CONTENT

Page
Sr. No. Particular
No.
Introduction About The Company
1 1
Introduction About Investment
2 7
Investment Avenues
3 16
Returns From Investment
4 25
Risk In Investment
5 29
Investment Decision
6 39
Findings & Suggestions
7 46
Annexure
53

Ch.1 Introduction about the Company

The south Gujarat shares &shares brokers Limited (SGSSL) is a

public limited company registered under company act 1956. Company
established with authorized share capital of Rs.3 crores and it’s paid up
capital 1.27 crores.
The south Gujarat shares &shares brokers Limited started its activities
as an association of persons in 1992 and acted as sub brokers giving services
for buying and selling of securities to the retail investors from south Gujarat,
particularly in Surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr. Jagdish Patel
and Mr. Paresh Javeri who are the permanent directors of the company, took
initiative in forming a limited company, so as to become the member of the
National Stock Exchange of India Limited.
Accordingly the company South Gujarat Shares & Share brokers
Limited was registered under the companies act on the 5thJanuary 1995. To
begin with it conducted its trading business through other members of the
National Stock Exchange. During the first year of its operation ending on the
31stMarch 1995 it suffered a loss of Rs.80000.
The company had another poor year during 1995-96 and suffered a
further loss of Rs.1.18lacs. This was mainly because the company couldn’t
procure the Nation Stock Exchange membership during the year and also
because of the prevailing poor market conditions.

The company obtained SEBI registration as stockbroker on

the 27th February 1996 and its activities full-fledged members of the
National Stock Exchange commenced on the 18thApril 1996. Originally the
operations were stated at Baroda since National Stock Exchange at that time
was not providing connectivity in Surat. Once the NSE connectivity was
made available in Surat, the operation was shifted to Surat on the 23rdJuly
1996. At present the location in Belgium Chamber. At Belgium Chamber the
company has a large space of approximately 2700sq ft for smooth operation.
Another terminal has since been installed at J.K.Towers in March
1997 to give better services to the investors. During the year ended
31stMarch 1997 the company has turned the corner. On the total income of
Rs.4580000 the company made a net profit of Rs.375000 and after adjusting
the losses of the previous two years of Rs.198000, the net profit carried to
the Balance Sheet works out to be Rs.178000.
In 1998 company takes National Security Depository Ltd.
Participation under the SEBI act 1996. In south Gujarat, SGSSL is the first
company who takes the depository participant (DP). In DP there are 11500
holders which having demate account in SGSSL. The company is second
largest in demate account.
Company has a computer to computer link (CTCL) network, which
are connected with LAN and also with WAN. In Surat City Company has
given many register sub-broker CTCL. Company also provide in outside of
Surat like Hazira, Navsari, and also in Bilimora.
In present condition company try to register its sub broker in SEBI.
Now in present, company has 35 registered sub-brokers and other members
if they work then company insist to take registration.

In company there are 28 persons working. Company has 5 servers, in

this one server connect with NSE CTCL and second with disaster
management. In NSDL, also there is one main server. Company provides 3
different rooms for on line trading to it’s clients and sub-broker with satellite
dish, Equara cable and modem. There are 8 Bombay Online Trading
(BOLT) and in back office with account package of comate also work
actively with NSDL server. Company also provides very useful and modern
service to these account members which are Interactive Voice Response
(IVR).
The company has been stressing on the delivery oriented securities
trading and since inception has been consistently one of the major delivering
members. The company has been diligent ensuring compliance with the
securities trading and settlement regulations of the NSE. It has resulted in
ensuring cleaner operations.
The trading business of the company is rapidly expanding and its
volumes have now crossed Rs.2.5 to 3 crores per day. The company expects
the trading volume to at least double during the current year.
Shri Anil choksy, who is the chairman and the managing director of
the company, heads the operations of the company. He along with other full
time directors maintains a close hand on the operations. The company has its
own internal trading and settlement regulations, which are in conformity
with the NSE and SEBI regulations. These regulations ensure that the
activities of the company are managed on the professional lines and in the
best interest of the investors and the shareholders of the company.
 Financial Position of Company

2001 2002 2003

Particular (Rs. In lacks) (Rs. In lacks) (Rs. In lacks)
Total Income 187.38 108.80 96.58
Profit Before Depreciation 49.43 15.80 30.99
Depreciation 13.30 13.99 12.13
Profit before tax 36.13 1.81 18.86
Tax 12.50 0.76 7.00
Profit after tax 23.63 1.05 11.86

Market Total Salary of

Turnover Brokerage Income Staff Net Profit
Year ( in crore) (Rs. in lack) (Rs. in lack) (Rs. in lack) (Rs. in lack)
1999 341.99 59.90 72.95 5.23 7.04
2000 480.25 76.21 125.51 5.83 8.09
2001 1146.00 120.99 187.38 7.68 23.63
2002 887.99 68.90 108.80 13.62 1.05
2003 322.46 36.17 96.58 11.80 11.86
 Milestones
• In 1992, SGSSL has started their activities as on association of person.
• On 5thJanuary 1995, company registered under company act 1956.
• On 3rd march 1995, the company suffered loss of Rs. 80000
• In 1995-96, company suffered loss of 1.10 lacks.
• On 27thFebruary 1996, company got SEBI registration.
• The activity of NSE started on 18thApril 1996.
• On 23rdJuly 1996, the co-operation was shifted to Surat from Baroda.
• Another terminal installed at J.K.Tower in march1997.
• The total volume per day now crossed Rs. 2 crrores.
• During year ended 31st march1997, company turned corner.
• The company has taken approval from NSDL to work of DP.
• At present, there are more than 12000 holders having DEMATE A/C in
SGSSL.
• Company has 35 registered sub brokers.
• Total income of current year is Rs. 96.58 lack.
• PAT for current year is Rs.11.86 lack as against Rs. 1.05 lack of previous
year.
 Profile of Company
1. Name Of Company
“South Gujarat Shares &Share Brokers Ltd.”
2. Registered Office
3rd floor, Belgium chamber,
OPP. Linear bus stop,
Ring Road,
Surat. 395003
3. Board Of Director
• Mr. Anil J. Choksy Chairman & Managing Director
• Mr. Bhadresh G. Kapdia Whole time Director
• Mr. shashikant R. yadav Director
• Mr. Aiyub M. Yacoobali Director
• Mr. Bipinchandra Lineswall Director
4. Bankers
• Canara Bank
• Karnataka Bank
• HDFC Bank
• Bank of India
5. Auditor
Ashok Rajpara
Chartered Accounts
Surat.
Internal Auditor
P.H. Patel & company
Chartered Accounts
 Surat.

2. INTRODUCTION ABOUT INVESTMENT

Definition:-
The investment is the employment of funds with the aim of achieving
additional income or growth in value. The essential quality of an investment
is that involves waiting for reward. It involves the commitment of resources
which, have been saved or put away from current consumption in hope that
some benefits will accrue in the future.
According to F. Amling, “Investment may be defined as the purchase
by an individual or institutional investor of a financial or real asset that
produces a return proportional to the risk assumed over some future
investment period.

Introduction:-
Investment management is a subject of growing an importance and
interest. Investment is the sacrifice for the future reward. Investment
decision is trade off between risk and return. The entire globe is based on
risk and return. Investing is an activity that is of interest to many individuals
regardless of occupation or income level.
The term investment refers to funds invested in various securities,
consisting of government and semi government securities, loans, debentures,
of local authorities, such as port trusts, municipal corporations and
debentures and shares of companies, investments represent legal claims of
various securities, such as bonds, shares, debentures etc., and are asset of
special nature. There are various forms of investments available with their
relative merits and demerits. Investments are available with their relative
merits and demerits. Investments are freely bought and sold in the stock
exchange through banks and bankers, who charge a small amount of
commission for their services. Investment means the use of money to earn
more by way of interest, dividend or money to earn more by way of interest,
dividend or capital appreciation. Well planned investment alone can ensure
regular income, capital appreciation and can be used to meet financial
requirements of the investors. The dynamics of economic growth provide
various opportunities for investors to invest their money in different types of
securities.
The financial and economic meaning of investment is related to each
other, because investment is a part of the savings of individuals, which flow
in to capital market either directly or institutions dividend in to new and
secondary capital financing. Investors as suppliers & users of long term
funds will find meeting place in the capital market.
Investment will generally be used in its financial sense and as such,
investment is allocation of monetary resources to assets that are expected to
yield some gain or positive return over a given period of time. Investment is
commitment of a person’s funds to derive future income in the form of
interests, dividends, rent, premium, pension benefits or the appreciation of
the value of his investment. In the process of the investment the transfer of
financial assets will be made from one person or institution to investor.
Investments will include various kinds of instruments or securities &
institutional media in to which savings are placed.
CONCEPT OF INVESTMENT:-

1. Economic Investment
Economic investment means the net additions to the capital stock of
the society which consists of goods and services. Addition to capital stock
means an increase in buildings, plants, equipments and inventories over the
amount of goods and services that existed.

2. Commitment Investment
Commitment investment refers to money commitment to satisfy
personal desires, since no rate of return is involved in such investment nor
capital growth is expected. For e.g. a commitment of money to a new car is
certainly investment from individual point of view.

3. Financial Investment
It involves investment of funds in various assets, such as stock, bonds,
real estate, mortgage etc. Investment is employment of funds with aim of
achieving additional income or growth in value. It involves commitment of
resources which have been saved or put away from current assumption in
hope some benefits will accrue in future. Investment involves long term
commitment of fund and waiting for reward in the future.
NATURE OF INVESTMENT
Investment requires continuous flow of decisions which can not be
avoided. All investment choices are made out points of time in respect to
personal investments in stock market will from time to time reappraise and
revaluate their various investment commitments in the light of new
information changed expectations and ends. Investment choices are found to
be outcomes of the following related classes of factors.
The investment decisions are based on many streams of data which
taken together represent to investor the observable environment and the
general and particular of the security and enterprises in which he may invest.
Investing has been activity confined to the rich and business class in
the past. This can be attributed to the fact that availability of investible funds
is pre-requisite to deployment of funds but today we find that investment has
become household word and is very popular with people from all walks of
life.
SCOPE FOR INVESTMENT
The ultimate objective of the investor is to derive a variety of
investments that meet his preference for risk and expected return. The
investor will select the portfolio which will maximize his utility. The
temperament and psychology of the investor is the another important
consideration in making a investment decision by investors. It is not only
construction of portfolio that will promise the highest expected return, but
also the satisfaction of the investor for his return. Many types of investment
media or channels for making investment are available securities ranging
from risk free instruments to highly speculative shares and debenture are
available for alternative investments.
ELEMENTS OF INVESTMENT
1. Reward
2. Risk and return
3. Time
1. Reward:
Generally, investors may buy and sell financial assets in order to earn
return on them. The return better known a reward from investment s includes
both current income and capital gains or losses which arise by increase or
decrease of security price.
2. Risk and return:
A good understanding of working of financial market requires the
knowledge of meanings and types of risk and return, there relationship and
process of valuation of securities. The value of financial assets depends
among other things on their return and risk. Risk can be defined as chance
that expected or prospective gains, or profit or return may not materialized
that actual outcome of investment may be less than the expected outcome.
The return represents benefits derived by investors from his
investment. The rate of return required by investor to great extent depends
upon risk involved in his investments. Higher risk, greater is return expected
by the firm.
3. Time
The important factor in investment is time which offers several
different courses of action. Time period depends on the attitude of investor
who follows a buy and hold strategy. As time moves on, analysts believe
that conditions and investors revaluate expected return for each investment.
NEED FOR INVESTMENT
Investments are both important and useful in the context of present
date conditions. The following factor made investment decision increasingly
important.
1. Increase in life expectancy
A tremendous increase in working population, proper planning for
span and longevity have ensured the need for investment decision.
Investment decisions have become significant because working people retire
between the age of 55 to 60. the life expectancy has increased due to
improved living conditions, medical facilities etc. Savings from the current
earnings must be invested in a proper way so that principal and income
thereon will be adequate to meet expenditure on them after their retirement.
2. Interest rates
The level of interest rates is another factor for a sound investment
plan. Interest rates may vary between one investment to other risky and non-
risky investments. The investor has to decide whether he is getting an
acceptable return on the investment commensurate with the risks that are
faced by him because stability of interest is as important as receiving a high
rate of interest.
3. Increasing rate of taxation
Taxation is one of the crucial factors in a person’s savings. Tax
planning is an essential part of over all investment planning. If the
investment or disinvestment in securities is made without considering the
various provisions of the tax laws, the investor may find that most of his
profits have been eroded by the payment of taxes. Proper planning could
lead to a substantial increase in the amount of the tax to be paid. Good tax
planning and investing in tax saving schemes not only reduces the tax
payable by the investor but also helps him to save taxes on other incomes.
Various tax incentives offered by the government and relevant provisions of
the income tax Act, the wealth tax Act, are important to an investor in
planning investments.
4. Income
Income is also a factor in making a sound investment decision. The
general increase in employment opportunities which gave rise to income
level avenues for investment, have lead to the ability and willingness of
working population to save and invest such savings.
5. Inflation
In the conditions of inflation, the prices will rise and purchasing
power of rupee will decline. On account of this, the capital is eroded every
year to the extent of rise in the inflation. The return on any investment
should be regarded as positive, when such return compensates the effect of
inflation. For maintaining purchasing power stability, investors should
carefully plan and invest their funds by making analysis.
6. Investment channels
The investor in selection of best investments will have to mix between
high rate return oriented and stability of return oriented securities to reap the
benefits of both. Various scheme for investments are offered to the public by
the Government of India, public Financial Institutions, PSUs, Public
Companies, and Mutual Funds. Most of these schemes are absolutely safe
investments, but yield low return. However, in some schemes the overall
return may increase along with providing various tax benefits. There are
various schemes designed specifically for retired persons or those who are
close to their retirement, while others are general schemes aimed at
providing investment opportunities to cross section of public. Thus, the
distinctive features of each scheme differ from one to other and no particular
scheme can be preferred to others in every circumstance. The schemes that
prove most attractive to an individual would depend on his objectives and
the different circumstances at any specific time. The growth and
development of the country joined with the policy of liberalization and
globalization lead to introduction of a vast array of investment outlets.

SOURCE OF INVESTMENT INFORMATION

For taking of right investment decision, investors generally need to
know the better source of information to invest. In stock market, information
about the corporate world plays an important role in making decisions.
Following are the best source of information to the intelligent investor.
1. Global affairs
Day to day development around globe are published in news papers
like “ Indian Economist, Far Eastern Economic Review, Newyork times,
Washington Post, Economic Times etc. word information is also available
with IME quarterly Journal, IMF News survey, Times Magazine etc.
2. National Economic Affairs
These affairs are covered in all the leading financial news papers like
“The Economic Times, The Business World, Business Today, Southern
Economist, Economic and Political Weekly, the Capital Market, Vikalpa,
Finance India, Indian Management – Fortune India, Dalal Street and
Intelligent Investor etc.”
3. Associations
Almost many daily news papers bring out regularly the result of studies
made on the working of industries and their prospects. In India there are
various associations like “chamber of commerce, FICCI, Trade
Associations” and other agencies publish knowledgeable, analytical data.
The reports of Planning Commission, Government of India, RBI Bulletins,
publications contain a good amount of information.
4. Company Information
At present the companies information is freely available in almost all
the news papers, periodicals, journals and some pages are allotted for the
reports about the business in general and company working results,
performance of companies and other needful data. Besides news papers, the
Journals of Capital Market, Dalal Street, Business India contain a lot of
information about the industries and companies listed on stock exchanges.
Annual reports, quarterly and half- yearly results also form important
sources of information.
 3. TYPES OF INVESTMENT
EQUITY OVERVIEW
Equity shares are usually regarded as corner stone of corporate
financial resources. The ordinary shares provide a cushion of safety against
temporary unfavorable developments as the payment of dividends is not
compulsory and is depend on the discretion of management.
The reason for wide public interest in these securities is the possibility
of trading in stock exchange, free transferability, and marketability. Equity
shares constitute the ownership capital of a company and the equity holders
have the right of voting and sharing in profits and assets in proportion to his
holding in the total net assets of the company. He is entitled to all rights and
obligations as an owner and to residual profits. The dividend distributed to
them may be uncertain, variable and fluctuating. The equity holder gets his
return in the form of dividends distributed plus capital appreciation on his
shares. The dividends distributed depend upon the net earnings of the
company after meeting all expenses. This would influence the share price in
the market, which may lead to fluctuations in the prices either upward or
downward and in turn capital appreciation or depreciation.
Definition of Share:
According to section 2 (46) of the Indian Companies Act a share can
be defined as “The capital of a company and includes stock except where a
distinction between stock and share is expressed or implied.”
Farewell says that “The interest of a shareholder in the company is measured
by a sum of money, for the purpose of liability in the first place and of
interest in the second but also consisting of a series of mutual convenient
entered into by all the shareholders interest.
Merit of Equity Shares

(i) Financing through equity shares does not impose any burden on the
company, since payment of dividend on these shares depends on the
availability of profits and the discretion of the directors.
(ii) Capital raised through equity shares is perpetual source for the
company since it is not repayable during the life time of the company. It
is repayable only in the event of company’s winding up and that too
only after the claims of preference shareholders have been met in full.
(iii) Equity shares do not carry any charge against the assets of the
company hence the capacity of the company to raise additional funds
through borrowing on the security of its assets is in no way diminished.
(iv) Financing through equity shares also provides the company with
sufficient flexibility in the utilization of its profits and funds, since
neither the payment of dividend is compulsory nor any provision is to
be made for repayment of capital.
Demerit of Equity Shares

(i) Financing through equity shares is costly as compared to financing

through preference shares or debentures; on account of greater risk
expectation of the equity shareholders is also high as compared to
preference shares or debentures. Moreover, the dividend on equity
shares is not deductible as an expense out of profits for taxation
purpose.
(ii) The control of the company can be easily manipulated through
converting of shares by a group of shareholders for their personal
advantage at the cost of company’s interest.
(iii) Conservative management often avoids issue of addition equity
shares to raise additional funds. Since the new shareholders are entitled
to vote at par with the existing shareholders, this increases the
possibility of transferring of control form the existing holder to new
holders of equity shares.
(iv) Excessive reliance on financing through equity shares reduces the
capacity of the company to trading on equity. This may ultimately
result in over capitalization of the company.
(v) The cost of underwriting and distributing the equity share capital is
generally higher than preference share capital or debentures.
Mutual Fund
A mutual fund is an investment company, usually organized by an
advisory firm, for the purpose of offering the fund’s shareholders a specific
investment objective. Anyone buying shares in the fund becomes a part
owner and wants to participate often because of those investment goals.
To manage the company, the shareholders elect a board of directors to
oversee the operations if the business and the portfolio. Normally, the
advisory firm that organized the company is selected as the investment
advisor and operations manager. For this service, the firm is paid an annual
fee that will vary according to the size of the fund.
All mutual funds are closely regulated by the SEC. A “prospectus,”
which explains the fund, its investment objectives, and the risks, must be
available to all potential investors.
Type of Mutual Fund
There are basic five types of mutual funds that are given below.
1. Common stock Funds
It invest almost entirely in enquiries (common stocks), although their
objectives very considerably. Growth funds are seeking capital appreciation
by selecting companies that should grow more rapidly than the general
economy. Aggressive growth funds buy shares in small or more speculative
growth companies for maximum capital appreciation. Growth or income
funds seek long-term capital appreciation with income, and special purpose
funds attempt to satisfy certain investment interests such as participation in
technology, gold or energy.
 2. Income Funds
Income funds are portfolios consisting of bonds and common stocks
as well as preferred stocks. Income fund managers try to obtain satisfactory
interest and dividend income for the shareholders.
3. Bond Funds
Bond funds seek high income and preservation of capital by investing
primarily in bonds and selecting the proper mix between short-term,
intermediate-term, and long-term bond maturities. In recent years, tax-free
municipal bond funds have been popular.
4. Balance Funds
Balance funds buy both common stocks and bonds based on a popular
belief that conditions unfavorable to common stocks are oftentimes
favorable to bonds and vice versa.
5. Money market funds
It offers their shareholders a means of participating in the high-
quality, short-term instruments of the money market including certificates of
deposit, treasury bills, and commercial paper.
Bonds
News commentators frequently conclude their daily reports with a
description of the day’s stock market activity, but there is seldom, if ever,
any mention of bonds. Widely regarded as the most conservative investment,
bonds generally do not experience the dramatic day-to-day price changes
that make for exciting reporting. Yet, the bond market is several times larger
than the stock market. In recent years roughly 80% of all new corporate
financing has been accomplished through bonds. Further, it has been
estimated that nearly as many individuals own bonds as own common
stocks.
Bonds are issued (sold) by corporations, state and local governments
or their agencies, the United States Government, foreign governments, and
Federal agencies. Professional bond traders use one-word designations for
the bonds of each issue which are, respectively: corporate, municipals,
governments, and agencies.
Although each type of bonds in general has one basic function; they
are formal IOUs in which the issuer promises to repay the total amount
borrowed on a predetermined date. In addition, for the use of the money, the
issuer will also compensate the bondholder with, typically, semiannual
interest payments at a fixed percentage rate during each year the bond is
owned in the language of bonds, the total amount to be repaid is called
variously its “principal amount” or “face value” or “par value.” The
repayment date is known as the bond’s “coupon,” and the period of time the
bond is outstanding is called its “term.” All this information is printed on the
face of the bond.
In the past, nearly all bond certificates came with coupons attached.
The coupons were periodically clipped from the bond and presented for
payment. This is in fact, the derivation of the term “coupon,” which becomes
synonymous with fixed interest payment, bonds can be issued in
“registered” form and “bearer” form. Most corporations are registered bonds
while municipals, on the other hand, are still issued as bearer bonds.
Convertible Bonds
Convertible bonds, as these debentures are commonly called, are
usually subordinate to other debt. However, they have all the features
discussed thus far- a par value, coupon rate, maturity date, yield and often a
rating and a call date. But they differ from other bonds in one important
respect: they can be converted into a specific number of shares of the
issuer’s common stock. Convertibility closely links the price performance of
the bond with that of the underlying common stock. Thus, although a
convertible offers some of the relative safety of principal and interest
characteristic of so-called “straight” or nonconvertible bonds, they usually
fluctuate in the changing business fortunes of an issuer whereas other
bondholders cannot.
Municipal Bonds
Municipal bonds are issued by states, cities, towns, political
subdivisions, or authorities, such as housing authorities and bridge and
tunnel authorities. They are usually issued to finance new construction for
such diverse purposes as hospitals, bridges, tunnels, and sports stadiums.
Municipal bonds differ from straight corporate bonds in three ways.
First and foremost important, the interest on municipals is excused from
Federal income taxes, and also exempt from state and local taxes as well.
Secondly, municipals are usually issued with “serial” maturities as opposed
to the “term” maturities of corporate bonds. Thirdly, most municipals are
issued in $5000 principal amounts, whereas corporate bonds usually have a
$1000 principal amount.
 Ch. 4. Investment Decision
It is important to save, but it is more important to invest money
effectively. Inflation is the deadly eroding your wealth. The power of
compounding over time is really magical. Lastly, by hording cash, you’re
actually losing money. Not to mention the cost of opportunities foregone.

Step for Investment in Share Market

1. Plan and know before you invest

Similarly, it’s most essential to determine your unique investor profile
that will help you in successfully reaching your goals. What kind of investor
are you? Are you one of those go getters, willing to take the risk or are you
those easy go, play safe? Or are you one of those whose hypertension level
mimics the stock market index?
o Before embarking on your investment journey, decide the rate of return
you expect.
o Determine what kind of an investor you are.

2. Understanding the essence of asset allocation

Folks! The essence of asset allocation lies in the fact that, over time, it
can determine up to 90%, mark this, 90% of your portfolio’s return. For this
reason, the right asset mix is one of the most important financial decisions
you have to make.
o There are three basic classes i.e. equity, debt, and cash.

o Optimum asset allocation can determine up to 90% of your portfolio’s

return.
 3. Select your assets carefully
However as a basic strategy, the right investment in any asset is a
balance of three things: liquidity, safety and return. By liquidity we mean
how accessible your money is, by safety, the extent of risk involved and by
return, what you can expect to get back on your investment.
Spectrum of assets across classes
Equity Stocks Equity Mutual Funds
Govt. Bonds, Corp. Debts/FDs
Debt Debt Mutual Funds
Banks & FI Bonds/FDs
Liquid / Money Market Bank Savings, BLESS/ALBM,
Cash
Funds CPs/CDs
o An optimal asset allocation plan is complete only when you invest the
proportions of each asset class in assets that suit your investor profile.
o As a basic strategy, the right investment in any asset is a balance of three
things like liquidity, safety and return.

4. Design your investment strategy

There are two fundamental approaches in asset selection – Passive &
Active.
A Passive approach, as the name suggests, is one that is followed by
those investors who do not wish to disturb themselves with the all important
decision of picking the right assets. These investors select assets either
through random selection or indexing.
An Active approach, on the other hand, has more to do with picking
within each asset class, individual assets that are likely to out perform the
rest of the asset class: that is, buying undervalued assets and selling
overvalued ones. Active investor has one clear objective that of beating the
market, i.e. earning returns in excess of that from the index.
o The two fundamental approaches of asset selection are passive and
active.
o While a passive investor is concerned with keeping with the market, an
active investor seeks every opportunity to beat it.
5. Portfolio execution – penultimate step
There are basically three dimensions of portfolio execution:
transaction cost, trading speed and management of risk.
Transaction costs can make the difference between a portfolio that
beats the market and one that does not. They explain why strategies that
work on paper and in simulations do not always earn investors excess
returns in practice. This is because true cost involves far more than the
brokerage fees and actually has three components. The first is bid ask
spread, which leads investors to buy at a high price and sell at a lower price.
The second is price impact of a trade. Investors push the price up as they buy
and push it down as they sell. In illiquid markets, this cost can be
substantial, essentially for large trades. The last component and most
important is the tax impact associated with trading. Remember, the ultimate
objective of investing is maximization of after tax return?
The second dimension to portfolio execution is trading speed.
Generally speaking, the need to trade fast and the desire to keep transactions
costs low will come into conflict. Investors who are willing accept trades
spread out over longer periods will generally incur much lower trading costs
than investors who need to trade quickly.
The final dimension to portfolio execution is the ongoing management
of risk in the portfolio. Once portfolios are created, the risk characteristics
do change over time, as do investor profiles creating a need for a concurrent
change in the portfolio.
o Transaction costs are an integral part of any investment portfolio.
They can make the difference between a portfolio that beats the market
and one that does not.
o Trading speed and portfolio risk are the other important dimensions of
portfolio execution.

6. Regular evaluate your portfolio’s performance

The final leg of investment, and often the most painful one for
individual investors and professional money managers alike, is performance
evaluation. The crucial test of your investment management ability is how
well you have performed. Thus, while evaluating investment performance, it
becomes essential to examine the excess returns on the portfolio being
evaluated after taxes. Always keep in mind - “the success or failure of an
investment portfolio will be based on the whether it makes the investor
wealthier on an after-tax basis and not a pre-tax basis.”
o The crucial test of your investment management ability is how well

you have performed.

o The success or failure of an investment portfolio will be based on
whether it makes the investor wealthier on an after-tax basis and not a
pre-tax basis.
Planning for investment
1. Invest in few Scripps
In order to get the best returns on investment with spread of risk,
investors need to invest in multiple companies. So, investors have number of
companies in their portfolio. If numbers of companies are single digit,
spread of risk is not minimum, and various sectors cannot be properly
represented. On the other hand, if such number is too large, say 50-100; it is
difficult to monitor such a size of portfolio. As a result, some of the
investment gets devalued without coming to the notice of investors. Ideally,
number of Scripps in a portfolio should be about 15-20. We always advise to
choose from high market capitalization companies.
2. Selection of Scripps
In selection of Scripps, investors should apply two criterions: Sector
and Company. Higher weightage should be assigned to sunrise industries
followed by growth industries. Low growth sectors should be ignored in
formation of a portfolio. Once proportion of investment in particular
industry is decided, one should look for good companies within that
segment. Selection of Scripps is not a one-time decision. It is a continuous
process of selection and review regularly. Numbers and title of the
companies should be reviewed and reshuffled from time to time.
3. Purchase in phases
It has become a practice of many persons to invest whenever they
funds in their hands, ignoring the timings; and sell whenever funds are
required. Purchases should be made gradually, once broad parameters of
portfolio are considered. Whenever there is a bearish trend, likely to be
reversed, investor should take position in steps. Purchases should be made
when there is a decline in the market. Those who have earned maximum
have purchased at the time of panic sale situations. This is a systematic and
regular exercise.
4. Sell in stages
Many investors have good judgment for entering the market, but do
not make sale decisions at appropriate time. They feel that one should sell
only when funds are required, and just hold them for long time. In fact, for
earning good returns, it is equally necessary that one make sale decisions
also regularly. When there is increase in the prices by 15-20%, one should
unload the shares in steps. When one is selling shares, it is not because the
company is not good or he is in need of funds. Sale decisions on one hand
helps the investors to capitalize gains, and provide opportunity on the other
hand; to cover them up at level at the time of correction in trends. With
better sale decisions, the returns can be maximized.
5. Regular monitoring
Once a portfolio is formed, it requires regular monitoring. This can be
done in two ways. By keeping separate files of companies in the portfolio.
Investor should prepare company wise files, and file annual reports,
quarterly results, and other relevant headings in the file. This will help to
develop vital insight into the companies, whose shares are held.
By keeping tab on prices, investors should note down prices of
various index and shares at regular interval, say weekly of fortnightly; in a
notebook or a diary. Now there are number of web sites available like
www.walletwatch.com, www.indiainvest.com where such details can be
placed.
Investment Degree of Risk Annual Return
(Reward)

Treasury Bill Smallest degree of the risk. Only the 2.5-3.5%

government has the power to print
money. The return is usually just
enough to offset inflation.

Government There are High degrees of safety in 3.0-4.0

Bond government bond. Adjusted for
inflation, the return is modest.

Savings Greater risk than government bonds, 3.5-4.5%

Account
although funds are insured by the
government. This makes little
protection against higher rates of
inflation.

Corporate More risk than a savings account. 4.0-5.0%

Bond Priority over common stock if there is
a business failure. Adjusted for
inflation, the return is modest.

Share of stock There are highest degrees of risk in 7.0-9.0%

share, due to possible business failure.
The return includes about 4% from
dividends. Some protection from
inflation is made in share stock.
 Ch.4. Returns from Investment
Introduction of Return
Return is reward and motivating force behind every investment.
Return is always haunted by investment. Return is the amount or rate of
gain, profit which accrues to an investment. The return represents the
benefits derived by a business firm from its operations. The rate of return
required by a firm to a great extent depends upon the risk involved, higher
the risk, greater is the return expected by the firm. Return on investment has
two components, regular income in the form of interest or dividend and
capital appreciation. The total return on investment can be defined as
“Income plus (minus) price appreciation (depreciation).”

Definition of return
“The return on asset / investment for a given period, say a year, is the
annual income received plus any change in market price, usually expressed
as a percent of opening market price.”
Type of Return
The following are various kinds of return that are discussed in detail
follows.
1. Internal Rate of Return
This is also known as yield rate. It is the rate which discounts the cash
flows to zero. Internal rate of return is that rate at which the sum discounted
cash inflows equals the sum of discounted cash outflows. The marginal IRR
is the rate of discount which makes the present value of the marginal
revenue from the additional investment equal to unity.
2. Coupon Rate / Bond Rate
Coupon rate means, the interest rate received on the face value or the
par value of the bond. If a company or Government issues a 10 – year bond
with Rs. 100 as face value and 14 percent rate of interest, it would be
described as 14% bond or debenture and may be said to have, a coupon rate
of 14%.
3. Expected Return / Realized Return
Return is not guaranteed. It is mostly expected and it may or may not
be realized. Therefore the expected return is an anticipated or predicted,
desired return by the investor which is subject to uncertainty. Realized return
means actually earned and received.
4. Holding Period Yield / Return
Holding period yield (HPY) measures the total return from an
investment during a given or designated time period in which the asset is
held by the investor. It is to be noted that HPY does not mean that the
security is actually sold and the gain or loss is actually realized by the
investor. The concept of HPY is applicable whether one is measuring the
realized return or estimating the future / expected return. It can be calculated
as follows:
HPY= Any cash payments received + Price change over the holding period
Price at which the asset is purchased
5. Basic Yield
Basic yield is associated with high grade bonds. It is the lowest yield
actually attained the market. Basic yield can be understood by noting
concept of pure rate of interest, which is unique and absolutely risk less; it
implies absolute safety and certainty of principal and income and also
freedom from losses through changes in commodity prices, interest rates and
taxes. The basic yield, however, does not imply either risk less or
uniqueness.
6. Current Yield
Current yield is also known as the market yield / income yield
/running yield. Bonds are offered to the public with coupon rate. Current
yield is the ratio of interest per year to the current market price of the bond.
It does not take into account the return earned by the investor because of
appreciation in the value of bond.
7. Yield to maturity
It is known as redemption yield. It is the promised rate of return an
investor will receive from a bond purchased at the current market price and
held till maturity.

YTM = Annual interest + (Appreciation / Depreciation of the Asset)

Redemption value or face value
8. Dividend Yield
Dividend yield is the ratio of per share expected dividends, gross of
tax to the current market price of the share
9. Earnings Yield
It is the ratio of expected EPS of the firm to the current market price
of the share. There is no difference between dividend yield and
earnings yield, if the firm’s dividend payout ratio is 100%.
10. Nominal and Real Return
Nominal return is the return in nominal rupees, the real return is equal
to the nominal return adjusted for inflation.
11. Gross and Net Yield
The yield realized by the investor before paying taxes, is called as
gross yield. The net yield is gross yield less income tax paid.
Net yield = gross yield [1- Tax rate]
12. Required Rate of Return
Required rate of return is an important factor to be considered for
buying security. The RRR is defined as the minimum expected rate of return
needed to an investor to purchase the security, given its risk. The RRR has
two components viz. The risk free rate of return or the time value of money.
The second component of RRR is the risk premium. It is the return that an
investor must get for facing the risk by investing his money in all those risk
generating investments.
RRR = The time value of money + inflation premium + risk premium
Or
RRR = Risk free rate of return + risk premium.
 Ch.5 – Risk in Investment
Analysis of Risk in Investment
Saving is invested in various investment opportunities for earning
better returns. The return of the investment depends upon the risk of such
investment. All investments involve some risk. The objective of any investor
is to minimize the risk and maximize return. The value of financial assets
depends on their return and risk pattern.
Risk may be defined as “the chance of future loss that can be
foreseen”.
Risk can be defined as “the chance factor in trading in which expected
or perspective advantage, gain, profit or return may not materialize”.
The actual outcome of investment may be less than the expected out
come. The greater is the variability in the possible outcome, the greater is the
risk. Generally, the variance and standard deviation of return are used as the
alternative statistical measures of the risk of the financial asset. Similarly,
co-variance measures of the risk of the asset, relative to other asset in a
portfolio. Risk free investment means only the certainty of the return of an
investment and not free from all risks. Risk comprises all elements which
cause for the variability in the return. Some risks can be controlled by the
investors. Others cannot be controlled, and they are to be borne compulsorily
by the investor. Risk may be caused by the factors, such as “ wrong decision
of investment”, “wrong timing of investment”, “kinds of instruments”,
“maturity period of the investment”, “amount of investment”, “method of
investment”, “nature of the industry” and “national, international economical
factors.” Number of factors will influence the risk and depending upon the
cause, the risk can be classified in to the following major types:
Types of Risk
1. Default Risk
Default risk means, the failure of the borrower to pay the interest and
principal amount within the stipulated period of time. The default risk has
the capital risk and income risk as its components. It means not only failure
to pay, but also delay in payment.
2. Financial Risk
Financial risk refers to the risk on account of pattern of capital
structure. It is usually measured by the debt equity mix of the firm. The
higher proportion of debt in the capital structure, greater is the variability of
return and financial risk. Financial risk is an avoidable risk to the extent that
managements have freedom. A firm with no debt financing has no financial
risk. Financial risk is related to the debt and equity mix of financing in the
firm. The Reliance on debt financing is also called financial leverage. It has
an important effect on the shareholders return.

3. Business Risk
Business risk arises due to the uncertainty of return which depends
upon the nature of business. It will influence for the firm’s operating
income. It relates to the variability of the business, sales, income, expenses,
and profits. It depends upon the market conditions for the product mix, input
supplies, strength of the competitor etc. The business risk may be classified
into two kinds’ viz., internal risk and external risk. Internal risk is related to
the operating efficiency of the firm. This is manageable within or by the
firm. Internal business risk leads to fall in revenues and profit of the
companies. External risk refers to the policies of Government or strategies of
competitor or unforeseen situation in market. This risk may not be controlled
and corrected by the firm.
4. Liquidity Risk
Liquidity risk refers to a situation wherein it may not possible to sell
the asset. Liquidity risk refers to inability to meet liabilities of creditors
when they want to withdraw their money. Assets are disposed off at great
inconvenience and cost in terms of money and time. Any asset that can be
bought and sold quickly is said to be liquid. Failure of disposable of an asset
is called liquidity risk. Liquidity risk has a different meaning from the point
of view of banks and financial institutions.
5. Maturity Risk
Maturity risk will arises when the money was not received at the time
of maturity of the security. It is on long-term basis. It will happen when the
term of maturity, period of the security is longer. The longer term to
maturity, the greater is the risk, because forecasting the environment, for
assessing conditions and situation, becomes more and more difficult.
6. Call Risk
It is associated with corporate bonds. The bonds are issued with call
back provisions and the issues will have the right of redeeming the bonds.
The bondholders face the risk of giving up higher coupon bonds. The
reinvesting the proceeds at lower interest rates may arise and incurring the
cost and inconvenience of investment.
7. Interest Rate Risk
It is the difference between the expected interest rates and the current
market interest rate. The markets will have different interest rate
fluctuations, according to market situation, supply and demand position of
cash or credit. If the maturity period is long, the market value of the security
may fluctuate widely. Further, the market activity and investor perceptions
change with the change in the interest rates and interest rate also depend
upon the nature of instruments such as bonds, debentures, loans and maturity
period, credit worthiness of the security issues.
8. Inflation Risk
Inflation risk is also called as purchasing power risk. It is closely
related to interest rate risk since interest rates generally rise when inflation
occurs. Inflation risk is more relevant in case of fixed income securities;
shares are regarded as hedge against inflation. It is the risk that the real rate
of return on security may be less than the nominal return. There is always a
chance that the purchasing power of invested money will decline or that the
real return will decline due to inflation. The return expected by investor will
change due to change in real value of returns. Cost push and pull forces
operate to increase prices due to inadequate supplies and raising demand.
9. Currency Risk / Exchange Rate Risk
Exchange rate risk is also called as currency risk. It is associated with
the exchange rate fluctuation of foreign exchange on international
transactions. The risk is faced by the limited organizations which are
involved in export or import business. This risk will arise due to changes in
currency exchange rates, may have an unfavorable impact on costs or
revenues. There is no exchange rate risk under the fixed exchange rate
system.
 RISK DISCLOSURE DOCUMENT

This document is issued by the National Stock Exchange of India

(hereinafter referred to as "NSE") in coordination with the Securities and
Exchange Board of India (hereinafter referred to as "SEBI") and contains
important information on trading in the Equities Segment of NSE. All
constituents are urged to read it before making a purchase or a sale in any
security being traded on NSE.

NSE/SEBI does neither expressly nor impliedly guarantee nor make

any representation concerning the completeness, the adequacy or accuracy
of this disclosure document nor has NSE/SEBI endorsed or passed any
merits of participating in this trading segment. This brief statement does not
disclose all the risks and other significant aspects of trading.

In the light of the risks involved, you should undertake transactions only if
you understand the nature of the contractual relationship into which you are
entering and the extent of your exposure to risk.

You must know and appreciate that investment in Equity shares or

other instruments traded on the Stock Exchange, known as risk capital, is
generally not an appropriate avenue for someone of limited resources/limited
investment and/or trading experience and low risk tolerance. You should
therefore carefully consider whether such trading is suitable for you in the
light of your financial condition. In case you trade on NSE and suffer
adverse consequences or loss, you shall be solely responsible for the same
and NSE, its Clearing Corporation and/or SEBI shall not be responsible, in
any manner whatsoever, for the same and it will not be open for you to take
a plea that no adequate disclosure regarding the risks involved was made or
that you were not explained the full risk involved by the concerned member.
The constituent shall be solely responsible for the consequences and no
contract can be rescinded on that account. You must acknowledge and
accept that there can be no guarantee of profits or no exception from losses
while executing orders for purchase and/or sale of a security being traded on
NSE.

It must be clearly understood by you that your dealings on NSE

through a trading member shall be subject to your fulfilling certain
formalities set out by the trading member, which may interlaid include your
filling the know your client form, client registration form, execution of an
agreement, etc., and are subject to the Rules, Byelaws and Regulations of
NSE and its Clearing Corporation, guidelines prescribed by SEBI and in
force from time to time and Circulars as may be issued by NSE or its
Clearing Corporation and in force from time to time.

NSE does not provide or purport to provide any advice and shall not
be liable to any person who enters into any business relationship with any
trading member and/or sub-broker of NSE and/or any third party based on
any information contained in this document. Any information contained in
this document must not be construed as business advice/investment advice.
No consideration to trade should be made without thoroughly understanding
and reviewing the risks involved in such trading. If you are unsure, you must
seek professional advice on the same.
BASIC RISKS INVOVLED IN TRADING ON THE STOCK
EXCHANGE (EQUITY AND OTHER INSTRUMENTS)

1. Risk of Higher Volatility:

Volatility refers to the dynamic changes in price that securities
undergo when trading activity continues on the Stock Exchange. Generally,
higher the volatility of a security, greater is its price swings. There may be
normally greater volatility in thinly traded securities than in active securities.
As a result of volatility, your order may only be partially executed or not
executed at all, or the price at which your order got executed may be
substantially different from the last traded price or change substantially
thereafter, resulting in notional or real losses.

2. Risk of Lower Liquidity:

Liquidity refers to the ability of market participants to buy and sell
securities expeditiously at a competitive price and with minimal price
difference. Generally, it is assumed that more the numbers of orders
available in a market, greater is the liquidity. Liquidity is important because
with greater liquidity, it is easier for investors to buy or sell securities swiftly
and with minimal price difference, and as a result, investors are more likely
to pay or receive a competitive price for securities purchased or sold. There
may be a risk of lower liquidity in some securities as compared to active
securities. As a result, your order may only be partially executed, or may be
executed with relatively greater price difference or may not be executed at
all.
 Buying/selling without intention of giving and/or taking delivery of a
security, as part of a day trading strategy, may also result into losses,
because in such a situation, stocks may have to be sold/purchased at a
low/high prices, compared to the expected price levels, so as not to have any
obligation to deliver/receive a security.

3. Risk of Wider Spreads:

Spread refers to the difference in best buy price and best sell price. It
represents the differential between the price of buying a security and
immediately selling it or vice versa. Lower liquidity and higher volatility
may result in wider than normal spreads for less liquid or illiquid securities.
This in turn will hamper better price formation.

4. Risk-reducing orders:
Most Exchanges have a facility for investors to place "limit orders,
"stop loss orders" etc". The placing of such orders (e.g., "stop loss orders, or
"limit" orders) which are intended to limit losses to certain amounts may not
be effective many a time because rapid movement in market conditions may
make it impossible to execute such orders.

A "market" order will be executed fully and promptly without regard

to price and that, while the customer may receive a prompt execution of a
"market" order, the execution may be at available prices of outstanding
orders, which satisfy the order quantity, on price time priority. It may be
understood that these prices may be significantly different from the last
traded price or the best price in that security.
 A "limit" order will be executed only at the "limit" price specified for
the order or a better price. However, while the customer receives price
protection, there is a possibility that the order may not be executed at all.

A stop loss order is generally placed "away" from the current price of
a stock, and such order gets activated if and when the stock reaches, or
trades through, the stop price. Sell stop orders are entered ordinarily below
the current price, and buy stop orders are entered ordinarily above the
current price. When the stock reaches the pre-determined price, or trades
through such price, the stop loss order converts to a market/limit order and is
executed at the limit or better. There is no assurance therefore that the limit
order will be executable since a stock might penetrate the pre-determined
price, in which case, the risk of such order not getting executed arises, just as
with a regular limit order.

5. Risk of News Announcements:

Issuers make news announcements that may impact the price of their
securities. These announcements may occur during trading, and when
combined with lower liquidity and higher volatility, may suddenly cause an
unexpected positive or negative movement in the price of the security.

6. Risk of Rumours:
Rumours about companies at times float in the market through word
of mouth, financial newspapers, websites or news agencies, etc. The
investors should be wary of and should desist from acting on rumours.
7. System Risk:
High volume trading will frequently occur at the market opening and
before market close. Such high volumes may also occur at any point in the
day. These may cause delays in order execution or confirmation.

During periods of volatility, on account of market participants

continuously modifying their order quantity or prices or placing fresh orders,
there may be delays in order execution and its confirmations.

Under certain market conditions, it may be difficult or impossible to

liquidate a position in the market at a reasonable price or at all, when there
are no outstanding orders either on the buy side or the sell side, or if trading
is halted in a security due to any action on account of unusual trading
activity or stock hitting circuit filters or for any other reason.

8. System/Network Congestion:
Trading on NSE is in electronic mode, based on satellite/leased line
based communications, combination of technologies and computer systems
to place and route orders. Thus, there exists a possibility of communication
failure or system problems or slow or delayed response from system or
trading halt, or any such other problem/glitch whereby not being able to
establish access to the trading system/network, which may be beyond the
control of and may result in delay in processing or not processing buy or sell
orders either in part or in full. You are cautioned to note that although these
problems may be temporary in nature, but when you have outstanding open
positions or unexecuted orders, these represent a risk because of your
obligations to settle all executed transactions.
GUIDELINES FOR LONG TERM INVESTORS:-
• The investor should know how to analyze the share prices of the
company & pickup the undervalued shares.
• He should follow the principle of contrariness. This means that if
everyone buying the script, he should avoid that script buy such a script
which although is deserted but has a good potential in future.
• Before investing he should undertake a deep study on the Net sales, net
profit in relation to equity capital employed and should attempt to
forecast for the coming years.
• He should not rely on tips form friends, family, brokers or they buy and
sell merely on bunches this is usually one of the fastest ways to lose a
bundle in the market.
• If they follow the market trends connately then they can deliver excellent
returns.
• He should not invest his money in one or two company because if the
companies’ prices decline, he will have to bear a huge loss.
• He set his target of minimum profit before starting his operation in the
field of stock market.
GUIDELINES FOR SPECULATORS
• Plan your trade and trade your plan.
• Avoid getting in or out of the market too often.
• Losses make the speculator studious – not profits. Take advantage of
every loss to improve your knowledge of market action.
• The most profitable trading tool is a simply following the trend.
• The most difficult task in speculation is not predication but self control
successful trading is difficult and frustrating. You are the most important
element in the success equation.
• When a markets gotten away and you’ve missed the first leg. You should
still consider jumping even if it is dangerous and difficult.
• Commodities are never high to being buying or too low to begin selling.
But after the initial transaction, avoid make a second unless the first
shows a profit.
• The clearest and easiest way to determine a trend is from previous highs
and lows. Higher highs and higher lows make a down trend.
LIMITATIONS
1. Financial statement does not represent the complete picture of the
business but merely a collection of facts, which can be expressed in
monetary terms. They may not refer ton other factors, which affect
performance.
2. Comparison of different company was based on ratios derived
from the balance sheet and profit and loss account available in grouping
and sub grouping of various items and necessary adjustments to make for
statement uniform has been done.
3. Insufficient time because of this limit period I have chosen only
top company for the sector, so that could not find out form the overall
point of view best investment opportunity in sector as there are many
other company which are best for investment purpose and best companies
for the speculators point of view.
4. I don’t have expertise knowledge in this filled so ranking given by
me may not considerable that appropriate.
 5. Indian stock market is not stable it keep on fluctuating so ratio
derived today may not consider as useful tool of valuation tomorrow.
6. Ratios are calculated from the financial statements which are
affected by the financial basis and policies adopted on such matter.
7. The ranking given cannot be taken as a full proof decision due to
lack of professionalism.
8. Due to insufficient data given in the financial statements some
financial ratios could not be found out.
FINDINGS AND ANALYSIS:
This is final and most important stage in the entire process. The
objective of my project is end in this step. This will indicate the investors,
creditors and shareholders each of the companies overall operating
efficiency and performance that will help them to make more efficient
investment decision. This project has yielded me following result.
• Scripts, which are under priced and good for, buy order
• Scripts, which are over priced and good for sell with the necessary
margin of profit or capital appreciation
• Scripts, which are becoming sick and have to be disposed off
immediately.
• Scripts, which are uncertain trend and have to be held with neither buy or
sell.
EQUITY OVERVIEW
Equity shares are usually regarded as corner stone of corporate
financial resources. The ordinary shares provide a cushion of safety against
temporary unfavorable developments as the payment of dividends is not
compulsory and is depend on the discretion of management.
The reason for wide public interest in these securities is the possibility
of trading in stock exchange, free transferability, and marketability. Equity
shares constitute the ownership capital of a company and the equity holders
have the right of voting and sharing in profits and assets in proportion to his
holding in the total net assets of the company. He is entitled to all rights and
obligations as an owner and to residual profits. The dividend distributed to
them may be uncertain, variable and fluctuating. The equity holder gets his
return in the form of dividends distributed plus capital appreciation on his
shares. The dividends distributed depend upon the net earnings of the
company after meeting all expenses. This would influence the share price in
the market, which may lead to fluctuations in the prices either upward or
downward and in turn capital appreciation or depreciation.
Definition of Share:
According to section 2 (46) of the Indian Companies Act a share can
be defined as “The capital of a company and includes stock except where a
distinction between stock and share is expressed or implied.”
Farewell says that “The interest of a shareholder in the company is measured
by a sum of money, for the purpose of liability in the first place and of
interest in the second but also consisting of a series of mutual convenient
entered into by all the shareholders interest.
MERIT OF EQUITY SHARES
(v) Financing through equity shares does not impose any burden on the
company, since payment of dividend on these shares depends on the
availability of profits and the discretion of the directors.
(vi) Capital raised through equity shares is perpetual source for the
company since it is not repayable during the life time of the company. It
is repayable only in the event of company’s winding up and that too
only after the claims of preference shareholders have been met in full.
(vii) Equity shares do not carry any charge against the assets of the
company hence the capacity of the company to raise additional funds
through borrowing on the security of its assets is in no way diminished.
(viii) Financing through equity shares also provides the company with
sufficient flexibility in the utilization of its profits and funds, since
neither the payment of dividend is compulsory nor any provision is to
be made for repayment of capital.

DEMERIT OF EQUITY SHARES

(vi) Financing through equity shares is costly as compared to financing
through preference shares or debentures; on account of greater risk
expectation of the equity shareholders is also high as compared to
preference shares or debentures. Moreover, the dividend on equity
shares is not deductible as an expense out of profits for taxation
purpose.
(vii) The control of the company can be easily manipulated through
converting of shares by a group of shareholders for their personal
advantage at the cost of company’s interest.
(viii) Conservative management often avoids issue of addition equity
shares to raise additional funds. Since the new shareholders are entitled
to vote at par with the existing shareholders, this increases the
possibility of transferring of control form the existing holder to new
holders of equity shares.
(ix) Excessive reliance on financing through equity shares reduces the
capacity of the company to trading on equity. This may ultimately
result in over capitalization of the company.
(x) The cost of underwriting and distributing the equity share capital is
generally higher than preference share capital or debentures.
 ANNEXURE

INVESTORS’ RIGHTS AND OBLIGATIONS:

1. You should familiarize yourself with the protection accorded to the
money or other property you may deposit with your trading member,
particularly in the event of a default in the stock market or the broking firm’s
insolvency or bankruptcy.

Please ensure that you have a documentary proof of your having

made deposit of such money or property with the trading member, stating
towards which account such money or property deposited.

Further, it may be noted that the extent to which you may recover
such money or property may be governed by the Bye-laws and Regulations
of NSE and the scheme of the Investors’ Protection Fund in force from time
to time.

Any dispute with the trading member with respect to deposits, margin
money, etc., and producing an appropriate proof thereof, shall be subject to
arbitration as per the Rules, Byelaws/ Regulations of NSE or its Clearing
Corporation.

2. Before you begin to trade, you should obtain a clear idea from your
trading member of all brokerage, commissions, fees and other charges which
will be levied on you for trading. These charges will affect your net cash
inflow or outflow.

3. You should exercise due diligence and comply with the following
requirements of the NSE and/or SEBI:
 Please deal only with and through SEBI registered trading members
who are members of the Stock Exchange and are enabled to trade on the
Exchange. All SEBI registered trading members are given a registration no.,
which may be verified from SEBI. The details of all members of NSE and
whether they are enabled to trade may be verified from NSE website
(www.nseindia.com> Home > Members > Member Directory).

Demand any such information, details and documents from the trading
member, for the purpose of verification, as you may find it necessary to
satisfy yourself about his credentials.

Furnish all such details in full as are required by the trading member
as required in "Know your client" form, which may also include details of
PAN or Passport or Driving Licence or Voters Id, or Ration Card, bank
account and depository account, as is available with the investor.

Execute a broker-client agreement in the form prescribed by SEBI

and/or the Relevant Authority of NSE or its Clearing Corporation from time
to time, because this may be useful as a proof of your dealing arrangements
with the trading member.

Give any order for buy or sell of a security in writing or in such form
or manner, as may be mutually agreed. Giving instructions in writing
ensures that you have proof of your intent, in case of disputes with the
trading member.
 Ensure that a contract note is issued to you by the trading member
which contains minute records of every transaction. Verify that the contract
note contains details of order no., trade number, trade time, trade price, trade
quantity, and name of security, client code allotted to you and showing the
brokerage separately. Contract notes are required to be given / sent by the
trading member to the investors latest on the next working day of the trade.
Contract note can be issued by the trading members either in electronic form
using digital signature as required, or in hard copy. In case you do not
receive a contract note on the next working day or at a mutually agreed time,
please get in touch with the Investors Grievance Cell of NSE.

Facility of Trade Verification is available on NSE website (www.nse-

india.com), where details of trade as mentioned in the contract note may be
verified from the trade date up to five trading days. Where trade details on
the website, do not tally with the details mentioned in the contract note,
immediately get in touch with the Investors Grievance Cell of NSE.

Ensure that payment/delivery of securities against settlement is given

to the concerned trading member within one working day prior to the date of
pay-in announced by NSE or it’s Clearing Corporation. Payments should be
made only by account payee cheque in favor of the firm/company of the
trading member and a receipt or acknowledgement towards what such
payment is made be obtained from the trading member. Delivery of
securities is made to the pool account of the trading member rather than to
the beneficiary account of the trading member.
 In case pay-out of money and/or securities is not received on the next
working day after date of pay-out announced by NSE or its Clearing
Corporation, please follow-up with the concerned trading member for its
release. In case pay-out is not released as above from the trading member
within five working days, ensure that you lodge a complaint with the
Investors’ Grievance Cell of NSE.

Every Trading Member is required to send a complete 'Statement of

Accounts', for both funds and securities settlement to each of its
constituents, at such periodicity as may be prescribed by the NSE from time
to time. You should report errors, if any, in the Statement immediately, but
not later than 30 calendar days of receipt thereof, to the Trading Member. In
case the error is not rectified or there is a dispute, ensure that you refer such
matter to the Investors Grievance Cell of NSE.

In case of a complaint against a trading member/registered sub-broker,

you should address the complaint to the Office as may be specified by NSE
from time to time.

4. In case where a trading member surrenders his trading membership, NSE

gives a public notice inviting claims, if any, from investors. In case of a
claim, relating to "transactions executed on the trading system" of NSE,
ensure that you lodge a claim with NSE/NSCCL within the stipulated period
and with the supporting documents.

5. In case where a trading member is expelled from trading membership or

declared a defaulter, NSE gives a public notice inviting claims, if any, from
investors. In case of a claim, relating to "transactions executed on the trading
system" of NSE, ensure that you lodge a claim with NSE within the
stipulated period and with the supporting documents.

6. Claims against a defaulter/expelled member found to be valid as

prescribed in the relevant Rules/ Bye-laws and the scheme under the
Investors’ Protection Fund (IPF) may be payable first out of the amount
vested in the Committee for Settlement of Claims against Defaulters, on pro-
rata basis if the amount is inadequate. The balance amount of claims, if any,
to a maximum amount of Rs.10 lakhs Per investor claim, per
defaulter/expelled member may be payable subject to such claims being
found payable under the scheme of the IPF.

Notes:

1. The term ‘constituent’ shall mean and include a client, a customer or an

investor, who deals with a trading member of NSE for the purpose of
acquiring and / or selling of securities through the mechanism provided by
NSE.

2. The term ‘trading member’ shall mean and include a member or a broker
or a stock broker, who has been admitted as such by NSE and who holds a
registration certificate as a stock broker from SEBI.