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org © 2024 IJCRT | Volume 12, Issue 1 January 2024 | ISSN: 2320-2882

A Study On Investor’s Perception Towards


Futures And Options With Respect To Retail
Investors In Bengaluru City.
Mr. Harish. R
Assistant Professor, Department of Management
GIBS B School, Managed by Sri Krishna International Educational Trust, ITI Layout, Bangalore
560085.

Abstract: In Bengaluru, investment avenues are perceived to be risk by the investors. Even though the
people having less knowledge about the Derivatives market segment, but they tend to take decisions with
the help of available sources like TV, Newspapers, Friends and family etc. Basically this study was
undertaken to find out the level of satisfaction and awareness of various Derivatives market instruments &
find out the risk preferences of various investment avenues. This study was focused on Investors'
preferences towards various investment options, Age group wise investment pattern of the investors, and
income wise association of the investment with equity & derivatives market, Methods of analysis adopted
by investors for investment in derivatives. About 50 samples were collected from Bengaluru city.

Keywords: Investment decisions, Investors perception, Derivatives, Future and options.

INTRODUCTION
MEANING OF INVESTMENT:
An investment is an asset or item accrued with the goal of generating income or recognition. In a economic
outlook, an investments is the purchase of goods that are not consumed today but are used in the future to
generate wealth. In finance, an investment is a financial asset bought with the idea that the asset will provide
income further or will later be sold at a high cost price for a profit.
It refers to the expenditure incurred by producers on the purchased of capital goods such as plant &
machinery etc.

TYPES OF INVESTMENT:
There are various types of investments as tools that can help achieve your financial goals.
 Bank products
 Options
 Retirement
 Saving for education
 Insurance
 Stocks
 Bonds
 Investment funds

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www.ijcrt.org © 2024 IJCRT | Volume 12, Issue 1 January 2024 | ISSN: 2320-2882

Types of investment in stock market


Share: Offers are viewed as a development speculation as they can help develop the estimation of your
unique venture over the medium to long haul.
On the off chance that you own offers, you may likewise get pay from profits, which are adequately a bit of
an organization's benefit paid out to its investors.
Obviously, the estimation of offers may likewise fall underneath the value you pay for them. Costs can be
unpredictable from every day and shares are commonly most appropriate to long haul financial specialists,
who are open to withstanding these good and bad times.
Otherwise called values, shares have verifiably conveyed more significant yields than different resources;
shares are viewed as perhaps the least secure sort of venture.

Property: Property is likewise considered as a development venture on the grounds that the cost of houses
and different properties can rise generously over a medium to long haul period.
It as it may, much the same as offers, property can likewise fall in worth and conveys the danger of
misfortunes.
It is conceivable to contribute straightforwardly by purchasing a property yet in addition by implication,
through a property venture store.
Defensive investment: These are more focused on consistently generating income, rather than growth, and
are considered lower risk than growth investments.
Cash: Money speculations incorporate ordinary ledgers, high premium investment accounts and term stores.

MEANING OF DERIVATIVES
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying
financial asset or set of assets. Common underlying instruments include bonds, commodities, currencies,
interest rates, market indexes, and stocks.
A derivative is a contract between two parties which derives its value/price from an underlying asset.

FUTURES
Fates are trade coordinated agreements which decide the size, conveyance time and cost of a ware.
Prospects can without much of a stretch be exchanged on the grounds that they are normalized by a trade.
Per ware exchanged there are various angles indicated in a fates contract. Most importantly is the nature of
an item. For a ware to be exchanged on the trade, it must meet the set necessities. Second is the size of a
solitary agreement. The size decides the units of an item that is exchanged per contract. Thirdly is the
conveyance date, which decides on which date or in which month the product must be conveyed. On
account of the normalization of fates items can without much of a stretch be exchanged and give producers
admittance to a lot of crude materials. They can purchase their materials on the trade and don't have to stress
over the maker or take on agreements with different providers.
FORWARD
Advances and fates are fundamentally the same as they are contracts which offer admittance to a product at
a decided cost and time some place later on. A forward separate itself from a future that it is exchanged
between two gatherings straightforwardly without utilizing a trade. The nonappearance of the trade brings
about debatable terms on conveyance, size and cost of the agreement. In spite of fates, advances are
generally executed on development since they are generally used as protection against unfavorable value
development and real conveyance of the product happens. While fates are broadly utilized by examiners
who plan to pick up benefit by selling the agreements at a more exorbitant cost and prospects are hence shut
before development.
Alternatives are a type of subsidiaries, which gives holders the right, however not the commitment to
purchase or sell a hidden resource at a pre-decided value, some place later on. At the point when you take a
choice to purchase a resource it is known as a 'call' and when you acquire the option to sell a resource it is
known as a 'put'. To decide if it is productive to practice an alternative, the current market value (spot cost)
and the cost in the choice (strike value) should be thought about. By contrasting the two costs, a decision
can be made to either practice the choice or let it terminate. When practicing a choice there are three
situations on which the holder can get themselves. The first is in the cash (ITM), where the strike cost is
more positive than the spot cost and in this way it will be invaluable to practice the choice. The second is at
the cash (ATM) in which the strike and spot cost are equivalent thus no bit of leeway can be picked up. The
third is out the cash (OTM), where the strike cost is higher than the spot cost. For this situation it is smarter
to allow the alternative to lapse and purchase the product at the current market cost. There are two different
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www.ijcrt.org © 2024 IJCRT | Volume 12, Issue 1 January 2024 | ISSN: 2320-2882

ways of settling an alternative between two gatherings. The primary route is to genuinely convey the hidden
product. The other route is to money settle the choice. In this manner the distinction between the spot and
strike cost is paid to the holder of the alternative after practicing of the choice. An alternative has a couple
of preferences over different subordinates. The main favorable position is that an alternative isn't
authoritative, in the way is doesn't commit one to purchase a ware. It gives you the option to get it thus
when the cost of the alternative is higher than the current market value you can just allow the choice to lapse
and purchase at the spot cost.
SWAPS
A trade is an arrangement between two gatherings to trade incomes on a decided date or as a rule various
dates. Regularly, one gathering consents to pay a fixed rate while the other party pays a drifting rate. For
instance, when exchanging products the primary party, a carrier organization depending of lamp oil,
consents to follow through on a fixed cost for a pre-decided amount of this item. The other party, a bank,
consents to address the game cost for the item. Thus the carrier organization is guaranteed of a value it will
pay for its ware. An ascent in the cost of the product is for this situation paid by the bank. Should the value
fall the distinction will be paid to the bank.

Risk associated with derivatives


This is article will cover derivatives risk at a glance, going through the primary risks and associated with
derivatives: market risk, counterparty risk, liquidity risk, and interconnection risk.

Market risk: Market hazard alludes to the overall danger of any venture. Financial specialists settle on
choices and take positions dependent on presumptions, specialized examination, or different elements that
lead them to specific decisions about how a speculation is probably going to perform. While there isn't a
sure-fire approach to secure against market hazard, as all are powerless against changes on the lookout,
realizing how much a subsidiary is affected by market variances will assist speculators with picking
shrewdly. In actuality, a significant piece of speculation examination is deciding the likelihood of a venture
being productive and surveying the danger/reward proportion of expected misfortunes against possible
increases.
Counterparty Risk: Counterparty hazard, or counterparty credit hazard, emerges on the off chance that one
of the gatherings associated with a subsidiaries exchange, for example, the purchaser, vender or vendor,
defaults on the agreement. This danger is higher in over-the-counter, or OTC, markets, which are
considerably less managed than standard exchanging trades. A standard exchanging trade encourages
contract execution by requiring edge stores that are changed day by day through the imprint to-advertise
measure. The imprint to-showcase measure makes estimating subsidiaries bound to precisely reflect current
worth. Merchants can oversee counterparty hazard by just utilizing vendors they know and think about
dependable.
Liquidity Risk: Liquidity hazard applies to financial specialists who intend to finish off a subordinate
exchange before development. Generally, liquidity hazard alludes to the capacity of an organization to take
care of obligations without large misfortunes to its business. To gauge liquidity hazard, speculators analyze
transient liabilities and the organization's fluid resources. Firms that have low liquidity hazard can rapidly
transform their interests into money to forestall a misfortune. Liquidity hazard is additionally significant for
speculators keen on subsidiaries to consider.
Such speculators need to consider on the off chance that it is hard to finish off the exchange or if existing
offer ask spreads are so enormous as to speak to a critical expense.
Interconnection Risk: This risk refers to how the interconnections between various derivative instruments
and dealers might affect an investor's particular derivative market. Some analysts express concern over all
the possibility that problems with just one party in the derivatives market, such as a major bank that acts as a
dealer, might lead to a chain reaction or snowball effect that threatens the stability of financial markets.

FUNCTIONS OF DERIVATIVES:
Risk management: The costs of subordinates are identified with their basic resources, as referenced
previously. They would thus be able to be utilized to increment or decline the danger of claiming the
resource. For instance, you can lessen your danger by purchasing a spot thing and selling a fates agreement
or call alternative. This is the way it works. On the off chance that there is a fall in the spot value, the
relating fates and choices agreement will likewise fall. You can repurchase the agreement at a lower value,
which will bring about an increase. This can somewhat balance the misfortune on the spot thing. The
simplicity of hypothesis in the subsidiaries market makes it simpler for a financial specialist trying to secure
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a position or a foreseen position in the spot market.


Price discovery: Derivative market serves as an important source of information about prices. Prices of
derivative instruments such as futures and forwards can be used to determine what the market expects future
spot prices to be. In most cases, the information is accurate and reliable. Thus, the futures and forwards
markets are especially helpful in price discovery mechanism.

ADVANTAGES OF DERIVATIVES:
There are 4 main advantages of derivatives
1. Hedging risk exposure: Since the estimation of the subsidiaries is connected to the estimation of the
fundamental resource, the agreements are principally utilized for supporting dangers. For instance, a
speculator may buy a subordinate agreement whose worth moves the other way to the estimation of a
resource the financial specialist possesses. Thusly, benefits in the subsidiary agreement may balance
misfortunes in the hidden resource.
2. Underlying asset price determination: This Derivates are frequently used to determine the price of the
underlying asset. For example, the spot prices of the futures can serve as an approximation of a commodity
price.
3. Market efficiency: It is viewed as that subsidiaries increment the proficiency of monetary business
sectors. By utilizing subordinate agreements, one can imitate the result of the resources. Subsequently, the
costs of the fundamental resource and the related subordinate will in general be in harmony to keep away
from exchange openings.
4. Access to unavailable assets or markets: This derivates Subordinates can assist associations with
gaining admittance to in any case inaccessible resources or markets. By utilizing loan cost trades, an
organization may acquire a more positive financing cost comparative with loan fees accessible from direct
obtaining.

SCOPE OF DERIVATIVES
In India, all endeavors are being made to present subordinate instruments in the capital market. The National
Stock Exchange has been intending to present list-based fates. A hardened total assets standard of Rs.7 to 10
corers cover is proposed for individuals who wish to enlist for such exchanging. Yet, it has not yet gotten
the fundamental consent from the protections and Exchange Board of India.
In the forex market, there are more splendid odds of presenting subordinates for a huge scope. Infect, the
vital foundation for the presentation of subsidiaries in forex market was set up by an elevated level master
council designated by the RBI. It was going by Mr. O.P. Sodhani. Advisory group's report was at that point
submitted to the Government in 1995. For what it's worth, a couple of subordinate items, for example,
financing cost trades, coupon trades, cash trades and fixed rate arrangements are accessible on a restricted
scale. It is simpler to present subordinates in forex market on the grounds that a large portion of these items
are OTC items (Over-the-counter) and they are profoundly adaptable. These are consistently between two
gatherings and one among them is consistently a monetary delegate.
Notwithstanding, there should be appropriate enactments for the viable execution of subsidiary agreements.
The utility of subsidiaries through Hedging can be determined, just when, there is straightforwardness with
fair dealings. The major parts in the subsidiary market ought to have a sound monetary base for managing in
subordinate exchanges. What is more significant for the accomplishment of subordinates is the remedy of
appropriate capital ampleness standards, preparing of monetary go-betweens and the arrangement of settled
records. Agents should likewise be prepared in the complexities of the subsidiary exchanges.
Presently, subordinates have been presented in the Indian Market as list alternatives and file fates. File
alternatives and file fates are essentially derivate apparatuses dependent on stock file. They are actually the
danger the executives instruments. Since derivates are allowed legitimately, one can utilize them to protect
his value portfolio against the ideas of the market.

Why Derivatives are important?


The uses of derivative instruments are generally attributed to:
Risk Sharing: Derivatives are mainly used to hedge risk associated with the underlying asset to the willing
parties to take risk. The risk comes from several sources and is unavoidable. Derivatives are mainly
intended to reduce the risks through transferring, spreading, etc. to the third parties who are risk seekers.
The reducible risks include business risk, market risk, interest rate risk, inflation risk, currency
risk/exchange rate risk, political risk, credit risk, weather risk, legal and regulatory risks, operational risks,
valuation risks, etc. These risks can be reduced in different ways such as,
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 By selling the source of it


 By diversification
 By buying insurance against losses
Information gathering: Derivative markets affect the information structure of the financial system. The
economic benefit of the information is that the potential imbalances can be visualized more easily by the
higher implied volatilities.
Price discovery and Liquidity

Need for Research Design


This study includes general awareness of future and options, types of traders, mechanics of futures and
options market and hedging strategies involved in futures and options in Indian capital market.
 To understand the perception of respondent or investors towards futures and options.
 To know whether the respondents are happy with role played by SEBI in protecting them.
 To know whether the respondent are thoroughly educated about futures and options trading.
OBJECTIVES OF THE STUDY
 To analyze the investors investment decision on derivative market in India.
 To identify the problems faced by the investors in futures
 To study the awareness about derivative market.

SAMPLING DESIGN
 Sampling method: Here the researcher convenient method has been used in the research
 Sampling size: Out of 50 respondents get the information through questionnaire.
LIMITATIONS OF THE STUDY
 Due to lack of awareness about derivatives.
 The data collection using the questionnaire method was time consuming and cumbersome.
 The required data may not be available due to which it cannot be accurate.

DATA ANALYSIS AND INTERPRETATION


TABLE NO- 1 Table showing the Awareness of investment scheme in respondents.
Percentage
No. of
Particulars (%) of
respondents
respondents
YES 41 82
NO 09 18
TOTAL 50 100
ANALYSIS: From the above table it is inferred that out of 50 respondents, majority of 41 respondents
(82%) are aware of investment scheme and remaining 09 respondents (18%) are not aware of investment
scheme.

GRAPH NO. 1- Graph showing the awareness of the investment scheme in respondents.

INTERPRETATION: From the above graph it can be interpreted that the


Awareness of investment scheme
majority of respondents are (82%) people aware of the investment scheme
18% and leastly (18%) the respondents are not aware of the investment scheme.

82%

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TABLE NO: 2 Table showing the duration of investment by the respondents (Trading) in derivative
market.
Percentage %
No. of
Particulars of
respondents
respondents
< 1 year 19 38%
1-2 years 19 38%
> 2 years 12 24%
TOTAL 50 100%
ANALYSIS: From the above table we analyse that there are 19 respondents invested in derivative market
below 1 year, 19 respondents 1to2 years and 12 respondents are above 2 years.

GRAPH NO. 2 Graph showing the duration of investment by the respondents (Trading) in derivative
market.
40
30 INTERPRETATION: From the above graph it can be
No. of
20 respondents interpreted that the majority of respondents are people who
10 Percentage% invested (38%) below 1 year in derivative market, 38% on 1 to
2 years and 24% more than 2 years invested in derivative
0
< 1 year 1-2 years > 2 years
market.

TABLE NO: 3 Table showing the total percentage of investment in derivative market.
No of Percentage of
Particular
respondents respondents
<50% 19 38
51-75% 23 46
>75% 8 16
ANALYSIS: From the above table we analyse that there are 19 respondents who investment in derivative
market below 50%, 23 respondents are invested 51-75% and 8 respondents are invested above 75% in
derivative market.
GRAPH NO: 3 Graph showing the total percentage of investment in derivative market.
Total Percentage of investment in
derivative market

<50%
51-75%
>75%

INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are
people who invested 46% interest to 51-75% in derivative market, below 50% only 38% are invested and
above 75% only 16% are interest to investment in derivative market

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TABLE NO: 4 Table showing the purpose behind investment.


No of
Particulars Percentage%
respondents
Wealth creation 19 38%
Tax savings 15 30%
Earn return 14 28%
Others 2 4%
Total 50 100%
ANALYSIS: From the above table we analyse that there are 19 respondents are invested purpose of wealth
creation, 15 respondents are tax savings 14 respondents are earn return and 2 respondents are others.
GRAPH NO: 4 Graph showing the purpose behind investment.
wealth
2 creation
14 19 Tax savings

15 Earn return

INTERPRETATION: From the above graph it can be interpreted that the majority of investors are
invested in Wealth creation and leastly others.

TABLE NO: 5 Table showing the approximate amount invested in derivative market.
Particulars No. of respondents Percentage%
Less than 10000 15 30
10000-25000 14
28

25000-50000 19 38
50000& above 02 4
Total 50 100
ANALYSIS: The above table we analyse that there are 15 respondents are invested in derivative market
less than 10000, 14 respondents are invested in 10000-25000, 19 respondents are invested in 25000-50000
and 02 respondents are invested in 50000 and above.
GRAPH NO: 5 Graph showing the approximate amount invested in derivative market.

4%

30% Less than 10000

38% 10000-25000
25000-50000
50000and above
28%

INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are
invested 25000-50000 and leastly 50000and above.

TABLE NO: 6 Table showing the sources of investment.


Particular No. of respondents Percentage of respondents
Friends& family 11 22
Internet 19 38
Tv or news paper 13 26
Others 7 14

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Total 50 100
ANALYSIS: From the above table we analysis that there are 11 respondents get information to friends&
family, 19 respondents are internet, 13 respondents are tv or news paper and 7 respondents are others.
GRAPH NO: 6 Graph showing the sources of investment.
SOURCESS OF INVESTMENT
Friends&
family ,
Others, 7
11

Tv or
news
paper ,
13

Internet ,
19
INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are get
information in internet and leastly others.

TABLE NO: 7 Table showing the Investors savings scheme.


No. of
Particular Percentage %
respondents
Savings
8 16
account
Pension fund 16 32
Share bonds 17 34
Mutual fund 6 12
Others 3 6
Total 50 100%
ANALYSIS: From the above table we analysis that there are 8 respondents are savings from savings
account, 16 respondents are pension scheme, 17 respondents are share bonds, 6 respondents are mutual fund
and 2 respondents are others.
GRAPH NO: 7 Graph showing the Investors savings scheme.
Investors savings scheme

Savings account
6 3 8
Pension fund

17 16 Share bonds
Mutual fund
Others

INTERPRETATION: From the above graph it can be interpreted that the majority of investors are savings
in share bonds& pension fund and leastly Mutual fund& others.

TABLE NO: 8 Table showing the interest to trading in contract maturity period.
No of
Particular Percentage %
respondents
1 Month 9 18%
2 Months 8 16%
3 Months 13 26%
6 Months 11 22%
9 Months 7 14%
12 Months 2 4%

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Total 50 100%
ANALYSIS: From the above table we analyse that there are 9 respondents who interest to trading in 1
month, 8 respondents are interest to 2 months, 13 respondents are interest to 3 months 11 respondents are
interest to 6 months, 7 respondents are interest to 9 months and 2 respondents are interest to 12 months.
GRAPH NO: 8 Graph showing the interest to trading in contract maturity period.
No. of respondents Percentage

15 13
11
9 8
10 7

5 2
18% 16% 26% 22% 14% 4%
0
1 month 2 months 3 months 6 months 9 months 12
months

INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are
interest to trading in maturity period of 3 months and leastly 12 months.

TABLE NO: 9 Table showing the investor’s recommendation of insurance to others.


No of
Particulars Percentage %
respondents
YES 23 46
NO 9 18
MAY BE 18 36
TOTAL 50 100
ANALYSIS: from the above table we analyse that there are 23 respondents who say yes, 9 respondents say
no and 18 respondents say may be.

GRAPH NO: 9 Graph showing the investor’s recommendation of insurance to others.

YES
NO
MAY BE

INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are
recommendation insurance to others and leastly some investors not recommended to others.

GRAPH NO: 10 TABLE SHOWING THE RESPONDENTS OPINION ABOUT THE TYPE OF
PARTICIPATION IN THE FUTURES MARKET.
NUMBER OF PERCENTAGE OF
PARTICULAR
RESPONDENTS RESPONDENTS
HEDGER 15 30%
SPECULATOR 16 32%
ARBITRAGER 13 26%
OTHERS 06 12%
TOTAL 50 100%
ANALYSIS: Above table shows that among the 50(100%) respondents 15(30%) respondents are the
hedgers and rest of 16 respondents are speculator, 13(26%) respondents are the arbitrager and 6(12%)
respondents are others.

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GRAPH NO: 10 GRAPH SHOWING THE RESPONDENTS OPINION ABOUT THE TYPE OF
PARTICIPATION IN THE FUTURES MARKET.

HEDGER
16
13 SPECULATOR
19
6 ARBITRAGER
15
OTHERS

INTERPRETATION: From the above graph Among the 50 respondents 15(30%) respondents are the
hedgers and rest of 16(32%), 13(26%) and 6(12%) respondents are speculators, arbitrager and others.

TABLE NO: 11 Table showing the investment avenues preferred by the investors in future.
Particulars No of respondents Percentage%
Real estate 6 12
Gold & silver 14 28
Fixed deposit 14 28
Insurance scheme 7 14
Stock market 6 12
Others 3 6
Total 50 100
ANALYSIS: From the above table we analyse that there are 6 respondents are preferred to real estate, 14
respondents are preferred to Gold & Silver, 14 respondents are preferred to fixed deposit, 7 respondents are
preferred to insurance scheme, 6 respondents are preferred to stock market and 3 respondents are preferred
to others.
GRAPH NO: 11 Graph showing the investment avenues preferred by the investors in future.
No of respondents Percentage
14 14
15

10 7
6 6 6
5
12% 28% 28% 14% 12% 6%
0
Real estate Gold& Fixed Insurance Stock Others
silver deposit scheme market

INTERPRETATION: From the above graph it can be interpreted that the majority of respondents are
preferred to investment in gold& silver& fixed deposit and leastly real estate, stock market& others.

FINDINGS OF THE STUDY


 Majority of the respondents prefer insurance and stocks as investment avenues.
 Majority of the respondents are aware of future investment scheme.
 Majority of the respondents come to know about futures and options through the internet.
 Majority of the respondent’s arbitragers and hedgers.
 Majority of the respondents are invested in futures and options.
 Maximum of the respondent’s express opinion that futures &options are a complex method.
 More of the respondents are considering technical analysis to fix up the price.
 Majority of the respondents are considering risk and price factors while investing.
 Majority of the respondents are influenced by the high returns and holding of securities.
 Majority of the respondents agree that futures and options support.
 Each respondent’s investment strategy is different.
 Majority of the respondents are agreeing that futures play an important role in Indian economy.
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 Majority of the respondents are having plans to invest in futures and options.
 Majority of the respondents are preferred for the long hedge rather than short hedge.
 Majority of the respondents are facing the problems of business risk while hedging.
 Majority of the respondents are satisfied by the flow of information provided by the market.

CONCLUSION:
Derivative market is a fast-growing market in Bangalore. Now a days the investors know about the
derivative market, so they are aware as derivative market offers more return, with the concept of hedging of
interest rate risk and exchange rate risk with maximum profits and minimum loss. Investors such as
professionals have perceived high interest in market. Indian derivative markets have a good performance till
date, to continue with this same growth individual investors have to be encouraged to enter in the trades
more often so that they are help to drive the economy.
Stock market investors should focus more on the opportunities created in futures and options they should get
aware of derivatives by attending various seminars, workshops, issuing of booklet on derivatives by stock
broking firms. This study determines that the investors preference reasons in a derivative investment is
different in different investment avenues. The investors preference reason in derivative investments is
depends upon the investment objectives such as Risk, Return, Safety and liquidity of the investment. Most
of them investors enter into the Forward Contract investments is Return and Future Contract investments is
the Risk and Safety, Option Contract is Investment in Future Needs and Investments in Swaps is Future
Needs.

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