial markets could mean: 1. Organizations that facilitate the trade in financial securities. i.e. Stock Exchanges facilitate the trade in stocks, bonds and warrants. 2. The coming together of buyers and sellers to trade financial securities. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc.

Page 10

Types of Financial Markets The financial markets can be divided into different subtypes: Capital Market which is the market for securities, where companies and governments can raise long term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. CAPITAL MARKETS WHICH CONSIST OF:
Stock Markets :- which provide financing through the issuance of shares or common stock,

and enable the subsequent trading thereof.

Bond Markets :- which provide financing through the issuance of Bonds, and enable the

subsequent trading thereof.

Commodity Markets:- which facilitate the trading of commodities. Money Markets :- which provide short term debt financing and investment. Derivatives Markets:- which provide instruments for the management of financial risk.

Futures Markets, which provide standardized forward contracts for trading products at some future date; see also forward market.

Insurance Markets :- which facilitate the redistribution of various risks. Foreign Exchange Markets :- which facilitate the trading of foreign exchange.

The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.
Page 11

Raising Capital
To understand financial markets, let us look at what they are used for, i.e. what is their purpose? Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold. The following table illustrates where financial markets fit in the relationship between lenders and borrowers: Relationship between lenders and borrowers Lenders Financial Intermediaries Banks Individuals Companies Insurance Companies Pension Funds Mutual Funds Financial Markets Interbank Stock Exchange Money Market Bond Market Foreign Exchange Borrowers Individuals Companies Central Government Municipalities Public Corporations

Analysis Of Financial Markets

Much effort has gone into the study of financial markets and how prices vary with time. Charles Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term. The
Page 12

claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. The scale of changes in price over some unit of time is called the volatility. It was discovered by Benot Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather modeled better by Levy stable distributions. The scale of change, or volatility, depends on the length of the time unit to a power a bit more than 1/2. Large changes up or down are more likely than what one would calculate using a Gaussian distribution with an estimated standard deviation.

Company profile

Stoke broker definition

Broker who Deals primarily with transactions involving stock.

Page 13

A stock broker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors.

ABOUT GEOJIT BNP PARIBAS A leading retail financial services player

Geojit BNP Paribas today is a leading retail financial services company in India with a growing presence in the Middle East. The company rides on its rich experience in the capital market to offer its clients a wide portfolio of savings and investment solutions. The gamut of value-added products and services offered ranges from equities and derivatives to Mutual Funds, Life & General Insurance and third party Fixed Deposits. The needs of over 460 000 clients are met via multichannel services - a countrywide network of 500 offices, phone service, dedicated Customer Care centre and the Internet.

Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). In 2007, global banking major BNP Paribas joined the companys other major shareholders - Mr. C.J.George, KSIDC (Kerala State Industrial Development Corporation) Strategic joint ventures and business partnerships in the Middle East has provided the company access to the large Non-Resident Indian(NRI) population in the region. Now, as a part of the BNP Paribas global network, Geojit BNP Paribas is well positioned to further expand its reach to NRIs in 85 countries. Barjeel Geojit Securities is the joint venture with the Al Saud group in the United Arab Emirates that is headquartered in Dubai with branches in Abu Dhabi, Ras Al Khaimah, Sharjah and Muscat. Aloula Geojit Brokerage Company headquartered in Riyadh is the other joint venture with the Al Johar group in Saudi Arabia. The company also has a business partnership with the Bank of Bahrain and Kuwait, one of the largest retail banks in Bahrain and Kuwait.
Page 14

At the forefront of the many fruitful associations between Geojit BNP Paribas and BNP Paribas is their joint venture, namely, BNP Paribas Securities India Private Limited. This JV was created exclusively for domestic and foreign institutional clients.

Expanding range of online products and Services.

Geojit BNP Paribas has proven expertise in providing online services. In the year 2000, the company was the first stock broker in the country to offer Internet Trading. This was followed by integrating the first Bank Payment Gateway in the country for Internet Trading, and many other industry firsts. Riding on this experience, and harnessing BNP Paribas Personal Investors expertise as the leading online broker in Europe, is helping the company to rapidly expand its business in this segment. Presently, clients can trade online in equities, derivatives, currency futures, mutual funds and IPOs, and select from multiple bank payment gateways for online transfer of funds. Further, deployment of BNP Paribas state-of-the-art globally accepted systems and processes is already scaling up the sales of Mutual Funds and Insurance.

Wide range of products and Services

Certified financial advisors help clients to arrive at the right financial solution to meet their individual needs. The wide range of products and services on Equities | Derivatives | Currency Futures | Custody Accounts | Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services | Property Services | Margin Funding | Loans against Shares.

A growing footprint
With a presence in almost all the major states of India, the network of 500 offices across 300 cities and towns presently covers Andhra Pradesh, Bihar, Chattisgarh, Goa, Gujarat, Haryana, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi, Orissa, Punjab, Rajasthan,Tamil Nadu & Pondicherry, Uttar Pradesh, Uttarakhand and West Bengal.

Page 15

Evolution of the Company

It all started in the year 1987 when Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a partnership firm. In 1993, Mr.Ranajit Kanjilal retired from the firm and Geojit became the proprietary concern of Mr. C .J. George. In 1994, it became a Public Limited Company named Geojit Securities Ltd. The Kerala State Industrial Development Corporation Ltd. (KSIDC), in 1995, became a co-promoter of Geojit by acquiring a 24 percent stake in the company, the only instance in India of a government entity participating in the equity of a stock broking company. The year 1995 also saw Geojit being listed on the leading regional stock exchanges. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year 2000. Companys wholly owned subsidiary, Geojit Commodities Limited, launched Online Futures Trading in agri-commodities, precious metals and energy futures on multiple commodity exchanges in 2003. This was also the year when the company was renamed as Geojit Financial Services Ltd. (GFSL). The Board consists of professional directors; including a Kerala Government nominee. With effect from July 2005, the company is also listed at The National Stock Exchange (NSE). Company is a charter member of the Financial Planning Standards Board of India and is one of the largest Depository Participant(DP) brokers in the country. On 31st December 2007, the company closed its commodities business and surrendered its membership in the various commodity exchanges held by Geojit Commodities Ltd. Global banking major BNP Paribas took a stake in the year 2007 to become the single largest shareholder. Consequently, Geojit Financial Services Limited has been renamed as Geojit BNP Paribas Financial Services Ltd.

About BNP Paribas:

BNP Paribas (www.bnpparibas.com) is the Eurozones leading bank in terms of deposits, and one of the 10 most important banks in the world in terms of net banking income, equity capital and market value. Furthermore, it is one of the 6 strongest banks in the world according to Standard & Poor's. With a presence in 85 countries and more than 205,000 employees, 165,200 of which in Europe, BNP Paribas is a global-scale European leader in financial services. It holds key positions in its three activities: Retail banking, Investment Solutions and Corporate &
Page 16

Investment Banking. The Group benefits from its four domestic markets: Belgium, France, Italy and Luxembourg. BNP Paribas also has a significant presence in the United States and strong positions in Asia and the emerging markets. BNP Paribas has been operating in India since 1860 in a number of businesses such as Investment Banking (CIB), Private banking (BNP Paribas Wealth Management), Life Insurance (SBI Life) and Asset Management (Sundaram BNP Paribas), Infrastructure Funding (Srei BNP Paribas), Retail Financing (Sundaram BNP Paribas Home Finance), Car Contract Hiring (Arval), Institutional Broking (BNP Paribas Securities India) and Securities Services (Sundaram BNP Paribas Securities Services and BNP Paribas Sundaram Global Securities Operations).

Why geojit bnp Paribas

1. 22 years of history in Indian Capital Market Geojit BNP Paribas has 22 years of in-depth broking experience in the Indian Capital Market. More than 4.5 lakh clients and over Rs 5,400 crores (as of 31st Mar.09) in Assets Under Management reflect the trust reposed in our expertise.

2. Pioneer in Online Trading in Feb. 2000 In the year 2000, Geojit BNP Paribas pioneered the simple concept of providing individuals with the facility to trade online. This revolution has given the company the first mover advantage in online trading. As a creative innovator, Geojit BNP Paribas uses advanced technology in online trading to meet client requirements such as customized online trading platforms and many other services.
Page 17

3. Srrong Shareholders Geojit BNP Paribas is backed by srrong shareholders. In 2007, global banking major BNP Paribas joined the companys other major shareholders- Mr. C.J George, KSIDC (Kerala State Indusrial Development Corporation ) And Mr. Rakesh Jhunjhunwala- when it took a Stake to become the single largest shareholder.

Wide range of products

Geojit BNP Paribas offers a wide range of trading and investment products and solutions. Certified financial advisors help clients to arrive at the right financial solution to meet their individual needs.

The wide range on offer includes - Equities | Derivatives | Currency Futures | Custody Accounts | Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services | Property Services | Margin Funding | Loans against Shares

Attractive brokerage Slabs

We provide value for money! To start with, we offer low online brokerage charges which further decrease automatically, as and when, your volumes increase.

Learn the craft

You too can develop your trading skills by availing of the effective guidance by our our clients into successful traders
Daily mails delivered to our clients mailbox on market conditions and

recommendations
Technical analysis of BSE 200 index scrips Page 18

 Free monthly investment magazine

Services of professionally qualified executives at 500 offices Across india. our strong research ideas have been instrumental in converting our clients into

successful traders.

Multichannel service- internet, Phone, Branch trading

Trade the way that you want to by selecting from multiple channel Branch. options- Internet, Phone or

First mover advantage

Geojit BNP Paribas through its first mover advantage in different areas has been the first to serve investors with its innovative offerings. 1st to launch internet trading in the year 2000. 1st to launch integrated internet trading system for cash and
derivative segments in the year 2002. 1st Indian stock broking company to commence domestic retail broking operations in any foreign country. 1st in the industry to have a global player offering its name thereby creating Geojit BNP

Paribas. 1st to launch exclusive branches for women in 2005.

Our deep reach

we have a pan-India network of 500 offices with industry certified executives and a dedicated Call Centre to provide you quality services.

Wide range of fund options

Page 19

Geojit BNP Paribas gives you the option to choose from the 700 plus Mutual Fund schemes offered by over 35 Asset Management companies such as SBI Mutual Fund, Reliance Mutual Fund, Franklin Templeton India Mutual Fund, Tata Mutual Fund, Sundaram BNP Paribas Mutual Fund, Fidelity Mutual Fund, and HDFC Mutual Fund.

13/03/2007 With Geojit, BNP Paribas enters into savings products distribution in India and creates the BNP Paribas Personal Investors business line BNP Paribas acquires a 27% interest in the India-based company Geojit and becomes its main shareholder.

BNP Paribas enters the capital of Geojit Financial Services Ltd through a preferential allotment representing 27% of Geojits equity. The capital increase will take place in two stepts and the share of BNP Paribas will increase up to a minimum of 34.35% in the coming few weeks. Based in Kochi, Kerala, Geojit is a brokerage firm and distributor of financial savings products, with approximately 250,000 clients, a network of 400 branches throughout India, and over 2,000 employees. Geojit also operates in the United Arab Emirates through the joint-venture Barjeel Geojit Securities.

Geojit offers brokerage services for equities, derivatives and commodities, financial savings products (funds, life insurance, programmed savings plans) and a portfolio management service, mainly to private customers.

The capital increase allotted to BNP Paribas will mainly allow to finance the continued development of the company in India and to bolster its presence in the Gulf countries, primarily through the opening of a new joint-venture in Saudi Arabia. The company will use the brand name Geojit BNP Paribas and the common logo of the group's companies for all its operations in India.
Page 20

CJ George, age 48, has been the CEO of Geojit since its creation and becomes CEO of Geojit BNP Paribas. He holds a Masters in Business and the Certified Financial Planner (CFP) degree. He was elected Businessman of Kerala in 2002. He is a member of the Executive Board of the Associated Chambers of Commerce and Industry of India, New Delhi (ASSOCHAM), of the Kochi Chamber of Commerce and of the Executive Committee of Financial Planning standard Board of India, Bombay. He also sat on the Executive Board of the National Stock Exchange (NSE).CJ George joins the Executive Board of BNP Paribas Personal Investors.

A strategic partnership between Geojit and BNP Paribas

Already present in India through its Investment Banking, Private Banking, Insurance (jointventure SBI Life) and Asset Management (joint-venture Sundaram BNP Paribas, etc.) activities, BNP Paribas will find in Geojit a strong trading and distribution platform in a fast growing market. To accelerate its growth, Geojit will benefit from the BNP Paribas Group's experience in savings distribution (investment funds, life insurance), cross-selling, consulting and discretionary management of stocks and investment funds, multi-channel distribution and direct marketing and telesales.

A new business line, BNP Paribas Personal Investors, is part of the Asset Management & Services (AMS) division

- Cortal Consors

- its subsidiary, the brokerage firm B* Capital

Page 21

- the interest in Geojit

BNP Paribas Personal Investors is dedicated to providing financial investment advice to a massaffluent clientele in Europe and several emerging countries through various distribution channels (Internet, telephone and face-to-face). These operations are managed jointly so as to ensure that their identity. BNP Paribas Personal Investors, with 4,000 members, operates in Europe through Cortal Consors, the leading broker in personal investing and online trading, which offers a complete range of products and investment services through various distribution channels. Cortal Consors operates in 5 European countries: Germany, France, Belgium, spain and Luxemburg. B capital, a Cortal Consors brokerage firm, offers private investors wishing to manage their own portfolio information and peronalized consulting and management under mandate services.

BNP Paribas is a European leader in banking and financial services, with a signifi cant and growing presence in the United States and leading positions in Asia. The Group has one of the largest international banking networks, a presence in over 85 countries, with almost 163,000 employees, including over 126,000 in Europe. BNP Paribas enjoys key positions in its three core businesses. The company has in the Market Capitalisation ( In billions of eoros) in the year( 2007 ) 67.2 And Return on equity (in%) year (2007) 19.6

Geojit BNP Paribas Financial Services Ltd. consists of four companies.

BNP Paribas India solutions Pvt.Ltd.

BNP Paribas India Solutions Private Limited (BNPPISPL), incorporated in 2005, is a subsidiary of BNP Paribas S.A. BNPPISPL aims to provide info-center, data warehousing, IT and backPage 22

office processing services, with major focus on capital markets information technologies as well as regional organization and methods.

BNP Paribas Investment Services Pvt.ltd.

BNP Paribas Investment Services India Pvt. Ltd. brings to the table a high level of personalised service, expert guidance, comprehensive financial plans and strategies, competitive products, and convenient access to state-of-the-art technologies.

Joint Venture- Geojit BNP Paribas Financial Services Ltd.

Geojit, is a leading retail broker with more than 340 000 clients, Rupees 6000 CR of assets under custody and executes more than 150 000 trades per day. It is listed on NSE and its network is made of more than 400 offices all overIndia. BNP Paribas credit rating to AA+ in July 2007, our Group joined one of only a handful of banks worldwide considered as a beacon of fi nancial strength. worlds most valuable brands. BNP Paribas is also one of the

Research is the solid foundation on which Geojit BNP Paribas financial Services Ltd. advice is based. Almost 10% of revenue is invested on equity research and we hire and train the best resources to become advisors. At present we have 25 equity analysts researching over 26 sectors. From a fundamental, technical and derivatives research perspective; Geojit BNP Paribas research reports have received wide coverage in the media (over a 1000 mentions last year). Geojit BNP Paribas Financial Services Ltd. has witnessed rapid organic growth due to favorable market conditions as well as efforts put in by the company itself. Over a period of time many more regional broking firms may be acquired to gain solid footing in various regions of India. The company has also established a base in the UAE to address the needs of the overseas audience.

Page 23

Geojit BNP Paribas Financial Services Ltd. was founded in 1988 as partnership firm, with just two people Mr. C.J.George And Mr. Ranjit running the show.

This companys institutional business unit has relationships with almost all leading foreign institutional investors (FIIs) in the Roma, Istanbul, London and Singapore.

We provide advice-based broking (equities and derivatives), portfolio management services (PMS), e-Broking, depository services, commodities trading, IPO and mutual fund investment advisory services.

Geojit BNP Paribas Financial Services Ltd value portfolio scheme has demonstrated very strong performance backed by our single-minded focus on research-based value investing and the experience and management of. Mr C.J.George an acknowledged expert in value investing.

Geojit BNP Paribas Financial Services Ltd.unique Wealth Creation Study, authored by Mr. C.J.George, Managing Director. Investors keenly await this annual study for the wealth of information it has on how companies created wealth during the preceding five years.

The organization finds its strength in its team of young, talented and confident individuals. Qualified professionals carry out different functions under the able leadership of its promoter, Mr. C.J.George Stringent employee selection process, focus on continuous training and adoption of best management practices drive the quest to achieving our Core Purpose and Values

Page 24

HISTORY
1988 :-The Company Geojit Sequrities Limited (GSL) , was A Partnership Firm , with two

partners Mr.C. J. George And Mr. Ranjit.

1994 :-The Company was incorporated as a Public Limited Company on 24th November and

obtained its certificates on commencement of business 25th January 1995.

1995 :-The Company has a Subsidiary in the name of the Geojit Stock and shares Limited

(GSSL) To Carry on the activities as a Dealer of Over the Counter exchange of India.

1996 :- The Company had make a Public issue of .equity Shares aggregating To RS.95 / -

Lakhs , During the Period under Report which received and was Oversubscribed Over 14 times.
1998 :-The Company , a joint Venture company with Kerala State Industrial Development

Corporation ( KSIDC) , has Announced improved working results for 1997-98.

1999:-The equity shares of the Company are Presently listed at five stock exchange VIZ.,

Madras, Ahemdabad,, Coimbatore, Delhi and Coachin.

2000:-Geojit Securities Ltd, a leading Retail Share broking firm launched Internet sequrities

trading for the first time in india. Geojit securities is a joint Venture with Kerala State Industrial Development Corporation (KSIDC) with Branches in 40 cities .
Page 25

Geojit Securities Ltd , the first Company to start online trading services, has Signed MoU with UTI Bank to enable investors to buy \ Sell Demat Stocks through the Companies Web Site. The company launched its online interface with HDFC Bank for Internet Trading. .Geojit Securities Ltd, a leading Stock broking Company , has decided to issue bonus Shares at 1:1 ratio, to capitalize part of general reserve

CORE PURPOSE & VALUES

Core Purpose To be a well respected and preferred global Stock broking financial services organization enabling wealth creation for all Geojit BNp Paribas Financial servicess stock brokers.

Values.
Integrity : A company honoring commitment with highest ethical and business practices. Team Work : Attaining goals collectively and collaboratively. Meritocracy : Performance gets differentiated, recognized and rewarded in an apolitical

environment.
Passion & Attitude: High energy and self motivated with a Do It attitude and

entrepreneurial spirit.
Excellence in Execution: Time bound results within the framework of the companys

value system.

Management Team
MOSt management team is regularly engaged in finding ways to improve operational efficiencies and customer satisfaction.

Page 26

You will find CAs, CFAs, ICWAs, , MBAs and IT professionals managing crucial functions, to bring you best products and services - from research & advice to trade execution & settlement. At MOSt we practice meritocracy and each of the team members is provided extensive training.

SENIOR MANAGEMENT Mr. Binoy Varghese Samuel is the Chief financial officer and Managing Director of Geojit BNP Paribas financial services Ltd.

Mr. A.P.Kurjan has served on the Non-executive independent chairman of the board. He is currently a member of the Bombay stock Exchange & National Stock Exchange (NSE) committee for F&O.

Recently, Mr. C.j George was conferred the CIO 100 ingenious award at the 4th annual CIO 100 symposium and awards ceremony.

Geojin BNP Paribas

Financial Services group activities include Wealth Management,

Investment Banking, Institutional Broking, Private Equity with operations in 1300 Business locations in over 400 cities and more than 3,00,000 customers. Gojit BNP Paribas Financial services Ltd. recently became a listed company with a Market Capitalisation of above 3000 Crores.

FAST FACTS/MILESTONES
Charter member of the Financial Planning Standards Board of India of 2006.

Page 27

 BNP Paribas acquires a 27% interest in the India-based company Geojit and becomes its

main share holder.

Geojit Financial Services Ltd through a preferential allotment representing 27% of

Geojit's equity.
In 2009 Geojit Finance Launch of Property Services division. In 2009 Geojit Finance Launch of online trading in currency Derivatives. 1 st brokerage to offer full Direct Market Access to execution in india For institutional

clients.
BNP Paribas Securities india (P) Ltd a joint venture with BNP Paribas S.A for

stitutional Brokerage.
Geojit Credits, a subsidiary, registers with RBI as a Non-Banking Financial Company

(NBFC).

PRODUCTS / FINANCIAL SERVICES. Equities

Geojit BNP Paribas, a member of NSE and BSE, has a network of over 500 branches in India and abroad, rendering quality equity trading services. Geojit BNP Paribas not only has a strong offline presence but also provides automated online trading services.

Geojit BNP Paribas also provides a Call & Trade facility to its customers wherein they can place and track their orders through our dedicated Call Centre Desk by dialing the toll free number 1800-425-5501 or 91-484-2405822 (Standard Rates Apply).

Page 28

Geojit BNP Paribas's retail spread caters to the need of individual investors. Trading in equities is made simple, safe and interesting with smart advice from the research desk through daily SMS alerts, market pointers, periodical research reports, stock recommendations and customer meets organized frequently.

The online trading system allows customers to track the markets by setting up their own market watch, receiving research tips, stock alerts, real-time charts and news and many more features enable the customer to take informed decisions.

The brokerage structure* makes Geojit BNP Paribas's Online trading all the more attractive: 0.03% for day trading (applicable on both sides) 0.30% for delivery Benefits MOSt RMs proactively help you take informed equity investment decisions and build a healthy portfolio. The RMs keep a close watch on the performance of each stock in your portfolio and suggest changes as and when there is a significant trend reversal or deterioration in a company's performance. This is to help you reach your investment goal. The RM doesn't stop at just that, he goes a step further to ensure that your trades are settled and stocks credited in your Demat account in a timely manner. This allows us to give you a convenient single window service and your RM becomes the single point contact for all equities related matters. You will receive regular portfolio valuation reports to enable you to monitor performance and view the progress towards the investment objective.

Derivatives
Geojit BNP Paribas Financial sevices Ltd F&O
Page 29

Futures & options are derivatives, which use equity as their underlying. Hence our Equity Advisory Group (EAG), which is highly qualified, will also act as your advisors & help you take informed decisions while trading in these derivative instruments.

My Broker (E-Broking)
There is nothing more exhilarating , more daring and more rewarding than making the right trade at the right time. Welcome to Geojit Finances (E-Broking) Platform which brings you a world class experience of online investing anyplace, anytime. Buying and selling of shares is now just a click away.

IPO
Background: Book Building and Fixed Price Issue are the two types of Initial Public Offerings (IPOs) through which a corporate can raise money in the capital market. In a book building public issue the bids are received at different price levels and the demand for the issue is built up over a period of time. Depending upon the bids received at different price levels the issue price is ascertained. In a fixed price issue the issue price is pre ascertained by the issuer.

Portfolio Management Services

Page 30

In today's complex financial environment, investors have unique needs which are derived from their risk appetite and financial goals. But regardless of this, every investor seeks to maximize his returns on investments without capital erosion.

While there are many investment avenues such as fixed deposits, income funds, bonds, equities etc. It is a proven fact that Equities as an asset class typically tend to outperform all other asset classes over the long run.

Investing in equities, require knowledge, time and a right mind-set. Equity as an asset class also requires constant monitoring may not be possible for you to give the necessary time, given your other commitments.

Geojit BNP Paribas Financial Services Ltd. recognize this, and manage your investments professionally to achieve specific investment objectives, and not to forget, relieving you from the day to day hassles which investment require.

Geojit BNP Paribas Financial Services Ltd. brings with more than 2 decades of experience & expertise in equity research and stock broking.

When you invest through our PMS, you can be assured of the best research being used for the investment decisions. Geojit Finances equity research has been consistently ranked very highly in surveys conducted by leading international publications.

Portfolios
Page 31

After understanding your risk appetite and financial goal, Geojit Finance has created various investment portfolios. Geojit BNP Paribas Financial Services Ltd. schemes, with different approaches to managing your investments. Value Portfolio Bulls Eye Portfolio Next Trillion Dollar Opportunity Portfolio. currently offer following

Benefits of Portfolio Management Service Professional Management The service offers professional management of your equity investments with an aim to deliver consistent return with an eye on risk. . Risk Control Well defined investment philosophy & strategy acts as a guiding principle in defining the investment universe. Geojit Finance has a very robust portfolio management software that enables the entire construction, monitoring and the risk management processes. Convenience Geojit Finances Portfolio Management Service relieves you from all the administrative hassles of your investments. Geojit Finance provides periodic reports on the performance and other aspects of your investments.

Constant Portfolio Tracking

Page 32

Geojit Finance understands the dynamics of equity as an asset class, so we track your investments continuously to maximize the returns.

Transparency You will get account statements and performance reports on a monthly basis. Thats not all; web access will enable you to track all information relating to your investment on daily basis. A password protected web login, will enable your to access details your investment on click of a button. The following portfolio reports are accessible online : Performance Statements Portfolio Holding Reports Transactions Statements Capital Gain / Loss Statements

Mutual Funds
Mutual funds realize your financial goal through MOSt MUTUAL. Investments can seem complicated and mystical. As all the traditional investment avenues like bank deposits, RBI Bonds, NSC, KVP etc are becoming unattractive with the interest rate falling continuously affecting the yields, one needs to look for other investments alternatives. Mutual funds offer a platform to participate in the equity & debt market indirectly through professional management. Mutual funds are becoming the most popular investment vehicle offering various kinds of schemes with different investment objectives. Geojit Finance believes that investments through
Page 33

mutual funds are one of the most safest, easiest and convenient ways of successful investment making. The investments are in congruence to the laid down investment objectives securing the goals & objectives of the unit holders.

At Geojit BNP Paribas Financial Services Ltd, they understands the importance of financial goals of our privileged clients and to provide them one stop solution to all your financial needs and tailor made portfolio we now have separate dedicated Mutual fund desk.

Depository Services
In the times of having a demat account linked to your trading account becomes really convenient. The non-trading clients can also avail of DES. Today DES is available at all business locations of Geojit Finance. In terms of number of accounts Geojit Finances DES is the biggest Depository Participant with over 1,20,000 accounts. You receive regular account reports and an efficient service at all times. Clients having holdings over Rs. 10 lakhs receive special SMS service.

Sales & Trading

Geojit BNP Paribas Financial Services Ltds sales & trading team, comprising top equity professionals, translates Geojit Finances research findings into actionable advise for clients, based on their specific needs. Each of Geojit Finances sales personnel has at least five years experience in equity research. Sophisticated computerized tools are used to understand client investment profile and objectives, which ensures proactive and timely service.

DERIVATIVES

Page 34

HISTORY OF DERIVATIVES The concept of derivatives is not a new one. A kind of derivatives instruments were used in Ancient Greece in 330 B.C. The Olive growers in order to reduce the risk of a low price for their crop which were to be harvest months later, entered into forward agreements where a price was agreed for delivery at a specific time in future. In 1636 in Amsterdam, the producers and purchasers of tulips made also forward agreements to limit their risk in case that the harvest of tulips was poor. In United States the establishment of the New York Stock Exchange in 1790, created the need for investors for a formal and organized derivatives market. The securities companies of Wall Street published projects on derivatives transactions for the public investors. At the beginning of 1900 the transactions on derivatives were made over the counter (OTC). In 1929 after the Crash, the American Congress established the Securities Exchange Commission (SEC) with the task to monitoring the smooth operation of the market. What gave the boost for the significant growth of the derivatives market were the establishment of the Chicago Board Options Exchange and the creation of Options Clearing Corporation in 1973. Ten years later in 1983, derivatives on indices made their appearance. The first one was Standard and Poor's 100. This innovation was followed by derivatives on bonds and interest rates.

The world financial markets have undergone qualitative changes in the last three decades due to phenomenal growth of derivatives. An increasingly large number of organizations now consider derivatives to play a significant role in implementing the financial policies. Derivatives are used for a variety of purposes but perhaps the most important is hedging. Hedging involves transfer of market risk - the possibility of sustaining losses due to unforeseen unfavorable price changes. A derivative transaction allows a firm to alter its market risk for a price.

Risk is a characteristic feature of all commodity and capital markets. Prices of all commodities whether agricultural like wheat, cotton, rice, coffee or tea of non-agricultural like
Page 35

silver, gold, etc are subject to fluctuation over time in keeping with the prevailing demand and supply conditions. To hedge against this, came the use of derivatives.

What are Derivatives?

Derivatives are contracts for the future delivery of assets at prices agreed at the time of the contract. The quantity and quality of the asset is specified in the contract. The buyer of the asset will make the cash payment at the time of delivery. Derivative products initially emerged, as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. Derivatives Defined Derivative is a security whose value is derived from the value of the underlying asset in a contractual manner. In the Indian context, the Securities Contracts (regulation) Act, 1956 (SCRA) defines "derivative" to include: 1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security. 2. A contract, which derives its value from the prices, or index of prices, of underlying securities. The derivatives are securities under the SCRA and the trading of derivatives is governed by the regulatory framework under the SCRA. All derivatives are based on some "cash" products. The underlying assets of derivative instruments may be any produce of the following types. Commodities include grain, coffee, beans, orange juice, etc. Precious metals like gold and silver Foreign Exchange rate

Page 36

 Bonds

of different

types,

including

medium

to

long-term negotiable debt

securities issued by governments, companies, etc. Short-term debt securities such as trade bills. OTC (Over the Counter) money market products such as loans or Deposits. Derivatives are specialized contracts which are employed for variety of purpose including reduction of funding cost by borrowers, enhancing the yield on asset, modifying the payment structure of assets to correspond to investors market view, etc. However the most important use of derivatives is in transferring market risk, called hedging. Of late derivatives have assumed a very significant place in the field of finance and they seem to be the driving global financial markets. There are many kinds of derivatives including futures, options, interest rate swaps and mortgage derivatives.

Forward Contracts
A deal for the purchase or sale of a commodity, security or other assets can be in the spot or forward markets. A spot or cash market is most commonly used for trading. In addition to cash purchases another way to acquire or sell assets is by entering into a Forward Contract. In forward contract the buyer agrees to pay cash at a later date when the seller delivers the goods. EG: If a car is booked with a dealer and the delivery 'matures' the car is delivered after its price has been paid.

Usually no money changes hands when forward contract are entered into, but sometimes one or both the parties to a contract may like to ask for some initial, good faith, deposit to ensure that the contract is honored by the other party.

Page 37

Typically in a forward contract the price at which the underlying commodity are asset will be traded is decided at the time of entering the contract. The essential idea of entering into a forward contract is to peg the price and thereby avoid the price risk. Forward contracts have been in existence since quiet some time. The organized commodities exchange, on which forward contracts are traded, probably started in Japan in the early eighteenth century, while establishment of the Chicago Board Of Trade (CBOT) in 1848 led to the start of a formal commodities exchange in the USA.

Futures Contract

The problem associated with forward contracts led to the emergence of Futures Contract. A futures contract is a standardized contract between two parties where one of the parties commits to sell and the other to buy, a stipulated quantity (and quality where applicable) of a commodity, currency, security, index or some other specified item at an agreed price on or before a given date in the future.

Futures contract is an improvement over the forward contract in terms of standardization, performance guarantee and liquidity. Thus, whereas forward contracts are not standardized, the futures are standardized ones, so that

1. 2. 3. 4.

The quantity of the commodity or the asset which would be transferred or would form the basis of gain/loss on maturity of a contract. The quality of the commodityif a certain commodity is involved - and the place where delivery of the commodity would be made, The date and month of delivery The units of price quotation

Page 38

5.

The minimum amount by which the price would change and the price limits for the days' operations, and other relevant details are all specified in the futures contract. Thus in a way, it becomes a standard asset, like any other asset to be traded.

People can buy or sell futures like other commodities. When an investor buys a future contract (is that he takes a long position) on an organized futures exchange, he is, in fact assuming the right and obligation of taking delivery of the specified underlying item (say 10 Quintals of wheat of a specified grade) on a specified date. Similarly, when an investor sells a contract, to take a short position one assumes that the right and obligation to make delivery of the underlying asset. While there is a risk of non-performance if the forward contract, it is not so in case of futures contract. This is because of the existence of a clearing house or clearing corporation associated with futures exchange, which plays a pivotal role in the trade so that it become the buyer to seller and the seller to the buyer. When a party takes a long position in contract it is obligated to sell the underlying commodity in question at the stipulated price to the clearinghouse on the maturity of the contract. Similarly an investor, who takes a short position on the contract, can seek its execution through the clearinghouse only. Unlike forward contract, it is not necessary to hold on to a futures contract until maturity- one can easily close out a position in a futures contract. Either of the parties may reverse their position by initiating a reverse trade so that the original seller of a contract can sell an identical contract at a later date, canceling, in effect the original contract. Thus the exchange facilitates subsequent selling (buying) of a contract so that a party can offset its position and eliminate the obligations.

Futures Terminology Spot price:

Page 39

The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The period over which a contract trades. The index futures contracts on the NSE as well as BSE have one-month, two-months and three-months expiry cycles, which expire on the last Thursday of the month. Thus a July expiration contract would expire on the last Thursday of July. On the Friday following the last Thursday, a new contract having a three-month expiry would be introduced for trading. More generally we can say, on the first trading day after the day of the expiry of that month's futures contract.

Expiry date: It is the date specified in the futures contract. This is the last day on which the contract will be traded. It will cease to exist by the end of that day.

Contract size: The amount of asset that has to be delivered under one contract. The contract size of the stock index futures on NSE Nifty is 200 and the contract size, of the stock index futures on BSE Sensex is 50. Basis: Basis is usually defined as the spot price minus the futures price. There will be a different basis for each delivery month for the same asset at any point in time. On 19th June 2001 Nifty closed at 1096.65. August 2001 Nifty futures closed at 1098.90.

Page 40

Therefore the basis for the August Nifty futures is -2.25 index points. In a normal market, basis will be negative. This reflects the fact that the underlying asset is to be carried at a cost for delivery in the future. Cost of carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset. In the case of stocks, dividend will be the income earned on the asset. The storage cost will be negligible.

Initial Margin: The amount that must be deposited in the margin account kept with the broker at the time a futures contract is first entered into is known as initial margin. Margins are to be strictly collected in the futures and options markets by brokers as per the exchange regulations. Otherwise the exchange cannot guarantee the trades to all participants in the market.

Marking-to-market: In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price or settlement price. This is called marking-to-market.

Maintenance margin: If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day
Page 41

Beta: Beta is a concept to be used in using futures and options for hedging. Beta measures the sensitivity of a share or a portfolio to that of the index. Beta of a share is found out by relating the daily price changes of a share to the daily changes in a stock price index. If a graph is drawn with daily changes of the share price on y-axis and daily changes in the index on x-axis the slope of the straight line fitted will be the value of beta. Mathematically it is found by regression method. If the beta of Tisco is found to be 1.23, it implies if the index increases by 10% in a period, price of Tisco will increase by 12.3%.

Beta of the portfolios is found by weighted average of the betas of the shares in the portfolio. For example, an investor's portfolio has equal value in Tisco and Infosys. Tisco has a beta of 1.23 and Infosys has a beta of 1.37. The portfolio beta is the average of 1.23 and 1.37, which is 1.3. NSE website is providing values of beta for a large number of shares.

Options: An option ids the right, but not the obligation, to buy or sell a specified amount (and quality) of a commodity, index, or financial; instrument or to buy or sell a specified number of underlying futures contracts at a specified price on or before a given date in the future. Thus options, like futures, also provide a mechanism by which one can acquire a certain commodity or other asset, or to take a position in order to make profit or cover risk for a price. The buyer who takes a long position and the seller (the writer), who takes a short position. An option contract gives its owner right to buy/sell a particular commodity to asset at a predetermined price by a specific date.
Page 42

Options are of two types Call option and Put options. A call option gives an owner the right to buy a specific quantity of underlying asset at a predetermined price-the exercise price on a specified datethe date on maturity.

For example, suppose it is January now and an investor buys a March call option contract on (Reliance India Limited) RIL shares with an exercise price of Rs 300. With this the investor obtains the right to buy 100 shares of RIL at her rate of Rs 300 per share on a particular day in the month of March. The investor is not obliged to buy the shares. Obviously, if on the expiry of the option the price of the share in the market is being quoted at higher than Rs 300, the investor would like to exercise the call. By buying shares at Rs 300 and selling them at the prevailing higher price, the investor can make a profit. If on the other hand, the price of the share is quoted at Rs 300 of lower, the investor would not benefit by buying the share. In any case, the writer of the call option is obliged to sell the shares at Rs 300 per share if called upon. In case of Put option the option holder has the right to sell a specific amount of the underlying asset at the agreed price on the date of maturity. Thus id an investor buys a March put option on RIL shares with an exercise price of Rs 300 per share the investor gets the right to sell 100 shares of RIL at the rate of Rs 210 per share on a specific day in the month of March. The investor would naturally be inclined to exercise the option if the share price in the month of march happen to be lower than Rs300. by buying shares in the market at a lower then Rs300 per share, and selling than at Rs 300 per share, the investor would gain stand again. In this kind of an option, the writer undertakes to buy the shares at the exercise price, in case the holder of the option opts for that.

Option Terminology
Index option:

Page 43

An option having the index as the underlying asset. Like index futures contracts, index options contracts are also cash settled. Stock options: Stock options are options on individual stocks. A contract gives the holder the right to buy or sell shares at the specified price. American option: American options are options that can be exercised any time up to the expiration date. This name is only a classification and does not imply that they are available only in America. European options: European options are options that can be exercised only on the expiration date. European options are easier to analyze than American options, and properties of American options are frequently deducted from those of its European counter part. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Buyer of an option: The buyer of the option, either call or put, pays the premium and buys the right but not the obligation to exercise his option on the seller/writer. Writer of an option:

Page 44

The writer of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. Option writer is the seller of the option contract. Strike price: The price specified in the option contract at which buying or selling will take place is known as the strike price or the exercise price. Option price: Option price is the premium, which the option buyer pays to the option seller or writer. Black and Scholes formula is widely used for determining the fair value of options. Expiration date: It is the date on which the European option is exercised. It is also called as exercise date, strike date or maturity date. Intrinsic value of an option: The option premium can be broken down into two components- intrinsic value and time value. The intrinsic value of an option is the amount, which the holder will get by exercising his option and immediately selling or buying the acquired shares in the spot market.

For example, if the strike price of a call option on Reliance shares is Rs.325 and current market price is Rs.350. The holder of the option can buy the Reliance shares at Rs.325 by exercising the option and can make a profit of Rs.25 by immediately selling them in the market. In this case the intrinsic value of the call option is Rs.25.

Time value of the option: The time value of an option is the difference between its premium and its intrinsic value.
Page 45

At-the-money: An option is called at-the-money option when the strike price equals, or nearly equals, the spot price of the share. For example, if the strike price of stock index option on Nifty is 1080 and the Nifty index is also at 1080, the option is called at-the-money option.

In the money: A call option is in the money when the underlying asset price is greater than the strike price. For example, if the strike price in the case of Nifty stock index option is 1050 and Nifty is at 1080, the option is in-the-money option.

Out-of-the-money: A call option is out-of-the-money if the strike price is greater than the underlying asset price. For example, if the strike price in the case of Nifty stock index option is 1100 and Nifty is at 1080, the option is out-of-the-money option, The following table defines the relationship between the spot price and strike price for calls and puts for categorizing them as at-the money, in the money and out-of-the-money. Strategy In the-money At-the money Out-of-the money Call option Spot >Strike Spot= Strike Spot<Strike Put Option Spot<Strike Spot = Strike Spot>Strike

Participants in Derivatives Markets

Page 46

The participants in derivatives markets are broadly classified into three groups: Hedgers Speculators Arbitrageurs.

Hedgers As already observed, hedging (covering against losses) is the prime reason, which has led to the emergence of derivatives. The availability of derivatives allows the undertaking of many activities at a substantially lower risk. Hedgers therefore are an important constituent of the traders in derivatives market.

Hedgers are the traders who wish to eliminate the risk (of price change) to which they are already exposed. They may take a long position on, or short sell, a commodity and would, therefore stand to lose should the price move in adverse directions. Example. Suppose a leading trader buys a large quantity of wheat that would take two weeks to reach him. Now he fears that the wheat prices may fall in the coming two weeks and so wheat may have to be sold at lower prices. The trader can sell futures (or forward) contract with a matching price to hedge. Thus if the wheat prices do fall, the trader would lose money on the inventory of the wheat but will profit from the futures contract, which would balance the loss.

Speculators Speculators are those who are willing to take risk. These are the people who take positions in the market and assume risk to profit from fluctuations in prices. In fact, the speculators consume information, make forecasts about the prices and put their money in these forecasts. In this process, they feed information into prices and thus contribute to market
Page 47

efficiency by taking positions they are betting that a price would go up or they bet that it would go down. Depending on their perceptions, they make long or short positions on futures /or options, or may hold (spread) positions (simultaneously long and short positions on the same derivatives). Example supposes that a share is currently quoted at Rs 32 and a speculator is strong on this share. Assume that a call option, with exercise price of Rs 35 and due in one month, on this share is available in the market at 50 paise (per share). Buying this option would require Rs 50(a call is for 100 shares) only. Now the price of the share is less than or equal to Rs 35, the call shall not be exercised and the loss would be Rs 50 or 100% of the investment. If on the other hand the price rules at Rs 40, then a gain of 100* (Rs 40-Rs35))= Rs 500 would be made, which works out to be 900% of the investment. With no option or other derivative available, the investor would be required to invest Rs 3200(for 100 share) and would make a profit of Rs 800 i.e., only 24% of the amount invested. Not only that, many losses would be incurred if the share price were to settle at less than Rs 32. Obviously, therefore, the derivatives adequately address the needs of the speculators without threatening the market integrity in the process.

Arbitrageurs They are People who trade in two or more different markets. Thus arbitrageur involves making risk-less profit by simultaneously entering into transactions in two or more markets. If a certain share is quoted at a lower rate on the (DSE) Delhi stock exchange and at a higher rate in BSE an arbitrageur would make profit by buying the share at DSE and simultaneously selling at BSE.

Page 48

FLOW CHART OF DERIVATIVE TRADING

Page 49

Buyer now ConfirmsB Firm Seller Clearinghouse Reports Buying Selling Buying Seller Buyer now ring Selling Reports Member Trading long 1 1 1 short 1 Purchases Broker roker broker Sale SaleOrders were Purchase Obligation Contract Contract Confirms by out executed Obligation purchase Long cry but now it is Short through the BOLT

or online trading
1 Contract

Page 50

Member Firm

Pricing of Futures There are various models for valuating the futures

Page 51

Cost of carry model According to the cost of carry model the price of a futures contract is spot price plus the cost of carry of the asset till the date of delivery specified in the futures contract. F=S+C The cost of carry C will have three components, storage cost, cost of financing and any income earned by holding the asset (which is treated as a negative cost and deducted). For shares cost of storage will be zero. In the case of commodities like wheat, coffee, the storage cost needs to be incurred to carry stocks.

Example Find out the fair price of a two-month futures contract on Nifty given the following information. 1. Current value of Nifty is 1078. 2. Reliance declared a dividend of Rs.5 per share, which will be received by the shareholders after 15 days of purchasing the contract. The market price of Reliance is Rs.350 and its weight in Nifty is 15%. 3. The cost of financing is 10 percent per annum. 4. The cost of storage will be nil.

Solution: 1. Since Nifty is traded in multiples of 200, spot value of the contract is 200*1078 = Rs.2,15,600.

Page 52

2. Reliance has a weight of 15% in Nifty, its value in the contract is Rs.32,340 (215600*0.15) 3. If the market price is Rs.350, then a traded unit of Nifty involves 92.4 shares of Reliance. The dividend received is therefore going to be Rs.462. 4. Thus, fair futures price F = Rs. 1078+17.72-2.34 = Rs.1093.38 5. Note: interest cost (1078*0.1 *(60/365) =Rs. 17.72) and interest on dividend received ([462/200] +462*0.1 *(45/365)/200 = Rs.2.34) are calculated at simple interest) 6. Note that a dividend receipt has an effect on fair futures pricing. Hence it is important to know the dividend already declared or likely to be declared to determine the fair futures price. Participants interested in selling futures at fine prices have to know these details.

Carry Price Model

P = SP + CC-CR Where P is future price, SP Spot price, CC Carry Cost, CR Carry Return. Here Spot price id the current market price of one unit of the share in the market. Carry cost refers to the holding cost, including the interest charges on borrowings the cash to buy the asset. In case of physical commodities, storage, etc. Carry return refers to the income such as dividends on shares, which may accrue to the investor.

Valuation of options

Page 53

The option premium or the price is determined competitively on the floor of the option exchange by the influx of buy and sell orders. It is influenced by a number of factors some of them, which are listed as, follows:

1. Price of the underlying asset 2. Volatility

3. Length of the period 4. 5. 6. Interest rates Tax rules with regard to gains and losses arising from the option trading. Margin requirements in case of uncovered option writers

7. Transaction cost Essentials for a good derivatives market Large market capitalization Liquidity Clearinghouse that guarantees trades Physical Infrastructure Risk taking capability and analytical skills

Role of derivatives in India

Page 54

 Derivatives will make hedging possible

Derivatives will enable separation between speculators who wish to bear risk Vs Hedgers

Derivatives will lead to an improvement in cash market Develop Indian financial Industry Risk management Price Discovery Market effectiveness Ease of speculation

WORLD DERIVATIVES MARKETS:

The past three decades have witnessed a singular rise in the development and growth of derivatives markets in the world over. Futures and options trading has registered a phenomenal rise and new products have been evolved. Futures and options exchanges and OTC derivative markets are integral parts of virtually all the economies which have reached an advanced state of economic development such markets are likely to become important parts of developing economies as well, when they move into advanced stages of development with the passage of time.

Apart from USA, U.K. and several European counties, Japan and Singapore, amongst others, which have well-developed futures and options markets, a large number of other countries have also developed, or are in the process of developing such markets. The countries and markets include Argentina, Brazil, Bulgaria, Chile, China, Columbia, Costa Rica, Greece, Guatemala, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Portugal, Russia, Slovak Republic, Slovenia, South Africa, Thailand and Turkey. Introduction of Futures and options in India:

Page 55

India is one of the many emerging markets of the world where derivatives have been introduced in the recent past. For long exchanges like the stock exchange, Mumbai and Vadodara Stock Exchange showed their willingness in introducing trading in futures and options. However, a concerted effort in this direction was made by the National Stock Exchange(NSE) in July, 1995 when it considered the modalities of introducing derivatives trading, mainly futures and options. Within a few months, NSE developed a system of options and futures trading aiming at modifying the carry forward system to include options and futures in its scope. By January 1996, the NSE started work on the scheme of such trading. In March 1996, it made a presentation to SEBI on its plans to commence trading in futures and options. The exchange proposed to start with index based futures and index based options, which are seen as comparatively safer forms of derivatives. Functions performed by derivatives Markets The derivatives markets perform a number of useful economic functions:

1. Price discovery:

The futures and options markets serve an all important function of price discovery. The individuals with better information and judgment are inclined to participated in these markets to take advantage of such information. When some new information arrives, perhaps some good news about the economy for instance, the actions of speculators swiftly feed their information into the derivatives markets causing changes in the prices of the derivatives. As these markets are usually the first ones to react because the transaction cost is much lower in these markets than in the spot markets. Therefore, these markets indicate what is likely to happen and thus assist in better price discovery.

2. Risk Transfer:
Page 56

By their very nature, the derivative instruments do not themselves involve risk. Rather, they merely redistribute the risk between the market participants. In this senses, the whole derivatives market may be compared to a gigantic insurance company providing means to hedge against adversities of unfavourable market movements in return for a premium, and providing means and opportunities to those who are prepared to take risks and make money in the process.

3. Market Completion:

The existence of derivative instruments adds to the degree of completeness of the market. A complete market implies that the number of independent securities or instruments is equal to the number of all possible alternative future states of the economy.

A market would be said to be complete if instruments may be created which can, solely or jointly, provide a cover against all the possible adverse outcomes, it is held that a complete market can be achieved only when, firstly there is a consensus among all investors in the economy as to the number of adds, or states, that the economy can land up with, and, secondly, there should exist an efficient fund on which simple options can be traded. Here an efficient fund implies a portfolio of basic securities that exist in the market with the property of having a unique return for every possible outcome, while a simple option is one whose pay off depends only on one underlying return. The presence of future and options markets does, however lead to a greater degree of market completeness.

Page 57

RISK
Definition Of Risk: It is the possibility of loss or the degree or probability of such a loss. A technical definition on risk. Risk and uncertainty are an integral part of investment decision. Technically "Risk" can be defined as a situation where the possible consequences of the decision that is to be taken are known." Uncertainty" is generally defined to apply to situations where the probabilities cannot be estimated. However risk and uncertainty are used interchangeably

External Environmental Risk Unique Risks Unsystematic Risk Systematic of Internal RISK Business Labour Strikes Securities Market Industry Risk EconomicRisk risks Financial Weak Managerial policies Economy Risk Sociological Market Risk Consumer preferences Political rate risk Interest Legal Risk power Risk Purchasing

Page 58

Risk can be classified as follows:

Types of Risk: a) Systematic

External Environmental risks 1. Market Risk 2. Interest rate risk

b) Unsystematic

Systematic Risk:
Page 59

External risks are uncontrollable and broadly effect the investments. These external risks are called Systematic risk. They include Economic, sociological, political, legal risks.

Unsystematic Risk: Risk due to internal environment of a firm or those affecting a particular industry are referred as unsystematic risk. This risk is depending on the firm or industry.

With respect to this project we are confined to market risk, which arises from systematic risk. Market risk, is referred to stock variability due to changes in investor's attitudes and expectations. The investor's reaction to the news etc. Market risk triggers off through real events comprising political, social, economic reasons. The initial decline or 'rise' in the market price will create an emotional instability of investors and cause a fear of loss or create an undue confidence, relating possibility of profit. The reaction to loss will culminate in excessive selling and pushing price down and reaction to gain will bring in the active buying of securities. How ever investors are more reactive towards decline in prices rather than increase in prices.

Hedging strategies using index futures There are eight basic modes of trading on the index futures market: Hedging: 1. 2. 3. 4. Long security, short Nifty futures Short security, long Nifty futures Have portfolio, short Nifty futures Have funds, long Nifty futures

Page 60

Speculation: 1. 2. Bullish index, long Nifty futures Bearish index, short Nifty futures

Arbitrage: 1. Have funds, lend them to the market Hedging: TIP: Hedging does not always making money. If the index has gone up instead of going down futures position will show a loss and the investor has to fund it if required by reducing his portfolio. The best that can be achieved using hedging is the removal of unwanted exposure. The hedged position will make less profit than the un-hedged position, half the time. The investor should adopt this strategy for the short periods of time where the market volatility that he anticipates makes him uncomfortable, or when he plans to sell his holdings in the near future. Long Security, Short Nifty Futures A person may buy Larsen & Toubro at Rs 300 thinking that it would announce good results and the security price would rise. A few days later, Nifty drops, so he makes losses, even if his understanding of Larsen & Toubro was correct. Every buy position on a security is simultaneously a buy position on Nifty. This is because a LONG LARSEN & TOUBRO position generally gains if Nifty rises and generally loses if Nifty drops. The stock picker may be thinking he wants to be LONG LARSEN & TOUBRO, but a long position on Larsen & Toubro effectively forces him to be LONG LARSEN & TOUBRO + LONG NIFTY

Page 61

 Those who are bullish about index should just buy Nifty futures; they need not trade individual securities. Those who are bullish about LARSEN & TOUBRO do wrong by carrying along a long position on Nifty as well.

Every time we adopt a long position on a security, we should sell some amount of Nifty futures. This offsets the hidden Nifty exposure that is inside every long security position.

Short Security, Long Nifty: A person may sell MUL at Rs 230 thinking that it would announce poor results as decline in car sales and the security price would fall. A few days later, Nifty rises, so he makes losses, even if his understanding of MUL was correct.

Every sell position on a security is simultaneously a sell position on Nifty. This is because a SHORT MUL position generally gains if Nifty falls and generally loses if Nifty rises. The stock picker may be thinking he wants to be SHORT MUL, but a long position on MUL effectively forces him to be Short Mul + Short Nifty.

Those who are bearish about index should just sell Nifty futures; they need not trade individual securities. Those who are bearish about MUL do wrong by carrying along a short position on Nifty as well. Every time we adopt a short position on a security, we should buy some amount of Nifty futures. This offsets the hidden Nifty exposure that is inside every short security position.

Page 62

Hedging: Have portfolio, short Nifty futures: Every portfolio contains a hidden exposure. This statement is true for all portfolios. In the case of portfolios, most of the portfolio risk is accounted for by index fluctuations (unlike individual securities, where only 30-60% of the securities risk is accounted for by the index fluctuations). Hence a position LONG PORTFOLIO + SHORT NIFTY can often become one-tenth as risky as the LONG PORTFOLIO position.

SURVEY AND ANALYSIS

AGE BREAK UP OF RESPONDENTS Table No. 4.1

Page 63

AGE GROUP OF RESPONDENTS Graph No. 4.1

AGE GROUP LESS THAN 25 25 40 MORE THAN 40

RESPONDENTS 12 5 83

PERCENTAGE 12 5 83

90%
Age is an indication of matured thoughts. We can see from the above data that 83% of the respondents are of the age group of more than 40. 5% are of the age between 25 to 40 and 12% are in the age of less than 25. From this we can see that the respondents are quiet experienced in spending and investing their earnings. This shows the maturity of the respondents.
Page 64

80% 70%

DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS Table No. 4.2

SEX MALE FEMALE

RESPONDENTS 69 31

PERCENTAGE 69 31

DISTRIBUTION OF MALES AND FEMALES AMONG RESPONDENTS Graph No. 4.2

The above data reveals that 69% of the respondents are males and 31% are females. It shows that although the men are having more control on their investments and decision making in the family, women are also interested in investments. From the above data it is clear that a trend is developing, in which women are also moving towards investing their savings.
Page 65

OCCUPATION OF RESPONDENTS Table No. 4.3 OCCUPATION BUSINESS EMPLOYEE PROFESSIONAL RESPONDENTS 17 57 26 PERCENTAGE 17 57 26

OCCUPATION OF RESPONDENTS Graph No. 4.3

It can be observed that 17% of the respondents are in business, 57% are employees and rest 26% are professionals. The majority of the investors come from the employee and aged segment of the society.

60%

The employee segment of the respondents is more interested in investing. The objective of their investment may be to live a secured and happy life after the retirement from their job.
Page 66

50%

INCOME OF THE RESPONDENTS Table No. 4.4 INCOME LESS THAN 15,000 15,000 - 25,000 MORE THAN 25,000 RESPONDENTS 28 39 33 PERCENTAGE 28 39 33

INCOME OF THE RESPONDENTS Graph No. 4.4

From the above table we can find out that 28% of the respondents have income less than 15,000 about 39% are ranging between 15, 000 to 25,000 however, about 33% constitute income group of more than 25,000.

This indicates that middle income people are more interested in investing. They want to earn more from what they have invested in order to live a luxurious life.
Page 67

40%

SAVING AND INVESTMENT PATTERN OF RESPONDENTS Table No. 4.5 SAVING & INVESTMENT YES NO RESPONDENTS 100 0 PERCENTAGE 100 0

SAVING AND INVESTMENT PATTERN OF RESPONDENTS Graph No. 4.5

All respondents have the nature of saving of what they have earned. They invest their savings in order to earn more. The availability of many investment avenues and raise in the education level of the people also contributed towards saving and investment of their earnings.

100%

Page 68

THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE Table No. 4.6 BROKING HOUSE Geojit SECURITIES IL & FS SECURITIES INTEGRATED SERVICES OTHERS RESPONDENTS 34 21 18 27 PERCENTAGE 34 21 18 27

THE BROKING HOUSES THROUGH THE INVESTMENT IS MADE Graph No. 4.6

The above data reveals that in CKM Geojit Securities is having a major market share, compare to the other security dealers. As the Geojit Securities are no.1 security dealers in India, respondents choose Geojit Securities as their broking house. The reputation and market share of the company helped here to get more clients.

INVESTMENT AREAS AWARE OF Table No. 4.7

INVESTMENT AREAS REAL ESTATE POST OFFICE

RESPONDENTS 24 52

PERCENTAGE 8 17
Page 69

STOCK MARKET PRECIOUS METALS BANKS MUTUAL FUNDS COMMODITIES INSURANCE

60 14 85 32 4 29

20 5 28 11 1 10

INVESTMENT AREAS

Graph No. 4.7

30%

Page 70

Among the various investment areas available banks dominate since it is quiet safe compared to other investments and it occupies 28%, followed by stock market 20%, because of the recent boom. The safest among all investments is the post office 17%, real estate 8%, mutual funds 11%, insurance 10%, precious metals 5% and commodities 1%.

INVESTMENT CRITERIA Table No. 4.8 CRITERIA LIQUIDITY PROFITABILITY SAFETY LEGALITY RESPONDENTS 14 26 52 8 PERCENTAGE 14 26 52 8

Page 71

INVESTMENT CRITERIA OF RESPONDENTS Graph No. 4.8

It can be seen that all the investors give preference for safety for their investment. Safety of investment can be seen in banks, safety occupies 52%, profitability 26%, liquidity 14% and legality 8%. This shows a direct relationship between safety and investment. As the banks are more safer, more people invest in banks.

Page 72

IN THE PRESENT SCENARIO I PREFER INVESTING IN Table No. 4.9 PREFERED AREAS REAL ESTATE POST OFFICE STOCK MARKET BANK INSURANCE MUTUAL FUNDS RESPONDENTS 12 6 41 21 8 12 PERCENTAGE 12 6 41 21 8 12

THE PRESENT SCENARIO I PREFER INVESTING IN Graph No. 4.9

Due to the stock market boom with FDI and FII inflows, respondents prefer stock market with 41% followed by banks 21%, real estate and mutual funds 12% each, post office 6% and insurance 8% respectively. It is clear that most of the respondents prefer stock market investment. This is because in the present scenario the stock market is booming and the SENSEX has already achieved a record

Page 73

high. So in order to get the benefit of the stock market boom, respondents are more interested in stock market investments. AWARENESS ABOUT INVESTOR AWARENESS ADVERTISEMENTS Table No. 4.10 AWARENESS ABOUT ADVERTISEMENTS YES NO

RESPONDENTS 53 47

PERCENTAGE 53 47

AWARENESS ABOUT SEBI ADVERTISEMENTS Graph No. 4.10

Page 74

53% of the respondents watch the investor awareness advertisements given by SEBI. It is found that most of the respondents do not watch the investor awareness advertisements given by SEBI. Hence there is a need to educate the investors about their rights and obligations.

Page 75

RISK SEEKING OF INVESTORS Table No. 4.11 RISK SEEKER YES NO RESPONDENTS 29 71 PERCENTAGE 29 71

RISK SEEKING OF INVESTORS Graph No. 4.11

80%

Page 76

From the above data we can conclude that most of the investors are risk averse. They do not want to take risk, they prefer low risk investments. As most of the respondents are from the middle income group they do not want to take risk with their investment.

Page 77

INVESTMENT PATTERN ON THE BASIS OF RISK Table No. 4.12 INVESTMENT PATTERN LOW RISK INVESTMENTS MODERATE RISK INVESTMENTS HIGH RISK INVESTMENTS RESPONDENTS 31 60 9 PERCENTAGE 31 60 9

INVESTMENT PATTERN ON THE BASIS OF RISK Graph No. 4.12

We can see that 31% of the respondents prefer low risk investments, 60% prefer moderate risk and only 9% go in for high risk investments.

Page 78

This shows that respondents prefer those investments, in which the risk involved is moderate or low.

Page 79

PREFERENCE GIVEN ACCORDING TO RISK AND RETURN Table No. 4.13 PREFERENCE ACCORDING TO RISK MINIMUM RISK MAXIMUM RETURN MINIMUM RISK MINIMUM RETURN MAXIMUM RISK MAXIMUM RETURN

RESPONDENTS 55 35 10

PERCENTAGE 55 35 10

PREFERENCE GIVEN ACCORDING TO RISK AND RETURN Graph No. 4.13

60%
It is found that most of the respondents prefer investments of minimum risk and maximum return. 35% of the respondents prefer minimum risk and minimum return. Only 10% go for maximum risk and maximum return in their investments.
Page 80

50%

This suggests that most of the respondents do not want to take risk while investing.

Page 81

RESPONDENTS WHO THINK RISK CAN BE MINIMIZED Table No. 4.14 RISK CAN BE MINIMIZED YES NO RESPONDENTS 93 7 PERCENTAGE 93 7

RESPONDENTS WHO THINK RISK CAN BE MINIMIZED Graph No. 4.14

As the saying goes higher the risk higher the return, 7% of the respondents are of the opinion that risk can not be minimized and the remaining 93% says that risk can be minimized. Risk is involved in every investment, in some investments it may be less and in some investments it may be high. The respondents are of the opinion that the risk involved in investments can be minimized.

Page 82

RISK MINIMIZING INSTRUMENTS Table No. 4.15 INSTRUMENTS INSURANCE POST OFFICE GOVERNMENT BONDS FUTURES & OPTIONS OTHERS RESPONDENTS 56 10 6 26 2 PERCENTAGE 56 10 6 26 2

RISK MINIMIZING INSTRUMENTS Graph No. 4.15

60%
bonds 6% and others 2%.

As an instrument of minimizing risk the respondents are aware of insurance than derivatives. Insurance constitute 56%, followed by futures and options 26%, post office 10%, government

56%

50%

Page 83

As compared to futures and options, insurance is very easy to understand and to deal with. So the respondents opt for insurance as a risk minimizing instrument rather than complicated futures and options. AWARENESS TO FUTURES AND OPTIONS Table No. 4.16 AWRENESS OF DERIVATIVES YES NO RESPONDENTS PERCENTAGE

42 58

42 58

AWARENESS TO FUTURES AND OPTIONS Graph No. 4.16

Only 42% of the respondents are aware of futures and options or partially know about them. The remaining 58% do not know about futures and options.

Page 84

This indicates that still futures and options are not known to a large segment of investors. This shows that media and market experts have not been so effective in educating the investors about futures and options.

Page 85

RESPONDENTS WHO LIKE TO KNOW MORE ABOUT THEM Table No. 4.17 LIKE TO KNOW MORE YES NO RESPONDENTS 85 15 PERCENTAGE 85 15

LIKE TO KNOW MORE ABOUT DERIVATIVES Graph No. 4.17

It shows that about 85% of the respondents want to know more about futures and options, this also include people with partial knowledge and the remaining 15% say no, this can be either they know about them or do not want to know about it.
Page 86

Majority of the respondents wants to know more about futures and options. As the futures and options are little complex to understand, respondents would like to know more about them. MEDIAS TO UNDERSTAND THE CONCEPTS OF DERIVATIVES Table No. 4.18 LEARNING MEDIA SEMINARS PRINT MEDIA TELEVISION INTERACTION WITH EXPERTS RESPONDENTS 23 19 32 26 PERCENTAGE 23 19 32 26

LEARNING MEDIA Graph No. 4.18

Most of the respondents want to understand the concept of futures and options through Television which constitutes 32%, seminars 23%, interaction with market experts 26% and print media 19%.
Page 87

Some of the respondents have little knowledge about futures and options yet, they are interested to learn about this aspect through various media. TRADING PATTERN OF INVESTORS IN DERIVATIVES Table No. 4.19 TRADE DO NOT TRADE DAILY WEEKLY FORTNIGHTLY MONTHLY RESPONDENTS 67 7 6 4 16 PERCENTAGE 67 7 6 4 16

TRADING PATTERN OF INVESTORS IN DERIVATIVES Graph No. 4.19

67%

Page 88

Since most of the respondents are not derivative traders, they trade less. 67% of the respondents do not trade, 7% trade daily, 6% weekly, 4% fortnightly and 16% trade monthly through derivatives. This indicates that investors trade less frequently in futures and options. I USE THIS INSTRUMENT TO TRADE IN Table No. 4.20 TRADE IN GOLD SHARES CURRENCY COMMODITY RESPONDENTS 0 30 6 6 PERCENTAGE 0 72 14 14

RESPONDENTS USED OF DERIVATIVES TO TRADE IN Graph No. 4.20

Page 89

Futures and options mainly used by respondents to trade in shares, it constitute about 30%. The 6% of the respondents use it to trade in currency and commodities. It can be concluded that most of the respondents use futures and options only to trade in shares. They are not aware or do not trade in Gold and other precious metals through derivatives. The use of futures and options to trade in currency and commodities is also comparatively low.

Page 90

I THINK THROUGH DERIVATIVES Table No. 4.21 THROUGH DERIVATIVES RISK CAN BE MINIMIZED LOSS CAN BE MINIMIZED RESPONDENTS 32 10 PERCENTAGE 76 24

RESPONDENTS WHO THINK THROUGH DERIVATIVES Graph No. 4.21

76% of the respondents think that through derivatives risk can be minimized. In contrast 24% of the respondents feel that derivatives can be used to minimize the loss. This indicates that futures and options are mainly used to minimize the risk involved in the investment.

Page 91

EXPERIENCE WITH DERIVATIVES WAS Table No. 4.22 RESPONDENT S 8 VERY SATISFACTORY SATISFACTORY NOT SATISFACTORY NONE 18 10 6 43 24 14

EXPERIENCE

PERCENTAGE 19

RESPONDENTS EXPERIENCE WITH DERIVATIVES Graph No. 4.22

Page 92

43% of the respondents are satisfied with the trading in derivatives. 24% are not satisfied with the performance of derivatives. 19% says they are very satisfied with the performance of derivatives. 14% says none.

Page 93

FINDINGS
1. The study shows that most of the respondents are aged more than 40 years. 2. Major parts of the respondents are employees and regular investors to stock markets.

3. The respondents consider safety and liquidity to be the prime importance and therefore want to invest their savings in banks rather than in the stock market and other investment avenues. 4. Major portions of investors consider insurance, as the best hedging tool and the exposure to futures and options is also quite well. 5. Respondents believe that futures and options are very technical and difficult to understand. 6. They prefer television and seminars to understand about futures and options. 7. Among the players in the derivative market most of the respondents trade on monthly positions, and are quite satisfied with their performance.

Page 94

SUGGESTIONS

1. Although the derivatives market is growing considerably in India, respondents lack knowledge about futures and options, therefore awareness has to be developed about derivatives.

2. As the majority of the respondents fall in the middle income group, they do not opt for futures and options due to high margins. So steps should be taken to lower the initial margins, in order to make derivatives popular among small and medium level investors.

3. There is a necessity from the brokers point of view to provide adequate and timely information to the clients.

4. The television media with assistance from market experts can help the investors or traders to give more knowledge about futures and options.

Page 95

CONCLUSION

Though the derivatives market has overtaken the cash market in daily turnover and volumes we can see that the awareness among the investing public about futures and options as a tool of hedging is not much and respondents think that this topic is highly technical and complicated to understand. And a few respondents know about derivatives and are reluctant in keeping heavy sums and margins with brokers. As the study shows that most of the respondents do not want to take risk in their investment, the futures and options can be an ideal tool for minimizing their investment risk. But the problem is, they are not aware of futures and options fully. There is a necessity on the part of the media and market experts to make futures and options more familiar among the investing public.

It is also found that futures and options mainly used to trade in shares only. So there is a need to make them familiar in the trading of commodities, currencies and precious metals.

The complexity involved in the trading of futures and options should be reduced and it should be made simple to understand, even for a common man. This will definitely help in developing Indian futures and options market in the coming years.

Page 96

Annexure QUESTIONNAIRE

1. Name:.......................................

2. Address:....................................

3. Age Group: Less than 25

4. Sex :

25-40 Female

More than 40

Male

5. Occupation: Business Employee Professional

Others (Please Specify)...................

6. Monthly Income : Less than 15,000 15,000-25,000 More than 25,000

7. Do you invest your savings? Yes No

Page 97

8. The name of the company through which you invest Geojit Securities .. IL & FS Securities Integrated Services Other (Please specific)

9. Areas of investment that you are aware of: Real Estate Post Office Banks Stock Market Mutual funds

Precious metals

Other (Please specific)..

10. While investing you give the highest preference to (Any one) Liquidity Legality Profitability Safety

Others (please specify).

11. Which investment according to you is most preferable? Real estate Post office Precious metals Banks Stock Market Mutual funds Other

(Please specific)

12. Do you watch the investor awareness advertisements given by SEBI? Yes No

Page 98

13. Are you a risk seeker? Yes No 14. You invest in : Low risk Investments High risk investments Moderate risk investments

15. In your investments you give preference for : Minimum risk, Maximum return Minimum risk, Minimum return

Maximums risk, Maximum return

16. Do you think that risk can be minimized? (If No go to Q. No 18 ) Yes No

17. If YES what are the instruments that can be used to minimize your investment risk. Insurance Post office Government Bonds

Futures and options Others (Please Specify)..

18. Are you aware of futures and options? Yes No

Page 99

19. Do you like to know more about futures and options? Yes No

20. Through which medium would you like to understand about futures and options? Seminars Print Media Television

Interaction with market experts

21. How often do you trade through futures and options? Do not trade Fortnightly Daily Monthly Weekly

22. I use derivatives to trade in : Gold Shares Currency Commodities

Others (Please Specify).

23. Which one do you think is correct? Through Derivatives: Risk can be minimized Loss can be minimized

24. Your experience with futures and options as an. instrument to minimize risk or loss has been : Very satisfactory Not satisfactory Satisfactory None

Page 100

25. Please give suggestions if any, to your company (broker)

THANK YOU

BIBLIOGRAPHY

1. N.D. Vohra and B.R. Bagri, Futures and options, Tata Mc Graw Hill Publications,

2001, Pp2-10.
2. Hull C. John Options, futures and other derivatives, Pearson Education, 4th Edition

2001, Pp28.
3. Edwards. R. Franklin and Cindy, Futures and Options, Mc Graw Hill Publications,

1992, Pp92.
4. Parameshwara K. Sunil, Futures Market theory and practice, Tata Mc Graw Hill

Publications, 2003, Pp2-48.

5. D.C.Patwari and A. Bhargava, Options and futures An Indian perspective, Jaico

Publishing house, 2005, Pp1-30.

INTERNET:

http://www.angelfire.com/a_brief_history_of_derivatives.htm http://www.business_standard.com http://www.bseindia.com http://www.nscindia.com http;//www.geojitbnpparibas.com

Page 101

Page 102