Inside of Mutual Fund Investments

A mutual fund is typically fashioned by an investment firm. The whole thing is publicized and the share holders are then encouraged to put their money in this mutual fund. And most investment funds come with a theme – this is a kind of standard practice. The cash invested in the business is then utilized by the investment firm for buying an assortment of financial investments. Such purchasing is usually carried out in a way that makes it relevant to the theme of the mutual fund.

The assets in a mutual fund's portfolio are managed by a professional Fund Manager(s) who decides which securities to buy and sell based on the fund's investment objective, mentioned in the fund's prospectus. The job of the manager is to keep an eye on how the fund is growing. The mutual fund manager conducts various types of research on the area of investment with help from other financial analysts. The info gathered via such research is used in future decision-making pertaining to the buying or selling of bonds or stocks so as to get the best returns on the investment.

Mutual Funds are right way to invest into because it provides affordability, liquidity, tax benefits, and professional management and most importantly it helps in maximizing returns by effectively utilizing hard earned money. It also allows investor to systematically invest in equities and debt markets through Systematic Investment Plan. Through this mode investor can take exposure with as little as Rs. Five hundred and by investing regularly for a longer period can benefit from cost averaging and can built a large corpus to meet future commitments.

Why prefer mutual fund route over stock market?

Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets, before it can collect funds from the public. It acts like a company that pools money from investors and invests the same in stocks, bonds, short-term money-market instruments, other securities or assets and some combination of these investments. It offers an opportunity to invest in a diversified, professionally managed basket of securities. These securities are often referred to as holdings and all of the fund's holdings make up the portfolio. When one invest in a mutual fund, the investor is actually buying shares in the fund, which means investors own a percentage of the fund's entire portfolio in ratio of its holding.

If any new investor is looking to invest for the future in equities will usually face two options - mutual funds or individual stocks. However understanding the differences between them is essential as both carry inherent advantages and risks. Any individual investing in common stock of a company has to bear the responsibility of managing his portfolio on his own and also bear the price risk. In this active form of investment an individual must have sound knowledge, experience and adequate time, lack of which may increase his risk exposure. However Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Fund managers in selecting securities and timing their purchases and sales help them to build a diversified portfolio that minimizes risk and maximizes returns.

Parameters for selecting right mutual fund scheme

Lastly, after understanding the basics of mutual fund and its various schemes, an individual as per his investment objective needs to know the various criteria to choose the fund, which can be:

• Performance analysis of the scheme for a considerable long period taking into account historical returns and portfolio.
• Analysis of the Fund House and the experience of the Fund Manger.
• Analysis of the fund corpus and how it has changed across the time period.
• Comparison of charges deducted by Asset Management Companies across the category where an investor wishes to make investment.
• The price at which one can exit (i.e. exit load) the scheme and its impact on overall return.
• Comparison of scheme with its benchmark and how has the scheme performed especially in a volatile environment.
• Last but not the least an investor can refer to certain investment ratios such as Sharpe, Sortino, Treynor, Alpha etc. to judge the risk-return analysis of the scheme.

Blaming Financial Innovation for Global Financial Crisis

FINANCIAL INNOVATION has a dreadful image these days. The 2007-09 financial crisis followed by Eurozone catastrophe and the lackluster performance of the global economy since, has led to ‘great criticism’ of innovation in financial domain. After all, dicey financial products and opaque mortgage-backed securities did play a dubious role in the run-up to the global crisis.

In recent decades, three particularly important sources of innovation have been financial deregulation, public policies toward credit markets, and broader technological change. At the outset, it is easy to tell why new financial products come about: they come about because people in the economy find them useful because they fulfill basic economic objectives of people in the economy.

But most of the innovations in the run-up to the crisis were not directed at enhancing the ability of the financial sector to perform its social functions. Some believe that with the complex structures of home loan securitization, financial innovation ran ahead of the capabilities of regulators. Hence – it is claimed – a better world economy requires control on innovation.

Subprime mortgage loans, credit default swaps, structured investment vehicles, and other more-recently developed financial products have become emblematic of financial crisis. Indeed, innovation, once held up as the solution, is now more often than not perceived as the problem.

Most of the critics have market-based innovation in their sights. There is an enormous amount of innovation going on in other areas, such as retail payment that has the potential to change the way people carry and spend money. But the debate focuses mainly on wholesale products and techniques, both because they are less obviously useful than retail innovations and because they were more heavily implicated in the financial crisis: think of those evil credit-defaults swaps (CDSs), collateralised-debt obligations (CDOs) and so on.

Angels or Demons
This debate revolves around a simple question: is financial innovation good or bad? But quantifying the benefits of innovation is almost impossible. And like most things, it depends. Are credit cards bad? Or mortgages? Is finance as a whole? It is true that some instruments—for example, highly leveraged ones—are inherently more dangerous than others. But even innovations that are directed to unimpeachably “good” ends often bear substantial resemblances to those that are now vilified.

It is in the nature of markets that there are some things which are indirectly socially useful but which in the short term will look to the external world like pure speculation.

Many people point to interest-rate swaps, which are used to bet on and hedge against future changes in interest rates, as an example of a huge, well-functioning and useful innovation of the modern financial era. But there are more contentious examples, too.

The credit-default swap is an even simpler risk-transfer instrument: you pay someone else an insurance premium to take on the risk that a borrower will default. These instruments offer insurance against a government default, makes many Europeans choke. There are some specific problems with these instruments, particularly when banks sell protection on their own governments: that means a bank will be hit by losses on its holdings of domestic government bonds at the same time as it has to pay out on its CDS contracts.

The much-criticized CDO, which pools and tranches income from various securities; is really just a capital structure in miniature. Risk-bearing equity tranches take the first hit when things go wrong, and more risk-averse investors are more protected from losses. The real problem with the CDOs that blew up was that they were stuffed full of subprime loans but treated by banks, ratings agencies and investors as though they were gold-plated.

As for securitization and credit-default swaps, it would be blinkered to argue they have no problems. Securitization risks giving banks an incentive to loosen their underwriting standards in the expectation that someone else will pick up the pieces. CDS protection may similarly blunt the incentives for lenders to be careful when they extend credit; and there is a specific problem with the way that the risk in these contracts can suddenly materialize in the event of a default.

But the basic ideas behind these blockbuster innovations are sound. Securitization—which worked well for decades—allows banks to free up capital, enabling them to extend more credit, and helps diversification of portfolios as banks shed concentrations of risks and investors buy exposures that suit them.
Rather than asking whether innovations are born bad, the more useful question is whether there is something that makes them likely to sour over time.

Greed is bad
There is an easy answer: people. When bubbles froth, greedy folk use innovations inappropriately—to take on exposures that they should not, to manufacture risk rather than transfer it, to add complexity in order to plump up margins rather than solve problems. But in those circumstances old-fashioned finance goes mad, too: for every securitization stuffed with subprime loans in America, there was a stinking property loan.

This argument has a lot of power. When greed takes hold, finance in all its forms is undone. Yet blaming the worst outcomes of financial innovation on human frailty is hardly helpful.
In simple terms, finance lacks an “off” button. First, the industry has a habit of experimenting ceaselessly as it seeks to build on existing techniques and products to create new ones. The economist Robert C. Merton has coined an evocative phrase “the spiral of innovation” to describe the dynamic tension of this process. Innovations in finance—unlike, say, a drug that has gone through a rigorous approval process before coming to market—are continually mutating. Second, there is a strong desire to standardize products so that markets can deepen, which often accelerates the rate of adoption beyond the capacity of the back office and the regulators to keep up.

As innovations become more and more successful, they start to become systemically significant. In finance, that is automatically worrying, because the consequences of any failure can ripple so widely and unpredictably. The earliest adopters of an innovation are the most knowledgeable; a widely adopted product is more likely to have lots of users with an inadequate grasp of the product’s risks. And that can be a big problem when things turn out to be less safe than expected.

The road ahead
How should policymakers ensure that consumers are protected without stifling innovation that improves product choice and expands access to sustainable credit? The first line of defense undoubtedly is a well-informed consumer. Consumers who know what questions to ask are considerably better able to find the financial products and services that are right for them.

Financial innovation has improved access to credit, reduced costs, and increased choice. We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services in the future.

Though the recent experience has shown some ways in which financial innovation can misfire, regulation should not prevent innovation; rather it should ensure that innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes. We should be wary of complexity whose principal effect is to make the product or service more difficult to understand by its intended audience. Other questions about proposed innovations should be raised: For instance, how will the innovative product or practice perform under stressed financial conditions? What effects will the innovation have on the ability and willingness of the lender to make loans that are well underwritten and serve the needs of the borrower? These questions about innovation are relevant for safety-and-soundness supervision as well as for consumer protection.

Innovation, at its best, has been and will continue to be a tool for making financial system more efficient and more inclusive. But, as we have seen only too clearly during the past five years, innovation that is inappropriately implemented can be positively harmful.

In sum, the challenge faced by regulators is to strike the right balance: to strive for the highest standards of consumer protection without eliminating the beneficial effects of responsible innovation on consumer choice and access to credit. Goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities at all income levels.

Turbulence & Substantiation of Rupee and the Way Out

Global Scenario
Some of the busiest corners of the multitrillion-dollar-a-day foreign-exchange market are quieter these days.
The currency market is experiencing its first slowdown since the 2008 financial crisis. Banks, fearing a global credit crunch brought on by Europe’s sovereign-debt struggles, are lending less, reducing the flow of currency across borders. As currency funds suffered a miserable year, investors decamped to other markets or for the safety of cash.

After surging 55% from April 2009 to April 2011, foreign-exchange volumes flattened out. The main driver behind plateauing volumes was an 8% drop in foreign-exchange swaps, in which banks and other companies lend one currency to borrow another. Trading volume averaged $3.47 trillion a day in October 2011, roughly the same as April 2011,

Trading across many assets, such as stocks and commodities in addition to currencies; evaporated amid concerns that Greece’s debt woes would spread to other countries in Europe.

Some Positive Cues
Though it hasn’t been all downhill, there’s plenty to catch some breath. Some emerging-market currencies, like the Mexican peso and Russian ruble, saw higher trading volumes. The Dow Jones Industrial Average managed to briefly edge above 13,000 for the first time in nearly four years. Greece has secured a series of bailout packages that will sidestep a chaotic default, while the European Central Bank has bolstered Europe’s financial system by providing banks with cheap, unlimited loans. The U.S. economy is picking up steam and fears of a “hard landing” in China have disappeared.

Investors may not believe the world economy is in a better place, but they’ve stopped worrying about it. Currency options-trading suggests money managers have turned unusually calm about future swings in global currency rates despite the economic problems afflicting the U.S., Europe and China–not to mention the threat of an oil-price shock. Analysts say volatility fears are low mostly because central banks in the U.S., Europe, Japan and China are again taking big steps to shore up the global markets.

In Indian context, something happened as we turned the calendar from 2011 to 2012. The fears of imminent collapse two months before Christmas have certainly waned. In Europe the LTRO (long term refinancing operations) performed better even than the ECB (European Central Bank) hoped. Then there is the fiscal compact. There is still concerns about short term funding and still concern about whether the banks will be able to raise the capital. There’s less of a concern about an event shock, but still concern about process shocks as we go along and Greece and other countries have to roll over their debt. That’s certainly had a positive impact on investor sentiment here in India, although Indian exposure to Europe is not dominant. To the extent that Europe seems to be less unstable today, it does help domestic investor sentiment here too and we’ve seen that on all the market indices.

All emerging economy currencies have depreciated in the pre-Christmas months, but Indian rupee depreciated more than other currencies and it was the worst performing currency in the world or whatever. What explains that is that India is a current account deficit economy. Those emerging economies that had a surplus or a small deficit were less hit than countries that have a sizeable deficit like India, and that deficit was growing. So the rupee depreciation was a result of external flows practically thinning out and driven by the dynamics of the current account deficit.

The Ideal Way Out
Eventually India needs to make the balance of payments more robust to inspire confidence. There is need to diversify the export destinations and product mix. As far as imports are concerned, dependence on oil imports should be reduced and one way to do that is to deregulate petroleum product prices in true sense.

Oil prices are a big factor and largely beyond one’s control and are very complex economic and geopolitical factors that drive oil prices. Just looking at the world economic situation, the U.S. growth situation is quite modest and Europe is probably in a recession and Japan is growing but… And then there are the political factors, which is Iran. If Iran is outside the world pool there could be price pressures. If Saudi Arabia because of fiscal concerns, its commitment to extend fiscal supports to other Arab countries, to meet that commitment they might want to keep oil prices at a certain level. There are economic factors, there are political factors and there are market factors, all of them that determine oil prices which are largely out of control. India imports as much as 80% of oil it needs and more than a third of total imports, so oil prices are a big factor for inflation management, for the fiscal deficit and for macroeconomic stability for the country.

Gold imports of course have added to the misery arising from BoP crisis. We need to provide other safe havens and need to attract more stable flows, FDI for example. And finally we must encourage, if not pressurize our corporates to hedge their foreign exchange exposures. They don’t do that adequately. They do cost benefit calculations, if the rupee is not moving rapidly, they calculate the cost of hedging is higher than the risk they take by not taking. But as happened in the pre-Christmas months, it can certainly overshoot, so corporates should hedge more.

Monetary Policy and Stock Markets

Monetary Policy is the actions of a central bank that determine the size and rate of growth of the money supply, which in turn affects interest rates. It is one of the ways that the government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow.

When is the Monetary Policy announced?

The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy. The Governor of the Reserve Bank announces the Monetary Policy in April every year for the financial year that ends in the following March. This is followed by three quarterly reviews in July, October and January. However, depending on the evolving situation, the Reserve Bank may announce monetary measures at any point of time.

A policy is referred to as contractionary if it reduces the size of the money supply or increases it only slowly, or if it raises the interest rate. An expansionary policy increases the size of the money supply more rapidly, or decreases the interest rate. Furthermore, monetary policies are described as follows: accommodative, if the interest rate set by the central monetary authority is intended to create economic growth; neutral, if it is intended neither to create growth nor combat inflation; or tight if intended to reduce inflation.

Inflation refers to a persistent rise in prices. Simply put, it is a situation of too much money and too few goods. Thus, due to scarcity of goods and the presence of many buyers, the prices are pushed up.

Inflation rate is the measure of the rate of change of price and not the absolute change in price. Which means till inflation rate comes down to zero prices will continue to rise. It is inflation rate goes negative will prices fall. The comment about inflation rate going down only implies that the prices of food will not increase as fast as it was in the last few months, which does not imply that the prices are not increasing.

A tool to control inflation, which directly affects interest rates

Monetary policy is aimed at controlling the level of inflation & interest rates in the economy. To do that, the Reserve Bank tries to lower the money supply when prices are rising. How does it do that? By lowering the amount of money available with banks. Raising reserve requirements, i.e., the amount of money which banks must keep impounded with the RBI is one way. Another method is to sell bonds to the banks. When banks buy bonds from the RBI, money flows out from banks to the RBI, lowering the amount of money available for lending.

In times of inflation, RBI sells securities to mop up the excess money in the market. Similarly, to increase the supply of money, RBI purchases securities.

So by changing the money supply, the Reserve Bank can determine the level of interest rates. Higher levels of interest rates impact corporate bottom lines and discourage companies from investing. That slows down growth.

The fact is that RBI monetary policy has an effect on all investors. Let's take a look how.

The stock markets and money move similarly, in some ways. Why?

Most people attribute the link between the amount of money in the economy and movements in stock markets to the amount of liquidity in the system. This is not entirely true.

The factor connecting money and stocks is interest rates. People save to get returns on their savings. In true market conditions, this made bank deposits or bonds (whose returns are linked to interest rates) and stocks (whose returns are linked to capital gains), competitors for people's savings.

The markets, however, move to the RBI's tune because of the link between interest rates and capital market yields. The RBI's policies have maximum impact on volatile foreign exchange and stock markets. A hike in interest rates would tend to suck money out of shares into bonds or deposits; a fall would have the opposite effect.

Impact on stock market

In the West, where both the bond as well as the equity markets are mature, an increase in interest rates leads to more money flowing into bonds. Other things remaining the same that means less money for the equity markets. In India, the bond markets are not very much developed, and only the banks and primary dealers are active in that market. Since banks do not invest in equities, except marginally, there is no flow of funds from the bond to the equity markets. So the impact of monetary policy on the equity markets here is indirect, rather than through the direct route.

However, the RBI does have a more direct way of influencing the stock market. That is by varying the percentage of funds which banks are allowed to invest in the stock market. At present, the aggregate exposure of a consolidated bank to capital markets (both fund based and non-fund based) should not exceed 40 per cent of its consolidated net worth as on March 31 of the previous year.

Before Investing in Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered one of the best available investments being very cost efficient and also easy to invest in as compare to others. Thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

Mutual funds are set up to buy many stocks as they automatically diversify in a predetermined category of investments, i.e. growth companies, emerging or mid size companies, low-grade corporate bonds, etc. The most basic level of diversification is to buy multiple stocks rather than just one stock.

Regulatory Authorities

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.

The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.

Types of returns

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
• If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Advantages of Investing Mutual Funds:

• Professional Management: The basic advantage of funds is that, they are professionally managed by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
• Diversification: By purchasing units in a mutual fund instead of buying individual stocks or bonds, investors’ risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
• Economies of Scale: Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
• Liquidity: Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
• Simplicity: Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMCs have automatic purchase plans popularly known as SIP where investor can reap the benefit of mutual fund by investing as little as Rs. 50 per month basis.

Disadvantages of Investing Mutual Funds:

• Costs: The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
• Dilution: Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
• Taxes: When making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Workshop on Capital Markets by Intelivisto in Ghaziabad, NCR

Intelivisto has launched iMAP (Intelivisto Mentoring And Accelerate Program) to bring the youngest work force of the world (students in India) and industry experts at one forum so that both can play their significant role in the mission of re-emerging India by synchronizing and synergizing their efforts and required skill-sets for financial markets in particular.

Workshop on capital markets was the first in the series of interactive programs under the iMAP program and conducted on Jan. 14th-15th, 2012 at Kaushambi, Ghaziabad based state-of-the-art auditorium of Adroit Financial Services Pvt. Ltd. Final year students of MBA-Finance from various management institutes across NCR and professionals from Adroit Financial Services Pvt. Ltd. attended the workshop and interacted with each other.

Students, those have been selected for this iMAP program, comes from institutes like Bangalore School of Business, Delhi, Delhi Business School, Netaji Subhash Institute of Management Sciences, Birla Institute of Management & Technology, Greater NOIDA & Rukmini Devi Institute of Advanced Studies etc. Some aspiring CA students and traders from Master Trust Ltd. also participated in the program.

Development of Derivative Markets in India

Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the world’s largest futures industry. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created.

In the equity markets, a system of trading called “badla” involving some elements of forwards trading had been in existence for decades. However, the system led to a number of undesirable practices and it was prohibited off and on till the Securities and Exchange Board of India (SEBI) banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved the way for the development of exchange-traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination. In 1995, a prohibition on trading options was lifted. In 1996, the NSE sent a proposal to SEBI for listing exchange-traded derivatives. The report of the L. C. Gupta Committee, set up by SEBI, recommended a phased introduction of derivative products, and bi-level regulation (i.e., self-regulation by exchanges with SEBI providing a supervisory and advisory role). Another report, by the J. R. Varma Committee in 1998, worked out various operational details such as the margining systems. In 1999, the Securities Contracts (Regulation) Act of 1956, or SC(R)A, was amended so that derivatives could be declared “securities.” This allowed the regulatory framework for trading securities to be extended to derivatives. The Act considers derivatives to be legal and valid, but only if they are traded on exchanges. Finally, a 30-year ban on forward trading was also lifted in 1999.

The economic liberalization of the early nineties facilitated the introduction of derivatives based on interest rates and foreign exchange. A system of market-determined exchange rates was adopted by India in March 1993. In August 1994, the rupee was made fully convertible on current account. These reforms allowed increased integration between domestic and international markets, and created a need to manage currency risk. The easing of various restrictions on the free movement of interest rates resulted in the need to manage interest rate risk.

Derivatives Instruments Traded in India

In the exchange-traded market, the biggest success story has been derivatives on equity products. Index futures were introduced in June 2000, followed by index options in June 2001, and options and futures on individual securities in July 2001 and November 2001, respectively.

Derivatives on stock indexes and individual stocks have grown rapidly since inception. In particular, single stock futures have become equally popular to the index futures. In fact, NSE has the highest volume (i.e. number of contracts traded) in the single stock futures globally, enabling it to highest rank holder among world exchanges at point of time. While single stock options were less popular than stock futures, they have witnessed a high growth rate since starting of 2011 after they were changed to European style. On the other hand, index options are hugely popular than index futures. Now a days, index options turnover share the 2/3rd of the total F&O turnover. NSE launched interest rate futures in 2009 on 10 Year Notional Coupon-bearing Govt. of India Security & the recently introduced (2011) 91-day Govt. of India T-Bill; but in contrast to equity derivatives, there has been little trading in them. This particular segment is still in its nascent stage.

Regulators permitted the exchanges to launch currency derivatives contracts to start with USDINR currency pair in 2nd half of 2008. Later on three more currency pairs EURINR, GBPINR & JPYINR is allowed in Feb. 2010. Currency options contracts were launched on Oct. 29th 2010 on USDINR only & so far now this is the only option contract available in the segment. Since its launch forex derivatives have seen continuous activity & rising trading volumes than interest rate derivatives and any other segments.

Exchange-traded commodity derivatives have been allowed for trading only since April 2003. The number of commodities eligible for futures trading is 109 by 2011 on 21 recognized exchanges. Of all the commodities, bullion contracts shares 40.75%, most of the total turnover. Among all exchanges, MCX enjoys the biggest share of turnover of more than 82% of the total traded value.