Escolar Documentos
Profissional Documentos
Cultura Documentos
PROJECT REPORT ON
SUBMITTED BY:
ANKIT CHOUDHARY
ROLL No. 0908570009
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DECLARATION
PLACE: MUZAFFARNAGAR
DATE:
ANKIT CHOUDHARY
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ACKNOWLEDGEMENT
To acknowledge is very great way to show your gratitude towards the persons
who have contributed in your success in one or other way.
At the very outset of the training I deem it is my pious duty to express my sincere
thanks also to branch head Mr. Jagdish Paliwal for his continuous guidance and
supervision and support during the project.
I would like to thank Mr. ALOK KUMAR GUPTA (H.O.D MBA) who has guided
me for my project work and provided encouragement through out my training
period.
This study could not have been successful without the valuable input of the
customer of ANAND RATHI.
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PREFACE
I know that Project is for the development and enhancement of the knowledge in
this particular field. It can never be possible to make a mark in today’s
competitive era only with theoretical knowledge when industries are developing
at global level, practical knowledge of administration and management of
business is very important. Hence, practical study is of great importance to MBA
student.
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TABLE OF CONTENTS
INDUSTRY PROFILE:
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HISTORY OF THE STOCK BROKING INDUSTRY
Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago.
In 1887, they formally established in Bombay, the "Native Share and Stock
Brokers' Association" (which is alternatively known as "The Stock Exchange"). In
1895, the Stock Exchange acquired a premise in the same street and it was
inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Thus in the same way, gradually with the passage of time number of exchanges
were increased and at currently it reached to the figure of 24 stock exchanges.
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BSE (BOMBAY STOCK EXCHANGE)
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NSE (NATIONAL STOCK EXCHANGE)
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NCDEX (NATIONAL COMMODITIES AND DERIVATIVES
EXCHANGE)
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STOCK MARKET BASIC
Stock market without the approval of the Securities and Exchange Commission
(SEC). This transition from a privately held corporation to a publicly traded one is
Called going public, and this first sale of stock to the public is called an initial
public offering, or IPO.
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Why do people invest in the stock market?
When you buy stock in a corporation, you own part of that company. This gives
you a vote at annual shareholder meetings, and a right to a share of future profits.
When a company pays out profits to the shareholder, the money received is called
a "Dividend".
The corporation's board of directors choose when to declare a dividend and how
much to pay. Most older and larger companies pay a regular dividend, most newer
and smaller companies do not.
The average investor buys stock hoping that the stock's price will rise, so the
shares can be sold at a profit. This will happen if more investors want to buy stock
in a company than wish to sell. The potential of a small dividend check is of little
concern.
A company who is a leader in a hot industry will usually see its share price rise
dramatically.
Investors take the risk of the price falling because they hope to make more money
in the market than they can with safe investments such as bank CD's or government
bonds.
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What is a stock market index?
In the stock market world, you need a way to compare the movement of the
market, up and down, from day to day, and from year to year. An index is just a
benchmark or yardstick expressed as a number that makes it possible to do this
comparison. For e.g. S&P CNX Nifty is the index of NSE and SENSEX is the index
of BSE.
The price per share, like the market cap, has nothing to do with how big a
company is.
The Securities Market consists of two segments, viz. Primary market and
Secondary market. Primary market is the place where issuers create and issue
equity, debt or hybrid instruments for subscription by the public; the Secondary
market enables the holders of securities to trade them.
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Exchanges established in different centers, there are exchanges like the
National Stock Exchange (NSE) and the Over the Counter Exchange of India
(OTCEI), who provide nation wide trading facilities with terminals all over the
country. The trading platform of stock exchanges is accessible only through
brokers and trading of securities is confined only to stock exchanges.
Corporate Securities:
Derivatives Market:
Derivatives trading commenced in India in June 2000. The total exchange traded
derivatives witnessed a volume of Rs. 442,343 crore during 2002-03 as against Rs.
4018 crore during the preceding year. While NSE accounted for about 99.5% of
total turnover, BSE accounted for about 0.5% in 2002-03. The market witnessed
higher volumes from June 2001 with introduction of index options, and still higher
volumes with introduction of stock options in July 2001. There was a spurt in
volumes in November 2001 when stock futures were introduced. It is believed
that India is the largest market in the world for stock futures.
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Supply and Demand
A stock's price movement up and down until the end of the trading day is strictly
a result of supply and demand. The SUPPLY is the number of shares offered
for sale at anyone one moment. The DEMAND is the number of shares
investors wish to buy at exactly that same time. What a share of a company is
worth on anyone day or at any one minute, is determined by all investors voting
with their money. If investors want a stock and are willing to pay more, the price
will go up. If investors are selling a stock and there aren't enough buyers, the
price will go down Period.
The Central Government has notified SEBI (Stock Brokers & Sub-Brokers) Rules,
1992 in exercise of the powers conferred by section 29 of SEBI Act, 1992. These
rules came into effect on 20th August, 1992.
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Trading Through Brokers / Traditional Method of Share
Trading:-
Trading in the stock exchange can be conducted only through member broker in
securities that are listed on the respective exchange. Investor intending to
buy/sell securities in the exchange has to do so only through a SEBI registered
broker/sub-broker. This is very popular concept in India for Share Trading before
the facilities like on line trading introduce.
Both the exchange have switched over from the open outcry trading system to
fully automated computerized mode of trading knows as Bolt and Neat. In this
system, the broker trade with each other through the computer network. Buyers
and sellers place their orders specifying the limits for quality and price. Those
that are not matched remain on the screen and is opened for future matching
during the day / settlement. After the advent of computerized trading the speed of
trading has increased multi-fold and a fuller view of the market is available to the
investors.
To start dealing with broker you have to fill a form with the broker. After fill all the
formalities the firm gives you a User Id no like a bank a/c no. through which you
can enter in the transaction with broker. Broker will gives all the which one
investor needed.
“A stock broker is one who invests other people’s money until it’s all
gone.”
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-Woody Allen, American Film Maker
A stock broker is a person or a firm that trades on its clients behalf, you tell
them what you want to invest in and they will issue the buy or sell order. Some
stock brokers also give out financial advice that you a charged for.
It wasn’t too long ago and investing was very expensive because you had to go
through a full service broker which would give you advice on what to do and
would charge you a hefty fee for it.
There are three different types of stock brokers.
2. Discount Broker – A discount broker let’s you buy and sell stocks at a low
rate but doesn’t provide any investment advice.
3. Direct-Access Broker- A direct access broker lets you trade directly with
the electronic communication networks (ECN’s) so you can trade faster.
Active traders such as day traders tend to use Direct Access Brokers
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Generally there are two types of trading have been done in India which is given
below:
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ABOUT ANAND RATHI
INTRODUCTION:-
Anand Rathi is a leading full service investment bank founded in 1994 offering a
wide range of financial services and wealth management solutions t institutions,
corporations, high–net worth individuals and families. The firm has rapidly
expanded its footprint to over 350 locations across India with international
presence in Dubai ,Hong Kong & New York. Founded by Mr. Anand Rathi and
Mr. Pradeep Gupta,the group today employs over 2,500 professionals through
out India and its international offices.
The firm’s philosophy is entirely client centric, with a clear focus
on providing long Term value addition to clients, while maintaining the highest
standards of excellence, Ethics and professionalism. The entire firm activities are
divided across distinct client groups: Individuals, Private Clients, Corporates and
Institutions. AnandRathi has been named The Best Domestic Private Bank in
India by Asiamoney in their Fifth Annual Private Banking Poll 2009. The firm has
emerged a winner across all key segments in Asiamoney’s largest survey of high
net worth individuals in India.
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ANAND RATHI consultant
As the flagship company of the ANAND RATHI Group, ANAND RATHI Private
Limited has always remained at the helm of organizational affairs, pioneering
business policies, work ethic and channels of progress.
ANAND RATHI believe that they were best positioned to venture into that activity
as a Depository Participant. They were one of the early entrants registered as
Depository Participant with NSDL (National Securities Depository Limited), the
first Depository in the country and then with CDSL (Central Depository Services
Limited). Today, It service over 1Lac customer accounts in this business spread
across over 350 cities/towns in India and are ranked amongst the largest
Depository Participants in the country. With a growing secondary market
presence.
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Business Focus:-
VISION STATEMENT
MISSION STATEMENT
“TO WORK TOGETHER WITH INTEGRITY & MAKE OUR
CUSTOMER FEEL VALUED”
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CORE VALUE
“RESPECT OUR COLLEAGUE AND THE BUSINESS ITSELF”
Board of Directors
Of
ANAND RATHI GROUP
NAME POSITION
Mr. Anand Rathi Founder & chairman
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Principal Activities Of
‘ANAND RATHI GROUP’
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ANAND RATHI Profile
REGISTERED OFFICE
MUZAFFARNAGAR BRANCH
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Organization Chart:-
Anand Rathi
Branch Franchise
Customer
Care
Receptionist
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ANAND RATHI’s CORE SERVICES:-
Research Based
Investment Advice
Training and
Investment and
Seminars
EQUITIES Trading Services
DERIVATIVES
COMMODITIES
Technology Based
Investment Tools
Integrated Demat
Facility
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SWOT
Analysis
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Strength:-
Weakness:-
Opportunity:-
Attract the customers who are dissatisfied with other brokers & DPs.
Up growing markets in commodity and forex trading
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Threats:-
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ANAND RATHI’s Services
Offline
Online
Other Services
OFFLINE
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The A/C opening charges applied(One time)
Online Account
Other Services:
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Dial-n-Trade
Mutual Fund
Commodity
Derivative
Depository Participants
Distribution of Financial Services
Research Based Advices
Portfolio Management System
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ANAND RATHI Securities Private Limited, one of the cornerstones of the ANAND
RATHI edifice, flows freely towards attaining diverse goals of the customer
through varied services. Creating a plethora of opportunities for the customer by
opening up investment vistas is backed by research-based advisory services.
Here, growth knows no limits and success recognizes no boundaries. Helping the
customer create waves in his portfolio and empowering the investor completely is
the ultimate goal.
To empower the investor further we have made serious efforts to ensure that our
research calls are disseminated systematically to all our stock broking clients
through various delivery channels like email, chat, SMS, phone calls etc.
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MUTUAL FUNDS
Introduction:
Meaning:
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Commodity
trading in groundnut, castor seed and cotton. Before the Second World War
broke out in 1939 several futures markets in oilseeds were functioning in Gujarat
and Punjab.
There were booming activities in this market and at one time as many as 110
exchanges were conducting forward trade in various commodities in the country.
The securities market was a poor cousin of this market as there were not many
papers to be traded at that time.
The era of widespread shortages in many essential commodities resulting in
inflationary pressures and the tilt towards socialist policy, in which the role of
market forces for resource allocation got diminished, saw the decline of this
market since the mid-1960s.
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markets have been thin with poor liquidity and have not grown to any significant
level.
Derivative
The emergence of the market for derivative products, most notably forwards, futures
and options, can be traced back to the willingness of risk-averse economic agents to
guard themselves against uncertainties arising out of fluctuations in asset prices. By
their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer
price risks by locking-in asset prices. As instruments of risk management,
these generally do not influence the fluctuations in the underlying asset prices.
However, by locking-in asset prices, derivative products minimize the impact of
fluctuations in asset prices on the profitability and cash flow situation of risk-averse
investors.
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Depository Participants
The onset of the technology revolution in financial services Industry saw the
emergence of ANAND RATHI as an electronic custodian registered with
National Securities Depository Ltd (NSDL) and Central Securities
Depository Ltd (CSDL). ANAND RATHI set standards enabling further
comfort to the investor by promoting paperless trading across the country and
emerged as the top 3 Depository Participants in the country in terms of
customer serviced.
Offering a wide trading platform with a dual membership at both NSDL and
CDSL, we are a powerful medium for trading and settlement of dematerialized
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Shares. We have established live DPMs, Internet access to accounts and an
easier transaction process in order to offer more convenience to individual and
The paradigm shift from pure selling to knowledge based selling drives the
business today. With our wide portfolio offerings, we occupy all segments in the
retail financial services industry.
A 1600 team of highly qualified and dedicated professionals drawn from the best
of academic and professional backgrounds are committed to maintaining high
levels of client service delivery.
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This has propelled us to a position among the top distributors for equity and debt
issues with an estimated market share of 15% in terms of applications mobilized,
besides being established as the leading procurer in all public issues.
To further tap the immense growth potential in the capital markets we enhanced
the scope of our retail brand, thereby providing planning and advisory services to
the mass affluent. Here we understand the customer needs and lifestyle in the
context of present earnings and provide adequate advisory services that will
necessarily help in creating wealth. Judicious
Planning that is customized to meet the future needs of the customer deliver a
service that is exemplary. The market-savvy and the ignorant investors, both find
this service very satisfactory. The edge that we have over competition is our
portfolio of offerings and our professional expertise. The investment planning for
each customer is done with an unbiased attitude so that the service is truly
customized.
• Investments
– Equity – Primary and Secondary
– Fixed Income – Primary and Secondary
– Fixed Deposits
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– Mutual Funds
• Insurance
– Life : LIC, Amp Sanmar, HDFC Standard, ICICI Prulife, Om
Kotak, MetLife, Tata AIG, Birla Sun life
– General : New India, Tata AIG, Reliance, Royal Sundaram
The company has initiated the process of obtaining permission from SEBI for
rendering PMS Service to its clients. We are planning to start PMS Service to
High Net Worth individual and NRIs after obtaining the necessary regulatory
clearances.
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THEORETICAL ASPECT
INTRODUCTION:
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For example: - the value of any asset, say share of any company, at a
future date depends upon the share’s current price. Here, the share is
underlying asset, the current price of the share is the bases and the future value
of the share is the derivative. Similarly, the future rate of the foreign exchange
depends upon its spot rate of exchange. In this case, the future exchange rate is
the derivative and the spot exchange rate is the base.
Derivatives are contract for future delivery of assets at price 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.
Meaning:
Derivatives are the financial contracts whose value/price is dependent on
the behavior of the price of one or more basic underlying assets (often simply
known as the underlying). These contracts are legally binding agreements,
made on the trading screen of stock exchanges, to buy or sell an asset in future.
The asset can be a share, index, interest rate, bond, rupee dollar exchange rate,
sugar, crude oil, soybean, cotton, coffee etc.
Merchandisi Futures
ng, (Standardized Options
customized ) 43
NTSD TSD
In financial terms derivatives is a broad term for any instrumental whose value is
derived from the value of one more underlying assets such as commodities,
forex, precious metal, bonds, loans, stocks, stock indices, etc.
Derivatives were developed primarily to manage offset, or hedge against
risk but some were developed primarily to provide potential for high returns. In
the context of equity markets, derivatives permit corporations and institutional
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products based on financial instruments such as bond, currencies, stocks and
stock indices have now for outstripped that for the commodities contracts.
The history of the derivatives dates back to the time since the trading
came into being. The merchants entered into contracts with one another for
future delivery of specified amount of commodities at specified price. A primary
intention for contracting for future date was to keep the transaction immune to
unexpected fluctuations in price.
In the class of equity derivatives the world over, futures and options on stock
indices have gained more popularity than on individual stocks, especially among
institutional investors, who are major users of index-linked derivatives.
Even small investors find these useful due to high correlation of the
popular indexes with various portfolios and ease of use.
1848
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A group of Chicago businessmen formed the Chicago Board of Trade
(CBOT). The primary intention of the CBOT was to provide a centralized location
known in advance for buyers and sellers to negotiate forward contracts.
1865
The CBOT went one-step further and listed the first “exchange traded”
derivatives contract in the US; these contracts were called “future contracts”
1919
Chicago Butter and Egg & board, a spin-off of CBOT, was reorganized to
allow futures trading. Its name was changed to Chicago Mercantile Exchange
(CME).
The CBOT and the CME remain the two largest organized futures
exchanges, indeed the two largest “financial” exchanges of any kind in the world
today.
The first stock index futures contract was traded at Kansas City Board of
Trade. Currently the most popular stock index futures contract in the world was
based on S&P 500 index, traded on Chicago Mercantile Exchange.
During the mid eighties, financial futures became the most active
derivatives instruments generating volumes many times more than the
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organized market was legal before Moorage Desai’s government banned
forward contracts.
JUNE 2000
National Stock Exchange and Bombay Stock Exchange started trading in
futures on Sensex and Nifty. Options trading on Sensex and
Nifty commenced in June 2001. Very soon thereafter trading began on options
and futures in 31 prominent stocks in the month of July and November
respectively.
Option and future are the most commonly traded derivatives, but as the
understanding of financial markets and risked management continued to
improve newer derivatives were created. The family includes the host of other
product such as forward contracts. Structured notes, inverse floaters, caps &
Floors and Collar Swaps.
The largest derivatives market in the world, are on government bonds (to
help control interest rate risk) the stock index (to help control risk that is
associated with the fluctuations in the stock market) and on exchange rates (to
cope with currency risk).
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Risk Associated With Derivatives:
derivatives trading are neither new nor unique – they are the same kind of
risks associated with traditional bond or equity instruments.
Market Risk
Derivatives exhibit price sensitivity to change in market condition, such as
fluctuation in interest rates or currency exchange rates. The market risk of
leveraged derivatives may be considerable, depending on the degree of
leverage and the nature of the security.
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Liquidity Risk
Most derivatives are customized instrument and could exhibit substantial
liquidity risk implying they may not be sold at a reasonable price within a
reasonable period. Liquidity may decrease or evaporate entirely during
unfavorable markets.
Credit Risk
Derivatives not traded on exchange are traded in the over-the-counter
(OTC) market. OTC instrument are subject to the risk of counter party defaults.
Hedging Risk
Several types of derivatives, including futures, options and forward are
used as hedges to reduce specific risks. If the anticipated risks do not develop,
the hedge may limit the fund’s total return.
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The derivatives market helps to transfer risks from those who have them
but may not like them to those who have an appetite for them.
Derivatives, due to their inherent nature, are linked to the underlying cash
market. With the introduction of the derivatives, the underlying market
witnesses higher trading volumes because of the participation by more
players who would not otherwise participate for lack of arrangement to
transfer risk.
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Market participants in the future and option markets are many and they
perform multiple roles, depending upon their respective positions. A trader acts
as a hedger when he transacts in the market for price risk management. He is a
speculator if he takes an open position in the price futures market or if he sells
naked option contracts. He acts as an arbitrageur when he enters in to
simultaneous purchase and sale of a commodity, stock or other asset to take
advantage of mispricing. He earns risk less profit in this activity. Such
opportunities do not exist for long in an efficient market. Brokers provide
services to others, while market makers create liquidity in the market.
Hedgers
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 prices move in the
adverse direction.
Speculators
If hedgers are the people who wish to avoid the price risk, speculators are
those who are willing to take such risk. These people take position in the market
and assume risk to profit from fluctuations in prices. In fact, 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 efficiency. By taking position, they are betting that a price
would go up or they are betting that it would go down.
They monitor the prices continuously and generally attempt to make profit
from just a few ticks per trade. On the other hand, the position traders also
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attempt to gain from price fluctuations but they keep their positions for longer
durations may is for a few days, weeks or even months.
Arbitrageurs
Arbitrageurs thrive on market imperfections. An arbitrageur profits by
trading a given commodity, or other item, that sells for different prices in different
markets. The Institute of Chartered Accountant of India, the word “ARBITRAGE”
has been defines as follows:-
TYPES OF DERIVATIVES:-
The most commonly used derivatives contracts are Forward, Futures and
Options. Here some derivatives contracts that have come to be used are
covered.
FORWARD:-
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A forward contract is a customized contract between two entities,
where settlement takes place on a specific date in the future at today’s pre-
agreed price.
FUTURES :-
A futures contact is an agreement between two parties to buy or sell
an asset at a certain time in the future at a certain price. Futures contracts
are special types of forward contracts in the sense that the former are
standardized exchange-traded contracts.
OPTIONS:-
Options are a right available to the buyer of the same, to purchase or
sell an asset, without any obligation. It means that the buyer of the option can
exercise his option but is not bound to do so. Options are of 2 types: calls
and puts.
1. CALLS :-
Call gives the buyer the right, but not the obligation, to buy a given
quantity of the underlying asset, at a given price, on or before a given future
date.
For example :- A, on 1 st Aug. buys an option to buy 600 shares of Reliance Ind.
Ltd. @ 450 Rs 450 on or before 1 st Sep. In this case, A has the right to buy the
shares on or before the specified date, but he is not bound to buy the shares.
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2. PUTS :-
Put gives the buyer the right, but not the obligation, to sell a given
quantity of the underlying asset, at a given price, on or before a given date.
For example :- A, on 1 st Aug. buys an option to sell 600 shares of
Reliance Ind. Ltd. @ Rs 450 on or before 1 st Sep. In this case, A has the right
to sell the shares on or before the specified date, but he is not bound to sell
the shares.
In both the types of the options, the seller of the option has an
obligation but not a right to buy or sell an asset. His buying or selling of an
asset depends upon the action of buyer of the option. His position in both the
type of option is exactly the reverse of that of a buyer.
WARRANTS :-
Options generally have lives of up to one year, the majority of options
exchanges having a maximum maturity of nine months. Longer-dated options
are called warrants and are generally traded over-the-counter.
LEAPS :-
The acronym LEAPS means Long-Term Equity Anticipation Securities.
These are options having a maturity of up to three years.
BASKET :-
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Basket options are options on portfolios of underlying assets are
usually a moving average of a basket of assets. Equity index options are a
form of basket options.
SWAPS :-
Swaps are private agreement between two parties to exchange cash
flows in the future according to a pre arranged formula. They can be
regarded as portfolios of forward contract. The two commonly used swaps
are as followas:
SWAPTIONS :-
Swaptions are options to buy or sell a swap that will become operative
at the expiry of the options. Thus, a swaptions is an option on a forward
swap. Rather than have calls and puts, the swaptions market has receiver
swaptions and payer swaptions. A receiver swaptions is an option to receive
fixed and pay floating. A payer swaptions is an option to pay fixed and
receive floating Out of the above-mentioned types of derivatives forward.
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The first step towards introduction of derivatives trading in India was
the promulgation of the Securities Laws (Amendment) Ordinance, 1995,
which withdrew the prohibition on options in securities. The market for
derivatives, however, did not take off, as there was no regulatory framework
to govern trading of derivatives. SEBI set up a 24 – member committee under
the chairmanship of Dr. L.C.Gupta on November 18, 1996 to develop
appropriate regulatory framework for derivatives trading in India.
The repot, which was submitted in October 1998, worked out the
operational details of margining system, methodology for charging initial
margins, broker net worth, deposit requirement and real - time monitoring
requirements.
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a recognized stock exchange, thus precluding OTC derivatives. The
government also rescinded in March 2000, the three – decade old
notification, which prohibited forward trading in securities.
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for the same price. The parties to the contract negotiate other contracts
details like delivery date, price, and quantity bilaterally. The forward
contracts are normally traded outside the exchanges.
In the first two of these, the basic problem is that of too much flexibility
and generality. The forward market is like a real estate market in that any two
consenting adults can form contracts against each other. This often makes
them design terms of the deal, which are very convenient in that specific
situation, but makes the contract non-tradable.
Counter party risk arises from the possibility of default by any one
party to the transaction. When one of the two sides to the transaction
declares bankruptcy, the other suffers. Even when forward markets trade
standardized contracts, and hence avoid the problem illiquidity, the counter
party risk remains a very serious.
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INTRODUCTION TO FUTURES:-
Future contract is specie of forward contract. Futures are exchange-traded
contracts to sell or buy standardized financial instruments or physical
commodities for delivery on a specified date at an agreed price. Futures
contracts are used generally for protecting against rich of adverse price
fluctuations (hedging). As the terms of contracts are standardized, these are
generally not used for merchandizing purpose.
The standardized items in a futures contract are:
Quantity of the underlying.
Quality of the underlying.
The date and month of delivery.
The units of price quotation and minimum price change.
Location of settlement.
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Other benefits of futures trading are:
Price stabilization in time of violent price fluctuations- this mechanism
dampens the peaks and lifts up the valleys i.e. the amplitude of price
variation is reduced.
Leads to integrated price structure throughout the country.
Facilitates lengthy and complex, production and manufacturing activities.
Helps balance in supply and demand position throughout the year.
Encourages competition and acts as a price barometer to farmers and
other trade functionaries.
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Margins
The margining system is based on the J R Verma committee
recommendations. The actual margining happens on a daily basis while online
position monitoring is done on an intra day basis. Daily margining is of two
types:
1. Initial margins.
2. Mark-to market profit/loss.
The computation of initial margin on the futures market is done using the
concept of Value-at-risk (VaR). The initial margin amount is large enough to
cover a one-day loss that can be encountered on 99% of the days.
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i. MTM Settlement
All futures contact for each member is marked-to-market (MTM) to the
daily settlement price of the relevant futures contract at the end of each day. The
profits/losses are computes as a difference between:
1. The trade price and the day’s settlement price for contracts executed during
the day but not squared up.
2. The previous day’s settlement price and the current day’s settlement price for
brought forward contracts.
The buy price and the sell price for the contracts executed during the day
and squared up. The clearing members (CMs) who have a loss are required to
pay the mark-to-market (MTM) loss amount in cash which is in, turn passed on
to the CMs who have made a MTM profit. This is known as daily mark-to-market
settlement. CMs are responsible to collect and settle the daily MTM
profits/losses incurred by the Trading members (TMs) and their clients clearing
and settling through them. Similarly, TMs are responsible to
collect/pay/losses/profits from/to their clients by the next day. The pay-in and
payout of the mark-to-market settlement are affected on the day following the
trade day. After completion of daily settlement computation, all the open
positions are reset to the daily settlement price. Such position becomes the
opening positions for the next day.
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debited/credit to the relevant CM’s clearing bank account on the day following
expiry day of the contract
INTRODUCTION TO OPTIONS:-
Options give the holder or buyer of the option the right to do something. If
the option is a call option, the buyer or holder has the right to buy the number of
shares mentioned in the contract at the agreed strike price. If the option is a put
option, the buyer of the option has a right to sell the number of shares
mentioned in the contract at the agreed strike price. The holder of the buyer
does not have to exercise this right.
Thus on the expiry of the day of the contract the option may or may not be
exercised by the buyer. In contrast, in a futures contract, the two parties to the
contract have committed themselves to doing something at a future date. To
have this privilege of doing the transaction at a future only if it is a profitable, the
buyer of the option has to pay a premium to the seller of options.
63
TYPES OF OPTIONS:-
An option is a contract between two parties giving the taker/buyer) the
right, but not obligation, to buy or sell a parcel of shares at a predetermined price
possibly on, or before a predetermined rate. To acquire this right the taker pays
a premium to the writer (seller) of the contract.
There are two types of options:
1. Call Options
2. Put Options
Call Options:
Call options give the taker the right, but not the obligation, to buy the
underlying shares at a predetermined price, on or before a predetermined date.
Call Options- Long & Short Positions
When you expect prices to rise, then you take a long position by buying
calls. You are bullish.
When you expect prices to fall, then you take a short position by selling
calls. You are bearish.
Put Options:
A Put Option gives the holder of the right to sell a specific number of an
agreed security at a fixed price for a period.
Put Options- Long & Short Positions
When you expect prices to rise, then you take a long position by buying
Puts. You are bearish.
When you expect prices to fall, then you take a short position by selling
Puts. You are bullish.
64
Particulars Call Options Put Options
If you expect a fall in price [Bearish] Short Long
If you expect a rise in price [B ullish] Long Short
IMPORTANT CONCEPTS:-
65
It is an option that has no intrinsic value, i.e. all of its value consists of
time value. A call option is out of the money if the stock price is below its strike
price.
At- the- money:
A term that describes an option with a strike price that is equal to the
current market price of the underlying stock. But of the money if the stock price
is above its strike price.
Intrinsic Value
In a call option, if the value of the underlying asset is higher than the
strike price, the option premium has an intrinsic value and is an “in- the- money”
option. If the value of the underlying asset is lower than the strike price, the
option has no intrinsic value and is an “out- of- the- money” option. If the value of
the underlying asset is equivalent to the strike price, the call option is “at- the-
money” and has no intrinsic value or zero intrinsic value.
In a put option, if the value of the underlying asset is lower than the strike
price, the option has an intrinsic value and is an “in- the- money” option. If the
value of the underlying asset is higher than the strike price, the option has no
intrinsic value and is “out- of- money” option.
If the value of the underlying asset is equivalent to the strike price, the put
option is at the- money”
Time Value
66
Time value is the amount an investor is willing to pay for an option, in the
hope that at some time prior to expiration its value will increase because of a
favorable change in the price of the underlying asset. Time value reduces as the
expiration draws near and on expiration day; the time value of the option is zero.
Option Price
An option cost or price is called “premium”. The potential loss for the
buyer of an option is limited to the amount of premium paid for the contract. The
writer of the option, on the other hand, undertakes the risk of unlimited potential
loss, for premium received. Thus,
Option Price = Premium Price
A premium is the net amount the buyer of an option pays to the seller of
the option. It does not refer to an amount above the base price, as the term
The Black and Scholes Option Pricing Model didn't appear overnight, in
fact, Fisher Black started out working to create a valuation model for stock
warrants. This work involved calculating a derivative to measure how the
discount rate of a warrant varies with time and stock price. The result of this
calculation held a striking resemblance to a well-known heat transfer equation.
Soon after this discovery, Myron Scholes joined Black and the result of their work
is a startlingly accurate option pricing model.
67
Black and Scholes can't take all credit for their work; in fact their model is
actually an improved version of a previous model developed by A. James Boness
in his Ph.D. dissertation at the University of Chicago. Black and Scholes'
improvements on the Boness model come in the form of a proof that the risk-free
interest rate is the correct discount factor, and with the absence of assumptions
regarding investor's risk preferences.
expiration day. The fair market value of the call option is then calculated
by taking the difference between these two parts.
68
2) European exercise terms are used
European exercise terms dictate that the option can only be exercised on
the expiration date. American exercise term allow the option to be exercised at
any time during the life of the option, making American options more valuable
due to their greater flexibility. This limitation is not a major concern because very
few calls are ever exercised before the last few days of their life. This is true
because when you exercise a call early, you forfeit the remaining time value on
the call and collect the intrinsic value. Towards the end of the life of a call, the
remaining time value is very small, but the intrinsic value is the same.
69
5) Interest rates remain constant and known
The Black and Scholes model uses the risk-free rate to represent this
constant and known rate. In reality there is no such thing as the risk-free rate, but
the discount rate on U.S. Government Treasury Bills with 30 days left until
maturity is usually used to represent it. During periods of rapidly changing
interest rates, these 30-day rates are often subject to change, thereby violating
one of the assumptions of the model.
Advantage:
Limitation:
70
As all exchange traded equity options have American-style exercise (i.e. they
can be exercised at any time as opposed to European options which can
only be exercised at expiration) this is a significant limitation.
The exception to this is an American call on a non-dividend paying asset. In
this case the call is always worth the same as its European equivalent as
there is never any advantage in exercising early.
Various adjustments are sometimes made to the Black-Scholes price to
enable it to approximate American option prices but these only works well
within certain limits and they don't really work well for puts.
71
long contract life contract life
Maturity date Standardized Standardized
72
RESEARCH METHODOLOGY:-
Problem Statement:
The topic, which is selected for the study, is “DERIVATIVE MARKET” in
the firm so the problem statement for this study will be, “AWARENESS ABOUT
THE DERIVATIVE AND ITS COMPARISION WITH EQUITY.”
73
Research Design:
The research design specifies the methods and procedures for
conducting a particular study. The type of research design applied here are
“DESCRIPTIVE” as the objective is to check the position of the Derivative
Market in Surat city. The objectives of the study have restricted the choice of
research design up to descriptive research design. This survey will help the firm
to know how the investors invest in the derivative segment & which factors affect
their investing behavior.
74
Methods of Data Collection:-
The study to be conducted is about the awareness of the Derivative
Market in the
Frequencies Percentage
Surat City so Yes 74 37.0
the method of No 126 63.0
Total 200 100.0
data collection
used id “SURVEY METHOD”.
Objective: To know that whether the investors are trading in derivative market
or not.
Frequency
Graph:
75
Trading
140 126
120
percent/frequency
100
74
80 63 Frequencies
60 Percentage
37
40
20
0
Yes No
Trading
Inference: from the above graph out of 200 investors, only 37% investors means
74 respondent are trading in derivative market and 63% means 126 respondents
are not trading in derivative market.
Q.2 Reasons for not investing in derivative market. {Give the rank}
Objective: To know the reason why investors are not trading in trading in
derivative market
Frequency
76
Reasons Frequency Percent
Lack of knowledge 26 20.6
Lack of awareness 19 15.1
High risky 62 49.2
Huge amount of 17 13.5
investment
Other 2 1.6
Total 126 100.0
Graph:
Reason
70 62
60
percent/frequency
49.2
50
Series1
40
26 Series2
30 20.6 19
15.1 1713.5 Series3
20
10 0 0 2 1.6
0
Reasons Lack of Lack of High risky Huge Other
knowledge awareness amount of
investment
reasons
Inference: From the above graphical representation you can see that 49.2%
investors think that the derivatives are high risky whereas 1.6% investors don’t
have specify their reasons for not trading in derivative market.
Frequency
Frequency Percent
77
Don’t trade 126 63.0
Not at all preferred 2 1.0
Neutral 2 1.0
Some how preferred 5 2.5
Most preferred 65 32.5
Total 200 100
Graph:
High Return
140 126
120
percent/frequency
100
80 63 65 Frequency
60 Percent
40 32.5
20 2 2 5 2.5
1 1
0
Don’t trade Not at all Neutral Some how Most preferred
preferred preferred
preferred
Inference: From the above graph we can see that 32.5% investors are most
preferred the objective of high return and 1% investors are neutral while they are
trading in derivative market.
Q .4what are the criteria do you taken in the consideration while investing
in derivative market?
Objective: To know that which criteria are consider by the investors while they
are investing in derivative market. Which criteria are most important for them
whether derivatives are ease in transaction, less costly, or available of different
contract or for the margin money.
78
Frequency
Frequency Percent
Don’t trade 126 63.0
Not at all preferred 2 1.0
Some how not
4 2.0
preferred
Neutral 16 8.0
Some how preferred 23 11.5
Most preferred 29 14.5
Total 200 100.0
Graph:
Ease in transaction
140 126
percentage/frequency
120
100
80 63 Frequency
60 Percent
40 23 29
16 11.5 14.5
20 2 1 4 2 8
0
Don’t Not at all Some Neutral Some Most
trade preferred how not how preferred
preferred preferred
preferred
79
Inference: from the above graph we can conclude that out of the 200 investors
14.5% investors are most preferred and 1% investors are not at all preferred the
ease in transaction contract.
Objective: To know the preference of the investors while they are trading in
derivative market.
Frequency
Frequency Percent
Don’t trade 126 63.0
Not at all preferred 1 .5
Some how not preferred 1 .5
Neutral 15 7.5
Some how preferred 14 7.0
Most preferred 43 21.5
Total 200 100.0
Graph:
80
Index future
140 126
percent/frequency
120
100
80 63 Frequency
60 43 Percent
40 15 7.5 14 7 21.5
20 1 0.5 1 0.5
0
Don’t trade Not at all Some how Neutral Some how Most
preferred not preferred preferred
preferred
preferred
Inference: From the above graph we can see that only 0.5% investors are not at
all preferred the index future, 0.5 % investors are some how not preferred ,7.5%
investors are some how preferred 21.5% are most preferred as the preference of
their trading in derivative market.
Frequency
Frequency Percent
Don’t trade 126 63.0
Not at all preferred 4 2.0
Some how not preferred 1 .5
Neutral 5 2.5
Some how preferred 10 5.0
Most preferred 54 27.0
Total 200 100.0
81
Graph:
Intraday
Frequency/percentage
140 126
120
100
80 63 frequency
54
60 percentage
40 27
0 0 4 2 10.5 5 2.5 10 5
20
0
preferred
preferred
preferred
preferred
Not at all
trade
Neutral
Don’t
how not
Some
Some
Most
how
preferred
Inference: from the above graph we can see that 27% investors are most
preferred the intraday and 2% investors are not at all preferred the intraday.
Q-7 How much percentage of your income you trade in derivative market?
Objective: To know investors are how much percentage of their income trade in
derivative market.
Frequency
Frequency Percent
Don’t trade 126 63
Less than 5% 8 4.0
5%-10% 25 12.5
11%-15% 25 12.5
16%-20% 13 6.5
More than 20% 3 1.5
Total 200 100.0
82
Graph:
16%-20% 6.5
13
11%-15% 12.5
25 Percent
12.5 Frequency
5%-10% 25
Less than 5% 4
8
Don’t trade 63
126
0 50 100 150
Inference: From the above graph we can see that 12.5% investors are invest
5% to 10% income in the derivative market. While only 1.5% investors are
investing more than 20% of their income.
Q-8 what is the rate of return expected by you from derivative market?
Objective: To know the investors expectation towards their investment in
derivative market.
Frequency
Frequency Percent
Do not trade 126 63.0
5%-9% 21 10.5
10%-13. % 22 11.0
14%-17. % 23 11.5
18%-23% 8 4.0
Total 200 100.0
Graph:
83
rate of return expected
140 126
pecentage/frequency
120
100
80 63 Frequency
60 Percent
40 21 22 23
10.5 11 11.5 8 4
20
0
Do not trade 5%-9% 10%-13. % 14%-17. % 18%-23%
Rate of return
Inference: From the above graph we can see that 11.55 investors are expect
the 14% to 17% of their investment .and 4% investors are expect the 18% to 23%
rate of return.
Q-9. You are satisfied with the current performance of the derivative market
Objective: To know that investors are satisfied with the performance of the
derivative market or not.
Frequency
Frequency Percent
Do not trade 126 63.0
Strongly disagree 8 4.0
Disagree 14 7.0
Neutral 18 9.0
Agree 25 12.5
strongly agree 9 4.5
Total 200 100.0
Graph:
84
Satisfaction
percentage/frequency 126
140
120
100
80 63 Frequency
60 Percent
40 18 25
8 4 14 7 9 12.5 9 4.5
20
0
Do not Strongly Disagree Neutral Agree strongly
trade disagree agree
prferred
Inference: From the above Graph we can see that 12.5% are agree for
satisfaction and4% are strongly disagree.
Gender:
Frequency
Frequency Percent
Male 157 78.5
Female 43 21.5
Total 200 100.0
Graph:
85
gender
180
157
160
140
120
frequency
100 Frequency
78.5
80 Percent
60 43
40 21.5
20
0
male female
gender
Inference: From the above graph we can see that there are 157 male investors
when 43 are the female investors.
AGE:
Frequency
Frequency Percent
Below 20 years 3 1.5
20-25 years 61 30.5
26-30 years 51 25.5
31-35 years 43 21.5
above 35 years 42 21.0
Total 200 100.0
Graph:
86
age
35 30.5
30 25.5
percent
25 21.5 21
20
Percent
15
10
5 1.5
0
below 20 20-25 26-30 31-35 above 35
years years years years years
years
Inference: From the above graph we can see that out of 200 investors 1.5%
investors are below 20 years,30.5% investors are 20 to 25 years,21.5% investors
are between 31 to35 years , and 21% investors are above 35 years trading in
derivative market.
Occupation:
Frequency
Frequency Percent
Student 35 17.5
Employed 82 41.0
Business 32 16.0
Professional 22 11.0
House wife 13 6.5
Others 16 8.0
Total 200 100.0
Graph:
87
Occupation
45 41
40
35
percentage 30
25 17.5 16
20 Percent
15 11
6.5 8
10
5
0
t
rs
if e
l
ss
en
na
ye
he
w
ne
ud
io
o
ot
e
pl
s
si
st
us
es
em
bu
ho
of
pr
occupation
ANNUAL INCOME
Frequency
Graph:
88
annual income
40 36.5
35 31
30
percentage
23.5
25
20 Percent
15
7.5
10
5 0.5 1
0
0 less than 1-5 lacs 6-10 lacs 11-15 15 lacs &
1 lac lacs above
income in Rs.
Inference: From the above graph we can see that 23.5% investors don’t have
the income, 31% investors have less than 1 lack annual income, 36.5 %
investors have the 1to 5 lacks annual income, 7.5 % investors have the 6 to 10
lacks income, 0.5% investors have the 11 to 15 lacks annual income, and 1%
investors have the 15 lacks and above annual income.
89
FINDINGS
1. Here we found that out of 200 investors 74 means 37% investors are
trading in derivative market whereas 126 means 63% are not trading in derivative
market.
90
7. Out of 200 investors 12.5% investors are investing 11% to 15% of their income
trading in derivative market.
CONCLUSION
91
3. Investors also prefer Safety and Time Factor as the important
parameter for investing.
RECOMMENDATION
1. Only 74 investors are trading whereas 126 are not trading .so attract them
for trading.
2.19 are lack of awareness so make them aware with the derivative .so
increase the customer.
92
3. Out of 126, 26 don’t have knowledge for derivative so provide them
knowledge for trading in derivative market.
4. Those who are not satisfied with the derivative by knowing their behavior of
investment make them satisfied. Because negative word mouth of the
customers fall down the business. And good word of mouth builds the
business.
BIBLIOGRAPHY
93
1. Donald R Cooper & Pamela S Schindler, “Business Research Methods”,
Eighth Edition, Tata McGraw-Hill, New York, 2003.
2. N D Vohra and B R Bagri, “Future and options” 2nd Edition, seventh reprint
2006 Tata McGraw-Hill Publishing Company Ltd, 2006.
WEBSITES
www.5paisa.com
www.derivativeindia.com
www.anandrathi.com
www.bseindia.com
www.nseindia.com
www.mcx.com
www.ncdex.com
APPENDIX
Questionnaire
94
1. ARE YOU INVESTING IN DERIVATIVE MARKET?
YES
NO
OTHER
95
5 4 3 2 1
SCALE
INSTRUMENT MOST SOMEWHAT NUTRAL SOMEWHAT NOT AT
PREFERED PREFERED NOT ALL
PREFERED PREFERED
HIGH
RETURN
HEDGE THE
RISK
MORE
RELIABLE
SAFE TO
INVEST IN
DERIVATIVE
MARKET
MORE
LIQUID
SCALE 5 4 3 2 1
INSTRUME MOST SOMEWH NUTRAL SOMEWH NOT AT
NT PREFERE AT AT NOT ALL
D PREFERE PREFERE PREFERE
D D D
FLEXIBILIT
Y
96
EASE IN
TRANSAC
TION
LESS
COSTLY
AVALABILI
TY OF
DIFFEREN
T
CONTRAC
T
MARGIN
MONEY
SCALE 5 4 3 2 1
INSTRUME MOST SOME NEUTRAL SOMEWH NOT AT
NT PREFERE HOW AT NOT ALL
D PREFERE PREFERE PREFERE
D D D
INDEX
FUTURE
STOCK
97
FUTURE
INDEX
OPTION
STOCK
OPTION
SCALE 5 4 3 2 1
TERMS MOST SOMEWHA NEATRUL SOMEWHA NOT AT
PREFER T PREFER T NOT ALL
PREFER PREFER
SHORT
TERM
MEDIUM
TERM
LONG
TERM
98
7. HOW MUCH PERCERNTAGE OF YOUR INCOME YOU INVEST IN
DERIVATIVE MARKET?
ABOVE 23%
NUTRAL DISAGREE
99
STRONGLY DISAGREE.
DEMOGRAPHIC PROFILE
NAME: …………………………………………………………
AGE:
31 TO 40 YRS 41 TO 50 YRS
100
ABOVE 50
GENDER:
MALE FEMALE
STUDENT
EMPLOYEED
BUSINESS OWNER
OTHER
INCOME {YEARLY}:
101
100000 TO 200000RS.
200001 TO 300000RS.
300001 TO 400000 RS
ABOVE 400000RS.
THANK YOU
102