project mktng

8/7/2019 PROJECT MKTNG

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PROJECT

ON

INVESTMENT OPTIONS

IN INDIA

BY:

SAKSHI SINGHAL

B.COM (HONS) IIIRD YEAR

SECTION A

ROLL.NO. 3001

UNDER SUPERVISION OF:

MS. EMA MITTAL

DEPARTMENT OF COMMERCE

KESHAV MAHAVIDYALAYA

(UNIVERSITY OF DELHI)


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DECLARATION

I, Sakshi Singhal, student of B.Com (Hons), final year have made this project on

Investment Options In India. I certify that the information contained in this report

is an original work & fully based on my understanding. The information taken

from different sources has been acknowledged. I agree to abide by the decisions made

by the Teacher-in-charge, in case, this report is found as a work of copy.

TEACHER-IN-CHARGE STUDENT

( Ms.Ema Mittal) (Sakshi Singhal)


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ACKNOWLEDGEMENT

I want to express my sincere thanks and deep sense of gratitude to my mentor

and respected teacher Ms. EMA MITTAL and to all teachers of Keshav

Mahavidyalaya for their valuable guidance, interest and constant encouragement for

fulfillment of our project. It is a great opportunity for me to work on such an

interesting topic which would prove to be of great help in understanding the

investing procedures and options in India .

Sakshi Singhal

B.Com (hons)


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IINNDDEEXX

Chapter-1y Introductiony Objective of the studyy Scope of the study

Chapter-2y Meaning of Investmenty Characteristics of Investmenty Setting the investment objectivesy SWOT analysisy Investment decision making approaches

Chapter-3y Investment options in India Fixed deposits Bonds Stock market Real Estate Mutual Funds Insurance Gold

Chapter-4y Few analysisy Suggestions and recommendations

Conclusion Bibliography


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CHAPTER 1

Introduction

Savings from an important part of the economy of any nation, with the savings invested in

various options available to the people, the money acts as the driver for growth of the country.

Indian financial scene too presents a plethora of avenues to the investors. Though certainly not

the best or deepest of markets in the world, it has reasonable options for an ordinary man to

invest his savings.

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of

keeping the savings idle you may like to use savings in order to get return on it in the future, this

is called investment.

Our needs to invest and earn return on your idle resources and generate sum of money for a

specific goal in life and make a provision for an uncertain future. One of the important reason

why people need to invest wisely is to meet the cost of inflation. Inflation is the rate at which the

cost of living increases. The sooner one starts investing the better it is. By investing early you

allow your investments more time to grow, whereby the concept of compounding increases you

income by accumulating the principal and interest or dividend earned on it, year after year. The

three golden rules for all investors are:

y Invest earlyy Invest regularlyy Invest for long-term and not for short termy

Objectives of the study

y To understand all about different investment avenues available in India.y What are the various factors that are considered before investing.y To understand pros and cons of investment avenues.


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Scope of the study

This project enables to have a better knowledge of investing options available in the market. The

project highlights some of the most important investing options available with the Indian

investors. It gives an overview of pros and cons of investing in different avenues and also help in

choosing best from them.

CHAPTER-2

Meaning of Investment

Investment is an activity that is engaged in by people who have savings, i.e. investments are

made from savings, or in other words, people invest their savings. But all savers are not

investors. Investment is an activity which is different from saving. It may mean many things to

many persons. If one person has advanced some money to another, he may consider his loan as

an investment. He expects to get back the money along with interest at a future date. Another

person may have purchased one kg of gold for the purpose of price appreciation and may

consider it as an investment. Yet another person may purchase an insurance plan for the various

benefits it promises in the future. That is his investment. In all these cases it can be seen that

investment involves employment of funds with the aim of achieving additional income or growth

in values. The essential quality of an investment is that it involves waiting for a reward.

Investment involves the commitment of resources which have been saved in the hope that some

benefits will accrue in future. Thus investment may be defined as a commitment of funds made

in the expectation of some positive rate of return . Expectation of return is an essential element

of investment. Since the return is expected to be realized in future, there is a possibility that the

return actually realized is lower than the return expected to be realized. This possibility of

variation in the actual return is known as investment risk.


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Characteristics of Investment

All investments are characterized by certain .features. Let us analyze these characteristic features

of investments.

y ReturnAll investments are characterized by the expectation of a return. In fact, investments are

made with the primary objective of deriving a return. The return may be received in the

form of yield plus capital appreciation. The difference between the sale price and the

purchase price is capital appreciation. The dividend or interest received from the

investment is the yield. Different types of investments promise different rates of return.

The return from an investment depends upon the nature of the investment, the maturity

period and a host of other factors.

y RiskRisk is inherent in any investment. This risk may relate to loss of capital, delay in

repayment of capital, nonpayment of interest, or variability of returns. While some

investments like government securities and bank deposits are almost riskiness, others are

more risky. The risk of an investment depends on the following factors.

o The longer the maturity period, the larger is the risk.o The lower the credit worthiness of the borrower, the higher is the risk.o The risk varies with the nature of investment.

y SafetyThe safety of an investment implies the certainty of return of capital without loss

of money or time. Safety is another feature which an investor desires for his investments.

Every investor expects to get back his capital on maturity without loss and without delay.

y LiquidityAn investment which is easily saleable or marketable without loss of money and without

loss of time is said to possess liquidity. Some investments like company deposits,

bank deposits, P0. Deposits, NSC, NSS etc. are not marketable. Some investment

instruments like preference shares and debentures are marketable, but there are no buyers


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in many cases and hence their liquidity is negligible. Equity shares of companies listed on

stock exchanges are easily marketable through the stock exchanges. An investor

generally prefers liquidity for his investments, safety of his funds, a good return with

minimum risk or minimization of risk and maximization of return.

Setting the Investment Objectives

The first step for the investor is to set the investment objective. Which would vary for

individuals, pension and mutual funds, banks, financial institutions, insurance companies, etc?

For instance the objective for a pension or mutual fund or insurance company maybe to have a

cash flow specification to satisfy liabilities at different dates in the future. These liabilities would

include redemption, dividends or claim settlement payouts.

For the individual investor the objective maybe to maximize return on investment. A more

appropriate word would be optimize. As the individual would achieve optimum return at

optimum risk. To maximize return would imply the maximization of risk, which would not be

practical or sustainable.

SWOT Analysis:

Strengths:

y Whether he is living in own home/house.y Whether he owns office space (may even be generating rental income).y Whether the investment knowledge base is available.y Whether the investment system, management process, and platform are available.y Whether the investment capital is available.

Weaknesses:

y Level of risk tolerance; would be a weakness if it is high.y Level of money management skills.y Whether there is enough income generation through present investments.


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y Whether there is a current expenses overrun.

Opportunities:

yWhether there is potential for growth.

Threats:

y Inflation risk.y Interest rate risk.y Conduct and actions of the peer group and extended family which may cause financial

damage or harm.

Investment Decision Making Approaches

As investors we would have diverse investment strategies with the primary aim to achieve

superior performance, which would also mean a higher rate of return on our investments.

All investment strategies can be broadly classified under 4 approaches, which are explained

below.

Fundamental approach: In this approach the investor is concerned with the intrinsic value of

the investment instrument. Given below are the basic rules followed by the fundamental investor.

There is an intrinsic value of a security, which in turn is dependent on the underlying economic

factors. This intrinsic value can be ascertained by an in-depth analysis of the fundamental or

economic factors related to an economy, industry and company.

At any point in time, many securities have current market prices, which are different from their

intrinsic values. However, sometime in the future the current market price would become the

same as its intrinsic value. We as fundamental investors can achieve superior results by buying

undervalued securities and selling overvalued securities.

Psychological approach: The psychological investor would base his investment decision on the

premise that stock prices are guided by emotions and not reason. This would imply that the stock


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prices are influenced by the prevalent mood of the investors. This mood would swing and

oscillate between the two extremes of greed and fear. When greed has the lead stock

prices tend to achieve dizzy heights. And when fear takes over stock prices get depressed to

lower than lower levels.

As psychic values seem to be more important than intrinsic values, it is suggested that it would

be more profitable to analyze investor behaviour as the market is swept by optimism and

pessimism. Which seem to alternate one after the other? This approach is also called Castle-in-

the-air theory. In this approach the investor uses some tools of technical analysis, with a view to

study the internal market data, towards developing trading rules to make profits..

Academic approach: Over the years, the academics have studied many aspects of the securities

market and have developed advanced methods of analysis. The basic rules are:

The stock markets are efficient and react rationally and fast to the information flow over time.

So, the current market price would reflect its intrinsic value at all times. This would

mean "Current market price = Intrinsic value".

Stock prices behave in a random fashion and successive price changes are independent of each

other. Thus, present price behavior can not predict future price behavior.

In the securities market there is a positive and linear relationship between risk and return. That is

the expected return from a security has a linear relationship with the systemic or non-

diversifiable risk of the market.

Eclectic approach: This approach draws upon all the 3 approaches discussed above. The basic

rules of this approach are:

1. Fundamental analysis would help us in establishing standards and benchmarks.

2. Technical analysis would help us gauge the current investor mood and the relative strength of

demand and supply.


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3. The market is neither well ordered nor speculative. The market has imperfections, but reacts

reasonably well to the flow of information. Although some securities would be mispriced, there

is a positive correlation between risk and return.

CHAPTER-3

Investment Options In India

1. Fixed Deposits

There are many investment options available for the people in the market, but there are

mainly five investment options, which are considered to be as most popular and most

effective investment options available in the current market scenario. In general, almost

95-98% people do invest in these, since the Expected Rate ofReturn is much higher

than any other investment options, irrespective of the amount of risk is very high in

some of the cases.

This investment option is most popular and safest option available in the market. With

almost every working people invest in fixed deposits; this investment option leads the

chart of four investment options because of its safety and popularity. Though theamount of return is much lesser than the other three opt ions, this opt ion heads the table

as it has almost no risk of losing the invested amount. Also, it is the oldest among the

other three, so the trust factor of people is very high. There are mainly three types of

fixed deposits available in the market, namely, viz.

a) Fixed deposits offered by Banks:Considered as the safest of all opt ions, For an ordinary person though, banks have acted

as the safest avenue wherein a person deposits money and earns interest on it. The two

main modes of investment in banks, savings accounts and fixed deposits have been

effectively used by one and all. However, today the interest rate structure in the country

is headed southwards, keeping in line with global trends. With the banks offering just


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above in their fixed deposits for one year, the yields have come down substantially in

recent times. Add to this, inflammatory pressure in the economy and we have a position

where the savings are not earning. The inflation is creeping up almost 8% at times, this

means the value of money saved goes down instead of go ing up. This effectively marks

any chance of gaining investments from the banks.

b) Fixed deposits offered by PostOffices:Just like banks, post offices in India have a wide network. Spread across the nation,

they offer financial assistance as well as serving the basic requirements of

communication. Among all saving options, Post office schemes have been offering the

highest rates. Added to it is the fact that the investments are safe with the department

being a Government of India entity. Soothe two basic and most sought features, those of

return safety and quantum of returns were being handsomely taken care of. Though

certainly current market position is not the most efficient systems in terms of service

standards and liquidity; these have still managed to attract the attention of small, retail

investors. However with the government investing its intention of reducing the interest

rates in small savings options, this avenue is expected to lose some of the investors.

Public Provident Funds act as options to save for the postretirement period for most

people and have been considered good option largely due to the fact that returns were

higher than most other options and also helped people gain from tax benefits under

various sections. This option too is likely to lose some of its sheen on account of

reduction in the rates offered.

c) Company fixed deposits:Another oft-used route to invest has been the fixed deposit schemes floated by

companies. Companies have used fixed deposit schemes as a means of mobilizing funds

for their options and have paid interest on them. The safer a company is rated, the lesser

the return offered has been the thumb rule.

However, there are several potential roadblocks are there.


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Firstly, of all the danger of financial positions of the company not being understood by

the investor lurks. The investors rely on intermediaries who more often than not, dont

reveal theentire truth.

Secondly, liquidity is a major problem with the amount being received months after the

duedates. Premature redemption is generally not entertained without cuts in the returns

offered and though they present a reasonable option to counter interest rate risk

(especially when the economy is headed for a low interest regime), the safety of amount

has been found lacking. Many cases like the KuberGroup and DCM Group fiascos have

resulted in low confidence in this option.

They cover the fixed deposits of varied tenures offered by the commercial banks and

other on-banking financial institutions. These are generally a low risk prepositions as

the commercial banks are believed to return the amount due without default. By and

large these FDs are the preferred choice of risk-averse Indian investors who rate safety

of capital & ease of investment above all parameters. Largely, these investments earn a

marginal rate of return of 6-8% per annum.

2. Bonds

Bonds are a negot iable certificate evidencing indebtedness. It is normally unsecured. A debt

security is generally issued by a company, municipality or government. A bond investor

lends money to the issuer and in exchange, the issuer promises to repay the loan amount on

a specified maturity date. The issuer usually pays the bond holder periodic interest payments

over the life of the bond.

DIFFERENT TYPES OF BONDS:

a. Zero coupon bonds-This bond is issued at a discount and repaid at a face value. Noperiodic interest is paid at the time of maturity. The difference between the issue

price and the redemption price represents the return of the holder.

b. Deep discount bond-This bond is issued at a very high discount on its face valueand face value is paid at the time of maturity. IDBI and SIDBI had issued this

instrument .IDBI had issued deep discount bond of face value ofRs.1 lakh at a price


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ofRs.2, 700/- with a maturity period of 25years. The bond appreciates to its face

value over the maturity period of 25 years. Alternatively, the investor can withdraw

from the investment periodically after 5 years.

c. Convertible Bond-A bond gives the investor the option to convert the bond intoequity at a fixed conversion pr ice.

d. Dual convertible bond-A dual convertible bond is convertible into either equityshares or debentures/preference shares at the option of the investor.

e. Disaster Bonds-These are issued by companies and institutions to share the risk andexpand the capital to link investors return with the size of investors losses, the

smaller the return and vice-versa.

f. Commodity Bonds-Commodity bonds are bonds issued to share the risk andprofitability of future commodity prices with the investors. For example, Petro

bonds, gold bonds, silver bonds etc.

Bonds are IOUs issues by companies or governments when they need to raise cash. In

the case of corporate bonds they are an alternative source of finances to shares/stocks,

but instead of then owning part of the company and sharing the profits (which is fairly

risky) with a bond you are promised your money back on a certain date with a regular

fixed interest payment or "coupon"(originally called that because the bond certificate

had coupons attached that could be torn off and redeemed on certain dates) Good

solvent companies (or governments) will pay the coupons and the

original sum

3.Stock Market

Indian stock markets particularly the BSE and the NSE, had been a preferred

destination not only for the Indian investors but also for the Foreign investors.

Although Indian Markets had been through tough times due to various scams, buthistory shows that they recovered very fast. Many types of scrip had been value creators

for the investors. People have earned fortunes from the stock markets, but there are

people who have lost everything due to incorrect timings or selection of fundamentally

weak companies.

The Indian Stock Market is also the other name for Indian Equity Market or Indian


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Share Market. The forces of the market depend on the monsoons, global funding

flowing into equities in the market and the performance of various companies. The

market of equities is transacted on the basis of two major stock indices, National Stock

Exchange of India Ltd.(NSE) and The Bombay Stock Exchange (BSE), the trading

being carried on in dematerialized form. The physical stocks are in liquid form and

cannot be sold by the investors in any market.

Why do so many people invest in shares?

Simply put, you want to invest in order to create wealth. While investing is relatively

painless, its rewards are plentiful. To understand why you need to invest, you need to

realize that you lose when you just save and do not invest. That is because the value of

the rupee decreases every year due to inflation. Historically shares have outperformed

all the other investment instruments and given the maximum returns in the long run. In

the twenty-five-year period of 1980-2005 while the other instruments have barely

managed to generate returns at a rate higher than the inflation rate (7.10%), on an

average shares have given returns of about 17% in a year and that does not even take

into account the dividend income from them. Were we to factor in the dividend income

as well, the shares would have given even higher returns during the same period.

[Inflation: general rise in prices and wages caused by an increase in the money supply

and demand for goods, and resulting in a fall in the value of money. Inflation occurs

when most prices rise by some degree across the economy.]

Advantages of investing in shares:

There are lots of advantages of investment in share market. Some of these are:

a. Dividend income: investments in shares are attractive as much for theappreciation in the share prices as for the dividends their companies pay out.

b. Taxadvantages: shares appear as the best investment option if you also considerthe unbeatable tax benefits that they offer. First, the dividend income is tax-free

in the hands of investors. Second, you are required to pay only a 10% short term

capital gains tax on the profits made from investments in shares, if you book


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your profits within a year of making the purchase. Third, you don't need to pay

any long term capital gains tax on the profits if you sell the shares after holding

them for a period of one year. The capital gains tax rate is much higher for other

investment instruments: a 30% short-term capital gains tax (assuming that you

fall in the 30% tax bracket) and a 10% long-term capital gains tax.

c. Easy liquidity: shares can also be made liquid anytime from anywhere (onsharekhan.comyou can sell a share at the click of a mouse from anywhere in the

world) and the gains can be realized in just two working days. Considering the

high returns, the tax advantages and thehighly liquid nature, shares are the best

investment option to create wealth.

How people earn from the investment in shares?

Shares can give us returns in two forms.

A.Appreciation in share prices: You buy shares with the belief that their price will

increase and that when this happens you will be able to sell off your shares and earn

profit. Forexample, if you bought a share forRs100 three years ago and it is

Rs500 today, then you have earned Rs400 in three years.

B. Dividend: when a company makes profits, it can choose to share part of its profits

with itsShareholders by paying out dividend. This dividend is paid as a percentage of

the face value of the share. For example, a company may declare a dividend of 25%.

Then if the face value of its share is Rs10 you will get Rs2.50 for every share you own

of that company, irrespective of the market price. In itself this might not be much, but

over a longer period of time or if you have a lot of shares, you could earn quite a bit

from the dividend itself. The best thing about dividends is that they are tax-free in the

hands of investors. Dividend yield stocks are known to give returns higher than fixed

deposits [dividend yield = (dividend per share / market price of the share) x 100].

What are the expenses during transaction?

Every share transaction attracts some tax or the other. Some of the main expenses are as


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follows.

A. Capital gains tax: If you purchase a share and sell it at a price higher than the

purchaseprice and if this sale is within a year of the purchase, then a 10% capital gains

tax is levied on the profit that you make. For example, if you bought a share forRs100

on January 1, 2005and sold it forRs150 on July 1, 2005, then you have to pay a tax of

10% on the Rs50 profit that you make. If you sell after a year of purchase, there is no

tax on the long-term gains.

B. Securities transaction tax: Securities transaction tax (STT) is levied by the

government on every transaction you do on a stock exchange. You dont have to pay

this separately; its collected by your broker. As per the Union Budget 2005 the STT

will be 0.10% on delivery-based transactions and 0.02% on intra-day transactions.

C. Brokerage: Brokers get a commission on every trade that they do for you. This

Commission varies from broker to broker; at sharekhan.com the brokerage is 0.5% for

delivery-based transactions and 0.10% for intraday transactions. On the brokerage

amount you are required to pay a service tax to the government (to be collected by the

broker). The brokerage varies depending on the service that the broker provides you.

Some brokers, such as Share khan, offer its clients regular updates on companies,

multiple means to transact and customer service support.

D. Depository fees: Since most of the shares exist in a dematerialized form, every time

you buy or sell shares the transactions are being noted by your DP. The DPs normally

levy acharge which is an annual charge or a charge on each transaction.

Risks ---the only disadvantage in investing in shares:

There are two types of risk associated with this kind of investment: company specific

riskandmarket risk.

Set of risks that deals with a company and its sector are referred to as company

specific risk.

Example s of company specific risk: bad management, bad marketing strategies, sector


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disturbances that have an impact on industry etc.External factors (economic, global

factors) that affect the market as a whole are referred to as market risk.

Example s of market risk: political instability, high inflation, rupee depreciation, rising

Interest rates, global incidents like wars and disasters that throttle the nation's economy

etc.

How company specific risk can be identified?

With careful scrutiny and proper homework, it might be easy to identify and be

forewarned of the risks a company may be carrying. Specifically check out for the

mergers and acquisitions that do not have a real synergy or are a nightmare after

reconciliation (A O L - Time Warner, Hewlett Packard-Compaq).

Also is suspicious of diversifications that do not really add value to a company's core

offering. A third kind of risk would be with the companies that have bet their stakes on

single product offering and are high on debt. Likewise companies that depend on

research could be prone to higher risk, if the research doesn't come to fruition.

How people can minimize their risk and maximize their return?

Buy when stocks are falling, sell when these are rising. This works well when you are a

long-term investor and there is an extended bear or Bull Run. Don't try to second guess

or predict that the market will fall today and rise tomorrow. Even seasoned investors

cannot do that!

A. Don't try to guess the market's favoritesYour instincts might tell you that pharmacy or technology stocks are hot due to

certain policies or events, but remember millions of investors have already

guessed that and bought t hese stocks. The prices of these stocks would therefore

be at a higher level when you buy them. Instead focus on the long term and don't

get swayed by short-term events.

B.Avoid hot tips


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You may have overheard some news about a stock or your friend may advise that

a particular stock is all geared to move up. Avoid such tips like the plague and

your investments will remain safe.

C. Blue-chips are safe betsBlue-chip companies are there because they have done well in the past and have

a high market capitalization. It is a likely guess that they will maintain their

track record and give you higher returns even in future. Therefore invest in

companies that have a good track record.

D.Slow and steady streamof investmentsSet aside a certain portion of your earnings every month and invest that sum in

shares irrespective of the market conditions. This way, over a period of time you

can amass substantial number of shares of the stocks in your portfolio.

E. ThinkportfolioDon't put all your earnings in a single stock. Try to have a diverse portfolio of

stocks. This way even if one stock doesn't do well, you are still well protected.

Also invest across sectors, since any problem in one sector would affect all

stocks in the sector. As a thumb rule, if you have investments of up to Rs50, 000

invest in two to three stocks. For about Rs150, 000invest in three to five stocks,

for around Rs500, 000 have five to seven stocks and around ten stocks for higher

amounts.

F. Dont investall your savingsAlways maintain a core set of reserves. You should never touch these reserves

for investing, so that even in the worst case you still have some money.

Typically these reserves should be your salary of about six months.

4. RealEstate


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Returns are almost guaranteed because property values are always on the rise due to

growing world population. Residential real estate is more than just an investment. There

are more ways than ever before to profit from real estate investment.

Real Estate Investment Groups

Real estate investment groups are similar to small mutualfunds. They are set up for rental

properties. While an investor may own one or more units, a professionally managed company

acquires, builds, maintains and lets out all the units on the properties in exchange for a

percentage of the monthly rent.

Real Estate Trading

Real estate traders hold properties for only a short span of time (less than four months), aiming to

sell them at a profit. This process is called flipping properties. Investors aim at purchasing

significantly undervalued or very hot properties. Such owners may or may not invest money into

improving the property before putting it back on sale. A bear market could result in substantial

losses for a real estate trader, since the investment is large.

Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is a corporation that invests in real estate. REITs trade on

major exchanges. A REIT uses investors' money to acquire and operate properties.

The benefits ofREITs are:

y REITs provide fairly regular income.y Investors gain exposure to non-residential investments (like malls and office buildings).y REITs are highly liquid.y REITs are required by law to distribute 90% of their taxable income in the form ofdividends to

shareholders.

Before making a choice regarding the kind of real estate participation, an investor must evaluate

his/her investment capacity and risk appetite


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5. Mutua l Funds

There is a co llection of investors in Mutual funds that have pro fessional fund managers

that invest in the stock market collectively on behalf of investors. Mutual funds offer a

better route to investing in equities for lay investors. A mutual fund acts like a

professional fund manager, investing the money and passing the returns to its investors.

All it deducts is management fee and its expenses, which are declared in its offer

document.

Mutual Funds are essentially investment vehicles where people with similar

investment objective come together to pool their money and then invest accordingly.

Each unit of any scheme represents the proportion of pool owned by the unit holder

(investor).

Mutual Funds in I ndia are financial instruments. These funds are co llective investments

which gather money from different investors to invest in stocks, short-term money

market financial instruments, bonds and other securities and distribute the proceeds as

dividends. The Mutual Funds in India are handled by Fund Managers, also referred as

the portfolio managers. The Securities Exchange Board of India regulates the Mutual

Funds in India. The share value of the Mutual Funds in India is known as net asset

value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds

in India, by dividing it with the number of shares issued and outstanding shares on daily

basis.

Benefits of Mutual Funds:-

Investing in mutual has various benefits, which makes it an ideal investment avenue.

a. Professional investmentmanagement:One of the primary benefits of mutual funds is that an investor has access to

professional management. A good investment manager is certainly worth the fees you

will pay. Good mutual fund managers with an excellent research team can do a better

job of monitoring the companies they have chosen to invest in than you can, unless you


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have time to spend on researching the companies you select for your portfolio. That is

because Mutual funds hire full-time, high-level investment professionals. Funds can

afford to do so as they manage large pools of money. The managers have real-time

access to crucial market information and arable to execute trades on the largest and

most cost-effective scale. When you buy a mutual fund, the primary asset you are

buying is the manager, who will be controlling which assets are chosen to meet the

funds' stated investment objectives.

b. Diversification:A crucial element in investing is asset allocation. It plays a very big part in the success

of any portfolio. However, small investors do not have enough money to properly

allocate their assets. By pooling your funds with others, you can quickly benefit from

greater diversification. Mutual funds invest in a broad range of securities. This limits

investment risk by reducing the effect of a possible decline in the value of any one

security. Mutual fund unit-holders can benefit from diversification techniques usually

available only to investors wealthy enough to buy significant positions in a wide variety

of securities.

c. Low Cost:A mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000,

and sometimes less.

d. Convenience and Flexibility:Investing in mutual funds has its own convenience. While you own just one security

rather than many, you still enjoy the benefits of a diversified portfolio and a wide range

of services. Fund managers decide what securities to t rade collect the interest payments

and see that your dividends on portfolio securities are received and your rights

exercised. Another big advantage is that you can move your funds easily from one fund

to another within a mutual fund family.


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e. Liquidity:In open-ended schemes, you can get your money back promptly at net asset value

related prices.

f. Transparency:Regulations for mutual funds have made the industry very transparent. You can track

the investments that have been made on your behalf and the specific investments made

by the mutual fund scheme to see where your money is going. In addition to this, you

get regular information on the value of your investment.

g. Variety:There is no shortage of variety when investing in mutual funds. You can find a mutual

fund that matches just about any investing strategy you select. There are funds that

focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The

greatest challenge can be sorting through the variety and picking the best for you.

Mutual fund risks:

Having understood the basics of mutual funds the next step is to build a successful

investment portfolio. Before you can begin to build a portfolio, one should understand

some other elements of mutual fund investing and how they can affect the potential

value of your investments over the years. The first thing that has to be kept in mind is

that when you investing mutual funds, there is no guarantee that you will end up with

more money when you withdraw your investment than what you started out with.

That is the potential of loss is always there. Even so, the opportunity for investment

growth that is possible through investments in mutual funds far exceeds that concern for

most investors.

Here's why:-

At the cornerstone of investing is the basic principal that the greater the risk you take,

the greater the potential reward. Risk then, refers to the volatility -- the up and down


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activity in the markets and individual issues that occurs constantly over time. This

volatility can because by a number of factors -- interest rate changes, inflation or

general economic conditions. It is this variability, uncertainty and potential for loss,

that causes investors to worry. We all fear the possibility that a stock we invest in will

fall substantially. Different types of mutual funds have different levels of volatility or

potential price change, and those with the greater chance of losing value are also the

funds that can produce the greater returns for you over time. You might find it helpful

to remember that all financial investments will fluctuate. There are very few perfectly

safe havens and those simply don't pay enough to beat inflation over the long run.

Structure of the Indian mutual fund industry:

The Indian mutual fund industry is dominated by the Unit Trust of India, which has a

total corpus ofRs. 700bn collected from more than 20 million investors. The UTI has

many schemes in all categories i.e. equity, balanced, income etc with something open

ended and some being closed ended. The unit scheme 1964 commonly referred to as US

64, which is balanced fund, is the biggest scheme with a corpus of about Rs. 200bn.

UTI was floated by financial institution and is govern by a special act of parliament.

Most of its investors believe that the UTI is government owned and controlled, which,

while legally uncorrected, is true for all practical purposes.

Restrictions on Investments:

A mutual fund scheme shall not invest more than 15% of its NAV in debt instrument

issued by a single issuer, which are rated not below investment grade by a credit rating

agency authorized to carry out such activity under the Act. Such investment limit may

be extended to20% of the NAV of the scheme with the prior approval of the Board of

Trustees and the Board of Asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debtinstruments issued by a single issuer and the total investment in such instruments shall

not exceed 25% of the NAV of the scheme. All such investments shall be made with the

prior approval of the Board of Trustees and the Board of Asset Management Company.

No mutual fund under all its schemes should own more than ten percent of any

companys paid up capital carrying voting rights.


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Such transfers are done at the prevailing market price for quoted instruments on spot

basis. The securities so transferred shall be in conformity with the investment objective

of the scheme to which such transfer has been made.

6. INSURANCE

Introduction to insurance:

The business of insurance is related to the protection of the economic values of the

assets. Every asset has a value. The asset would have been created through the efforts

of the owner. The asset is valuable to the owner, because he expects some benefits from

it. It is a benefit because it meets some of his needs. But every asset is expected to last

for a certain period of time during which it will provide the benefits. After that the

benefit may not be available. The owner is aware of this and he can so manage his

affairs that by the end of that period or life-time, a substitute made available. Thus he

makes sure that the benefit isnt lost. Here comes the thought of insurance.

Purpose and needs of insurance:

Assets are insured, because they are likely to be destroyed or made non-functional

before the expected life time, through accidental occurrences are calledperils.

Fire, floods, breakdowns, lightning, and earthquakes such things are called perils. If

such perils can cause damage to the assets, we say that the asset is exposed to that

risk. Perils are the events. Risks are the consequential losses or damages.

The risk only means that there is a possibility of loss or damage. The damage may or

may not happen, but the word possibility implies uncertainty. Insurance is relevant

only if there are uncertainties. If there is no uncertainty about the occurrence of an

event, it cant be insured against.

Insurance doesnt protect the asset. It does not prevent its loss due to the peril. The

peril cant be avoided through the insurance. The risk can sometimes be avoided,

through better safety and damage control measures. Insurance only tries to reduce the

impact of the risk on the owner of the asset and those who depend on that asset. They


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are the ones who benefit from the asset and therefore, would lose, when the asset is

damaged. Insurance only compensates for the losses-and that too, not fully.

An example of how insurance wo rks:

In a village, there are 4000 houses, each valued at Rs.20000. Every year, on an average,

4houses get burnt, resulting into a total loss of Rs.80000.if all the 400 owners come

together and contribute Rs.200 each, the common fund would be Rs. 80000. This would

be enough to pay Rs.20000 to each of the 4 owners whose houses got burnt. Thus the

loss ofRs.20000each of 4 owners is shared by 400 house-owners of the village, bearing

Rs.200 each. This works out to 1% of the value of the house, which is the same as the

probability of risk (4 out of 400 houses).

In India, insurance business is classified primarily as life and non-life or general. Life

insurance includes all risks related to the lives of human beings and general insurance

covers the rest. General insurance has 3 classifications viz. fire (dealing with all fire

related risks),marine (dealing with all transport related risks and ships) and

miscellaneous (dealing with all others like liability, fidelity, motor, crop, etc).

Personal accident and sickness insurance, which are related to human beings, is

classified as non-life in India but is classified as life, in many other countries.

What is non-life in India is termed property and casualty in some other countries.

In India, the IRDA has, in 2005, issued regulations enabled micro insurance (broadly

meaning insurance for small sums assured, like 5-50 thousands) to be done by both life

and general insurers on the basis of mutual tie-ups. A policy may be issued by a life

insurer covering both life and non-life risks, but premium on account of the nonlife

business will be passed on to a general insurer and the claim amount collected from the

latter.


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A comparison with other forms of savings will show that life insurance has the

following advantages:

a. In the event of death, the settlement is easy. The heirs can collect the moneyquicker, because of the facility of nomination and assignment. The facility of

nomination is now available for some bank accounts, provident fund etc.

b. There is certain amount of compulsion to go through the plan of savings. Inother forms, if one changes the original plan of savings, there is no loss. In

insurance, there is a loss.

c. Creditors cant claim the life insurance money. they can be protected againstthe attachment by courts.

d. There are tax benefits, bot h in income tax and cap ital gains.e. It is possible to protect a life insurance policy from being attached by debtors.

The beneficiaries interest will remain secure.

7. Gold

Gold has been valued since prehistoric times and is the investment option that has been seen as

the ultimate form of safe haven investment and the only true form of wealth. Gold has been

popular in India because it acted as a good hedge against inflation. There is so much uncertainty

in the world in terms of economic growth and geopolitics, it is no surprise that many investors,

big and small have chosen to hedge their investments through gold.

Gold is an important and popular investment for many reasons:

y Gold remains as an integral part of social and religious customs, besides being the basicform of saving.

y Gold has aesthetic appeal .Its beauty recommends it for ornament making above all othermetals.

y Gold is indestructible which does not tarnish and is also not corroded by acid-except by amixture of nitric and hydrochloric acids.


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y Gold is a currency that has no borders and does not need to be honoured by anygovernmental obligations.

y Gold has long proven ability to retain value and appreciate in value.y Gold is readily available in a standardized form.

The last few years show a steep rise in oil prices resulting in a rise in inflation not only in India

but globally. The impact has been varied across countries depending on factors such as economic

cycle and oil consumption. This general price rise has added to the attractiveness of gold.

In other words when the stock market crashes or when the dollar weakens, gold continues to be a

safe haven investment because gold prices rise in such circumstances.

Gold investment options

Not many people know that there are various investment options in gold like gold bars,

numismatic coins, and gold accumulation plans by banks and financial institutions, and gold

mutual funds.

Across the world, several investment options are available for investors to put their money in the

yellow metal.

* Gold savings accounts: They operate like regular bank accounts where the customers account

is credited with balances of gold and withdrawals can be either in the form of gold coins or

currency equivalents.

* Gold accumulation plan: A monthly debit from customer's savings account is backed by 100

percent Physical gold.

* Gold chits: Also there are gold chits run by jewelers where at the end of the year, housewives

can buy gold jewellery or coins from the same jeweler worth the total money they have paid ininstallments.

* Gold deposit scheme: It is one of the options to invest in gold where one can keep gold in

banks for specified period like a fixed deposit and can claim as and when required .But it is not

like pledging as the ornaments will not be returned in its original form because the banks melt

them and rent to the industry.


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* I-gold: An investor can purchase gold from a stock broker as just as he used to buy equity

shares.

Suggestions for investing in gold

* When investments in gold are made in the form of ornaments a large part of the appreciation in

value is lost while selling it apart from the making charges, waste removal and sales tax. Buying

in the form of gold bars or coins from approved value is considered to be best.

* Buying Gold in seasons other than wedding season and festive seasons like Diwali will offer

best returns.

*The investor has to lose the making charges when invested in the gold deposit scheme

Studies conducted by Security Exchange Board of India reveal that gold has been the second

most preferred option among the Indian public after deposits in banks. An increased pace of

liberalization measures in India will account for many new options to emerge to invest in gold

bars, gold coins, gold funds and gold options.

The benefits of investing in gold are that besides earning a decent rate of return there are no

headaches about keeping it safe. When investments are valued in a depreciating currency

allocating a portion to gold is similar to a financial insurance policy.

COMPARISON OF INVESTMENT AVENUES

Financial

securities

Capital

Appreciation

Risk Marketability Tax Benefit Convenience


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Equity Low High High High Yes

Non-

convertible

Debentures

High Low Low Average Nil

Financial

Securities

(Non-

securitized)

Bank deposits Low Nil low High Yes

Provident

fund

Nil High Nil Average Yes

Life insurance Nil High Nil Average Yes

Mutual funds

Growth/equity Low High High High Yes

Income/debt High Low Low High Yes

Real assets

Real estate Low High Low Low Limited

Gold/silver Nil Average Average Average Nil

CHAPTER-4

Few analyses

1) Knowledge in people about available investment avenuesInvestment option Yes No

Mutual fund 55 45

Equity market 75 25

Fixed deposits 100 0


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Insurance 98 2

Bonds 35 65

Interpretation- it shows that people are more aware about investment as fixed

deposits(100) in bank because it is a common type of investment since earlier time,

followed by insurance(98). Near about 75 people knows about investment in equity

shares & 55 in mutual funds. And 35 knows about investment in bonds

2) Source of information regarding investment avenuesSources of information Responses in %

Media 45

Newspaper 30

Co.s sales force 15

advertisement 10

0

20

40

60

80

100

Mutual

fundEquity

marketFixed

depositsInsurance

Bonds

55

100 98

35

45

25

0 2

65

Yes No


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Interpretation- it shows that media is the most powerful source of information regarding

investment avenues, for e.g.- ZEE BUSINESS, CNBC AWAZ. after media newspaper is

a good source of information. Cos sales force and advertisement are also helpful in

providing such information.

3) Basis for making investmentBasis of investment Responses in %

Market sentiments 43

Fundamental and technical analysis 18

Past performance 39

45%

30%

15%

10%

Responses in %

Media

ews a er

Co.s sales force

advertisement


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Interpretation- It shows that 43% people takes market sentiments as the basis for

making investment , while there are 39% people, who considers the past performance &

only 18% people make fundamental & technical analysis for making investment.

SUGGESTIONS AND RECOMMENDATIONS

y To earn good return with less capital risk, an investor has to be active while designing hisportfolio.

y Every attributes of investor like his age level, income level, and his expectation levelhave effect on their portfolio design.

y An investor should go with well diversified portfolioy Investors should update his knowledge continuously to grab good opportunities in the

market.

y Investors should take decision carefully because updating of portfolio is a costly affair.

CONCLUSION

0

5

10

15

20

25

30

35

40

45

50

Basis of

investment

Market

sentiments

Fundamental

and technical

analysis

Past

performance

Series1

Series2


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The investment market in India has witnessed an impressive growth and structural

changes during last many years. The awareness among Indian investors has shown a sea

change over the years.

Investing wisely is an important part of financial security and our country India is

offering number of investment avenues to its citizens in growing their money and wealth.

Try to start invest money as early as possible so that the money will grow accordingly in

our lifetime. Today Indian youths are well paid compared to last decades thanks to

Information Technology, ITES like BPO, Call Center and overall strong economy. So

people are able to save more money. Choosing a wise investment is very crucial because

you have to balance the risks and returns.


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BIBLIOGRAPHY

1. BusinessKnowledgeSource.com2. www.investmentarticle.com3. www.sebi.gov.in4. Book- investment management by R.P. Rustagi5. Wikipedia6. www.mutualfundsindia.com

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