CHAPTER- I INTRODUCTION

India capital market has witnessing rapid growth in recent past; the key indicators on capital market have proven this point. However, this growth volume of paper that has flooded the market checking out existing system, as the market grows there is a need for better system to ensure that such restrictions to growth are removed. The foreign investors seeking to invest in India are also apprehensive about their liability of the post trade settlement mechanism used in India. The biggest deterrent or bottleneck in India capital market is largely manual and paper based settlement system in Indian stock exchange have been under constant review. The main deficiencies have been identified in two broad areas The clearing and settlement system in stock exchange where by delivery of shares by seller and payment by the purchaser is made and Procedure for transfer of shares in the name of the purchaser current procedure result in excessive paper work, delays in cleaning and settlement, work duplication, bad delivery, on transference in costs and prices at which customer's orders are executed have promoted setting up of depositors

Definition: Dematerialisation of shares: Conversion of securities from physical (paper) form to electronic form and credited in the investor's (Beneficial Owners) account with his depository participant. (DP)

Basics of Dematerialisation: Demat is a process by which physical shares of investors are converted into an equivalent number of securities in electronic form and are credited in the investors account with his depository participant (DP). Demat trading is now compulsory for all investors. Beginning of first week of January 1999, investor can trade in specific scripts in the demat form. They can provide and receive delivery only in a dematerialized form and share certificates will not be changed for these scrips. A depository is an organization where securities of shareholder and held in the electronic form at the request shareholder through depository participants, the system comparable to that in a bank. If an investor wants services offered by a depository, he would have to open an account with it through a DDP similar to opening an account with any other branches of the bank in order to avail of its services. Dematerialization is a process by which physical certificates of an investor or taken back by the co. / register and actually destroyed and equivalent numbers of securities are credited in the depository account of that investor. A depository participant is investors agent in this system he maintains investors securities account and intimates the status of holdings from time to time to the investors. Process of Dematerialization In order to dematerialise his certificates, an investor will have to first open an account with a depository participant. And then request for the dematerialization of these certificates by filling up DEMATERIALIZATION REQUEST FORM which will be available with any DP. The ISIN name and number should be mentioned. This is to ensure that the security mentioned in the demat request form is it has the one client intended to dematerialised.

Steps:

 An investor has to submit the request form along with the share certificate, which is to be dematerialised to depository participant. The depository participant gives the denial order to NSDL through the system. The depository participants submit the share certificates DRF, DRN to the issuer/RTA. NSDL sends the denial request to the issuer/RTA. The issuer/RTA sends conformation/rejection statement after checking the validity. NSDL in turn sends the status intimation to the DP. The issuer/RTA sends the objection memo to DP. DP gives the statement of holding to the client.

This takes about 15 days from the date of request. Electronic holdings can be converted back into certificated, if so desires, in a similar fashion as that for demat. These companies are compulsory traded in dematerialised form from January 4th 1999. 1. BANK OF INDIA 2. BPCL 3. BSES 4. HDFC 5. IDBI 6. ICICI 7. L & T 8. SBI
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9. VSNL 10. WIPRO 11. INFOSYS From February 15th 1999 1. ACC 2. M&M 3. HPCL 4. ABB 5. NET 6. SAIL 7. Madras refineries 8. Tata Tea 9. Asian Paints 10. Castro India 11. Cochin refineries 12. Ranbaxy 13. Gujrat Ambuja cement 14. Hero Honda 15. DR.Reddys lab. 16. Bajaj Auto 17. Birla Global Fin. 18. TVS Suzuki 19. Thermax

From April 15th 1999 1. BHEL

2. HLL 3. IFCL 4. IPCN 5. ITC 6. MTNL 7. P&G 8. Arvind mills 9. Cipla 10. Colgate 11. Eih ltd. 12. GE shipping 13. Glasco India 14. Grasim India 15. HDFC BANK 16. Hindal co., 17. Indian hotels 18. Indian rayon 19. Nestle 20. Oriental bank 21. Reliance capital 22. Reliance petrol 23. Reliance India 24. Smith line consumers 25. Tata chemicals 26. Tata power 27. Telco 28. Tisco 29. Novartis Pre requisities for dematerialisation: 1. Client to have an account with DP.

2. Securities should be one from the eligible list of demat securities issued by the depository. 3. Securities must be in the name of the account holder and owned by him. 4. Separate demat requisition form (DRF) is required of each ISIN (issuer). 5. Separate DRN is required for lock in and lock free securities. 6. All the joint holders should sign DRF form. Operational Procedure for Dematerialisation: The entire process of dematerialization of shares begins with the opening of an account with a depository participant by an investor. He requests the depository participant by an investor. He requests the depository participant for dematerialization of shares certificates by submitting the same along with a demat request form to the depository participant. The certificates are forwarded to the company/register and share transfer agent who processes them and who gives an equivalent credit in the investors beneficiary account. Steps involved:

1.Investor surrenders certificates for dematerialization to depository participant. 2.Depository participant intimated NSDL of the request through the system. 3.Depository participant submits the certificates to the register.
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4.Register confirms the dematerialization request for NSDL. 5.After dematerialization, certificate, register updates accounts and informs NSDL of the completion of demat. 6.NSDL updates its accounts and informs the DP. 7.DP updates its account and informs investor. ADVANTAGES OF DEMAT: Transacting the depository way has several advantages over the traditional system of share certificates: Trading in demat segment completely eliminates the risk of bad deliveries which in turn all cost and wastage of time associated with follow up for rectification. This reduction; in risk associated with bad delivery has lead to reduction in clearing member age to the extent of 0.5% can be saved in stamp duty. In case of transfer of electronic shares, 0.5% can be saved in stamp duty. Cost of delay/courier/neutralization/the need for further follow up with the clearing member for shares returned for company/s objection, which happens only in case of physical securities scan, be avoided. The investor can also avoid the expense of applying for duplicate certificates in case of loss/mutilation of certificates. The investor can also receive your bonuses and rights into your depository account as a direct credit, thus eliminating risk of loss in transit. One can also expect a lower interest charge for loans taken against demat shares as compared to the interest for loan against physical shares. This could result in a saving of about 0.25% to 1.5%. RBI has increased the limit of loans against dematerialized securities as collateral to Rs.20lakh per borrower as against Rs.10lakh per borrower in case of loans against physical securities.

RBI also reduced the minimum margin to 25% for loans against dematerialized securities as against 50% for loans against physical securities. 1. Facilitation of cash corporate actions such as dividends: NSDL provides details of beneficial owners as on a given day (the record date) to the issuer company/registrar so as to enable the companys registrar and transfer agents forward the cash benefits to the investor directly. 2. Lending and borrowing of securities: A client (lender/borrower) having a beneficiary account with the DP can lend or borrow securities in electronic form through an approved intermediary, who has opened a special intermediary account with a DP. The creation of lend/borrow instruction will be initiated by lender/borrower respectively through his DP. The intermediary will instruct its DP to confirm the instruction. Recall/repay/lend/borrow order can be initiated by the lender/borrower or by the intermediary and is to be confirmed by the counter party. 3. Off market trades: Off market trades are those, which are not cleared through CC/CH accordingly, this are not routed through the CM pool account. The buyer & seller negotiate the trade with each other. The seller the instruction slip to; this DP instructing him to debit his account by giving the details of buyer & the buyer gives his DP to credit his account by giving the details of selling client but the instruction slip must have execution date. 4. Trading, clearing & settlement of demateralised securities: Trading of demat securities is currently available at National Stock Exchange (NSE), The Mumbai Stock Exchange (BSE) and Calcutta Stock Exchange (CSE). At NSE, Demat securities are traded into separate segments called AE segment & BE segment which are in addition to the segment for trading in securities in the physical form called LQ segment. Incase of AE segment, demat securities are traded only in market lot where as in BE

segment these can be traded in multiples of one share. At BSE&CSE, dematerialized securities are traded in a separate segment called demat segment & Physical securities are traded in unified segment. For trading in physical securities, the sub-brokers collect the trade orders from there clients and place these orders with the main brokers for execution in the market. The main broker enters the details of each trade against each sub-brokers in a separate keptfor each subbroker. After execution of the trade, the main broker issues the contractor note in the name of sub-broker who in true issues separate purchase/sale note to his clients. There are only few cases in which the main broker issues the contract note in the name of the clients directly. Trading in demat securities is very similar to trading in physical securities except that physical segment follows account period settlements & demat segments follow rolling settlement. In rolling settlement, all trades executed on the particular day will be settled on next Monday. Trades in demat segment are to be settled separately with securities held in demat form which cant be substituted with physical securities. In case electronic rolling settlement, short deliveries, if any, are auctioned on the 6th working day. 5. Opening, Clearing Accounts For Settlement of Trades: All the trades executed at time exchanges are settled by the Clearing Member (CM), as in the case of securities in the physical form to settle trades in demat segment each CM should open one clearing account with any of the DP. The procedures for owning clearing accounts are: Approach a DP. Fill an account opening form. Sign on agreement with the DP. DP forwards application to NSDL. DP opens account & a/c is provided along with CM-BP-ID to the member. The clearing account consists of 3 parts:
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Pool a/c Delivery a/c Receipt a/c Pool account: It has tow roles to play in clearing of securities. Before pay in the selling client of the CM transfers securities from his client account to the CM pool account. The CM transfers the securities from his pool account of the butting client. Delivery account: The CM transfers the securities in, from the pool account to the delivery account before pay in at that time of pay-in NSDL flushes out the securities in the delivery account and transfer the same to the CC/CH. Receipt account: On payout day, the CCYCH transfers securities to the pool a/c through the receipt account. CM had to ensure that before book closure or record date of any co. the securities move from CM pool a/c to a beneficiary AIC as holding in pool a/c for longer period is not allowed. Settlement: In the depository system, any trade that is cleared and settled through the clearing corporation (CCICH) is called market trade.

Procedure for pay-in of securities: Give receipt instruction to the DP for transfer securities from client account to the pool a/c of give a standing instruction for the same.

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Delivery to CCICH, instruction for the transfer of securities from pool a/c to delivery a/c for pay-in. Procedure For Payout Of Securities Transfer of securities from CCICH to pool a/c through receipt in account on payout. Delivery instruction to transfer from pool a/c to client a/c on payout. Clearing flow chart to effect and settlement of market:

SEND RECEIPT INSTURCTION FOR TRANSFERFROM CLIENT A/C TO POOL A/C

GIVE DELIVERY INSTRUCTION TO YOUR DP FOR TRANSFER FROM POOL A/C TO CC

ANYTIME BEFORE

ANY TIME BEFORE ON PAY OUT YOU WILL RECEIVE SECURITIES FROM CC TO YOUR POOL A/C OR AFTER

GIVE DELIVERY INSTRUCTION FOR TR. OF SECURITIES FROM POOL A/C TO CLIENTS A/C 6. Inter-Depository Transfers Transfer of securities from one account in one depository to an account in other depository is termed as an inter-depository transfer. This facility is quite, similar to the account transefers within NSDL. It can be done only for securities that are available for dematerialization on both the depositories. The account in NSDL can be either a clearing account or a beneficiary account. For debating the clearing account or the beneficial account with NSDL, the form for inter-

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depository delivery instructions is required to be submitted by the clearing member/beneficial owner to its DP. For creating the clearing account or the beneficial account, the standing instructions given for automatically crediting the account is applicable. In case the standing instructions are not given, then the form for inter-depository Receipt instruction is required to be submitted by the clearing member/beneficial owner to its DP. As both the depositories are connected to each other, they matched to effect interdepository transfers are presently exchanged twice on each working day. Both the depositories inform the issuer/registrar & Transfer Agent about the transfer and it amends its records accordingly. Government securities cannot be transfered from one depository to another using this facility. Comparative structure Compulsory demat trading applies to only stockexchanges linked to NSDL since only then can offer trading and settlement in shares. The fundamental difference between settlement of trading in physical shares and in demat shares, is the shares and the time taken to acquire it. When physical shares were bought from a broker, the payments had to be made first then on the settlement day the broker gives the share certificates attached with transfer deeds. At this juncture the shares dont legally belong to the buyer even though he had paid towards the share for transfer deeds.the share certificates are sent to R&T agent/issuer by registered post or courier. It normally takes any where between one to three months and sometimes more than six months where after long wait there is a good chance that the shares come back rejected, not transferred due to the reasons such as sellers signature difference. If they are fake or forged, the broker has to lodge a police compliant and follow up the issue. The buyer is entitled to receive another lot of shares from the broker in 21 days, the system stands abused.

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In dealing with demat shares one doesnt need to worry about the legal title at the time of buying since the depositories carries out account transfers electronically. The buyer also gets the good title in his name on the same day the exchange effects the settlement. On most exchanges 1-2 days. In demat if the signature, on the Delivery Instruction Slip(DIS) that is to be submitted at time of sale, varies from the DPS records then the Dp will inform promptly about the mismatch to the buyer. The instruction will not proceed before the mismatch is rectified. Trading in demat shares doesnt increase the number of entities the buyer has to deal as in physical shares. 7. Rematerialisation of shares Rematerialization is the term used for converting electronic holding back into physical certified. The D.P will forward the investor's request to NSDL after verifying that the investors have the necessary balance. NSDL in turn will intimate the register that will print the certified who will print the certified and dispatch the sale to investors. In this process NSDL does not directly handle certificates. STEPS INVOLED IN REMATERIALIZATION:

1.Beneficial owner requests for rematerialization 2.DP intimate NSDL of the request through system 3.NSDL confirms rematerialization request to the registers 4.Registers up date accounts and downloaded details to D.P 5.Register dispatches certificates to investor. The investor has the potion of rematerialization his total holding or part of it. In addition to

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this he has the option to get the certificates in market lot or jumbo lot. In view of the beneficially owner can rematerialize their securities even if it is an odd lot.

Drawbacks of Dematerialisation Most of the investors are apprehensive and cautious about Depository system. Inspite of having several benefits it has some drawbacks. Most of the DPS do not have the necessary infrastructure to handle the high workload of tranctions. Banks do not provide over draft facilities for physical shares, for scrips it has been brought under demat shares. Small investors really trade the scrips and the custody fee if very probhiting the investors thus feel demat form uneconomical. Volume of paper works, even though small, but it is very complicated. Asof now liquidity is one of the major problems faced and also the investors are apprehensive of the accountability. If the personnel are inefficient in the system there may arise insurmountable problems The accounts of small investors remain in category of dormant accounts, which they feel are likely to be misused by DPS.

Objectives of the study: To know the mechanism in Demateralisation of shares

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 To study the activities in Primary market and the Secondary market in the context of Demateralisation. To study the activities of Depository Participants(DP) To study the process of Settlement Procedure To know the advantages of the Demateralisation of shares To know the services provided by the Depository Participant.(DP)

CHAPTER- II

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INDUSTRY PROFILE
The origin of stock market in India goes back to the later part of the 18th century. The earliest security dealing was transactions in securities of the east India Company, the dominant institution of those days. Corporate shares came to the picture by 1830's and assumed significance with the enactment of the companies act 1850. The introduction of limited liability marked the beginning of the era of modern joint stock enterprises. The American civil war followed this in 1860-65. However, the bubble burst with the end of civil war and disastrous slump followed. It was long and severe. It also resulted in complete ostracism of the broker community. The tremendous social pressure on the brokers led to their forming an informal association which later gave birth to "the native share & stock brokers association", on 9th July, 1875, which is now known as Bombay Stock Exchange Ltd. The main contribution made for the Bombay Stock Exchange Ltd was by the cotton textile industry that was also the prime factor in the development of the Ahmedabad as a center for dealing in stocks and shares. As new cotton textile mills floated and volume of business grew, the "Ahmedabad share and stock brokers association" was formed in 1894. This later came to known as the Ahmedabad stock exchange. The next stock exchange was established in Calcutta in 1908. The industries that contributed to its birth and subsequent development were jute, coal and mining. Like the Bombay stock exchange Ltd, it was born out of a crisis when the boom of 1904-08 broke and a need was felt for an organized body for mutual protection of brokers and safety of the trade.

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With the World War I, all imports into India ceased and the Indian manufactures were faced with a boom. The three stock exchanges flourished during the period of Prosperity. However, the boom also led to the formation of many rival stock exchanges. The World War II also resulted in a boom and mushroom growth of stock exchanges. However, many of them perished during the slump that followed. Most of the other stock exchanges languished till 1956 when government came out with a comprehensive legislation called the "Securities contract (regulation) act", to regulate the functioning of stock exchanges. This legislation made it mandatory on the part of stock exchanges to secure recognition from the central Govt, only the established stock exchanges in Mumbai, Ahmedabad, Calcutta, Chennai, Delhi, Hyderabad and Indore were recognized under the act. More stock exchanges were recognized subsequently. At present the stock market consists of 23 regional stock exchanges and three National stock exchanges known as NSE, BSE and OTCEI (over the counter exchange of India). Stock/Securities Market: Stock markets are markets of financial assets or Negotiable instruments. Business organizations, corporate units and the Governments, central or state, issue these. Public sector undertakings also issue these Securities. These Securities are used to finance their investment and current expenditure. These are thus one of the important sources of funds to the issuers of the securities. Securities are the claims on money and are like promissory note or I.O.U. (I Owe You) securities are source of fund for companies, Govt. etc. the external sources of funds of the companies are as follows:

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The Securities market is classified into: 1)Primary Market: A primary market is market where Securities are issued to the public for the first time. New issues are dealt in this market. The new issues market has three functions to perform organization, underwriting, and distribution. There are three ways by which company may raise capital in primary market. 1) Public issue 2) Right issue 3) Private placement The Merchant Bankers, Collecting Bankers, Registrars and Transfer Agents, Brokers, Underwriters, Advertising agencies, Printers, Sub-Brokers and Solicitors and Mailing agents act as Intermediaries in the Primary Market. 2)Secondary Market: The market's where securities, which have already issued in the primary market, are traded is called a Secondary Market. This market consists of all stock exchange recognized by the Govt, of India, are regulated under the Securities contract (regulation) act 1956. The Bombay Stock Exchange (BSE) is the principle stock exchange in India, which sets the tone of the other stock market.

The Brokers, Jobbers, Dealers, Arbitrators, Investment Advisors, Portfolio Managers and Sub-Brokers act as Intermediaries in Secondary Market. STOCK EXCHANGE stands for Security provider for investor Tax benefits, planning and exemptions

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Optimum return on investment Cautious approach Knowledge of market Eligibility for accruals X change of Securities transactions Cyclopedia of listed companies High yield Authentic information New entrepreneurs Guidance to investors & companies Equity cult The Securities Exchange Regulation act 1956 A bill was introduced in the parliament in December 1954 by the Gorawalla committee and recommended on the lines of functioning of stock exchanges. Securities and Exchange Board of India(SEBI) Securities and Exchanges Board of India (SEBI) was set up in 1988 and given statutory status in January 1992 for healthy regulation of capital markets. The controller of capital issue (CCI) was abolished and companies have to approach market directly, subject to SEBI guidelines relating to disclosures and other measures of investor protection.

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Functions of SEBI To regulate the business in stock exchanges. To register and regulate intermediaries associated with securities market as well as working of mutual funds. Promote and regulate self-regulating organization. Prohibit fraudulent and unfair trade practices relating to securities transactions.

SEBI-footmarks
SEBI

has taken several steps, since its establishment, to reform the Securities

markets. Some of the important ones are summarized below: All companies, which access the capital markets, are free to price their issue, subject to certain conditions. Restrictions on rights and bonus issues have been removed. Issuers are required to meet SEBI guidelines for disclosure and investor protection. The minimum application has been reduced to Rs.2000 from earlier level of Rs.5000. The use of "Stock Invest" by individuals and mutual funds, to mitigate the locking in of funds. In case of over subscription, SEBI has directed the following of the system of proportionate allotment. SEBI has permitted the substantial firm allotment to institutions in public issue as 24% to foreign institutional investors, 20% to Indian financial institutions. Number of collection centers has been reduced to a minimum of 30.

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CHAPTER III Sykes & Ray Equities - A company profile

Introduction
Sykes & Ray Equities (I) Ltd (SRE) is a Mumbai based leading retail stock broking entity. It was established in 1994, promoted and managed by Yogesh R Gupta and Anup R Gupta. SRE has been functioning for about 17 years, providing investment and other financial services to its investors. It started as a traditional proprietary concern in 1990 and ultimately transformed into a broking service entity trading in all the premier stock exchanges of the country. It acquired BSE membership in 1990 and NSE membership in 1994. In 1997, it corporatised its membership in BSE to Sykes & Ray Equities (India) Ltd. In 1998, it entered the arbitrage market, by creating an arbitrage desk and commencing offline Intranet trading. In 1999, it acquired OTCEI dealership and entered the depository market. In the same year, the company became one of the largest depository partners of SHCIL. In 2000, the firm entered the derivative market and became the depository participant of CDSL. It further became the corporate agent of LIC through its subsidiary, Ray Trading Pvt Ltd (Ray Trading). In 2003, SRE became AMFI registered mutual fund dealer, distributor and advisor. In 2004, it initiated commodity trading through Ray Trading, which acquired membership of MCX and NCDEX. In 2006, the company launched a Financial Planning division, engaged in wealth management services. It has become an education provider offering professional courses through Finanancial Planning Academy.

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Major Offerings Trading in Equity & Derivatives SRE provides trading services on BSE and NSE in cash and derivative segment. It has a combined turnover of more than Rs 54 bn from these exchanges. It has a comprehensive website providing real time market information with the help of equity news, market commentary, industry analysis, historic data, mutual fund and IPO information. Trading in Commodities SRE provides investment opportunities in commodities futures through its subsidiary Ray Trading. It is a trading and clearing member of MCX and NCDEX. It offers real time trading facility in all major commodities and also tracks the latest commodity news, advances & declines, statistical data and other related reports. Depository SRE is a depository participant of CDSL and provides easy, safe and reliable dematerialisation services to individuals and corporate investors. It has a nationwide network of consumer services franchisees enabling convenient and quick demat facilities. Besides, it also has a team of professionals and technological expertise for the demat division. Online Trading SRE provides real time trading facility with its online trading platform. It facilitates the investors in taking an informed trade decision with the help of live inter-active charts and streaming quotes. It is user friendly online portal offering live quotes, charts, research and recommendations.

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Insurance SRE acts as a corporate agent for insurance agencies and is primarily engaged in marketing and distribution of insurance products. Its group company, Ray Trading has alliances with LIC for distribution of life insurance and Bajaj Allianz Insurance for general insurance. Research Desk SRE research desk is committed to provide exhaustive information on companies and markets. This acts as a value addition to its current offerings. It offers technical charting of companies. There are also sections providing company financial results and announcements, industry specific analysis, market commentary, IPO news, SRE recommendations etc. Mutual Funds & IPOs Apart from trading and depository services, the company also offers mutual fund advisory and IPO services. SRE is engaged in sale and distribution of mutual funds and assisting the investor in selecting mutual fund scheme. It further offers details of forthcoming IPOs and all updates related to IPO market. New Products SRE has already initiated with comprehensive Financial Planning. Now SRE plans to append some new value added services to enhance client satisfaction. Some of them include Portfolio Management services for its esteemed clients. It also plans to enhance its internet trading platform with the help of technology support.

Market and Networks

SRE has a pan India presence The company through its business associates and branches has a presence in over 110 cities across the country. It has a nationwide network of 860 terminals, 300 sub brokers, 225 employees and 280 offices. Major cities in which the company operates includes Delhi, Surat, Hyderabad, Bangalore, Nashik, Varanasi, Kolkata, Chennai and Mumbai. The company earns major revenue from its terminals located in Mumbai, Maharashtra. Technology & Connectivity SRE uses latest high end technology solutions. It provides ORION-ODIN software through its own network, which assists in clients gaining live access to the markets. Asian CERC for its internet trading platform and ACER E-solutions for its back office requirements. All trading terminals of the company are well connected through VSATs and VPNs. Growth & Performance The domestic business of SRE including equity and derivative has observed a turnover growth of 34% and 24% respectively. It added 11,900 customer accounts in the first 10 months of the CY07 compared to 8,890 accounts last year. Its e-broking accounts also registered a substantial growth. The company added 817 domestic and 175 NRI E-broking accounts. Future Plans SRE has been spreading its presence in the retail market, by providing investors with several additional investment opportunities in segments like mutual funds, derivatives etc. Products and services like margin financing and investment banking are to be

introduced. It plans to expand operations by entering into joint ventures in India and abroad. It even aims at expanding its FII and Institutional Client base. Other future plans also include launching its IPO.

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CHAPTER VI FINDINGS AND SUGGESTIONS

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Findings
The major findings of the study are summarised below: I. Beneficiary Profile 1. Eighty three per cent of the investors are above the age of 36, of which 48% are in the age group of 36-45. 2. Women investors form about 13% of the total number of investors. 3. The capacity to bear risk, to a large extent, depends on the gender. 11. Occupational analysis of investors 1. Sixty two percent of the investors have regular income apart from the investnients in the capital market, as they are either permanent employees or professionals. 2. Ten percent of the investors are share brokers and the only source of income is the investment in the capital market. 3. Investors do not depend wholly on the capital markets for their livelihood. 111. Experience of investors in the stock market operations I. Seventy four per cent of the investors in Kerala have less than 10 years of experience in the stock market. Only 7% of the investors have an experience of more than 15 years. 2. There is substantial decrease in the number of investors with the increase in experience. IV. Participation of Investors in Stock Market Operations Fifty five per cent of the investors are not actively operating in the stock market. Twenty four percent of the investors pointed out political instability as the major reason for this. For 19% of the investors, deceitful practice by unscrupulous promoters is the reason for inactivity. V. Loss due to political reasons 1. Seventy-three percent of the investors suffered loss due to political reasons. 2. Seventy percent of the investors follow a 'wait and watch' policy

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when there is a political uncertainty. Panic selling is resorted to by only 9% of investors. 3. There is a high degree of positive correlation between experience in stock market operation and the precaution, 'no activity' to cover political risk. 4. The correlation between experience in stock market operations and the 'wait and watch' policy as a precaution to cover political risk is highly negative. 5. There is a low negative correlation between experience in stock market operations and 'panic selling'. 6. There is no gender difference in the matter of dealing with political risk. 7. Even if political risk is taken into account while making the investment decisions, the investor may suffer loss. VI. Risk of bad delivery and delayed delivery 1. Fifty-five percent of the investors have experienced bad delivery of which 90% were rectified. 2. Thirty-five percent of the investors have experienced delayed delivery of which the brokers cause 55%. 3. Thirty-eight percent of the investors have experienced delayed payment. In 14% of these cases the delay exceeded 3 months. 204 VII. Forged share certificates and loss of share certificates and odd lots. 1. Twelve percent of the investors received forged share certificates of which 83% got it rectified. 2. Six percent of the investors lost their share certificate by theft of which 29% could not be recovered. 17% of the investors lost their share certificates in transit, of which 40% could not be traced. 3. Thirty Three percent of the investors hold odd lots. Of these 71% are retained as odd lots itself. 4. Response of investors - Many investors are reluctant to complain

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about the hazards. The investors complained 49% of the cases of bad delivery and 72% of the cases of forged share certificates. Also, the victims brought 72% of the cases of delayed delivery and 41% of the delayed payment to the notice of the authority. The remaining cases of bad delivery and delays were left unnoticed. VIII. Dematerialisation Many investors are yet to warm up to the dematerialisation of their shares. Thirty four percent of the investors have not yet converted their shares into the electronic form. IX. Market Risk & Default Risk 1. Eighty percent of the investors have suffered loss due to market risk. 2. Sixty six percent of the investors follow the 'wait and watch' policy when faced with market risk. Policies of 'no activity' and 'panic selling' are resorted to by 17% each of the investors. 3. Eighteen percent of the investors have met with the default risk. Of these only 22% were rectified later. X. Holding securities of vanished companies Sixty one percent of the investors hold shares in companies, which have vanished. Surprisingly, 8% of investors own shares in 10 or more of such companies. Further, more than 500 shares of such companies are held by 34% of investors. XI. Finance More than half of the investors have met with financial difficulties while operating in the stock market. Thirty six percent of the investors had to avail of loans to meet their financial difficulties. XII. Short sale About 50% of the investors have effected short sale and just half of them resulted in net gain. XIII. Evaluation of Budgets Budgets presented in the Parliament are regularly evaluated by 60% of the investors.

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XIV. Diversification 1. Remarkably, 81% of the investors diversify their portfolios. 2. Chi-square test proves that there is close association between portfolio diversification and attainment of expected rate of return. XV. Application of theories of evaluating securities 1. Sixty four percent of the investors are aware of the theories of evaluating securities of which technical analysis is the most commonly applied. 2. Applying stock evaluation theories is effective in attaining a reasonable rate of return. 3. The survey rcveals that only 46% of the investors evaluate securities regularly. Though 58% of investors revise their portfolios regularly, many of them are not based on scientific evaluation. XVI. Seeking advice from brokers 1. Sixty four percent of the investors regularly consult brokers or experts for their investment decisions. 2. Only 13% of the investors believe that the advice of brokers or experts is helpful and 15% believe that it is of no help. XVIP. Investor Protection 1. Thirty four percent of the investors are not satisfied with the brokers, as they do not get timely services from them. 2. It is astonishing to note that only 4% of the investors, who complained to SEBI or stock exchange, got timely redressal of their grievances. XVIII. Ratings of publications about new equity issues. 1. Ratings of unoffical publications about new equity issues are relied upon by 59% of the investors. 2. Eighty three percent of the investors who follow the ratings say that they are fruitful to the extent of 50%. It is interesting to note that only for 2% of the investors who rely on ratings, it is 100% correct. XIX. Stress Management by Investors

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Forty six percent of the investors have experienced stress in risk management. Surprisingly, 38% of these investors do not follow any special method for reducing stress. M. Attending company meetings 1. Only 27% of the investors used to attend company meetings. 2. The main reason for not attending company meetings is that it is conducted at far away places. XXI. Investment in shares 1. Sixty two percent of the regular investors have invested less than 50% of their savings into the capital market. It is worth noting that 32% of them have invested less than 25% of their savings. 27% of the investors have invested more than 75% of their savings into the capital market. 2. There is a low negative correlation between experience in stock market operations and investment in shares. 3. Seventy three percent of the investors have directed more than 50% of their investment in the capital market into the secondary capital market. 4. Investors have lost confidence in the Equity Market. 5. There is no gender difference in the matter of investment in the secondarv market. 6. There is a very low negative correlation between age and investment in the secondary market. 7. Capital appreciation is the main objective for investment in shares. Seventy six percent of the investors make investment in shares expecting capital appreciation. XXII. Deciding factors of Investment in shares 1. There is an almost perfect positive correlation between experience in stock market operations and efficiency of management of the company as the deciding factor of investment. 2. A low positive correlation exists between experience in stock market operations and the preference for Earnings per share (EPS)

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as the basis for investment decisions. 3. Dividend is not an important deciding factor for experienced investors. 4. A very significant negative correlation exists between experience of investors and their preference for track record as the deciding factor. 5. The correlation between the experience of investors and 'price' as deciding factor is highly negative. 6. Twenty four percent of the investors consider all the five deciding factors together for their investment decisions. XXIII. Type of shares selected by investors 1. Sixty two percent of the investors select shares on the basis of the volatility in their prices. 2. The correlation between the experience of the investors in the stock market operations and the tendency to buy highly volatile share is very low and negative. 3. A low negative correlation exists between experience in stock market operations and the selection of growth shares. 4. A highly negative correlation exists between experience of investors and the tendency to buy less volatile shares. 5. The correlation between the experience of the investors and their appetite for income shares is low. XXIV. Diversion of funds from the stock market 1. Fifty five percent of the investors have diverted funds from the stock market. 2. The main reason for diverting funds from the stock market by investors is their bitter experiences of the past. Higher risk in equity is the reason for diverting funds for 25% of investors. 3. There is no sigruficant association between the objectives for which the investment is made and the diversion of funds from the capital market. 4. There is no difference between the primary market and the secondary market in the matter of diversion of funds. 5. There is significant association between the diversion of funds from

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the stock market and the type of share in which investment is made. XXV. Involvement in Speculation 1. Seventy one percent of the investors indulge in speculation. It is interesting to note that less than a quarter of the speculative 21 1 transactions result in profit in the case of 53% of the investors who indulge in speculation. 2. Also, most of the speculative transactions of 77% of the investors result in loss. 3. For majority of investors, their speculative transactions did not result in net gain. 4. There is strong negative correlation between the age of investors and the tendency to involve in speculative business. 5. The correlation between experience of investors in stock market operations and their involvement in speculative activity is highly positive. 6. The diversion of funds from the capital market is very much dependant on the investors' involvement in speculative Suggestions Based on the findings and conclusions drawn from the study, the following suggestions seem feasible for strengthening the capital market, especially the investors. 1. Investor protection continues to remain a dream despite a plethora of laws, rules and regulations and a host of regulators in the form of RBI, the Company Law Board and the SEBI. Investor protection should be the goal of the regulators. All the existing regulations and fresh regulatory proposals are to be reviewed, aiming at this goal. It is time to take stock of the realities and make drastic measures to ensure safety of investors. 2. Special regulation is needed to book the culprits in the case of

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vanishing companies. SEBI should be empowered to award interest, costs and damages to investors who have suffered on account of cheating by promoters. Provision should be made for personal liability of promoters, directors and concerned intermediaries involved in vanishing companies. SEBI should have the powers to attach the property of the defaulting company and then it should be allowed to sell the property to make good the losses suffered by the investors. Entrepreneurs setting up new companies should be asked to furnish more details to the regulators, such as photographs, passport number etc. and at least three references so that they do not disappear into thin air. There is a strong need for rating of public issues by authorized agencies like CRISIL, CARE, etc. Investors should put forward their grievances to the regulatory bodies for redressal. Appoint an Ombudsman for redressal of investor grievances. Stock Exchange should remove inefficiencies and promote market access to be attractive to investors by improving both the trading and settlement process. Assure fair deal to investors. Probe into irregularities and manipulations in all transactions. The regulators should be able to take quick corrective action, nip the problem in the bud, punish the guilty and plug the loopholes in the system. Efforts should be made to revive the capital markets, both the primary and the secondary markets. Budget proposals should include tax incentives for investment in public issues Ensure stability and integrity of the market. Monitor excessive volatility in the market and take prompt action by imposing high margins. It acts as a 'brake' to excessive speed of volatility. It is necessary to tighten our systems and procedures besides ensuring the surveillance mechanism across the stock markets in

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line with the developed markets. Review the functions of the stock markets and stipulate policy issues on market operations. 11. More information and greater transparency in the disclosure of information is required to inspire greater investor confidence. 12. Wherever the regulator proposes to introduce a new system in the capital market it must allow sufficient transition time to ensure smooth sailing. Otherwise, investors are prone to loose money. 13. Investors need to investigate events of unrealistic boom in the share prices to control the damage of a scam that may happen. 14. Investors should try to attend company meetings to come to know about the policies of the company. 15. Diversification is a safe method of risk management. Diversify the portfolios, as it will help to reduce risks. 16. Investors should not run after hot tips. They should try to find out whether the price of a share is a real reflection of the earning capacity and future prospects of the issuer. He should understand that long run investing is safer. Investing requires caution; patience and hard work and the investor should never let greed judge his sentiment. 17. As a precaution against stress, practicing yoga would be advisable. Stock markets provide an attractive opportunity for making money. There is no other form of investment as on today which can offer a better rate of return than that offered by shares. The other side of the picture is that the companies may not line up to the expectations of the investors. Selecting only those shares in which he has a high level of confidence regarding their stability and prosperity, can minimize the risk. The Indian stock market has made rapid strides. Its role in the Indian financial system is getting transformed from being peripheral to becoming central. The stock markets' behaviour has a

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powerful influence on the course of economic activity. Everybody today accepts that economic growth requires rising levels of investment. India, with its vast investor base, strong capital market tradition and vibrant industry can optimally utilize the stock markets to raise resources cheaply and provide an impetus for economic growth. But this could be possible only when we learn to respect those investors who contribute to the stock markets' growth and help them to boost their confidence. In this era of scams, it is absolutely imperative that the investor embraces and manages properly the risks to make the extra buck, which bolsters his confidence. Scope For Future Research On the basis of the investigations made by the researcher, the following areas related to the study are identified for further research. a. A detailed study on the role of the Regulators in protecting the interests of investors. b. A study on profit maximization by investors. c. Impact of dematerialisation on investments. d. A study on share price movements. Conclusion Over the last decade, the Indian capital market has been growing by leaps and bounds. India has the largest number of listed companies in the world today. It also boasts of a large number of shareholders, about 32 million. Paradoxically, the problems associated with transactions, clearing and settlement were also on the rise. Simultaneously, they expose the investors to greater risks. Indian market thus required a new system that would eliminate all problems of investors and would give them healthy environment, and would strengthen their faith in the capital market, which was very low due to scams. Inordinate delay in investigation of these scams and escape of wrongdoers from law created doubts in the minds of investors. The position has substantially improved after the introduction of the depository system.

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Bibliography Taxman,Company Law & Practice, Majumdar A K. & Dr. Kapoor G. K.,Taxman Publication Pvt. Ltd., (2003) Ramaiya A., Guide to Company Law, 16th Edn., Wadhwa Publication. Singh Avtar, Company Law, 13th Edn., Eastern Book Company, Lucknow, 2001. www.sebi.gov.in www.legalservices.com

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