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This article is about money management and trading psychology. This is the lesson that you never get with 99% of other Forex systems that you have come across.

I find it interesting that most of the systems out there don’t include this because if they actually were successful traders, they would know that this was the key to success and to leave it out makes an incomplete system that won’t work!! This tells me that the people that wrote them or are selling them aren’t traders at all. They are just in the business of selling HOPE!

Well, if you haven’t noticed yet, I am a trader, and I am different than the others. Don’t get me wrong, there are honest trainers out there, I learned from one and I am eternally grateful to him.

So let’s get on with this. First of all, this is my own interpretation of several sources, and the practices that have worked for me. Please read EVERYTHING you can find on trading psychology, and money management. There are a lot of slightly different views but overall, they are very similar and the main important points are all pretty much the same.

There are two main issues that cause 99% of the problems. Can you guess what they are?
If you answered FEAR and GREED, you are correct. These two emotions are probably responsible for 99% of the worlds problems as well but that is beyond the scope of this course À .

So, now that we know what the big obstacles are, let’s try and figure out how to overcome them. In the course of my lessons, I have listed a few but I will put them all together here in one place so that it is easier to follow, and perhaps make it easier for you to develop your own system to help you trade better.

We can’t eliminate fear and greed. They will still be there in your heart and mind, but we can make some rules so that they don’t interfere with your trading success. We can come up with systems and procedures to follow, since we KNOW ahead of time that fear and greed are major problems. I’m sure you have heard the statistic that 95% of all speculative leveraged traders FAIL. This is absolutely true. Here is another statistic that I
believe…100% of traders that don’t know how to overcome fear and greed will FAIL. So does that mean that if I can teach you how to overcome these problems that your chance of success is 100%? Of course not. But I can tell you that you cannot be successful if you don’t protect yourself from yourself.

In lessons 1-3 I have outlined a trading system. The first thing you must do, whether you follow my system, another system, or your own system is to follow the rules of the system WITHOUT FAIL. If your system calls for a certain entry point, do not enter until there is a signal to enter.

Systems are designed for a reason. That is why it is called a system. What do we learn from this? Patience. Perhaps the stupidest thing you can do is enter a trade on a hunch.
This brings us to our first FACT:

The odds are in your favor before you enter a trade. This is true for most trading systems. Void of fear and greed, if you follow each system exactly, you will profit. Some systems may offer better profits than others, but overall you should be able to profit with any system, IF you have no fear and no greed.

This brings us to THE BIG SECRET. Other than omitting trading psychology, other systems also don’t tell you that you are playing a game of odds. Let’s say for example that we are playing “coin toss.” Theoretically, for 100 flips of the coin, 50 will come up heads, and 50 will come up tails. Of course, the first 100 may be 55/45, but the more you play, the closer to 50/50 the numbers will get. Our system for “coin toss” is as follows: We play for 20 hours, and flip the coin exactly 5 times each hour, and for every heads that comes up, we get paid $2, and for every tails that comes up we pay $1. This should be a profitable system. After our game we see that heads came up 50 times and tails came up 50 times. (Stay with me here). So at the end of 100 tosses, we have paid $50 and received $100. A profit of $50.

So let’s say that during our second game of coin toss, we decide that we are going to let the flipper(hint: the market is the flipper) keep flipping the coin for an hour while we take lunch but we are not going to pay or be paid for those flips. During our lunch hour, heads comes up 5 times in a row (which is theoretically possible, and not that unlikely). And now we are back from lunch, and we are down $10 for the hour. Now, theoretically the odds of 5 tails in a row coming up after 5 heads in a row are pretty good because for every ten tosses, you should have about 5 heads and five tails. So now we get 5 tails in a row and now we are down another $5, for a total of $15. So not counting the 5 tosses during lunch, this leaves 90 tosses that we still have to account for and let’s say that they were 45 heads and 45 tails. Our profit for these tosses is $45 (45×2 minus 45×1), now if we take away the $15 for the tosses we didn’t take, and that string of losers, we are left with a profit if $30. So lunch and 5 lousy spins cost us 40% of our profits.

Now this is theory but it absolutely applies to this market. If you are picky about what trades you want to take and what trades you don’t want to take, you are MESSING

WITH THE ODDS. My point for this whole big story about “coin toss” is this: If the conditions are met, TAKE THE TRADE without hesitation. The odds are in your favor, but only if you take ALL of the trades that meets the conditions. When I say ALL trades I know the market is open 24 hours a day and you can’t possibly take every trade. You need to pick a time frame and stick to that same time frame everyday and take ALL trades during that time frame.

I can tell you that in the month before I realized this (my first month of trading real money actually), my total profit was 92 pips. I had an idea of what I was doing wrong so I was keeping track of the trades that I didn’t take along with the ones that I did. I included entry point, day, time, and whether the profit target was hit or if it was stopped out. Don’t get me wrong, I was extremely happy to be in profit after trading for only one month with real money. But then I went back and looked at the numbers for “what could have been.” Guess what? Had I taken every trade that met my conditions, my profit for the month would have been 355 pips! I was not happy. But soon I realized that I had messed with the odds. After realizing what I had done wrong (or not done right in this case) I began to have more confidence in my systems. The very next month my total profit was 515 pips, or a 560% improvement just for taking all of the trades that met the conditions. I think that is enough said about that.

Sorry to stay with the coin flip game here but it actually works very well in teaching these principles. This brings us to
FACT #2. You do not need to know what is going to happen to make money. If we know that we are going to make $2 fifty times and pay $1 fifty times as long as we flip the coin, are we going to play? Of course! Well, all trading systems have similar odds. From my testing, I know that this system on average will produce 9 wins of 20 pips for every 1 loss of 40 pips (that number may vary but that is the maximum loss I ever take). So we know ahead of time that 9 wins at 20 pips is 180 pips, and minus the loss of 40 pips, leaves us with 140 pips profit. Now keep in mind that you may be 8 and 2 this week and 10 and 0 next week. We never know when a loss is going to come. We may even lose every trade for a week, but not lose a trade for the next 9 weeks. Believe me it happens. You do not need to know exactly what is going to happen, you just need to take every trade that meets the conditions and then count your profits at the end of the month/week/year etc.

This section deals with money management as well as psychology. Back to coin toss for a minute. We know that each win brings us $2. And we know that for each win in this trading system we get 20 pips. We know that each tail that comes up costs us $1. And in our system we know that each loss is 40 pips. If we know what our loss is going to be ahead of time, we know what it is going to cost us to find out “what is going to happen.” From this we can decide how much we want to risk based on our account size.

FACT 3: You know how much it will cost to find out. I have decided not to ever risk more than 5% of my account on any one trade. So knowing that, I can figure out how many lots to trade ahead of time based on my account size. It may cost $250 in margin for a 1 lot position but this is not what we are risking, we are actually risking ten dollars times the number of pips in our stop. If our stop is 40 pips, we are risking $400. Now we know that we better have at least $8000 in our account to take a position of this size. If this trade turns out to be a loser, and our balance falls to $7600, we know that we can’t afford to take that trade again because a loss of $400 is more than 5% of our balance. We would need to adjust our number of lots down accordingly to keep our risk <5%. We also don’t want to increase our lot size to try and make up for that loss. Always reduce your risk if your account balance falls. The next thing we don’t want to do is immediately increase our lot size after a winning trade. It is better to trade at the same lot size for 15 or 30 days at a time before increasing lot size. This allows the account to build steadily without large swings in either direction.

FACT 4: There is a random distribution between wins and losses for any given set of variables that define an edge. Your trading system is your edge, but you never know in what order your wins and losses will come. Be prepared for this and accept the losses, knowing that the odds are still in your favor.

This brings us to our final two facts.

FACT 5: Every moment in the market is unique. Yes we use pattern recognition to define our edge but there are so many variables in this market that it is impossible to ever have the conditions exactly the same as any other moment. You could play 100 games of coin toss and no game will have the exact same order of wins and losses, even though they may have similar outcomes.

FACT 6: Because of fact #5 we know that ANYTHING CAN HAPPEN. This is why it is important to follow the trade rules exactly and play the odds.
Every broker/trading system has a disclaimer that says basically “do not trade with money you can’t afford to lose.” The best thing you can do when you open your real money account is to mentally consider that money GONE. If you are not afraid to lose it, you will save a lot of stress and your trading will improve. Only you can determine what you can afford to lose, so just don’t put more in there than you are willing to lose. Compounding is an amazing thing that we will talk about in section 5, and the money will come if you follow the rules. If you start with less, it will just take a little longer but once again you will save a ton of stress.

TRADING WITHOUT FEAR AND GREED

1. I Objectively identify your edges. You have a system here that works, enough said.
2. I Pre-define the risk of every trade. We covered that in FACT #3.
3. I Completely accept the risk. Consider the money GONE.

4. I ACT on my edges without reservation or hesitation. Follow the rules and take every trade that meets the conditions.
5. I pay myself as the market makes money available. Take your 20 pips and be happy, or trail your stop. Even if you are compounding your account, pay yourself something out of your profits each month. It will make you feel better. (On a side note: I take 20 pips for every trade until I am up 200 pips for the month. I do not even think of trailing my stops until I am up 200. Once I am comfortably in profit, I start to look for solid opportunities to trail my stop and grab some extra pips.

Even if they only go 20 and then come back, I still make 5 pips. 20 of those still adds up to another 100 pips.)
6. I continually monitor my susceptibility for making errors. I read Mark Douglas’ book monthly, and make up sheets with my rules on them that I read daily. This helps me to see plain as day when I make a mistake.
7. I understand the absolute necessity of these principles, and therefore I never violate them.
I have included a sheet that you can print out to keep near your computer to read every day. Read these facts and rules every day even if you memorized them.
Finally,

FOUR STUPID THINGS
The first stupid thing you can do is to close a position early because you think it is going to go against you. Just because you have an edge over the market does not mean that price will immediately shoot up or down to your target. Price will move up and down and will even probably move against you before it moves in your favor. If you let FEAR of LOSS get you, you will lose money. If the market is going to take you out, let the market take you out by taking out your stop. That is why it is there. The odds are still in your favor.

The second stupid thing you can do is to close a position early because you don’t think (or you are AFRAID) that it won’t reach your target. If you don’t play the odds properly, you will not realize the full profit potential. What if in our coin toss game we decided that we were going to take our profit for a “heads” at $1 instead of the $2 that we were supposed to get paid? If you remember, our profit was $50 for the first game. If we had only taken $1 for each win, we broke even. That is a lot of effort for nothing. Even worse, if we make some mistakes along the way (we all know that we are perfect traders right?) as we did in game number 2 where our profit was $30, we can lose money by not taking enough profit. Remember that we had a $15 loss for our mistake and 90 spins remaining. If we had taken only $1 for each of our 45 winning spins we would have broke even, minus the $15 puts us down $15 overall instead of being up $30. The system is designed for a 20 pip target, GO FOR IT.

The third stupid thing you can do is to get greedy. As I said in my sales material, if you had shot for 30 pips instead of 20 for the trades I listed, the profit would have been about half of what it was for taking just 20. Interesting how this whole thing works, huh?

Just taking 5 or 10 pips can be considered GREED as well as FEAR since you are so afraid of loss that you get greedy for those 5 or 10 pips compared to the potential loss of 20-40 pips. Don’t let it get you, follow the rules and be happy with your 20 pips.

The fourth stupid thing you can do is move your stop, believing that the market will eventually go in your favor. This is the fastest way to lose money. We are DAY traders. Yes the market may go in your favor but it may move 300 pips the other direction before it does, if it does. This could take weeks or months and you have a limited account balance. If 5% of your account is tied up waiting this position out, guess what. You are missing 20 other opportunities to make money instead of just sitting there waiting, down a hundred pips while you miss the opportunity to make 20 trades for 20 pips each. Maybe you break even, when you could be up 400 pips. JUST DON’T DO IT.

THE BEST THING YOU CAN DO

Once you place your trade, and place your stop and limit, TURN YOUR COMPUTER OFF and go do something else. You are now in automatic mode, and the market will take you out, either for a profit or for a loss. This is the best way to eliminate the temptation to succumb to FEAR or GREED and do something stupid.

The rest is up to you. Only you can decide whether or not to follow the rules and believe in the facts. This lesson is the most important to your success and I hope you won’t take it lightly. If you are trading and following the rules of your system, and not making money, you need to take a look in the mirror. It is not the system that is the problem, it is you. I am not trying to be harsh, but when I was not making money, it was not the system it was me so you are not alone. Don’t give up, because you can be successful if you just work through and figure out the problem.

Did you find this article useful?  For more useful tips and   hints, points to ponder and keep in mind, techniques, and insights pertaining to Internet Business, do please browse for more information at our websites.
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I am Mufiz from Mumbai.

Article Source:http://www.articlesbase.com/business-articles/how-to-trade-successfully-in-the-forex-market-1362133.html

It’s for sure! Online money is out there. Here I explain what separates the big money winners from the losers. I need to first show you some of the key ideas that pre-date the Internet.

Before the Internet

The need to make money has always been with us. One of the earliest strategies to accomplish this was the “chain letter”. Don’t worry – I’m not promoting a chain letter – rather explaining a lesson we can all learn from that ill-fated methodology.

The power of the chain letter lay in the fact that it allowed people to leverage their investment. It worked like this.

You get a letter that asks you to:

* Send a small amount of money to the person whose name is at the top of a list of future recipients.

* Delete the first recipient on the list, and put your own name on the bottom of the list.

* Copy and mail the letter to as many people as you can.

If you sent the letter to 100 people, and each of them sent it to 100, and so on, by the time your name got to the top of the list it would be in the hands of many thousands of recipients – each of whom would send you a small amount of money.

How Chain Letters Didn’t Work

The principle problem with the chain letter was that your small donation to the person at the top of the list was a gift. You got nothing in return. For this reason, our country’s lawmakers got into the act.

The “End” of the Chain Letter

Lawmakers don’t like to see large amounts of money changing hands without getting their own hands on some of it – to tax it in other words.

So the “authorities” outlawed the chain letter as you might expect. The public rationale was that the process would sooner or later “saturate”, because 100 x 100 x 100 x etc. would eventually encompass everyone on the planet, and those joining toward the end would never get the “reward” they had been “promised”.

This action ignored the fact that no chain letter in history ever actually “saturated”. But the concept looked good mathematically and seemed popular with the voters; so the public remains “protected” from chain letters to this day.

The Invention of Multilevel Marketing (MLM)

In the early sixties, a little vitamin company called Nutrilite invented the marketing strategy we know today as multilevel marketing.

This was a very clever idea. It built on sequential recruitment, the basis of the chain letter; but it sold real products: vitamins. Now there was value received in every transaction.

Two young men partnered up and got really successful at this business and wound up buying Nutrilite. Out of this grew the giant multilevel company known as Amway. Its annual sales hit a billion dollars around 1986, and is approaching seven billion dollars a year today (2008).

MLMs and the Law

The Federal Trade Commission (FTC) took Amway to court, claiming that the sequential recruitment of distributors violated the anti-chain-letter laws.

Amazing! The courts finally did something right. They recognized that there is nothing basically wrong with sequential recruitment, and completely exonerated Amway.

When the dust had settled, the FTC and the Department of “Justice” agreed to re-define the chain letter and the MLM so the chain letter remained illegal while the MLM was officially legalized.

Many people learned from this that sequential recruitment is legal when the customers actually receive something they want in return for their money.

Mail-Order MLM

Still talking pre-Internet lore: it wasn’t long before enterprising individuals began building mail order businesses in which the products sold were documents (small booklets) that provided the reader with useful information.

Such documents were easy to create, cheap to produce, and inexpensive to mail. Employing sequential recruitment similar to that used by chain letters, such businesses provided (for a price) the document products and the methodology of distribution.

It was up to each participant to reproduce the documents, to advertise them via the mail, and to deliver them via mail as promised.

This system of doing business meets all the legal standards of current MLM laws and provides for a very high return on investment. A document that cost 50¢ to produce and another 50¢ to mail might sell for $10 or $20. This business model is still much in use today, and huge profits are being made.

The use of the Internet to facilitate this money making process further amplifies the method’s profitability and makes it accessible to almost anyone. Its development was the next step towards creation of the first online money making machine.

Enter the Internet

On the Internet today, free or inexpensive email to opt-in lists, cheap classified advertising, and highly targeted (though not-so-cheap) search engine advertising make it possible to advertise much more cheaply than can be done by conventional mail.

The cheap and, often automated, creation of personal websites puts large amounts of information in the hands of would-be “infopreneurs” at a fraction of the cost of snail-mail distribution.

Instead of printing and mailing booklets to their customers, businesses of this sort simply receive payment via secure credit card transaction, and then permit the buyer to download the product at the click of a mouse at essentially no cost to the seller.

Thus the properly equipped “infopreneur” creates a virtual money-making machine that handles all the formerly laborious tasks associated with mail-order document sales.

By combining the best features of sequential recruitment, MLM sales, and mail-order document sales with the computer automation provided by the Internet, today’s infopreneur can make large amounts of money in record time. This is the basis of virtually all the big online money-makers.

The worse the economy, the higher the unemployment level, the fewer the jobs available, the more attractive this kind of business is to the public.

The Best Online Money Machine – So Far

Examples of this newly developed business technology come in many styles. Some are well explained and easy to implement; some are more complex and not so well documented. Unless you want to build your own online money machine from scratch – a major undertaking that I don’t recommend – I suggest that you plug into an existing one that works.

To see the best example of this technology that I have found so far – one that is simple, legal, honest, and ethical – you don’t have to look far.

Investing !! What’s that?

Judging by the fact that you’ve taken the trouble to navigate to the Learning Center of website, our guess is that you don’t need much convincing about the wisdom of investing. However, we hope that your quest for knowledge/information about the art/science of investing ends here. Sink in. Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, badla, undha badla, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You’re not alone in the quest to crack the jargon.

To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That’s why our investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market.

Patience and the willingness to pepper your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues at the same time cushion you against any major losses. Investing is not about putting all your money into the “Next Infosys,” hoping to make a killing. Investing isn’t gambling or speculation; it’s about taking reasonable risks to reap steady rewards. Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term.

Why should you invest?

Simply put, you should invest so that your money grows and shields you against rising inflation. The rate of return on investments should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation. Also, it’s exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.

When to Invest?

The sooner the better. By investing into the market right away you allow your investments more time to grow, whereby the concept of compounding interest swells your income by accumulating your earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors 1. Invest early 2. Invest regularly 3. Invest for long term and not short term While it’s tempting to wait for the “best time” to invest, especially in a rising market, remember that the risk of waiting may be much greater than the potential rewards of participating.

Trust in the power of compounding Compounding is growth via reinvestment of returns earned on your savings. Compounding has a snowballing effect because you earn income not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier you start investing and continue to do so consistently the more money you will make.

The longer you leave your money invested and the higher the interest rates, the faster your money will grow. That’s why stocks are the best long-term investment tool. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses. That’s the reasoning behind investing for long term rather than short term.

How much money do I need to invest?

There is no statutory amount that an investor needs to invest inorder to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:

Your risk profile

Your Time horizon

Savings made

What can you invest in?

The investing options are many, to name a few

Stocks

Bonds

Mutual funds

Fixed deposits

Others

Whether you are new to investing or have been investing for a while, our online courses can help you learn how to invest better and smartly. The courses are comprehensive yet simple and easy to understand. It has been our endeavor to empower our customers and the learning module is a step in this direction.

The courses include modules on:

Equities

Futures

Options

Mutual Funds

Tax

ULIP Vs Mutual Funds

So start now… Becoming a smarter investor has never been easier!

INTRODUCTION

Addressing to the Indian Economic Summit’s session, on Tuesday, the 18th of Nov. 2008, the State Minister of Industry, Mr. Ashwini Kumar declared that Rs 500 billion would be invested by the Central Government with public-private partnership in infrastructure pertaining projects. According to him this investment would lure demand to boost economic growth. In the prevailing time when Indian economy is under threat of the entrance of world depression 2008, such type of a big dose of investment in infrastructure is desirable to barricade against the entering depression. But, the private partnership may hamper the way of receiving the desired results.

INDUCED INVESTMENT

When talking about investment, it is categorized as the induced investment and the autonomous investment. Induced investment is that investment which is induced by profit motive in a free enterprise capitalist economy. It produces commodities and thereby it can be termed as ‘directly productive investment’. Establishment of a productive unit which produces consumption or capital goods comes under the category of the directly productive investment. It changes with a change in (national) income that is why it is also called income elastic investment. Induced investment is incurred especially to produce larger output.

AUTONOMOUS INVESTMENT

On the other hand, the autonomous investment is the investment which is not induced by profit motive. It is not sensitive to changes in income. It is also known as public investment and is incurred in direct response to inventions and much of the long range investment which is only expected to pay for itself over a long period. Autonomous investment is generally associated with such factors as introduction of new production techniques, new products, development of new resources or growth of population. Autonomous investment generates favorable environment for production. An autonomous investment is never profit motivated and that is why it is always suggested to be undertaken by government instead of private investors. Autonomous investment does not directly produce goods. It creates external economies whereby the cost of production sustained by the producing firms is lowered. Thus, their profit is increased whereby the firms are induced to produce more. In this way the autonomous investment indirectly helps to increase production. Moreover, autonomous investment generates general utility services to the general public which they can’t afford to purchase.

DUAL INVESTMENT

Autonomous investment is autonomous only to the extent it is free of profit. If this investment is made by private investors they can’t help earning profit. Therefore, the producers will have to pay for the external economies and the general public will have either to go without the generated general utility services or will be exploited for they will have to pay high to avail the services. Thus, in a developing economy where cost of production is high, general mass is poor and markets are undeveloped the autonomous investment will lose its importance if given in private hands. In this way, autonomous investment is made of two different portions. One is that which can never be given in private hands irrespective of the fact whether the economy is developed or developing. Therefore, this portion of autonomous investment is a true autonomous investment. The investment incurred in the projects pertaining to national security, law and order maintenance, international relations, world peace, general governance, epidemics eradication, general health, poverty alleviation, public welfare etc. comes under this type of autonomous investment. The remaining portion of autonomous investment is that which can be (and is generally) given in private hands in a developed economy. In a developed economy sufficiently a high level of income is achieved, the distribution of income is almost equal, market is extended and developed, general poverty stands alleviated and cost of production is quite low on account of capital based modern technology. Hence, the producers can easily pay for external economies and people can pay for many of the general utility services. Therefore, in a developed economy, the portion of autonomous investment to be incurred in the projects like road transport, construction of highways, construction of bridges, power and electricity, civil aviation, sea transport, education etc. can be (and generally is) given in private hands. This portion of autonomous investment, being however similar to the previous one (above said true autonomous investment) in a developing economy, but thus becomes profit motivated and is converted into induced investment in a developed economy. In other words, this portion behaves as autonomous investment in a developing economy but is converted to and starts behaving as induced investment in a developed economy. Therefore, this portion of autonomous investment can be regarded as the convertible investment or the dual investment.

CONCLUSI ON

            The above  concludes that investment can be categorized as the autonomous investment, the dual investment and the induced investment. The autonomous investment should be exclusively incurred by the government in both the developed and the developing economies and, similarly, the induced investment should be incurred by private investors in both the economies. As regards to the dual investment, it should be incurred by government in a developing economy and by private investors in a developed economy. However, a partnership of government and private investors may be desirable in case of the dual investment if the economy has entered into the stage nearest to the full development. It is similar to the case of the partnership of government and private investors in induced investment in early stages of development in a developing economy. The Indian economy seems to have travelled though a long on the development path but it has not so far achieved such a high stage of development which may allow private hands to participate in the dual investment. General poverty still persists there, income distribution is highly unequal, technology is not fully capital based, cost of production is high, and much more. Therefore, the dual investment in Indian economy still needs to be incurred exclusively by the government. Therefore, the partnership of government and private investors in case of the declared investment worth Rs 500 billion, referred to in the beginning hereof, is not desirable. The loss to the producers and the poor general mass on account of so far brought about privatization of the past is not a latent fact. All the same, if the government somehow feels itself helpless to desist from accepting the partnership, it must not at all allow it beyond the dual investment. In more clear words, the Government of India must keep the (true) autonomous investment fully intact from the private partnership and may allow the partnership in the dual investment but only to a limited extent if the partnership can not be fully abandoned.

_________________________________________________

MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. MLM is also frequentlycalled network marketing, consumer direct marketing, or sellerassisted marketing and other terms continue to surface. MLM is essentially any business where payouts occur at two or more levels. MLM is all about nexus building and that is all a part of any business.

Products

You market Products through pseudo”Mini-Franchises” that when joined, contain the ability to distribute products to people. This is especially popular now with online ordering and Stores being created with a multitude of products. MLM companiesusually conduct more rigorous testing because public expectations of MLM productsare unusually high, and are usually subject to much broader guarantees or warrantiesthan other products. AdvertisingThe highest-leverageselling process, in which consumers are pulled toward the products/services and theirbenefits.

Success

Success is something that we all seek, and want for our lives, families, and future. Success is a focus to most in Network Marketing, who are seeking Wealth in MLM. Success is predicated upon you making decisions and taking action to lead toward success.

Income

“MLM industry claims of distributor income potential, its glorifieddescriptions of the “network’” business model, and itsprophecies of dominating product distribution have as much validityin business as UFO sightings do in the realm of science. The retailing activity is, in reality, only a pretext for theactual core business, which is enrolling investors in pyramidorganizations that promise exponential income growth. As in all pyramid schemes, the incomes of those distributorsat the top and the profits to the sponsoring corporations comefrom a continuous influx of new investors at the bottom. Itstrue products are not long distance phone services, vitamins,or skin creams, but the investment propositions for distributorshipswhich are deceptively portrayed with images of high income, lowtime requirements, small capital investments, and early success.

Downline

What you have done is create a Network of “Distribution Channels” for your Product( a downline) which you can receive “Brokerage Royalties’ or Overrides on that can be quite substantial. The possibility is always held out that you may become rich if not from your own efforts then from some unknown person (“the big fish”) who might join your “downline. Short of termination, downlines can be taken away arbitrarily. It’s a two tier residual affiliate program and it is obvious I want to build a downline and another income stream with it. You’ll see that they offer something to their downlines much more than just “How to Make Money”.

MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. MLM is also frequentlycalled network marketing, consumer direct marketing, or sellerassisted marketing and other terms continue to surface. MLM is essentially any business where payouts occur at two or more levels. MLM is not replacing existing forms of marketing.

Vitamins of the Future will be rediscovered in Mother Nature’s Pharmacy

…a three person debate about dietary supplements

and grandmother may just have been right all along..

The dietary supplementation business has never been bigger. Consumers are looking for specialized supplements hoping for their active role in preventing disease.

As consumers we understand that one of the most important decisions we can make for long term health is our choice of proper vitamins and minerals. The word “supplements” can be interpreted in multiple ways and therein lays the first problem. In this boom mentality, in this maze of products, one needs to be extremely knowledgeable about the total picture of diet and supplementation, the main players, and the best value of vitamins for our human biology, not just our pocketbooks.

Let’s set up a little debate with the top three players in this business presenting their different points of view. One of the players is an imaginary figure and therein lies the second problem. Her voice is not heard on media commercials, splashed in ads or read on the side of bottles or boxes. But she originated vitamins and with imagination let’s give her a speaking platform. For now, let’s keep her name unknown and see if you can guess who she is.

First, there is Mr. Pops…he is a successful owner of a vitamin manufacturing company and produces colorfully labeled Optimum MultiVitamin Pills. He advertises copiously online and offline and people buy what sounds familiar and doesn’t cost too much per item.

Second, is Dr. Smith who is a bioscientist in the newly emerging field of nutritional science only a few seconds old on a 24 hour medical timeline.

Third is our mystery guest, old, grand and venerable.

Mr. Pops gives us a quick overview of the vitamin industry.

“The word vitamin was first coined in the early 1900’s by a scientist recognizing this “vital amine” as important to proper cell functions. To make our pills, we first bulk order 20 kinds of vitamin and mineral raw ingredients from a GMP registered facility. The mass production is automated on conveyor belts and starts with high speed tableting machines on paddles or ribbon blenders to allow for separation of particles based on density.

The carefully measured ingredients (as per label) are combined with other fillers, flavors, and colorants. The tablets are pressed and spray coated to help withstand the packaging and shipping process. We’re pleased to say we use hydrolyzed vegetable protein which we believe allows for better absorption by the intestines than the cheaper mineral salts used by the majority of brands. We bottle the pills, label with a full disclosure of ingredients, stamp expiry date and ship.

We spend a lot of money on branding and advertising market recognition. It was a coup for us to get a multimillion dollar endorsement from a great sports star with a great likeable personality…young people want to be just like him and based on that, I’m sure, will buy the pills.”

The mystery guest only smiles acknowledging silently that there are thousands of competitive companies like Mr. Pops, but most get their supplies from only 12 main manufacturers with the laboratory ability to extract raw ingredients.

Second is Dr. Smith, a nutritional bioscientist.

“I’ll begin by first saying some exciting news that relates to grandma…

Remember when grandma first use to tell you to eat all your vegetables…she may have been right after all. She may not have told you that when you eat just one serving of vegetables you’re ingesting at least 100 different phytochemicals or phytonutrients. But science is now validating this health connection to a whole base of ethno- botanical knowledge and plant pharmacology!

Plant constituents are variously called phytonutrients, bioflavanoids or polyphenols and are found in seeds, bark, flowers, and fruit skin. In fact, nutritional sciences have advanced in the same way as pharmaceutical science through molecular cell cultures and long term reviews to show a multitude of benefits in our plant food. Who would have imagined? Real food compounds have been proven to reduce allergic responses, prevent formation of carcinogens, control inflammatory conditions, lessen coronary heart conditions, reduce liver disease, protect against cataracts and macular degeneration, and inhibit bacteria and yeast. These bioflavanoids also scavenge free radicals that cause oxidative damage in the cells that is implicated in long term inflammatory and degenerative diseases. For example…blueberries by virtue of plant pigments (the known 40 anthocyanins and 300 other compounds) have 2400 times the antioxidant power of Vitamin E by itself.

No wonder the USDA (US Department of Agriculture) has pointed out that “it appears that an effective strategy of supporting health is to increase consumption of phytonutrient rich food.” It is with just cause that the Cancer Institute and the Heart Institute recommend eating a variety of vegetables and fruit 5 to 7 times daily or more if possible. Statistics show that most people do not, but even for those who do, there is the overriding question of how nutrient-dense supermarket vegetables are because of factory farming, mineral depleted soil, green harvesting and storage. So many consumers subscribe to supplementing their diets as we’ve heard. Lately, the market trend is towards whole food extracts, super food formulas as liquid nutrition to provide the holistic synergy of total vitamins, minerals, and other essential nutrients rather than an array of pills. The question consumers need to answer in their own minds…do we trust what comes out laboratories more than what is already provided naturally?”

Both look towards the mystery guest…it is her turn to speak. Her voice is low and liquid like waves “shooshing” against a sandy beach.

“Thank you for your comments and I appreciate your efforts in helping people’s quests for health. Your hearts are in the right place and I am particularly delighted to see how scientific studies are now validating our ancient wisdom.

Science is now corroborating what people have known that food from plants is our best source of natural biochemicals that support levels of biochemicals found in human metabolism. Health and disease begin in the single cell and each cell needs one hundred plus nutrients on a daily basis. Depriving even a few proper nutrients will cause cellular degeneration over many years which evolve into a disease.

You see I am known as Mother Nature and my provisions are the foundation of human biology from time immemorial. My language is the physical world and my physical elements became part of your physical structure…no formulas, no programs, no theories. My plant micronutrients become your cellular micronutrients and they are programmed to be part of your inborn potential for growth, repair and protection from disease.

In trying to understand the breadth and volume of my world, scientists have managed to delineate and classify me into “specialists” sections many with names that only linguists can pronounce. Currently scientists are struggling to classify at least 20,000 phytonutrients, of which only 4000 have been analyzed or tested. To appreciate my complexity, there are about 500,000 plant species in existence. Only a mere 10% have been investigated from a phytochemical and pharmacological point of view.

More sadly, food manufacturers have over processed, preserved

and de-nutriented my natural foods with thousands of artificial man-made chemicals. People can be compared to being “hunters” in supermarkets… loading their buggies with bottles, boxes and cans full of refined, reconstituted and fortified unnatural food stuffs. Yet our genetic biology has not changed that much from the earliest times when our diets were based on gathering foods, such as whole grains, seeds, fruits and vegetables.

Unfortunately, my lack of formal language has placed me in the back of the room, drowned out by louder more persistent voices carrying the debate, often based on profit margins. However, it is no longer reasonable to assume that a single substance whether nutrient, pill or drug, can aid or fix all of the body’s interdependent systems. In my world, vitamins, antioxidants, phytonutrients, amino acids, essential fatty acids, enzymes and minerals work together.

In fact, I find myself in a strange place of having my natural plants, herbs and spices tested for their nutritional value and questioned in terms of “preventing, curing, mitigating or treating diseases.” Drug companies especially cannot patent a natural plant and make no profits unless they can sell an exclusive “discovery” or a new and improved facsimile.

My hope for you is to begin to use the word phytonutrition in every day language…I am absolutely amazed that this word isn’t even found in the dictionary but it should be heralded as the word of the century. Phytonutrition is all about using whole plant foods and supplementation to provide the essential micronutrients for metabolic energy, body building and protection against cellular diseases.

My last warning is if you’re confused or lack knowledge about the studies drawn from scientific laboratories and manufacturing claims, then draw your nutritional and supplementation needs from the natural world. In my world, my foods are not designed as ‘optimal daily recommended intakes’ or parts of double-blind studies or bioengineering or some co-factor activity combination. Trust the Divine Mastery of Nature. Be awe inspired that you can trace the course of nutrients through the ocean, the air, the soil, your plants, your body and back to the ocean again. You are of the earth. Protect and embrace it as you protect and embrace yourself.”

INTRODUCTION

One of the outstanding features of globalization in the financial services industry is the increased access provided to non-local investors in several major stock markets of the world. Increasingly, stock markets from emerging markets permit institutional investors to trade in their domestic markets. Indian stock market opened to Foreign Institutional Investors in 14th September 1992, initially with lot of restrictions. The regulation on them are liberalized and minimized now, since 1993 has received a considerable amount of portfolio investment from foreigners in the form if FIIs investment in equities. This has become a turning point of India stock market. The government of India announced the policy of the government to permit the FII investment in India capital market. According to the SEBI modified the regulation on 14-11-1995. In order to make investment in India equity market they wanted to register with Security Exchange Board of India as foreign institutional investors. It is possible for foreigners to trade in India securities without registering as Foreign Institutional investors, but such cases require approval from Reserve Bank of India or the Foreign Institutional Promotion Board. They are generally concentrated in secondary market.

Domestic market alone not able to meet the growing capital requirement of the country and financing from mutilated institution has lost primary in the emerging in the global order .Besides aimed primarily at ensuring non-debt creating capital inflows at a time of extreme balance of payment crisis. It was to tie over the balance of payment crisis in the early 1990s

Portfolio flows often referred to as ‘hot- money’ are notoriously volatile capital flows. They have also responsible for spreading financial crisis causing contagion in international market. Evan though, the FIIs have been plying a key role in the financial markets since their entry into this country. The explosive portfolio flow by FII brings with them great advantages as they are engine of growth, lowering cost of capital in many emerging market. This opening up of capital markets in emerging market countries has been perceived as beneficial by some researchers while others are concerned about possible adverse consequences.

Clark and Berko (1997) emphasize the beneficial effects of allowing foreigners to trade in stock markets and outline the “base-broadening” hypothesis. The perceived advantages of base-broadening arise from an increase in the investor base and the consequent reduction in risk premium due to risk sharing. Other researchers and policy makers are more concerned about the attendant risks associated with the trading activities of foreign investors. They are particularly concerned about the herding behavior of foreign institutions and the potential destabilization of emerging stock markets.

This study addresses these issues in the context of foreign institutional investors’ (FII) trading activities in a big emerging market – India. India liberalized its financial markets and allowed FIIs to participate in their domestic markets in 1992. Ostensibly, this opening up resulted in a number of positive effects. First, the stock exchanges were forced to improve the quality of their trading and settlement procedures in accordance with the best practices of the world. Second, the information environment in India improved with the advent of major international financial institutional investors in India. On the negative side we need to consider potential destabilization as a result of the trading activity of foreign institutional investors. This is especially important in an emerging country that has embarked upon reforms to open up its market.

OBJECTIVES The objectives of this study were as follows;

(1) To study the role of FII investment in the Indian stock market, ( 2 ) To examine the causal relationship between net FII investment and BSE sensex using granger causality test (3) To examine the causal relationship between net FII investment and NSE sensex using granger causality test (4 )To examine whether FIIs were a channel of global disturbance into the Indian stock market.

TOOLS: Study was carried out with the help of unit root test, co integration test, causal regression and F statistics for FII investment and index from BSE and NSE

LETERATURE REVIEWS

Gayathri Devi .R in 2003, she conducted study on “Causal Relationship between FIIs and Stock Market: A critical study”. It revealed that there was long run relationship between net FII investment and sensex, FII investment did not respond the short-run changes or technical-position of the market and they were more driven by fundamentals, and FII investments did granger cause India stock market. “Selen Serisoy Guerin” in 2006, conducted study on “The Role of Geography in Financial and Economic Integration: A comparative Analysis of foreign direct investment, Trade and Portfolio Investment Flows”.. It found support for the argument that most FDI among Industrial countries were horizontal, whereas most FDI investment in developing countries was vertical and our results indicated that portfolio investment flows compared to FDI, were highly sensitive to change in GDP per capita, this implied that if there was a negative output stock, portfolio investment flows would be more volatile than FDI. A.Julia Priya, D. Lazar and Joseph Jeyapual in 2005, they conducted study on “Role of Foreign Institutional Investors on stock market development in India”, Results revealed that sensex, market capitalization of NSE, Turnover of BSE and NIFTY without market capitalizations were influenced by Foreign Institutional Investors“Suchismita Bose and Dipankor coondoo” in 2004, they conducted study on “The Impact of FII Regulation in India”,. These results strongly suggested The liberalization policies had the desired expansionary effect and had either increased the mean level of FII inflows and/or the sensitivity of these flows to a change in BSE returns and /or the Parthapratim pal in 2004 conducted study entitled as “Recent volatility in stock markets in India and foreign institutional investors. Findings of this study indicated that Foreign institutional investors had emerged as the most dominant investor group in the domestic stock market in India. Particularly, in the companies that constitute the Bombay stock market sensitivity index, their level of control was very highinertia of these flows.

“sandhya Ananthanaryanan, Chandrasekhar krishnamurthi and Nilajan Sen in 2003 conducted study as “Foreign institutional Investors and Security Returns: Evidence from Indian Stock Exchanges”, It found strong evidence consistent with the base-broadening hypothesis.It did not find compelling confirmation regarding momentum or contrarian strategies being employed by FIIs.It supported price pressure hypothesis.

It did not find any substantiation to the claim that foreigner’ destabilize the market. J.S. Pasricha and Umesh.C.Singh in 2001, tried to analyze the impact of FIIs investment on Indian capital market. Their study revealed that FII are here to stay and have become the integral part of Indian capital market. Their entry has led to greater institutionalization of the market. They have brought transparency in the market operations.S.S.S. Kumar in 2001, attempted in his study to find the effect of FIIs on the Indian stock market. The inference analysis of the paper suggests that FII investments are more driven by market fundamentals rather than by short term changers or technical position of the market. As per K. Seethapathi and V. Subbulakshmi study entitled “Foreign investment: Need for focus”, They concluded that, the flows have to pick up. The political will is to be demonstrated by the government. In addition, the regulators have to identify the reasons for failure in converting approvals into actual investments and those issues are to be addressed immediately. E. Han Kim and Vijay Singal in 1997, they conducted study entitled “Are open market Good for Foreign Investors and Emerging Nations?”, Conclusion revealed as. Integrating the emerging stock markets into world markets has had benefits, and will continue to have benefits for both global investor and host countries. The end result of integrated markets a better allocation of resources, improved productivity of capital, and a higher standard of living.

THEORETICAL REVIEW

Between late 1990 and the middle of 1991, the economy faced severe balance of payment difficulties, coming close to defaulting on its external payment obligations in January and June of 1991. In January 1991, the Government negotiated with the International Monetary Fund (IMF) for loans. What followed was the implementation of the conventional IMF-World Bank prescription of short-term ‘stabilization’, consisting of devaluation, temporary import compression, fiscal and monetary compression with a rise in interest rates, followed by more long-term ‘structural adjustment’ measures, seeking to restructure the domestic economy.

The New Economic Policy was an outcome of implementation of the ‘structural adjustment’ program. The ‘economic reforms’ or ‘economic liberalization’ program, which began to be implemented with the announcement of the New Economic Policy (NEP), included wide-ranging changes in industrial policy, trade policy and foreign investment policy, a redefinition of the role of the public sector in the economy and redesigning the architecture of the domestic financial system. By narrowing down the topic, first it concentrates on capital account liberalization.

CAPITAL ACCOUNT LIBERALIZATION

The process of capital account liberalization in India needs to be situated in its wider context, for it was shaped by the reality in the national context and the conjuncture in the international context. In response to the external debt crisis, which surfaced in 1991, the government set in motion a process of stabilization, adjustment and reform. Economic liberalization and structural reforms sought to increase the degree of openness of the economy through trade flows, investment flows, technology flows and capital flows. The process began the introduction of convertibility on trade as quantitative restrictions on imports, except for with consumer goods were dismantled and tariff levels were reduced. It was combined with a liberalization of the regimes for foreign investment and foreign technology. And restrictions on international economic transactions, including capital movements, were progressively reduced. This process was also influenced by the gathering momentum of globalization which was associated with increasing economic openness in trade flows, investment flows and financial flows.

The approach to capital account liberalization in India was much more cautious. What was liberalized was specified. Everything else remained restricted or prohibited. The contours of liberalization of the capital account were, in large part, shaped by the salutary lessons of the external debt crisis which surfaced in early 1991 and brought India close to default in meetings its international obligations. The balance of payments situation, then, was almost unmanageable.

The vulnerability was accentuated by two factors: it became exceedingly difficult to roll-over short-term debt in international capital markets and there was capital flight in the form of withdrawals from deposits held by non-resident Indians. This experience dictated the parameters of capital account liberalization8. It prompted strict regulation of external commercial borrowing especially short-term debt. It led to a systematic effort to discourage volatile capital flows associated with repatriable non-resident deposits. Most important, perhaps, it was responsible for the change in emphasis and the shift in preference from debt creating capital flows to non-debt creating capital flows. To some extent, the liberalization that was introduced was also influenced by the perceived needs of the economy: financing the current account deficit, mobilizing resources for investment and attracting international firms. But capital account convertibility remained, fortunately, in the realm of rhetoric. The Mexican crisis in late 1994 was, ironically enough, a blessing in disguise for India. It was not just an early warning signal. It dampened the enthusiasm of those who advocated capital account liberalization with a big bang. It lent support to those who questioned the wisdom of capital account convertibility that would have been premature in every sense. The contours of capital account liberalization in India were determined by these factors.

In sketching these contours, it is necessary to distinguish between different forms of private capital inflows and outflows, as there are important differences between these categories in the nature and the degree of liberalization. A complete description would mean too much of a digression. For our purpose, it would suffice to consider the contours of liberalization in the following categories of capital account transactions:

• Direct investment,

• Portfolio investment, and

• Non-resident deposits.

Foreign Direct Investment

It is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate.

The liberalization of the policy regime for direct foreign investment began in July 1991 with two major decisions. First, direct foreign investment with up to 51 per cent equity was to receive automatic approval in selected high priority industries subject only to a registration procedure with the Reserve Bank of India. Second, a Foreign Investment Promotion Board was constituted to consider all other proposals for direct foreign investment where approval was not constrained by pre-determined parameters and procedures. In effect, this created a dual route for inflows of direct foreign investment. The approval was automatic, within the specific parameters, from the Reserve Bank of India, while all other inflows were subject to approval through the Foreign Investment Promotion Board. The access through the automatic route has been progressively enlarged over time. Needless to add, outflows associated with direct foreign investment are not subject to any restrictions, but this was so even in the era of capital controls.

Foreign Portfolio Investment (FPI)

Portfolio investment represents passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities’ issuer by the investor; where such control exists, it is known as foreign direct investment.

The liberalization of the policy regime was extended to portfolio investment in September1992. To begin with, foreign institutional investors such as pension funds or mutual funds were allowed to invest in the domestic capital market subject simply to registration with the Securities and Exchange Board of India. Guidelines issued by the Reserve Bank of India permitted such foreign institutional investors to invest in the secondary market for equity subject to a ceiling of 5per cent (subsequently raised to 10 per cent) for individual foreign institutional investors in a single Indian firm with an overall limit at 24 per cent of equity (later relaxed to 30 per cent of equity at the option of the firm) for total foreign institutional investment in a single Indian firm. Foreign portfolio investment further classified into

1. FIIs

2. ADR/GDR, and

3. Offshore funds.

Foreign institutional investors (FIIs)

One who propose to invest their proprietary funds or on behalf of “broad based” funds or of foreign corporates and individuals and belong to any of the under given categories can be registered for FII.

• Pension Funds

• Mutual Funds

• Investment Trust

• Insurance or reinsurance companies

• Endowment Funds

• University Funds

• Foundations or Charitable Trusts or Charitable Societies who propose to invest on their own behalf, and

• Asset Management Companies

• Nominee Companies

• Institutional Portfolio Managers

• Trustees

• Power of Attorney Holders

• Bank

Access was provided to foreign institutional investors in the secondary market for debt. Soon thereafter, foreign institutional investors were also allowed investment or placement in the primary market, subject to approval from the Reserve Bank of India, with a maximum limit of 15per cent of the new issue. It was some time before foreign institutional investors were permitted investment in government securities in the primary and secondary markets. This came in 1996-97 and was subject to the ceiling for external commercial borrowing. Subsequently, in 1998-99, foreign institutional investors were also permitted to invest in treasury-bills. There is no reserve requirements stipulated for, or taxes imposed on, these capital inflows. It also needs to be said that foreign institutional investors are allowed to repatriate the principal, the capital gains, the dividends, the interest and any other receipt from the sale of such financial assets, without any restriction, at the market exchange rate. The income tax rate for dividends on such portfolio investment for foreign institutional investors is 20 per cent, which is much lower than the corporate income tax rate for domestic or foreign firms. But foreign institutional investors are subject to a higher short-term capital gains tax at 30 per cent compared with 20 per cent for domestic investors, while the long-term capital gains tax is the same at 10 per cent. Sales of such financial assets for the purpose of repatriation are absolutely unrestricted, provided the sales are through stock exchanges. However, disinvestment through any other route, or in any other form, requires approval from the Reserve Bank of India.

Global Depositary Receipt:

Global Depositary Receipt A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. American Depositary Receipts make it easier for individuals to invest in foreign companies, due to the widespread availability of price information, lower transaction costs, and timely dividend distributions. Also called European Depositary Receipt.

The option of portfolio investment was also made available to domestic corporate entities from September 1992. Indian firms were allowed access to international capital markets through global depository receipts or Euro convertible bonds which converted debt into equity after stipulated period. This access, however, was not automatic. Individual applications, drawn up inconformity with the general guidelines of the government, were subject to approval. This process remains unchanged.

Offshore Funds:

An offshore fund is a collective investment scheme domiciled in an Offshore Financial Centre, for example British Virgin Islands, Luxembourg, Cayman Islands or Dublin.

Similar facilities for portfolio investment were subsequently extended to Offshore funds, non-resident Indians (as individuals) and overseas corporate bodies, only for investment in shares or debentures through stock exchanges, on the same terms as foreign institutional investors, but subject to a ceiling of 5 per cent for individual non-resident Indians or overseas corporate bodies in a single Indian firm.

Among the various components of portfolio investment, FII comprises the bulk of portfolio inflows. The main objective of foreign institutional investors is to minimize risk and maximize returns by diversifying their portfolios internationally. Major determinants of investment decisions of FII are country and region specific.

Portfolio flows often referred to as ‘hot- money’ are notoriously volatile capital flows. They have also responsible for spreading financial crisis causing contagion in international market. Evan though, the FIIs have been plying a key role in the financial markets since their entry into this country. The explosive portfolio flow by FII brings with them great advantages as they are engine of growth, lowering cost of capital in many emerging market. This opening up of capital markets in emerging market countries has been perceived as beneficial by some while others are concerned about possible adverse consequences.

Among the most active FIIs are Morgan Stanely Asset Management, jardine Fleming, Capital International, J. Henery schorder, templeton, Warburg Pinkers, Internatioanl Alliance and Quantum fund.

Foreign Institutional Investors in India

India opened her doors to foreign institutional investors in September, 1992. This event represents a landmark event since it resulted in effectively globalizing its financial services industry. Initially, pension funds, mutual finds, investment trusts, Asset Management Companies, nominee companies and incorporated/institutional portfolio managers were permitted to invest directly in the Indian stock markets. Beginning 1996-97, the group was expanded to include registered university funds, endowment, foundations, charitable trusts and charitable. Since then, FII flows which form a part of foreign portfolio investments have been steadily growing in importance in India. Other than in the year 1998, the net flows have been positive. The nuclear tests and East Asian crisis did slow down the flows but as stated by Gordan and Gupta (2003), their effects were short lived. That the percentage of total net turnover of BSE, the share of average of FII sales and purchases increased from 2.6 percent in 1998 to 5.5 percent in 2002. The cumulative net FII investment in India as on August 2003 is approximately $17400 million. As of August 2003 net FII investment was 9 percent of the BSE market capitalization which is small compared to the size of the market. However, in the words of Banaji (2002), it is not the market capitalization that matters but what is important is the level of the free float, that is, the shares that are actually publicly available for trading. With floating stock in the Indian market being less than 25 percent, about 35 percent of the free float available has been bagged by FIIs – despite the fact that they invest in just a few highly liquid stocks.

Though India receives hardly 1 percent of the FII investments in emerging markets, the portfolio flows to India have been less volatile when compared with that of many other emerging markets (Gordan and Gupta, 2003). FIIs by adopting a bottom-up approach seem to invest in top-quality, high growth, large cap stocks (Gordan and Gupta, 2003). Sytse et al. (2003) provide empirical evidence that foreign institutional investors in India, invest in large, liquid companies which enable them to exit their positions quickly at relatively lower cost and also that the foreign institutional owners have a larger impact than foreign corporate owners when performance is measured using stock market valuation criterion.

India is one of the fastest growing economies in South Asia, promising a growth of over 9 percent, second only to China, it would not be a surprise to see increased FII flows to India in the future. FIIs are now looking at the economy as a whole, with the macro-economic factors also playing their role in attracting foreign investors. Factors like a strong currency, key reforms in the banking, power and telecommunications sector, increased consumer spending and stable policies are expected to play a major role in attracting FIIs to India. The Securities Exchange Board of India (SEBI) along with the Institute of Chartered Accountants of India (ICAI) jointly monitor the markets and announces the regulatory measures thus making the Indian companies more transparent and more disciplined.

According to the April 2005 report on corporate governance by CLSA Emerging Markets, India ranks fourth with a score of 55.6 percent. Banaji (2000) emphasizes that the capital market reforms like improved market transparency, automation, dematerialization and regulations on reporting and disclosure standards were initiated because of the presence of the FIIs. But FII flows can be considered both as the cause and the effect of capital market reforms. The market reforms were initiated because of the presence of FIIs and this in turn has lead to increased flows.

The Government of India gave preferential treatment to FIIs till 1999-2000 by subjecting their long term capital gains to lower tax rate of 10 percent while the domestic investors had to pay higher long-term capital gains tax. The Indo-Mauritius Double Taxation Avoidance Convention 2000 (DTAC), exempts Mauritius-based entities from paying capital gains tax in India – including tax on income arising from the sale of shares. This gives an incentive for foreign investors to invest in Indian markets taking the Mauritius route. Consequently, we now see investments coming from Mauritius while there were none before 2000.

The country wise distribution of the FIIs registered in India, with majority of them coming from USA and UK. Chakrabarti (2002) and Rao et al. (1999) point out the fact that due to existing inter-linkages, the source of the FII investment might not be the country from where the institution operates. Nevertheless, the figure gives us an idea of the country wise distribution of the FIIs in India. So as to encourage long term investments in the Indian market, Budget 2003 proposed that investors who buy stocks of listed companies from March 1, 2003 be exempt from paying tax on the gains they make on their investments, provided they hold them for more than one year. With so much to benefit from, the FII investment in India is likely to increase in the future.

Regulation on FII

Investment by FII was jointly regulated by Securities and Exchange Board of India (SEBI) through the SEBI (Foreign Institutional Investors) Regulations, 1995 and by the Reserve Bank of India through Regulation 5(2) of the Foreign Exchange Management Act (FEMA), 1999. The promulgation of legislation pertaining to foreign investment by SEBI in 1995 market a watershed for FII flows to India; this led to a significant increase in the level of FII equity inflows in the pre-Asian crisis period. The SEBI FII Regulations and RBI policies are amended and modified from time to time in response to the gradual maturing of the Indian financial market and changes taking place in the global economic scenario.

In order to trade in India equity market, foreign corporation need to register with SEBI as Foreign Institutional Investors. Without registration they can invest, but cases require the approval from RBI. They are generally concentrated in secondary market. FII are allowed to invest in

a) Securities in primary and secondary market including shares, debentures and warrant of companies, unlisted, listed or to be the listed in India.

b) Units of mutual funds

c) Dated government securities

d) Derivative traded in a recognized stock market and

e) Commercial papers

FII can invest their own funds as well as invest on behalf of their over seas clients registered as such with SEBI. These client accounts that the FII manages are known as ‘sub accounts’. FII sub accounts include those foreign corporate, foreign individual, institution funds or portfolio established or incorporated out side India.

FII may issue deal in or hold off share derivative instrument such as participatory notes (PN). The entities that can subscribe to the PN are : a) Any entity incorporated in a jurisdiction that requires filing of constitutional or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction; b) Any entity that is regulated, authorized or supervised by a central bank, such as the Bank of England, or any other similar body provided that the entity must not only be authorized but also be regulated by the aforesaid regulatory bodies; c) Any entity that is regulated, authorized or supervised by a securities or futures commission, such as the Financial Services Authority or other securities or futures authority or commission in any country , state or territory ; d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange or other self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid mentioned organizations which are in the nature of self- regulatory organizations are ultimately accountable to the respective securities financial market regulators.

Investment limit

As per the September 1992 policy permitted foreign institutional investment registered FII could individually invest in a maximum of 5% of a company’s issued capital and all FIIs together up to a maximum of 24%. From November 1996 are allowed to make 10 percentage investment in debt securities subject to the specific approval from SEBI as a separate category of FIIs or sub accounts as 100% debt fund investment such investment were of occurs subjected to the fund specific ceiling prescribed by SEBI and had to be within overall ceiling US 1.5 $. The investment was however, restricted to the debt instrument of companies listed or to be listed on the stock exchanges. In 1997, the aggregate limit on investment by FIIs was allowed to be raised from 24% to 30% by then board of directors of individual companies by passing a resolution in their meeting and by special resolution to that effect in the company’s Board meeting. In June 1998 the 5% individual limit was raised to 10%.In March 2000, the ceiling on aggregate FII portfolio investment increased to 49%.This was subsequently raised to 49%, on March 8 2001, Finance minister announced February 28 2002 that foreign institutional investors can invest in accompany under the portfolio investment rout beyond 24% of the paid up capital of the company with the approval of the general body of the share holders by a special resolution.

Benefits and costs of FII investments

The terms of reference asking the Expert Group to consider how FII inflows can be

encouraged and examine the adequacy of the existing regulatory framework to adequately address the concern for reducing vulnerability to the flow of speculative capital do not include an examination of the desirability of encouraging FII inflows. Yet, for motivating the consideration of the policy options, it is useful to briefly summarize the benefits and costs for India of having FII investment. Given the Group’s mandate of encouraging FII flows, the available arguments that mitigate the costs have also been included under the relevant points.

Benefits

Reduced cost of equity capital

FII inflows augment the sources of funds in the Indian capital markets. In a commonsense way, the impact of FIIs upon the cost of equity capital may be visualized by asking what stock prices would be if there were no FIIs operating in India. FII investment reduces the required rate of return for equity, enhances stock prices, and fosters investment by Indian firms in the country.

Imparting stability to India’s Balance of Payments

For promoting growth in a developing country such as India, there is need to augment domestic investment, over and beyond domestic saving, through capital flows. The excess of domestic investment over domestic savings result in a current account deficit and this deficit is financed by capital flows in the balance of payments. Prior to 1991, debt flows and official development assistance dominated these capital flows. This mechanism of funding the current account deficit is widely believed to have played a role in the emergence of balance of payments difficulties in 1981 and 1991. Portfolio flows in the equity markets, and FDI, as opposed to debt-creating flows, are important as safer and more sustainable mechanisms for funding the current account deficit.

Knowledge flows

The activities of international institutional investors help strengthen Indian finance. FIIs advocate modern ideas in market design, promote innovation, development of sophisticated products such as financial derivatives, enhance competition in financial intermediation, and lead to spillovers of human capital by exposing Indian participants to modern financial techniques, and international best practices and systems.

Strengthening corporate governance

Domestic institutional and individual investors, used as they are to the ongoing practices of Indian corporates, often accept such practices, even when these do not measure up to the international benchmarks of best practices. FIIs, with their vast experience with modern corporate governance practices, are less tolerant of malpractice by corporate managers and owners (dominant shareholder). FII participation in domestic capital markets often lead to vigorous advocacy of sound corporate governance practices, improved efficiency and better shareholder value.

Improvements to market efficiency

A significant presence of FIIs in India can improve market efficiency through two channels. First, when adverse macroeconomic news, such as a bad monsoon, unsettles many domestic investors, it may be easier for a globally diversified portfolio manager to be more dispassionate about India’s prospects, and engage in stabilsing trades. Second, at the level of individual stocks and industries, FIIs may act as a channel through which knowledge and ideas about valuation of a firm or an industry can more rapidly propagate into India. For example, foreign investors were rapidly able to assess the potential of firms like Infosys, which are primarily export-oriented, applying valuation principles that prevailed outside India for software services companies.

Costs

Herding and positive feedback trading

There are concerns that foreign investors are chronically ill-informed about India, and this lack of sound information may generate herding (a large number of FIIs buying or selling together) and positive feedback trading (buying after positive returns, selling after negative returns). These kinds of behavior can exacerbate volatility, and push prices away from fair values. FIIs’ behavior in India, however, so far does not exhibit these patterns. Generally, contrary to ‘herding’, FIIs are seen to be involved in very large buying and selling at the same time. Gordon and Gupta (2003) find evidence against positive-feedback trading with FIIs buying after negative returns and vice versa.

BoP vulnerability

There are concerns that in an extreme event, there can be a massive flight of foreign capital out of India, triggering difficulties in the balance of payments front. India’s experience with FIIs so far, however, suggests that across episodes like the Pokhran blasts, or the 2001stock market scandal, no capital flight has taken place. A billion or more of US dollars of portfolio capital has never left India within the period of one month. When juxtaposed with India’s enormous current account and capital account flows, this suggests that there is little evidence of vulnerability so far.

Possibility of taking over companies

While FIIs are normally seen as pure portfolio investors, without interest in control, portfolio investors can occasionally behave like FDI investors, and seek control of companies that they have a substantial shareholding in. Such outcomes, however, may not be inconsistent with India’s quest for greater FDI. Furthermore, SEBI’s takeover code is in place, and has functioned fairly well, ensuring that all investors benefit equally in the event of a takeover.

Complexities of monetary management

A policymaker trying to design the ideal financial system has three objectives. The policy maker wants continuing national sovereignty in the pursuit of interest rate, inflation and exchange rate objectives; financial markets that are regulated, supervised and cushioned; and the benefits of global capital markets. Unfortunately, these three goals are incompatible. They form the “impossible trinity.” India’s openness to portfolio flows and FDI has effectively made the country’s capital account convertible for foreign institutions and investors. The problems of monetary management in general, and maintaining a tight exchange rate regime, reasonable interest rates and moderate inflation at the same time in particular, have come to the fore in recent times. The problem showed up in terms of very large foreign exchange reserve inflows requiring considerable sterilization operations by the RBI to maintain stable macroeconomic conditions. The Government had to introduce a Market Stabilization Scheme (MSS) from April1, 2004.

With the foreign exchange invested in highly liquid and safe foreign assets with low rates of return, and payment of a higher rate of interest on the treasury bills issued under MSS,

sterilization involves a cost. With a rapid rise in foreign exchange reserves and the need for having an MSS-based sterilization involving costs, questions have been raised about the desirability of encouraging more foreign exchange inflows in general and FII inflows in particular. While there is indeed the issue of timing the policy of encouragement appropriately to avoid the pitfalls of throwing the baby with the bath water, there can not be a turnaround from the avowed policy of gradual liberalization, including the cap ital account. All modern market economies have evolved policies to reconcile prudent monetary management with the benefits of a liberal capital account. There is no scope for any diffidence in India also moving in the same direction.

CONCLUSION

The liberalization policies had the desired expansionary effect and had either increased the mean level of FII inflows and/or the sensitivity of these flows to a change in BSE returns and /or the inertia of these flows. On the other hand, the restrictive measures aimed at achieving greater control over FII flows also did not show any significant negative impact on the net inflows, it had found that these policies mostly render FII investment sensitive to the domestic market returns and raise the inertia of the FII flows.

Foreign institutional investors had emerged as the most dominant investor group in the domestic stock market in India. Particularly, in the companies that constitute the Bombay stock market sensitivity index, their level of control was very high. Data on shareholding pattern showed that the FIIs were currently the most dominant non-promoter shareholder in most of the sensex companies and they also controlled more tradable shares of sensex companies than any other investor groups .The sensex, market capitalization of NSE, Turnover of BSE and NIFTY without market capitalizations were influenced by Foreign Institutional Investors. FIIs investment was not across the shares listed in the stock exchange but instead it was very concentrated on the top few company’s shares. Though there was a role by FII on Indian stock market. It was to be taken very cautiously because their influences were on the very few shares in the stock market, which influenced the indicator included in the study but which might not help the Indian economy to grow

The influence of FIIs on the movement of sensex became apparent after general election in India, during this period sensex experienced its worst single-day decline in its history and in the three month period between April to June 2004, it declined by about 17 percent. Moreover, this study also showed that even sharp changes in sensex did not necessarily indicted a significant alteration of actual shareholding pattern of different investor groups even in sensex companies. The activities of foreign institutional investors in emerging economies following the opening-up of the capital account were not simply positive for these countries but could also exert adverse effects. The reasons were derived from asymmetric distributions of information between local and foreign investors and between fund holders and mangers. Foreign institutional investors could be assumed to have relatively little information on specific developments in emerging markets so that ‘diluted information’ and ‘illusive competition’ could result. Their influence on these markets was likely to worsen the relative position of local investors which leads to ‘unbalanced diversification’. Moreover, due to their incentives they were likely to amplify occurring imbalances or even trigger financial shocks leading to what they call ‘obscure risks’ and ‘booming contagion’. The was long run relationship between net FII investment and sensex, FII investment did not respond the short-run changes or technical-position of the market and they were more driven by fundamentals, and FII investments did granger cause India stock market. The FIIs investments are highly concentrate in terms of their market value in very small number of companies. There seemed to be a clear distinction in the FIIs shareholding in nifty and non-nifty companies. There was a wide gap between the actual investments by FIIs and the investments allowed as per the cap.The gap in their investments existed both in nifty and non-nifty companies

REFERENCES

1 “Parthapratim pal” in 2006, he conducted study on “Foreign Portfolio Investment, Stock market and Economic Development: A case study of India”,

2 “Selen Serisoy Guerin” in 2006, conducted study on “The Role of Geography in Financial and Economic Integration: A comparative Analysis of foreign direct investment, Trade and Portfolio Investment Flows”

3 Keneeth A. Froot and Tarun Ramadorai in 2005, they conducted study on “The information content of international portfolio flows”,

4 A.Julia Priya, D. Lazar and Joseph Jeyapual in 2005, they conducted study on “Role of Foreign Institutional Investors on stock market development in India”,

5 Keneeth A. Froot and Tarun Ramadorai in 2005, they conducted study on “Currency Returns, Intrinsic value, and Institutional-Investor flows”,

6 Megumi Suto and Masashi Toshino in 2005, they conducted a study entitled as “Behavioral Biases of Japanese Institutional Investors: fund management and corporate governance”

7 “Suchismita Bose and Dipankor coondoo” in 2004, they conducted study on “The Impact of FII Regulation in India”,

8 Lakshmi sharma in 2004, he studied, “A Gap Analysis of FIIs Investment-An estimation of FIIs investment Avenues in Indian Equity Market.

9 Parthapratim pal in 2004 conducted study entitled as “Recent volatility in stock markets in India and foreign institutional investors.

10 “Michael Frenkel and Lukas Menkhoff” in 2004, they conducted study on “Are Foreign Institutional Investor Good for Emerging Markets?”,

11 “Brian Bushee” in 2004, he conducted study on “Identifying and attracting the “right” investors: evidence on the behavior of Institutional investors”,

12 “Christophe faugere and Hany A. Shaby in 2003, they analyzed study on “Volatility and Institutional Investor holdings in a declining market: A study of NASDAQ during the year 2000”.

13 Gayathri Devi .R in 2003, she conducted study on “Causal Relationship between FIIs and Stock Market: A critical study”

14 “sandhya Ananthanaryanan, Chandrasekhar krishnamurthi and Nilajan Sen in 2003 conducted study as “Foreign institutional Investors and Security Returns: Evidence from Indian Stock Exchanges”,

15 Stuart L. Gillan and Laura T. Starks in 2003, they conducted study as “corporate Governance, corporate ownership, and the Role of Institutional Investors: A Global perspective”,

16 “Vihang Errunza” in 2001, he conducted study entitled as “foreign portfolio equity investments, financial liberalization and economic development

17 J.S. Pasricha and Umesh.C.Singh in 2001, tried to analyze the impact of FIIs investment on Indian capital market.

18 S.S.S. Kumar in 2001, attempted in his study to find the effect of FIIs on the Indian stock market.

19 “Rajesh chakrabarti” in 2000 conducted study on “FII Flows to India: Nature and Causes”

20 C.H. Rajeswar in 2000, he conducted study entitled “Foreign Institutional Investors – A new force of support and discipline”

21 As per K. Seethapathi and V. Subbulakshmi study entitled “Foreign investment: Need for focus”,

22 Ila Patnik and Deepa Vasudevan in 1998, their study entitled “foreign portfolio investment to India

23 “Rene M. Stulz” in 1999, he analyzed study on “international portfolio flows and security markets”.

24 Yung Chul Park and Chi-Young Song, they conducted study on “Institutional Investors, Trade linkage, Macroeconomic similarities and contagious Thai crisis

I am in my early twenties and want to get started with investing. What are some resources that are available to learn about investing?

My wife and I are both on Social Security.We dont have alot of money,but enough to invest $50 to $100 each month.We are in our early 40′s and would like to have a little nest for the future.I am very green when it comes to investing.I am a little leary about investment firms. I have heard some bad things.Dont know which ones i can trust.I would like a deversified portfolio just dont know how to safely deversify it.Also could you recomend a good book to get me started in understanding the investing world a little better.(stocks,bonds,mutuial funds,401′s,Ira’s)ect…A little advice would be greatly apriciated. THANK YOU TRENT& GINA. SAC, CAL.

Five minutes into the call I knew this client was going to make my life miserable. The problem was, I already said “Yes.”

Into every professional practice falls a little rain, or better said…walks in a nightmare client. You start losing sleep by a couple of hours every night, you keep thinking about her project during your lunch time, and you feel like your life has been taken over by this client.

What a nightmare! Didn’t we go into the business for ourselves to enjoy it? Do we not have the choice of who to work with? Of course, we do! The challenge is in recognizing a difficult client early enough to say “No.”

So how do you do that? First, determine what “difficult” means to you. It may mean different things to different people. For example, while some professionals will be happy to take a phone call from a client between 9 and 5, others may have a special time set aside for phone calls. While some business owners love getting detailed specifications for a project, others may feel trapped and limited in their creativity.

1. What is a difficult client

To help you decide what things may be important to you, here are some of the most common traits of difficult clients:

- They do not respect your time

- They tell you how to do your work

- They always check up on you

- They constantly change their mind about a project

- They knit pick over every detail

- They try to intimidate you into doing things you haven’t agreed to

- They treat you as if they’re the boss and you are the employee

- They have little respect for your expertise

- They call you at a non-scheduled time

- They frequently e-mail you with questions, requiring long replies

- They ask you to throw in a few extras without offering to pay extra

- They keep reminding you how high your fees are

- They are frequently disappointed with your work

- They won’t pay on time, but ask you to continue working with them

- They frequently cancel or reschedule your meetings

- They believe they’re your only client, & demand your full attention

You can complete this list by adding a few other traits that you find annoying or unacceptable in your business, or to your life style.

2. Red flags: Early warnings of a difficult client

Once you know what’s important to you, how do you look for signs that this may be a difficult client? First of all, listen to your intuition. It’s easy to ignore the red flags, especially if you’re hungry for business.

“Your gut is never wrong,” one IT consultant said. “Whenever I’ve ended up with a nightmare client, it’s because I didn’t listen to my instinct and I went for the zeroes.”

Listen to your instinct. Additionally, do your best to avoid clients that:

- Don’t want to sign a contract

- Are in a rush

- Are looking for the cheapest provider

- Are your friends and relatives

Create a profile of your ideal client, and check every prospect against it before taking them on. “This is crazy!” you may be thinking. “Won’t choosing clients so carefully cost me business?” Not really.

Usually, you will spend more time on a difficult client (time that you could spend prospecting, working with other clients, or simply taking a break), your mood and personal life may become affected by this project, and you may even end up not being paid at all!

Screen your prospects carefully, and instantly improve the quality of your business life.

3. Assessments – your best friend in screening clients

After reading this, you may be thinking that screening takes too much work and time. Bear with me, because this task has just become as easy as 1-2-3.

You can completely automate the screening process, by asking your prospects to complete an assessment before you take them on.

The questions you ask should include the things that are important to you as a business owner, and as a person. You may ask them about how they worked with professionals in the past, what their style of communication is, how much time they plan to devote to this project, what their deadline is, how committed they are to completing it, and so on. Refer to your ideal client profile when putting together a list of questions.

The fact that they’re willing to spend time answering an extensive list of questions already shows that this is a serious prospect, and helps you weed out as many “time-wasters” as possible.

4. Automating your screening process

So how do you actually automate the screening process? Very simple. You can use AssessmentGenerator.com, a tool that allows you to create your own forms and assessments, and have them on your web site within minutes. Whenever you get a new prospect, send them a link to your online assessment and ask them to complete it before your first call.

Assessment Generator does not require you to know any HTML or install any scripts. Simply enter your questions and the e-mail address, where you want to receive completed assessments, and it’s ready to be added to your site.

You can also create self-scoring assessments, where you and your prospect can see a score based on how they answered questions. Self-scoring assessments are great when you want to work only with clients who reached a certain level of readiness in something. For example, you may only want to work with business owners who understand the importance of marketing. Their assessment score will show you how ready they are to work with you.

Conclusion

Many professionals already conduct assessments when they first meet their clients. The problem is, they do it over the telephone, which means they have to set aside a half-hour or more to determine if this prospect is their ideal client. If he or she is not, then they have just wasted their precious time, which could’ve been spent on a more productive activity.

Automating the screening process with AssessmentGenerator.com will make your life easier and business more enjoyable. Here’s to ideal clients and a stress-free business!

Milana Leshinsky shows coaches and consultants how to turn their knowledge into a multiple income stream business empire. To get a FREE copy of her “New Coaching Manifesto: Why 9% of Coaches Succeed, While Others Fail, and What To Do To Prosper In Coaching”, visit her web site at http://www.CoachingMillions.com

Article Source:http://www.articlesbase.com/business-opportunities-articles/dont-work-with-jerks-how-to-recognize-a-difficult-client-early-1605152.html