the risk and return analysis of equity fund in sundaram mutual fund

7/28/2019 the risk and return analysis of equity fund in sundaram mutual fund

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K.L.E.SOCIETYS

INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH,

B.V.B CAMPUS

VIDYANAGAR

HUBLI.

(APPROVED BY A I C T E, NEW DELHI AND AFFILIATED TO KARNATAKA UNIVERSITY,

DHARWAD.)

PROJECT REPORT ON:

Study of investors preferences and trends towards investment

UNDERTAKEN AT

Submitted in partial fulfillment of the requirement for the award of masters degree in business

administration of Karnataka University Dharwad during academic year

2007-2008

Submitted by:-

Mr.Gururaj A Angadi

M.B.A 4th Sem.

MBA06002088

Institute Guide Organization Guide

Prof. Mona Agarwal Mr. BHAKTIYAR KHAN


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Faculty, KLESs IMSR Branch Manager

Hubli. Apollo

shindoori

DeclarationI, Gururaj A Angadi, hereby declare that

this project entitled Study of investors preferences and

trends towards investment, has been prepared by me

under the valuable guidance and supervision

ofProf. Mona Agarwal, Faculty Member,

KLESs Institute Of Management Studies And

Research, Hubli, in partial fulfillment of the

requirements for the award of the Masters

Degree in Business Administration during

the academic year 2007-2008.

I also declare that this project report

has not been submitted to any other university

for the award of any other degree, fellowship,

associate ship or any other similar title.

Countersigned:-

KLESs INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH, HUBLI


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Prof:-Mona Agarwal MR.

GURURAJ.A.ANGADI.(Faculty Member) Register No. MBA06002026

, KLESs IMSR (M.B.A. Student)

Hubli

DATE:

PLACE: Hubli

Acknowledgement

I would like to thank Dr. S. M Bagali, Director of KLESs

Institute Of Management Studies And Research, Hubli, for the guidance he

has given to me in the conduction of my project work.

I express my profound thanks to Prof:-Mona Agarwal, my

teacher and guide, who has been magnanimous in guiding, encouraging

and supporting me during this project and special thanks to him because

who guided me to choose this immensely productive topic and it was

because of his confidence in me that I have been able to carry out such a

beautiful study report..

My sincere thanks goes to Mr.BHAKTIYAR KHAN, Branch

Manager, Apollo shindoori capital investment Hubli, for giving me an



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opportunity to do a project for their esteemed organization and for

extending his valuable guidance and patient support throughout my project

.

Gururaj.A.Angadi

KLESs IMSR, Hubli.

Master of Business Administration:2006-08

CONTENTS

Page No.

Executive Summary i

Chapter 1

Introduction 2

1.1 Definition and Overview 2

1.2 Problem Identification 2

1.3 Objective of the study 2

Chapter 2

Industry Profile 3

2.1 Industry overview 4

2.2 Investment 6

2.3 Capital market and depository 20



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Chapter 3

Company Profile 31

3.1Basic facts about ASCIL 32

3.2 Service profile of ASCIL 35

3.3 Product profile of ASCIL 49

Chapter - 4

Data Analysis & Interpretation 61

4.1Methodology 61

4.2 Data Analysis 62

4.2.1 Analyze investors preference on investment 62

Chapter 5

Suggestions and Limitation 72

5.1Findings 73

5.2 Suggestion 74

5.3 Limitation 75

Chapter 6

Learning Outcomes 77

6.1On investment avenues 77

6.2 On DP Services 77

Chapter 7

Reference: and Bibliography 78

7.1Article 79

7.2Books 79



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7.3 Websites 79

Chapter 8

Annexure 80

8.1Questionnaire 81

EXECUTIVE SUMMARY

This project has been done in APOLLO SINDHOORI CAPITAL

INVESTMENT LTD. (ASCIL), which is one of the Indias major depository

participants. Apart from the regular activity of a DP, ASCIL provides a range of

products to its client for investment. The project is designed keeping importance

of the investment pattern of people and the popularity of the various products

offered at ASCIL for investment.

This study deals with various investment avenues like equity, bonds,

debentures, bank deposits, insurance, mutual funds etc. and the risk involved in

it. Apart from this, it also gives emphasis on the depository and various

functions of depository participants.

This study also consists of the investment pattern of people who reside in

an economically developed area & economically developing area and how the

investment pattern of people varies according to their social classes like age,

education, income etc. For this study I have taken Bangalore as an



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economically developed area and Bhubaneswar as an economically developing

area. In Bangalore, people are generally prefer to take risk in investment and

invest in such avenues where the return is more but in Bhubaneswar the

scenario is contradictory to Bangalore, where people are more conservative and

investing more in Bank Deposits, Postal Deposits etc. Like that, the middle age

group people are investing more in Insurance, Equity and Mutual Funds, where

as the old age group people prefer to invest in RBI Bonds, Bank Deposits etc.

And among ASCILs product, investor are giving more preference to

Stock Direct rather than any other of its products. But RBI Bonds is the more

preferred product among older age group investors. As ASCIL is one of the

major DP in India, 85 per cent of its client are dealing with demat transactiononly and merely 15 per cent of its client invested in other products.



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Introduction

1.1 Definition and Overview

1.2 Problem identification

1.3 Objective of the study

1.4 Methodology

PART - I


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1.1 Introduction:

The money you earn is partly spent and the rest saved for meeting future

expenses. Instead of keeping the savings idle you may like to use savings in

order to get return on it in the future, which is known as investment. There are

various investment avenues such as Equity, Bonds, Insurance, Bank Deposit

etc. A Portfolio is a combination of different investment assets mixed and

matched for the purpose of achieving an investor's goal. There are various

factors which affects investors portfolio such as annual income, government

policy, natural calamities, economical changes etc

Topic of the study

Study of investors preferences and trends towards investment.

Main Objectives:

To understand investors behavior on various investment alternatives.

1.2 Sub Objective of the study:

To study the investment pattern of people.

To study the investment decisions of different social class people (in term

of age group, education, income level etc.)

To analyze the investment pattern of people who reside in an

economically developed area and economically developing area.

To study the difference between various investment options offered at

ASCIL.

To study the popularity of various products offered by ASCIL.

And, to study the role of ASCIL as a depository participant.



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1.3 Problem identification:

Analyze the investment pattern of people and the popularity of different

products (Fund Invest, RBI Bonds, Stock Direct, Insure) provided by ASCIL for

investment.

1.4 Methodology:

Primary Data

A questionnaire schedule was prepared and the primary data was

collected.

Secondary Data

Company website

Customer data base

Company report

Books and publications

Related information from net

Period of Study:

The study concentrates only on the past 3 years data with the help of data

source available. Period of study and analyzing the primary data is two months.

Type of research:

This is a descriptive research where survey method is adopted to collectprimary information from the investors using different scales as required and the

required secondary information for the analysis.



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Sampling Technique

The sampling technique followed in this study is non-probability

convenient sampling. Simple random techniques are used to select the

respondent from the available database. The research work will be carried on

the basis of structured questionnaire. The study is restricted to the investors of

Hubli city only.

Sample Size

The population being large the survey will be carried among 100

respondents who are the clients of ASCIL, They will be considered adequate to

represent the characteristics of the entire population.

Tools used for data analysis

The analysis of data collection is completed and presented systematically

with the use of Microsoft Excel and SPSS.



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Industry Profile

2.1 Industry Overview

2.2 Investment

2.3 Capital Market and Depository

PART - II


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2.1 Industry Overview:

Globalization of the financial market has led to a manifold increase

in investment. New markets have been opened; new instruments have been

developed and new services have been launched. APOLLO SINDHOORI

CAPITAL INVESTMENT LTD. (ASCIL), the premier custodian of Indian capital

market providing services of international standards, is geared up to reposition

itself in the changed scenario. With world acclaimed automation and a team of

committed professionals, ASCIL is confident of scaling new heights. Combining

its financial strengths and technical expertise to serve the clients better,

wherever and whenever it is needed, ASCIL envisages acting as a partner one

can trust. The corporation has restructured and geared itself to serve the

growing needs of individual investors in the paperless environment. The

organization in its willingness to provide its state-of-the-art financial services in

securities industries to the various segments of the investors has expanded

itself to more than hundred cities across the country. ASCIL desires to give

investors the time and attention in monitoring the performance of their securities

consistently. All aimed at providing the investor with optimum financial gain.

India has a well established capital market mechanism where in

effective and efficient transfer of money capital or financial resources from the

investing class to the entrepreneur class in the private and public sector of the

economy occurs. Indian capital market has a long history of organized trading

which started with the transaction in loan stocks of the East India Company from

that time it has undergone drastic changes to meet the requirements of the

globalization. The Indian Capital Market had been dormant in the 70's and 80's

has witnessed unprecedented boom during the recent years. There has been a

shift of household savings from physical assets to financial assets, particularly

the risk bearing securities such as shares and debentures. Capital markets



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structure has also undergone sea changes with number of financial services

and banking companies, private limited companies coming in to the scene

which made the competition in the market stiffer.

The Companies Act 1850, introduced the concept of limited

liability to India, served to stimulate the activity in the stock market. From then

number of acts are passed to boost the revolutionary change. The global capital

market registered spectacular growth in the decade of 1990's which had an

effect on the growth of Indian market. The world market capitalization grew at

an average annual rate of 16% during the decade, it grew from about US $ 9.3

trillion in 1990 to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion

by 2001. The turnover on all markets taken together has grown nearly 19 times

from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before depleting to about

US $ 42 trillion in 2001. The turnover in developed markets has, however,

grown more sharply than that in emerging markets. The US alone accounted for

about 70% of world wide turnover in 2001. Despite having a large number of

companies listed in its stock exchanges, India accounted for a merger of 59% in

2001 down from 1.06% in 2000.

The stock markets world wide has grown in size as well as depth

over last one decade. During the decade 1990-2000, the world market

capitalization/GDP ratio more than doubled from 51% to 120%. Value traded

GDP rose from 29% to 103% and turn over ratio shot up from 48% to 89%. The

combined market capitalization of a select 22 emerging economies increased

from US $ 339 billion in 1990 to US $ 2.2 trillion in 2000. The average market

capitalization increased from 3.6% to 7%, annual value of shares traded

increased from $ 180 billion to $ 2.2 trillion and GDP increased from 16.7% to

45.5%.



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For India the total capitalization grew from $ 38,567 million at the

end of 1990 to $ 110,396 million at the end of 2001. Turn-over of stocks

increased from $ 21,198 million in 1990 to $ 249,298 million in 2001. Market

capitalization as a percentage of GDP grew from 12.2% in 1999 to 32.4% in

2001 while turnover ratio went up from 65.9% in 1999 to 191.4% in 2000. The

number of listed companies in India was 5,975 as at end of 2001. There are

very few countries, which have higher turnover ratio than India. Standard and

Poor (SP) ranked India, 25th in terms of market capitalization, 15 th in terms of

total value traded in stock-exchanges and 6 th in terms of turn-over ratio.

2.2 Investment:

Investment means buying securities or other monetary or paper

(financial) assets in the money markets orcapital markets, or in fairly liquid real

assets, such as gold as an investment, real estate, or collectibles. Valuation is

the method for assessing whether a potential investment is worth its price.

Types of financial investments include shares or other equity investment, and

bonds (including bonds denominated in foreign currencies). These investments

assets are then expected to provide income or positive future cash flows, but

may increase or decrease in value giving the investor capital gains or losses

2.2.1 Characteristics of Investment:

(i) Interest (return)

When we borrow money, we are expected to pay for using it this is

known as Interest. Interest is an amount charged to the borrower for the

privilege of using the lenders money. Interest is usually calculated as a

percentage of the principal balance (the amount of money borrowed). The

http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Gold_as_an_investmenthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuationhttp://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Gold_as_an_investmenthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuationhttp://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currency


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percentage rate may be fixed for the life of the loan or it may be variable,

depending on the terms of the loan.

What factors determine interest rates?

The factors which govern these interest rates are mostly economy related

and are commonly referred to as macroeconomic factors. Some of these factors

are:

Demand for money

Level of Government borrowings

Supply of money

Inflation rate

(ii) Risk

Risk may relate to loss of capital, delay in repayment of capital non-

payment of interest, or variability of return. While some investment such as

government securities and bank deposits are almost without risk, others are

more risky. The risk of an investment is determined by the investments maturityperiod, repayment capacity, nature of return commitment, and so on.

(iii) Safety

Every investor expects to get back the initial capacity on maturity without

loss and without delay. Investment safety is gauged through the reputation

established by the borrower of the fund. A highly reputed and successful

corporate entity assures investors of their initial capital.

(iv) Liquidity

An investment which is easily saleable or marketable without loss of

money and without loss of time is said to be possess the characteristic of



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liquidity. Some investments such as deposit in unknown corporate entities, bank

deposit, post office deposit, national saving certificate, and so on are not

marketable.

An investor tends to be prefer maximization of expected return,

minimization of risk, safety of fund, and liquidity of investment

The three golden rules for all investors are :

Invest early

Invest regularly

Invest for long term and not short term

One needs to invest for

Earn return on your idle resources

Generate a specified sum of money for a specific goal in life

Make a provision for an uncertain future

To meet the cost of inflation

2.2.2 Types of Investment:

(i) Short term Investment- It is an investment made by the investor for very

short period of time i.e. for one to three years. Such as investment in bank,

money market, liquid funds etc.

(ii) Long Term Investment When investor invests money for more than three

to five years then it is called long term investment. Such as investment in bonds,mutual funds, fixed bank deposits, PPF, insurance etc

Various options available for investment

Physical assets



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o Real estate

o Gold/jewelry

o Commodities

o Assets etc.

Financial assets

o fixed deposits with banks

o Small saving instruments with post offices

o Insurance /provident /pension fund etc.

Securities market

o Share

o Bonds

o Debentures

o Mutual fund

o Derivatives etc.

2.2.3 Investor:

Investor is a person or an organization that invest money in various

investment sources for specific objective. Attitude of investment is different in

each alternative. E.g. financial market have different attitude towards risk and

return. Some investors are risk avers, while some have an affinity of risk. The

risk bearing capacity of investor is a function of personal, economical,

environment, and situational factors such as income, family size, expenditure

pattern, and age. A person with higher income is assumed to have higher risk-

bearing capacity. Thus investor can be classified as risk skiers, risk avoiders, or

risk bearers



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Before making any investment, one must ensure to :

Obtain written documents explaining the investment

Read and understand such documents

Verify the legitimacy of the investment

Find out the costs and benefits associated with the investment

Assess the risk-return profile of the investment

Know the liquidity and safety aspects of the investment

Ascertain if it is appropriate for your specific goals

Compare these details with other investment opportunities available

Examine if it fits in with other investments you are considering or you

have already made

Deal only through an authorized intermediary

Seek all clarifications about the intermediary and the investment

Explore the options available to you if something were to go wrong, and

then, if satisfied, make the investment.

Portfolio

A Portfolio is a combination of different investment assets mixed and

matched for the purpose of achieving an investor's goal. Items that are

considered a part of your portfolio can include any financial asset you own, like

shares, debentures, bonds, mutual fund units etc. and real assets like gold, art

and even real estate etc. However, for most investors a portfolio has come to

signify an investment in financial instruments like shares, debentures, fixed

deposits, mutual fund units.

Diversification



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It is a risk management technique that mixes a wide variety of

investments within a portfolio. It is designed to minimize the impact of any one

security on overall portfolio performance. Diversification is possibly the best way

to reduce the risk in a portfolio.

Advantages of having a diversified portfolio

A good investment portfolio is a mix of a wide range of asset class.

Different securities perform differently at any point of time. So with a mix of

asset types, your entire portfolio does not suffer the impact of a decline of any

one security. When your stocks go down, you may still have the stability of the

bonds in your portfolio. There have been all sorts of academic studies andformulas that

demonstrate why diversification is important, but it's really just the simple

practice of "not putting all your eggs in one basket." If you spread your

investments across various types of assets and markets, you'll reduce the risk

of your entire portfolio getting affected by the adverse returns of any single

asset class.

2.2.4 Investment Avenues:

In India, numbers of investment avenues are available for the investors.

Some of them are marketable and liquid while others are non-marketable and

some of them also highly risky while others are almost risk less. The investor

has to choose proper avenue among them, depending upon his specific need,

risk preference, and return expected

Investment avenues can broadly categories under the following heads

1. Corporate securities



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Equity shares Preference shares

Debenture/Bonds GDRs/ADRs

Warrants Derivatives

2. Deposit in bank and non banking companies

3. Post office deposits and certificate

4. Life insurance policies

5. Provident fund schemes

6. Government and semi-government securities

7. Mutual fund and schemes

8. Real estate

(i) Corporate securities:

(a) Equity share

Total equity capital of a company is divided into equal units of small

denominations, each called a share. For example, in a company the total equity

capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each

such unit of Rs 10 is called a share. Thus, the company then is said to have

20, 00,000 equity shares of Rs 10 each. The holders of such shares are

members of the company and have voting rights. When company makes profit

shareholder receives there share of the profit in form of dividends. In addition,

when company performs well and the future expectation from the company is

very high, the price of the companies share goes up in the market.

Investor can invest in shares either primary market offerings or in the

secondary market.



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(b) Preference shares

Preference share as that part of share capital of the Company which

enjoys preferential right as to: (a) payment of dividend at a fixed rate during the

life time of the Company; and (b) the return of capital on winding up of the

Company. It is lie in between pure equity and debt. But preference shares

cannot be traded, unlike equity shares, and are redeemed after a pre-decided

period. Also, Preferential Shareholders do not have voting rights. These are

issued to the public only after a public issue of ordinary shares.

Preference shares also get traded in the market and give liquidity to

investor. Investor can opt for this type of investment when their risk performanceis very low.

(c) Debentures and Bonds

It is a fixed income (debt) instrument issued for a period of more than

one year with the purpose of raising capital. The central or state government

corporations and similar institutions sell bonds. A bond is generally a promise to

repay the principal along with a fixed rate of interest on a specified date, called

the Maturity Date.

Many types of debenture and bonds have been structured to suit

investors with different time needs. Though having higher risk as compared to

bank fixed deposits, bonds and debentures do offer higher returns. Debenture

instruments require scanning the market and choosing specific securities that

will cater to investment objectives of the investor.

(d) Depository Receipts (GDRs/ADRs)



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Global depository receipts are the instrument in the form of a depository

receipts or certificate created by the overseas depository bank outside India and

issued to non-resident investors against ordinary shares. A GDR issued in

America, is an American Depositary Receipts. As investors seek to diversify

their equity holdings, the option of GDRs and ADRs is very lucrative, while

investing in such securities, investors should identify the capitalization and risk

characterizes of the instrument and the companies performance in the home

country.

(e) Warrants

A warrant is a certificate giving its holder rights to purchase securities ata stipulated price within a specified time limit. The warrants act as a value

addition because holder of the warrant has the right but not the obligation to

investing in equity at the indicated rate. An option contract often sold with

another security. For instance, corporate bonds may be sold with warrants to

buy common stock of that corporation. Warrants are generally detachable.

Options generally have lives

of up to one year. The majority of options traded on exchanges have maximum

maturity of nine months. Longer dated options are called Warrants and are

generally traded over-the counter

(ii) Savings bank account with commercial bank

Broadly speaking, savings bank account, money market/liquid funds and

fixed deposits with banks may be considered as short-term financial investmentoptions:

Savings Bank Account is often the first banking product people use,

which offers low interest (4%-5% p.a.), making them only marginally better than

fixed deposits.



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(iii) Bank fixed deposits

Fixed Deposits with Banks are also referred to as term deposits.

Minimum investment period for bank FDs is 30 days. Fixed Deposits in banks

are for those investors, who have low risk appetite. Bank FDs is likely to be

lower than money market fund returns.

(iv) Company fixed deposits

These are short-term (six months) to medium-term (three to five years)

borrowings by companies at a fixed rate of interest which is payable monthly,

quarterly, semi annually or annually. They can also be cumulative fixed depositswhere the entire principal along with the interest is paid at the end of the loan

period. The rate of interest varies between 6-9% per annum for company FDs.

The interest received is after deduction of taxes.

(v) Post Office Savings:

Post Office Monthly Income Scheme is a low risk saving instrument,

which can be availed through any Post Office. It provides an interest rate of 8%

per

annum, which is paid monthly. Minimum amount, which can be invested, is

Rs. 1,000/- and additional investment in multiples of Rs. 1,000/-. Maximum

amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/-(if held Jointly) during a

year. It has a maturity period of 6 years. A bonus of 10% is paid at the time of

maturity. Premature withdrawal is permitted if deposit is more than one year old.

A deduction of 5% is levied from the principal amount if withdrawn prematurely.

The 10% bonus is also denied.

(vi) Life insurance policies



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Insurance companies offer many investment schemes to investors.

These schemes promote saving and additionally provide insurance cover. LIC is

the largest life insurance company in India. Some of its schemes include life

policies, convertible whole life assurance policy, endowment assurance policy,

jeevan Saathi, money back policy etc. Insurance policies, while catering to the

risk compensation to be faced in the future by investor, also have the advantage

of earning a reasonable interest on their investment insurance premiums.

(vii) Public Provident Fund:

A long term savings instrument with a maturity of 15 years and interest

payable at 8% per annum compounded annually. A PPF account can beopened through a nationalized bank at anytime during the year and is open all

through the year for depositing money. Tax benefits can be availed for the

amount invested and interest accrued is tax-free. A withdrawal is permissible

every year from the seventh financial year of the date of opening of the account

and the amount of withdrawal will be limited to 50% of the balance at credit at

the end of the 4th year immediately preceding the year in which the amount is

withdrawn or at the end of the preceding year whichever is lower the amount of

loan if any.

(viii) Government and semi-government securities

It is a fixed income (debt) instrument issued for a period of more than one

year with the purpose of raising capital. The central or state government,

corporations and similar institutions sell bonds. A bond is generally a promise to

repay the principal along with a fixed rate of interest on a specified date, called

the Maturity Date.



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The government issues securities in the money market and in the capital

market. Money market instruments are traded in Wholesale Debt Market (WDM)

trades and retail segments. Instruments traded in the money market are short

term instruments such as treasury bills and convertible bonds.

(ix) Mutual fund

These are funds operated by an investment company which raises

money from the public and invests in a group of assets (shares, debentures

etc.), in accordance with a stated set of objectives. It is a substitute for those

who are unable to invest directly in equities or debt because of resource, time or

knowledge constraints. Benefits include professional money management,buying in small amounts and diversification.

Mutual fund units are issued and redeemed by the Fund Management

Company based on the fund's net asset value (NAV), which is determined at the

end of each trading session. NAV is calculated as the value of all the shares

held by the fund, minus expenses, divided by the number of units issued.

Mutual Funds are usually long term investment vehicle though there some

categories of mutual funds, such as money market mutual funds, which are

short term instruments. On the basis of objective we can categories mutual

funds as equity funds/growth funds, diversified funds, sector funds, index funds,

tax saving funds, debt/income funds, liquid funds/money market funds, gift

funds, balanced funds.

And on the basis of flexibility we can categories them as open-ended

funds, close-ended funds and interval funds.

(x) Real Estate



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Investment in real estate also made when the expected returns are very

attractive. Buying property is an equally strenuous investment decisions. Real

estate investment is often linked with the future development plans of the

location. At present investment in real assets is booming there are various

investment source are available for investment which are directly or indirectly

investing real estate.

(xi) Bullion investment

The bullion offers investment opportunity in the form of gold, silver, and

other metals, specific categories of metals are traded in the metal exchange.

The bullion market presents an opportunity for an investor by offering returnsand the end value of future. It has been absurd that on several occasions, when

stock market failed, the gold market provided a return on investments.

2.2.5 Sources of study for investors:

A look out for new investment opportunities helps investors to beat the

market. There are many sources from which investors can gather the required

information. Such as;

(i) Financial institutions

Corporate house, government bodies and mutual funds are the main

source of investment information. Many of these enterprises have their own

website and post investment related information on their websites.

(ii) Financial market

Stock exchange and regulated bodies also provide useful information to

investor to make there investment decisions. With respect to secondary market,



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the Securities and Exchange Board of India uses various modes to promote

investors education and takes great effort to achieve an investor friendly

secondary market in India. The Reserve Bank of India also provide useful

information relating to the prevent interest rates and non-banking financial

intermediaries that mobiles money through deposit schemes.

(iii) Financial service intermediaries

These are intermediaries who promote securities among the public.

Many of these intermediaries are the agencies of specific instruments especially

tax saving instruments. These intermediaries offer to share their commission

from there concerned organization with the individual investor thus investor getadditional advantages while investing through intermediaries.

(iv) Media

Press sources such as financial news papers, financial magazine,

business news channel, websites etc. provide information related to investment

to the public. Besides information on securities, these sources also provide

analysis of information and in certain instance suggest suitable investment

decisions to be made by investor

2.2.6 Fundamental analysis of various investment alternatives:

Before investing in various investment alternatives fundamental analysis

is very necessary. A fundamental analysis believes that analyzing the economy,

strength, management, production, financial status and other related information

will help to choose investment avenues that will outperform the market

and provide consistent gain to the investor



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Fundamental analysis is the examination of the underlying forces that

affect the interests of the economy, industrial sectors, and companies. It tries to

forecast the future movement of capital market using signals from the economy,

industry, company. Fundamental analysis requires an examination of the market

from broader prospective. It also examines the economic environment, industrial

performance, and company performance before taking an investment decision.

(i) Economic Analysis

The economic analysis aims at determining if the economic climate is

conductive and is capable of encouraging the growth of business sector,

especially the capital market. When the economy expands, most industrygroups and companies are expected to benefit and grow and when the

economy declines, most sectors and companies usually face survival problems.

Hence, to predict scrip prices, an investor has to spend time exploring the

forces operating in the overall economy. Economic analysis implies the

examination of GDP, government financing, government borrowings, consumer

durable goods market, non-durable goods and capital goods market, saving and

investment pattern, interest rates, inflation rates, tax structure, foreign direct

investment, and money supply.

The most used tools for performing economic analysis are;

Gross Domestic Product

Monetary policy and liquidity

Inflation

Interest rate

International influences

Consumer behaviors

Fiscal policy etc

(ii) Industry Analysis:



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It is very important to see how the industry to which the company belongs

is faring. Specifics like effect of Government policy, future demand of its

products etc. need to be checked. At times prospects of an industry may

change drastically by any alterations in business environment. For instance,

devaluation of rupee may brighten prospects of all export oriented companies.

Investment analysts call this as Industry Analysis. Companies producing similar

products are subset (form a part) of an Industry/Sector. For example, National

Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company

(NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power

Sector/Industry of India.

Tools for industry analysis Cross study of performance of the industry.

Industry performance over times

Differences in industry risk

Prediction about market behaviors, and

Competition over the industry life cycle

(iii) Company Analysis:

Company analysis involved choice of investment opportunities within a

specific industry that consists of several individual companies. How has the

company been faring over the past few years? Seek information on its current

operations, managerial capabilities, growth plans, its past performance vis--vis

its competitors etc.

(iv) Financial Analysis:

If performance of an industry as well as of the company seems good,

then check, if at the current price, the share is a good to buy or not. For this,

look at the financial performance of the company and certain key financial

parameters



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Like Earnings per Share (EPS), P/E ratio, current size of equity etc. for arriving

at the estimated future price. This is termed as Financial Analysis. For that you

need to understand financial statements of a company i.e. Balance Sheet and

Profit and Loss Account contained in the Annual Report of a company.

2.3 About Capital Markets and Depository:

2.3.1 About Capital Market:

The function of the financial market is to facilitate the transfer of funds

from surplus sectors (lenders) to deficit sectors (borrowers). A financial market

consists of investors or buyers of securities, borrowers or sellers of securities,

intermediaries and regulatory bodies. Indian financial system consists of money

market and capital market.

The capital market consists of primary and secondary markets. The

primary market deals with the issue of new instruments by the corporate sector

such as equity shares, preference shares and debt instruments. The secondary

market or stock exchange is a market for trading and settlement of securitiesthat have already been issued. The investors will holding securities or sell

securities through registered brokers/sub-brokers of the stock exchange.

The introduction of NSE & BSE has increased the reach of capital market

manifold which in turn increased the number of investors participating in the

capital market and thus creates the possibility of a bad delivery. The cost & time

spend by the brokers for rectification of this bad delivery tends to be higher with

the geographical spread of the clients. The increase in trade volumes leads to

exponential rise in the back office operation. The inconvenience faced by the

investors (in area that are far long & away from the main metros) in the

settlement of the trade also limits the opportunity for such investors in

participating in auction trading.



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This has made the investors as well as brokers wary of Indian capital

market. The erstwhile settlement system on Indian stock exchanges was

inefficient and increased risk, due to the time that elapsed before trades was

settled. The transfer was by physical movement of papers. There had to be a

physical delivery of securities - a process fraught with delays and resultant risks.

The second aspect of the settlement related to transfer of shares in favor

of the purchaser by the company. The system of transfer of ownership was

grossly inefficient as every transfer involves physical movement of paper

securities to the issuer for registration, with the change of ownership being

evidenced by an endorsement on the security certificate. In many cases the

process of transfer would take much longer than the two months stipulated inthe Companies Act and a significant proportion of transactions would end up as

bad delivery due to faulty compliance of paper work. Theft, forgery, mutilation of

certificates and other irregularities were rampant. In addition, the issuer had the

right to refuse the transfer of a security. All this added to costs and delays in

settlement, restricted liquidity and made investor grievance redress time

consuming and, at times, intractable.

To obviate these problems, the Depositories Act, 1996 was passed. It

provides for the establishment of depositories in securities with the objective of

ensuring free transferability of securities with speed, accuracy and security.

2.3.2 Depository:

Depository is an organization where the securities of a shareholder are

held in the electronic form at the request of the shareholder through a medium

of a Depository Participant (DP). The principal function of a Depository is to de-

materialize securities and enables their transaction in book-entry form

electronically.



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Depository functions like a security bank, where the dematerialized

securities are traded and held in custody. This facilitates faster, risk-free and

low cost settlement similar to bank.

Following tables compares the two;

BANK DEPOSITORY

Hold funds in account Hold securities in accountsTransfer funds between accounts Transfer securities between accountsTransfer without physically handling

money

Transfer without physically handling

securitiesSafekeeping of money Safekeeping of securities

In India the Depository Act defines a Depository to mean, a company

formed and registered under the Companies Act, 1956 and which has been

granted a certificate of registration under sub-section (1A) of section 12 of the

Securities and Exchange Board of India Act, 1992

Depositories in India

There are two depositories in India, which provide dematerialization ofsecurities.

National Securities Depository Limited (NSDL)

Central Depository Services Limited (CDSL)

Benefits of participation in a depository

Immediate transfer of securities

No stamp duty on transfer of securities

Elimination of risks associated with physical certificates such

as bad delivery, fake securities, etc.



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Reduction in paperwork involved in transfer of securities

Reduction in transaction cost

Ease of nomination facility

Change in address recorded with DP gets registered

electronically with all companies in which investor holds securities

eliminating the need to correspond with each of them separately

Transmission of securities is done directly by the DP eliminating

correspondence with companies

Convenient method of consolidation of folios/accounts

Holding investments in equity, debt instruments and

Government securities in a single account; automatic credit into demat

account of shares, arising out of split/consolidation/merger etc.

Depository Participant

The Depository provides its services to investors through its agents

called Depository Participants (DPs). These agents are appointed by the

depository with the approval of SEBI. According to SEBI regulations, amongst

others, three categories of entities, i.e. Banks, Financial Institutions and SEBI

registered trading members can become DPs. The depository has not

prescribed any minimum balance. Customer can have zero balance in his

account.

ISIN

ISIN (International Securities Identification Number) is a unique identification



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number for a security.

Custodian

A Custodian is basically an organization, which helps register and safeguard the

securities of its clients. Besides safeguarding securities, a custodian also keeps

track of corporate actions on behalf of its clients:

Maintaining a clients securities account

Collecting the benefits or rights accruing to the client in respect of

securities

Keeping the client informed of the actions taken or to be taken by

the issue of securities, having a bearing on the benefits or rights

accruing to the client.

Dematerialization of securities

In order to dematerialize physical securities one has to fill a Demat Request

Form (DRF) which is available with the DP and submit the same along with

physical certificates. Separate DRF has to be filled for each ISIN number. Odd

lot share certificates can also be dematerialized. Dematerialized shares do not

have any distinctive numbers. These shares are fungible, which means that all

the holdings of a particular security will be identical and interchangeable. One

can dematerialize his debt instruments, mutual fund units, government

securities in his single demat account.

Re-materialization

If one wishes to get back his securities in the physical form one has to fill

in the Remat Request Form (RRF) and request his DP for rematerialisation of

the balances in his securities account.



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Legal framework:

The Depositories Act 1956 provides the regulation of depositories in

securities.

SEBI formulated the Depositories and participants Regulation Act, 1996

to oversee the matter regarding admission and working of Depositories and its

participant. The Depositories Act passed by parliament received the Presidents

assents on August 10, 1996. The Act enables the setting up of multiple

depositories in the country. Only a company registered under the companies

Act (1956) and sponsored by the specified categories of institution can setup

depository in India. The Depository offers services relating to holding of

securities and facility processing of transaction in such securities in book entryform. The transaction handled by depositories includes settlement of market

trades, settlement of off-market trades, securities lending and borrowing, pledge

& hypothecations.

Eligibility criteria for a Depository:

Any of the following may be a Depository:

A public financial institution as defined in section 4A of the

Companies Act, 1956.

A bank included in the second schedule to the RBI Act, 1934.

A foreign bank operating in India with the approval of the RBI.

A Recognized Stock Exchange.

An institution engaged in providing financial services where not

less then 75% of the equity is held jointly or severally by the

institution.



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A custodian of the securities approved by Government of India.

A foreign financial services institution approved by Government of

India.

The promoters of Depository are also known as its sponsors. A

depository company must have a minimum net worth of Rs. 100 cr. The

sponsor(s) of the depository have to hold at least 51% of the capital of the

Depository Company.

Agreement between depository and issuers:

If either the issuers (a company which has issued securities) or the

investor opts to hold his securities in a demat form, the issuer enters into an

agreement with the depository to enable the investors to dematerialize their

securities. No such agreement is necessary where the state or central

government is the issuer of securities. Where an issuer has appointed a

registrar to the issue of share transfer, the depository enters into a tripartite

agreement with the issuer and (R&T) agent, the case may be, for the securities

declared eligible for dematerialization.

Rights and obligation of Depositories:

Every depository should have adequate mechanism for reviewing

monitoring and evaluating the controls, system, procedures and

safeguards.

Annual inspections of the procedures and it should be reported to SEBI.

To ensure that the integrity of automatic data processor system is

maintained to safeguards information.

Adequate measures, including insurance, to protect the interests of the

beneficial owners against any risk.

2.3.2.1 Function of Depository Participant:



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Dematerialization:

One of the primary functions of depository is to eliminate or minimize

the movement of physical securities in the market. This is done throughconverting securities held in physical form in to holdings in to back entry form.

Account Transfer:

The depository gives effects to all transfer resulting from the settlement

of trade and other transaction between various beneficial owners by recording

entries in the accounts of such beneficial owners.

Transfer & Registration:

A transfer is a legal change of ownership of a security in the records ofthe insurer. Transfer of securities under demat occur merely by passing book-

entries in the records of the depositories, on the instruction of beneficial owners.

Pledge and hypothecation:

Depositories allow the securities with them to be used as collateral to

secure loans and other credits. The securities pledged are transferred to a

segregated or collateral account through book-entries in the records of the

depository.

Linkage with clearing system:

The clearing system performs the function of ascertainment in the pay in

(sell) or payout (buy) of brokers who leave traded on the stock exchange.

Actually delivery of securities from the clearing system is from the selling

brokers and delivery of securities from the clearing system to the buying broker

is done by depository. To achieve this depositories and the clearing system are

linked electronically.

To handle the securities in electronic form as per the Depositories Act

1996 two depositories are registered with SEBI.

They are

1) NSDL -- National securities depository limited.



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2) CDSL -- Central depository service (India) limited.

NSDL

India had a vibrant capital market, which is more than a century old, the

paper-based settlement of trades caused substantial problems like bad delivery

and delayed transfer of title till recently. The enactment of Depositories Act in

August 1996 paved the way for establishment of NSDL, the first depository in

India. NSDL promoted by institutions of national stature responsible for

economic development of the country has since established a national

infrastructure of international standard that handles most of the trading and

settlement in dematerialized form.

Using an innovative and flexible technology system, NSDL works to

support the investors and brokers in the capital market of the country. NSDL

aims at ensuring the safety and soundness of Indian marketplaces by

developing settlement solutions that increase efficiency and minimizing risk and

cost. In the depository system, securities are held in depository accounts, which

is more or less similar to holding funds in bank accounts. Transfer of ownership

of securities is done through simple account transfers.

This method does away with all the risks and hassles normally

associated with paperwork. Consequently, the cost of transacting in a

depository environment is considerably lower as compared to transacting in

certificates.

CDSL

CDSL was set up with the objective of providing convenient, dependable

and secure depository services at affordable cost to all market participants.

CDSL received the certificate of commencement of business from SEBI in

February 1999.

Depository facilitates holding of securities in the electronic form and

enables securities transactions to be processed by book-entry by a Depository



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Participant (DP), who as an agent of the depository, offers depository services

to investors. According to SEBI guidelines, financial institutions, banks,

custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is

known as beneficial owner (BO) has to open a demat account through any DP

for dematerialization of his holdings and transferring securities.

The balances in the investors account recorded and maintained with

CDSL can be obtained through the DP. The DP is required to provide the

investor, at regular intervals, a statement of account, which gives the details of

the securities holdings and transactions. The depository system has effectively

eliminated paper-based certificates, which were prone to be fake, forged,

counterfeit resulting in bad deliveries. CDSL offers an efficient andinstantaneous transfer of securities.


Company Profile

3.1 Basic facts about SHCIL

3.2 Service profile of SHCIL

3.3 Product profile of SHCIL

PART III


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3.0 Company profile:

ASCI, is a premier integrated financial services provider, and ranked

among the top five in the country in all its business segments, services over 16

million individual investors in various capacities, and provides investor services

to over 300 corporate, comprising the who is who of Corporate India. ASCI

covers the entire spectrum of financial services such as Stock broking,

Depository Participants, Distribution of financial products - mutual funds, bonds,

fixed deposit, equities, Insurance Broking, Commodities Broking, Personal

Finance Advisory Services, Merchant Banking & Corporate Finance, placementof equity, IPOs, among others. ASCI has a professional management team and

ranks among the best in technology, operations and research of various industrial

segments

The birth of ASCI was on a modest scale in 1981. It began with the

vision and enterprise of a small group of practicing Chartered Accountants who

founded the flagship company ASCI Consultants Limited. It started with

consulting and financial accounting automation, and carved inroads into the field

of registry and share accounting by 1985. Since then, they have utilized their

experience and superlative expertise to go from strength to strengthto better

their services, to provide new ones, to innovate, diversify and in the process,

evolved ASCI as one of Indias premier integrated financial service enterprise.

Thus over the last 20 years ASCI has traveled the success route, towards

building a reputation as an integrated financial services provider, offering a wide

spectrum of services. And they have made this journey by taking the route of

quality service, path breaking innovations in service, versatility in service and

finallytotality in service.



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Our highly qualified manpower, cutting-edge technology, comprehensive

infrastructure and total customer-focus has secured for us the position of an

emerging financial services giant enjoying the confidence and support of an

enviable clientele across diverse fields in the financial world.

Vision of ASCI:

To be amongst most trusted power utility company of the country by providing

environment friendly power on most cost effective basis, ensuring prosperity for

its stakeholders and growth with human face.

Mission of ASCI:

To ensure most cost effective power for sustained growth of India.

To provide clean and green power for secured future of countrymen.

To retain leadership position of the organization in Hydro Power generation,

while working with dedication and innovation in every project we undertake.

To maintain continuous pursuit for cost effectiveness enhanced productivity for

ensuring financial health of the organization, to take care of stakeholders

aspirations continuously.

To be a technology driven, transparent organization, ensuring dignity and respect

for its team members.

To inculcate value system all cross the organization for ensuring trustworthy

relationship with its constituent associates & stakeholders.

To continuously upgrade & update knowledge & skill set of its human resources.

To be socially responsible through community development by leveraging

resources and knowledge base.

To achieve excellence in every activity we undertake.



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Quality policy of ASCI:

To achieve and retain leadership, ASCI shall aim for complete customer

satisfaction, by combining its human and technological resources, to provide

superior quality financial services. In the process, ASCI will strive to

exceed Customer's expectations.

Quality Objectives

As per the Quality Policy, ASCI will:

Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of

services.

Establish a partner relationship with its investor service agents and

vendors that will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them

with adequate knowledge & skills so as to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to

establish unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and

innovative financial products and services to meet the changing needs of

investors and clients.

Strive to be a reliable source of value-added financial products and

services and constantly guide the individuals and institutions in making

a judicious choice of same.

Strive to keep all stake-holders (shareholders, clients, investors,

employees, suppliers and regulatory authorities) proud and satisfied.



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ORGANIZATION STRUCTURE

HEIRARCHICAL STRUCTURE OF ASCIL


BOARD OF DIRECTORS

MANAGING DIRECTOR AND CEO

JOINT MD

SENIOR VP{BUSINESS DIVISION}

ASSISTANT VP'S DIVISIONAL MANGER

SENIOR VP{FINANCE}

VP'S{FUNCTIONAL}


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3.2 Service Profile:

Custodial service:

Since its commencement in 1988 as the premire custodian in the

country, ASCIL has been providing custodial services of international standards

to financial institution. Foreign institutional investors and domestic mutual funds

with 70% of the institutional business to its credit, ASCIL has guaranteed to

providing specialized services to large investing institution dedicated pool of

professional working in inter connected offices linked to client institutions. Stock

Exchange, Depositories and brokers through VSATs, electronic mail and other

telecommunication channels is at the help of ASCILs custodial service.

ASCIL offers the following services to the clients:

(i) Market operation:

Here they take care of activities starting from receiving the order to

receiving/delivering the securities from the clearing House/clearing Corporation

to facilitate purchase and or the sale transaction. ASCIL prefers transaction

through clearing hours. However they also undertake delivery Vs payment


List of various Functional VPs:

VP (Depository Services)

VP (Information Technology)

VP (Products)

VP (Personal)

VP (HRD)

VP (R&D)

VP (Facilitation centre Co-ordination)

The following Positoins are below Assistant

VPs & Div. Mgrs in the Company's

Organizational Hierarchy :-

Senior Manager

Manager

Deputy Manager

Assistant Manager

Executive

Junior Executive


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transaction if the clients desire the same. Market operation also includes

customized reporting to clients.

(ii) Lodgments and registration:

This covers the receipt of securities and scrutiny thereof and also their

lodgment with the Registrars/Companies. The securities sent for transfer are

followed up at regular intervals. There is also customized reporting the clients of

securities in transit.

(iii) Custody management:

Custody management covers physical receipt of securities upon

registration from the company and online audit of shares in custody. ASCIL is

the first custodian to introduce the bar coding system in India wherein a unique

identify is imparted to the securities by affixing a bar code. This aids in tracking

of securities at any point in the processing cycle correlation of certificates

received after registration.

(iv) Data bank:

To serve client, the corporation requires a large amount of the

information from Stock Exchanges, Depositories, SEBI, Companies and other

entries of the capital market. Data bank departments collect information from

companies and maintain obligation that is required by the corporation for

carrying out market obligation. Databank maintain information of approximately

12,500 instruments, 8,500 companies, 2,500 registrars, two depositories and six

Stock Exchange namely BSE, NSE, OTCEI, DSE, CSE & MSE, information

regarding various scrip (listed and unlisted) in which the clients have holding,



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information pertaining to book closures/records, dates for corporate events, ex-

dates and no delivery schedules for various Stock Exchanges.

It also keeps information related to details of monetary and non-

monetary benefits, in the electronic segment information such as ISIN data, the

Registrars handling demat for a company, the scrip under compulsory. Demat

trades as declared by SEBI and a script included in compulsory rolling

segments etc.

(v) Corporate actions:

Corporate actions cell ensures timely collection of monetary and

non-monetary benefits. It covers all activities related to corporate actions likecalculation entitlement receipts of monitory corporate actions and transfer of the

same to client. It also does customized reporting to clients on the status

corporate actions.

(vi) Primary market:

Here ASCIL takes care of applications on behalf of clients for

market issues, calculates the entitlement, follow up for allotment or refunds and

send customized reports to clients.

(vii) Client interface:

This is the single point contact for all client issues. The client

interface team prepares and reconciles holding the statement for clients.

(viii) Reporting and market updates:

ASCIL makes available reports on clients holdings; scripts avail

for trade and valuation of securities based on the market price on hard copy as

well as through file transfer mechanism.



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(ix) Street name securities:

This is a special service offered to clients who wish to turn around their

portfolio in a speedy manner. The securities purchased by the clients are not

sent for registration, but are stored in the safe deposit value of the corporation,

the corporate events are monitored continuously and the securities are sent for

regulation during book closure or before the expiry of the transfer deed.

Technology support team:

ASCIL has been able to maintain its lead position in this high

volume mission critical and securities environment largely due to the emphasis

on the innovative use of technology. ASCIL has recognized the need to adoptstate-of-the-art technology right from its inception a direct result of this is the

receipt of the Smithsonian Institutes Award for Visionary use of information

technology and the NATIONAL IT award from CSI for BEST IT USAGE

During the past ten years ASCIL has been a user of a wide range of

hardware and has one of the best infrastructures in Indian in terms of hardware

and networking equipment. It has an enterprise wide network implemented

using leased lines VSAT, VPN, and ISDN.

About 140 offices are connected through the network. All the

workstations are interconnected via Local Area Network and all the branches

and facilitation centers (totaling 140 offices) of SCHIL are connected via Wide

Area Network. There is a total integration of front office with central back office

system and regional offices with our corporate office. ASCILs enterprises wide

network connects servers of various platforms.

ASCIL Net is one of the largest WANs in the Country. ASCILs in-house

development methodology has been certified at CMM level-3 by i-Flex, while its

IT activities have been certified for ISO-9001 by BVQ1.

Depository Service:



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ASCILS depository participant services addresses individual

investment needs. With a percentage of leading financial institutions and

insurance majors and a proven track record in the custodian business, ASCIL

has registered its past success by establishing itself as the first ever and largest

depository participant in India.

From a tentative foray in 1998 into the individual investor arena to

servicing around seven lakh accounts, ASCIL has endeavored to constantly add

and innovate to make business a pleasure for its clients. Across the country,

fourteen Depository Participant Machines (DPMs) connected to NSDL and

seven connected to CDSL ensure fast and direct processing clients instruction.

ASCILs Depository Service includes:

Creation of demat request based on client requirement

Follow-up with Registrars/companies for pending demat cases.

Accounting of securities received in dematerialization form.

Opening and maintenance of client Demat accounts

Electronic holding statement to clients.

Lessoning with Depositories.

Settlement of Trades in electronic form.

Pledging.

Reporting.

Securities lending.

Account opening

Any investor who wishes to avail depository services must first open an

account with a Depository participant of NSDL. The investor can open an

account with any depository participant of NSDL. An Investor may open an



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account with several DPs or he may open several accounts with single DP.

After exercising this choice, the investor has to enter into an agreement with the

DP. The form and contents of this agreement are specified by the business

rules of NSDL.

A DP may be required to open three categories of accounts for clients -

Beneficiary Account, Clearing Member Account and Intermediary

Account.

A Beneficiary Account is an ownership account. The holder/s of

securities in this type of account owns those securities.

The Clearing Member Account and Intermediary Account are transitory

accounts. The securities in these accounts are held for commercial

purpose only.

A Clearing Member Account is opened by a broker or a Clearing Member

for the purpose of settlement of trades.

An Intermediary Account can opened by a SEBI registered intermediary

for the purpose of stock lending and borrowing.

Check List for Account Opening

Proof of Address, certified copies of ration card/ passport/ voter ID/ PAN

card/ driving License / bank passbook.

Ensure that all compulsory fields in the account opening form are filled

(except PAN/ GIR & nomination which are optional).

In case of corporate, ensure a copy of board resolution of authorized

signatories. Ensure proper authorization in case of power of attorneyholder.

DP should give a copy of agreement to the client, including the charges.

Inform clients regarding standing instruction facility.



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Branches of DP to co-ordinate & follow up with Head Office for account

opening.

Ensure account is activated before forwarding Client ID to client.

Inform settlement deadlines to clients.

Dematerialization

One of the methods for preventing all the problems that occur with

physical securities is through dematerialization (demat). The share certificates

are shredded (i.e., its paper form is destroyed) and a corresponding credit entry

of the number of securities (written on the certificates) is made in the account

opened with the depository participant (DP). Each security is identified in the

depository system by ISIN and short name.

Steps in Dematerialization of shares:

1. Client/ Investor submit the DRF (Demat Request Form) and physical

certificates to DP. DP checks whether the securities are available for

demat or not. Client defaces the certificate by stamping Surrendered for

Dematerialization. DP punches two holes on the name of the company

and draws two parallel lines across the face of the certificate.

2. DP enters the demat request in his system to be sent to NSDL. DP

dispatches the physical certificates along with the DRF to the R&T Agent.

3. NSDL records the details of the electronic request in the system and

forwards the request to the R&T Agent.

4. R&T Agent, on receiving the physical documents and the electronic

request, verifies and checks them. Once the R&T Agent is satisfied,

dematerialization of the concerned securities is electronically confirmed

to NSDL.



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5. NSDL credits the dematerialized securities to the beneficiary account of

the investor and intimates the DP electronically. The DP issues a

statement of transaction to the client.

Rematerialisation

Re-materialization is the exact reverse of dematerialization. It

refers to the process of issuing physical securities in place of the securities held

electronically in book-entry form with a depository. Under this process, the

depository account of a beneficial owner is debited for the securities sought to

be re-materialized and physical certificates for the equivalent number of

securities is/are issued. A beneficial owner holding securities with a depositoryhas a right to get his electronic holding converted into physical holding at any

time. The beneficial owner desiring to receive physical security certificates in

place of the electronic holding should make a request to the issuer or its R&T

Agent through his DP in the prescribed re-materialization request form (RRF).

Re-Materialization Process:

1. The DP should provide re-materialization request forms (RRF) to clients.

2. The client should complete RRF in all respects and submit it to the DP.

3. If RRF is not found in order, the DP should return the RRF to the client

for rectification.

4. If RRF is found in order the DP should accept RRF and issue an

acknowledgement to the client.

5. DP should enter the re-materialization request in DPM. DPM will

generate a remat request number (RRN) which should be mentioned onRRF.

6. An authorized person, other than one who entered the RRF details in

DPM, should verify the details of RRN and release a request to the

depository.



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7. The DP should complete the authorization of RRF and forward it to the

issuer or its R&T Agent for re-materialization. The DP should forward

RRF to the issuer or its R&T Agent within seven days of accepting it

from the client.

8. The issuer or its R&T Agent should verify the RRF for validity,

completeness and correctness. It should also match the details with the

intimation received from the depository against the same RRN.

9. In case the issuer or its R&T Agent finds RRF in order, it should confirm

the re-mat request. The issuer or its R&T Agent should then proceed to

issue the physical security certificates and dispatch them to the beneficial

owner.10.The DP, on receiving confirmation of debit entry in DPM, should inform

the client accordingly.

The entire process takes a maximum of 30 days.

Trading and settlement

One of the basic services provided by NSDL is to facilitate transfer of

securities from one account to another at the instruction of the account holder.

In NSDL depository system both transferor and transferee have to give

instructions to its depository participants [DPs] for delivering [transferring out]

and receiving of securities. However, transferee can give 'Standing Instructions'

[SI] to its DP for receiving in securities. If SI is not given, transferee has to give

separate instructions each time securities have to be received.

Transfer of securities from one account to another may be done for any

of the following purposes:

a. Transfer due to a transaction done on a person to person basis is called 'off-

market' transaction.

b. Transfer arising out of a transaction done on a stock exchange.



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c. Transfer arising out of transmission and account closure.

Settlement of off-Market transaction

Steps in settlement of off-market transaction

1. Seller gives delivery instructions to his DP to move securities from his

account to the buyer's account.

2. Buyer automatically receives the credit of the securities into his account

on the basis of standing instruction for credits.

3. Buyer receives credit of securities into his account only if he gives receipt

instructions, if standing instructions have not been given.

4. DP needs to be extra careful in verifying the signature of the client if

unusual quantities of securities are being debited to the account

5. Funds move from buyer to seller outside the NSDL system.



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2. Securities are transferred from broker's account to CC on the basis of

a delivery out instruction.

3. On pay-out, securities are moved from CC to buying broker's account.

4. Buying broker gives instructions and securities move to the buyer's

account.

Transfer of securities towards settlement of transactions done on a stock

exchange is called settlement of market transaction. This type of settlement is

done by transferring securities from a beneficiary account to a clearing member

account.

Brokers of stock exchanges that offer settlement through depository are

required to open a 'clearing member account'. In addition to the brokers,

custodians registered with SEBI and approved by stock exchanges can open a

clearing member account. These accounts are popularly known as 'Broker

Settlement Account'. A client who has sold shares will deliver securities into the

settlement account of the broker through whom securities were sold.

Pledge and Hypothecation

The Depositories Act permits the creation of pledge and hypothecation

against securities. Securities held in a depository account can be pledged or

hypothecated against a loan, credit, or such other facility availed by the

beneficial owner of such securities. For this purpose, both the parties to the

agreement, i.e., the pledger and the pledgee must have a beneficiary account

with NSDL. However, both parties need not have their depository account with

the same DP.

The nature of control on the securities offered as collateral determines

whether the transaction is a pledge or hypothecation. If the lender (pledge) has

unilateral right (without reference to borrower) to appropriate the securities to



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his account if the borrower (pledger) defaults or otherwise, the transaction is

called a pledge.

Pledge of Demat shares

Steps:

1. Agreement is signed between the pledger and pledgee outside the NSDLsystem

2. Pledger gives a pledge creation request to DP who enters it in thesystem.

3. The request reaches the pledgee's DP through the NSDL system.Pledgee is intimated by his DP.

4. Pledgee gives a pledge creation confirmation to his DP who enters it inthe system.

5. Securities are transferred from 'free balances' head to 'pledged balances'head.

6. Loan is given by pledgee to pledger outside the NSDL system.

Checklist for pledge/hypothecation

While processing a pledge/hypothecation request, the DP should take care with

regard to the following steps/points:

1. Ensure that the instruction form is submitted in duplicate.

2. On receipt of instruction for creation of pledge, check whether there is

enough balance in pledger's account to effect the creation of

pledge/hypothecation or not. If not, advise the client suitably.

3. Ensure that all compulsory fields in the instruction form are entered.

4. Ensure that request for confirmation of pledge is given before the closuredate mentioned in the instruction form.

Stock Lending and Borrowing



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The transactions involving lending and borrowing of securities are

executed through approved intermediaries duly registered with SEBI under the

Securities Lending Scheme, 1997. Such an intermediary may deal in the

depository system only through a special account (known as Intermediary

Account) opened with a DP. An intermediary account may be opened with the

DP only after the intermediary has obtained SEBI approval and registered itself

with SEBI under the Securities Lending Scheme. The intermediary also needs

to obtain an approval of NSDL.

Deposit of securities from lender to intermediary

Steps:

1. Lender forwards request to his DP.

2. Lender's DP electronically commu

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