Tracing at deferent times with an expectation of
Tracing the origin of finance, there is substantiation to demonstrate that it is as old as humanlife on earth. Originally a French word, it was adopted by English Speaking communities tomean” the management of money” which is in the modern era organised as a branch ofeconomics. According to academicians, “finance is the procurement and effective utilisationof funds. It also deals with profits that adequately compensate for the cost and risk borne bythe businesses”. Finance, the science of money management and the actual process ofacquiring the adequate quantum of required funds encompasses the oversight creation andstudy of money, banking credit, investments, assets and liabilities that makeup financialsystems. Basic conceptuality of finance comes from one of the fundamental theories i.e. timevalue of money, which essentially states that a rupee today is worth more than a rupee in thefuture. Since individuals, businesses and government entities need funding to operate, thefield is often separated into three main sub-categories: personal finance, corporate financeand public (government) finance.Creating physical assets with the money, carrying onoperating business activities and acquiring financial securities are all commitments ofmonetary resources at deferent times with an expectation of economic returns in thefuture.The best optimal mix of funds in order to obtain the desired and determined resultsrespectively out of the owned funds and borrowed funds shall not result in loss of profitstothe entrepreneurs thereby recovering the cost of business entities effectively and efficiently.Internal controls/checks maintained in the work place are set off rules and regulations framedat the inception stage of the organisation and is altered depending upon businessesrequirement with better futuristic decisions involving quantitative analysis of the organisationserves as an indicator of sectorial growth and desired returns.The fund raising processinvolves a number of stages, during the course of which a company appoints pivot financialadvisors to deliver the objectives and goals of the company with having an access to anetwork of contacts including financial institutions, private equity investors, venturecapitalists and debt financing investors.LITERATURE REVIEWInvestments are made with an avowed of maximizing the wealth. Investors need to makerational decisions for maximizing their returns based on the information available by takingjudgments free from emotions (Brabazon.T, 2000). Investment decisions are also affected byinvestor's psychology. Investors make investment decisions before outcomes are certain.Psychologists have found that as decisions become more difficult and involve higher levels ofuncertainty the decisions tend to be more greatly influenced by emotions and feelings(Cianci, 2008).Investors often want to hold a stock until it goes back up to the price paid forit no matter how long it takes. Such a decision is based not much on the opinion that the stockis a greater investment opportunity for them but more on the desire to avoid that awful feelingassociated with admitting mistake successful investors are able to understand and overcomethese adverse psychological influences (Iyer B and Baskar RK, 2002).Investors in variousplaces acknowledge the role of emotions in investment decision making and their empiricalresults suggested that the demographic factors influence the investor's investment decisions(Shanmugasundaram V and Balakrishnan V, 2010).RESEARCH METHODOLOGYThe research paper is an attempt of exploratory research based on the secondary data sourcedfrom journals, internet, articles, literatures, newspapers, previous research papers. Keeping inview the requirements of the objectives of the study, the research design employed for thestudy is of descriptive nature. Focusing on the determined objectives strictly, the researchdesign was adopted to have greater precision and in-depth analysis of the research study.Available secondary data was extensively used for the study. The investigator procures therequired data through secondary survey.OBJECTIVES OF THE STUDY? The contribution of Indian capital market towards the provision of medium and long-term finance to the deficient units.? To trace the retail investor's participation in the equity capital market over the pastfew years.? Tostudy the socio-economic profile of the retail investors, investors buying behaviourand practices.? Toassess the fundamental and technical factor for understanding the recentperformance of the Indian capital market.? The hurdles commonly faced by small retail investors in the Indian capital marketprior to arriving at an investment decision.? To recommend for the enhanced participation of the retail investors towards thecontribution in strengthening the financial deepening process in India.? Tohighlight the steps taken by the government to strengthen the retail investor'scapital base.FINANCIAL MARKETThe financial market is a broader term describing the mechanism, where trading of securitiesincluding the equities, bonds, currencies and derivatives occur. Some large financial marketsincluding the New York stock exchange, NASDAQ, Tokyo stock exchange, London stockexchange and the forex markets trade trillions of dollars of securities on an intra-day basis.Financial market prices may not indicate the true intrinsic value of a stock due to macro-economic forces. The prices of securities are heavily reliant on informational transparency bythe issuing company to ensure efficient and appropriate prices are set by the market. Afinancial market consists of two major segments: a) Money market and b)Capital Market.MONEY MARKETMoney market is a market for short term funds, which deals in financial assets whose periodof maturity is up to one year. The Indian money market consists of RBI (the leader of themoney market), commercial banks, co-operative banks and other specialised financialinstitutions like (NBFCs) Non-Banking Financial corporations, LICs, UDIs etc.,Operating inthe Indian money market.Money Market Instruments: Call Money, Treasury Bill, Commercial Paper, Certificate OfDeposit, Repurchase agreement.CAPITAL MARKETCapital market is an institutional arrangement for borrowing medium and long-term fundswhich provides facilities for marketing and trading of securities. It constitutes all long-termborrowings from banks and financial institutions, borrowings from foreign markets andraising of capital by issuing various securities such as stocks, debentures, bonds etc. Itconsists of two different segments namely primary and secondary market. The primarymarket deals with fresh securities and therefore, also known as new issue market; whereas thesecondary market provides a place for purchase and sale of existing securities and is oftentermed as stock market or stock exchange.PRIMARY MARKETThe arrangement which facilitates the procurement of long-term funds by companies viamaking fresh issue of shares and debentures is usually done through private placement tofriends, relatives and financial institutions or by making public issue. The well-establishedlegal procedure involving a number of intermediaries such as underwriters, brokers, etc.which form an integral part of the primary market, for e.g. Public sector undertakings such asONGC, GAIL, NTPC and the private sector companies like TCS, jet-airways and so on.SECONDARY MARKETThe secondary market also known as stock market or stock exchange plays an equallyimportant role in mobilising long-term funds by providing the necessary liquidity to holdingsin shares and debentures. It provides a place where these securities can be en-cashed withoutany difficulty and delay. It is an organised market where shares and debentures are tradedregularly with high degree of transparency and security. In fact, an active secondary marketfacilitates the growth of primary market as the investors in the primary market are assured ofa continuous market for liquidity of their holdings. The players in the secondary marketincluding stockbrokersare the members of the stock exchange who facilitate the trading.DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKETThe main points of distinction between the primary and secondary market are as follows;? FUNCTIONS: While the main function of primary market is to raise long-term fundsthrough new issue of securities, the main function of secondary market is to providecontinuous and ready market for the existing long-term securities.? PARTICIPANTS: While the major players in the primary market are financialinstitutions, mutual funds, underwriters and individual investors, the major players insecondary market are all of these and the stockbrokers who are the members of thestock exchange.? LISTING REQUIREMENTS: The securities can be dealt with in the secondarymarket, which have been approved for the purpose (listed), there is no suchrequirement in case of primary market.? DETERMINATION OF PRICE: In case of primary market, the prices aredetermined by the management with due compliance with SEBI requirement for newissue of securities and hence, determined by forces of demand and supply of themarket and keeps on fluctuating.CAPITAL MARKETS VS DEPOSITORY INSTITUTIONSSaving is funnelled from surplus units to the deficit units primarily via the capital markets orthrough depository intermediaries. In the first case, intermediation occurs through theexchange of securities. The saver invests the proceeds in a financial market instrument issuedby the entity that wishes to obtain the funds. The capital markets intermediation occurs viawide array of instruments including common and preferred equities, convertible bonds,corporate bonds, mortgage-backed securities, and other asset-backed securities.In the secondcase in which depository intermediaries play a role, intermediation differs in three importantrespects. First, the investor does not have a claim on the ultimate beneficiary of thefunds.Second, the price of this claim does not typically fluctuate in response to the shifts insupply and demand. Third, the investor can not normally sell this claim to a third party.Instead, to end the contractual arrangement early, the investor might suffer a penalty such as90 days of foregone interest in the case of early withdrawal of a bank certificate of deposit.Regular bank lending is not usually classed as capital market transaction even when loans areextended for a period longer than a year. An important difference is that with a regular bankloan the lending is not securitized.Another difference is that lending from banks and similarinstitutions is more heavily regulated than capital market lending. Furthermore, bankdepositors and shareholders tend to be more risk averse than capital market investors. Allsuch differences act to limit institutional lending as a source of finance. The Differencefavouring lending by banks is that the banks are more accessible for small and mediumcompanies and that they have the ability to create money as they lend.ROLE OF RETAIL INVESTORS IN THE CAPITAL MARKETRetail investors play a prominent role in the capital market along with the foreigninstitutional investors and domestic financial institutions. The retail investors assume greatersignificance because the household savings account nearly 30% of GDP and it is the primesource of funding. But, it is deplorable that the household investors park their savings only2% to 3% in capital market, perhaps because they have burnt their fingers in the marketscams, manipulations and also on account of the higher volatility. In accordance withSEBI(disclosure of investor protection) guidelines, retail individual investor is defined as theone who applies or bids for securities of or for a value. However, SEBI has since increasedthe limit for retail investors. No study about the securities market will be complete withoutthe mentioning of investors and stakeholders particularly the retail investors. It becomes theduty of the market regulator and other intermediaries to protect the interests of the investors.Retail investors are advised to trade with an abundant caution and with limited amount ofcapital to undertake the risk. As retail investors look for long-term investment in converse tothe FIIs, FFIs, QIBs and HINs play for short-term games, the government and its variousagencies must look after the interests of the retail investors for building up the strongeconomy. Higher the investor’s confidence more is the chances of putting their savings inproductive channels. There is growing concern about the safety and integrity of capitalmarket at the international level so as to make the stock market safer, transparent and devoidof frauds and scams. Today, Indian securities market is one of the most robust and vibrantsecurities market in the world with latest technology, shortest settlement cycle, paperlesstransactions and screen based trading system, better corporate governance and fasterdissemination of information. However, the retail investors have preferred to invest their hardearned money in other safer modes of investment like bank deposits, insurance products,mutual funds, gold, real estate etc. Although, price manipulations, increased volatility,repeated scams, ineffective corporate governance norms etc. have been the main reasons forkeeping the retail investors away from the securities market. Safety of the invested money,liquidity of the instruments invested and return on the investmentare the pivotal objectiveswhile investing. Vibrant securities market ensures that the interests of the investors are takencare of so as to maintain safety of their investments and ability to derive handsome returns. Astrike is needed to balance between raisers of capital and the interests of investors. Unless anduntil, we are able to protect the interests of retail investors the corporate houses would find itvery difficult to raise finance over a very long period of time.THE CURRENT STATE OF DEVELOPMENT OF LOCAL CAPITAL MARKETSCapital markets have expanded in many countries in recent decades, especially in emergingmarkets. For example, total debt securities outstanding grew from 47% of GDP in 1994 to72% of GDP in 2010 globally but this was outpaced by a fourfold increase from 13% to GDPin 1994 to 54% of GDP in 2010 in upper middle income countries. Similarly, thecapitalisation of stock markets (relative to GDP) saw an increase of about 50% globally but amore than twofold increase in upper middle income countries over this period.CHALLENGES IN THE DEVELOPMENT OF CAPITAL MARKETSThe proper functioning of capital markets requires the several preconditions classificationinto 3 groups: sound macro-economic policy, strong institutional and legal setting and a well-functioning financial infrastructure. Without this precondition, the government efforts todevelop local capital markets are bound to fail, resulting in shallow markets and dupedinvestors and therefore generally advisable to sequence financial reforms such that theseconditions are sufficiently in place before local capital markets are established.BENEFITS TO THE RETAIL INVESTORS FROM THE CAPITAL MARKETSWisely taken investment decisions putting into consideration the viability of the company,critical analysis of its fundamentals, past financial performance, management structure,business environment, market competitiveness and other macro environment factors turns outto be desirable and fruitful.? CAPITAL APPRECIATION: It entails the difference between the purchasing andselling price of a share of a company. For instance, the buying price is Rs.100 pershare and the selling price for the same is Rs.150 per share, then Rs.50 per share turnsout to be the capital appreciation.? DIVIDEND PAYMENT:Shareholders are entitled to dividends, if declared. A sumof money agreed upon by the directors of a company to be paid on proportional basisfrom the company’s profit in a given financial year.? BONUS ISSUE: Shareholders/investors are also entitled to bonus issue, if declared.Hence, entailing a shareholder to acquire additional shares from the company wherehe invested in, without necessarily paying for these shares.? PARTICIPATE IN THE RIGHTS ISSUE: Investors are opportune to participate inRights issue of the company, although rights issues are paid by the investors but theprice is usually lower than the prevailing market price.? PARTICIPATE IN DECISION MAKING: Right to attend annual general meetingof the company thereby participating in its decision making and exercising votingrights.? COLLATRERAL FOR OBTAINING LOAN FROM THE BANK:It will interestinvestors that they can use their share certificates as collateral to obtain bank loans forindividual use or business development.? PREPARATION TOWARDS PERSONAL PENSION PLAN:Buying of stockscould be used as individual preparation towards personal pension plan, thereforehaving an opportunity to considerably invest in the stock market during earlier age.CHALLENGES FACED BY THE RETAIL INVESTORS? SMALL INVESTORS: An institutional investor is someone who trades stocks for aliving at a bank or other financial institution. While the small investor is someonewith less capital invested in the stock market trades for himself, not for a company.Although, small investors generally invest in stocks, mutual funds and index funds,investment choices available like options, futures, forwards and swaps are usually toocomplicated and expensive for small investors.? COSTS:A company can negotiate a lower buying price than a family store;largeinvestors are able to negotiate lower investment fees than smaller investors.Brokerage firms typically charge a higher percentage for management fees on smallaccounts than on larger accounts. This means as a small investor a higher return forthe year to break even is the requirement. Funds that don't trade often, especiallyindex funds, have very low annual fees.? DIVERSIFICATION:The investment strategy of diversified portfolio acrossdifferent companies and industries is less likely to lose money at the same time. As asmall investor, it's harder to build own diversified portfolio due to limitation ofavailable resource to spread across various industries.? INFORMATION; One other disadvantage from the small investor's point of view isthe information asymmetry. Professional investors have research staffs that areconstantly providing them with up to date information. As a small investor, it can feelone step behind our competitors. However, the internet has made a big dent in thisdisadvantage. While professionals still have an information advantage, they don'thave nearly the same head start as they did before the internet.FINDINGSAnalysis states a strong negative correlation between the number of listed fixed incomeproducts available to retail investors and depth of retail trading activity. There has been ahigher degree of substitutability between listed fixed income and equity products. In fixed orpartly negotiable fee model environments, reductions in brokerage fees are stronglypositively correlated with increase in trading activity. Reduced trading fees in a market with anon-negotiable fee model has a positive influence levels of trading activity increase in cost-to-trade are associated with declines in depth of retail activity as there is a significantnegative relationship between increase in clearing fee and levels of trading activity. Movingfrom a fixed to a negotiable or even partly negotiable fee model, has the effect of reducingcost-to- trade.SUGGESTIONSThe outcome of this research leads to the suggestion that the regulators must include the roleof behavioural dimensions in its awareness campaigns due to the criticality of these factors ininvestment decisions. It is recommended that the investment analyst must incorporatebehavioural factors in their analytical model qualitatively. The media must create awarenessabout the behavioural dimensions that are equally important like technical factors. Thisresearch also recommends appropriate measures to address the genuine apprehensions of theretail investors. There is need to increase the retail investor participation and this could bedone by increasing the financial literacy and awareness, expanding the number of issues,providing diverse investment options, training and increasing the reach of intermediaries,enhancing investor protection measures, simplified norms and cost-effective services.CONCLUSIONIn addition to the usual suggestion about improving market micro-structure to bring in bestpractices from international markets,a few concrete steps that can be taken specifically tofacilitate debt investments by small investors in India. The small investor's attitude towardsdebt instruments needs change, and that this will be impossible without a radical overhaul ofthe small savings schemes in India. There seems to be widespread misconception aboutpooled investment vehicles that needs to be removed as investments such as mutual funds canreally fulfil the entire range of risk appetite for small investors while increasing the depth andwidth of primary and secondary debt capital markets. Finally some suggestions regardingmarket innovations in terms of a derivative product (Counter Party Risk Protection Security)that may help allay small investors concerns while transacting in corporate securities and helpfuel growth in these markets.