final avenues of investments1

Avenues of Investments

Chapter I

1.1 introduction

The word ‘investment’ has many interpretations as it means different things to different

persons. For a person who as lent money to another, it may be an investment for a return.

Similarly, if a person purchases shares of a company, bullion or real estate for the purpose of

price appreciation, it is also an investment for him. Likewise, an insurance plan or a pension

plan is an investment to its purchaser. From these illustrations, it is clear that investment is a

commitment of funds for earning additional income. In other words, investment is considered

the sacrifice of certain present value of money in anticipation of a reward

1.2 definition of investment

The following are some important definitions of investment: “an investment is a commitment

of funds made in the expectation of some positive rate of returns. If the investment is

properly undertaken, the returns will commensurate with risk the investor assumes”. - donald

e. Fischer and ronald j. Jordan “the purchase by an individual or institutional investor of a

financial or real asset that produces a return in proportion to the risk assumed over some


future investment period”.-f amling according to the above definition the current

commitment of funds for a period of time in order to derive a future flow of funds that will

compensate the investing unit.

- For the time the funds are committed

- For he expected rate of inflation.

- For the uncertainty / risk involved in the future flow of funds

Investment is the employment of funds on assets with aim of earning income or capital

appreciation. Investment has two attributes namely time and risk. Present consumption is

scarified to get a return in the future. The sacrifice that has to be borne in certain but the

return in the future may be uncertain. It will therefore, be useful to understand all the

important meanings of the term investment before one can have its clear concept in mind.

There are basically three concepts of investment. They are,

1. Economic investment

2. Business investment

3. Financial investment

4. Gambling

1. Economic investment: according to economists, the term investment refers to the

additions to the capital stock of the society. The capital stock includes goods which are used

in the production of other goods (buildings, equipment, investment etc.,)

2. Business investment: this refers to putting money or money held in a private business. For

example, if a men puts rs.1,00,000 in a newly opened general store, it will be said that his

investment in the business amounts to rs.1,00,000.

3. Financial investment: this refers to putting money into securities, i.e. Shares debentures,

mutual funds, bonds, life insurance, postal, bank deposit schemes etc., however, the term

financial investment is generally used for investment in, shares, bonds, postal, insurance,


bank deposit schemes, real estate, gold, derivates, mutual funds etc., therefore, this study

gives more concentration to financial investment.

4. Gambling: gambling is an act of creating artificial and unnecessary risks for expected

increased return. A gamble is a very short term investment base on rumours and hunches.

Gambling is undertaken just for thrill and excitement. In short, gambling involves acceptance

of extraordinary risks even without a through knowledge about them for pecuniary gains.

Horse racing, playing cards, lottery etc., are some typical examples of gambling.

1.3 portpolio management

The portfolio management deals with the process of selection of investment from the number

of opportunities / avenues with different expected returns and carrying different levels of risk

and selection the investment is made with a view to provide the investors the maximum yield

for a given level of risk or ensure minimum be risk for a given level of return. Hence,

investment and portfolio management has emerged as one of the importand and specialized

branches of financial management.

1.4 factors influencing slelection of investment

Selection of investments should rather be based on research of various factors. The

fundamental consideration for investment should be a growth oriented company with

substantial future potential. The major objectives of investment are increasing the rate of

return and reducting the risk. Other objectives like safely, liquidity and profitability against

inflation can be considered on subsidiary objectives.

Return

Investors are always expected a good rate of ruturn from their investment. The investment

should earn reasonable and expected return on the investment before the selection of

investment the investor should keep in mind that the form of return. The return expectiong

from investments in securities are of two types. They are,

1. Periodic cash receips.

2. Capital gain.

1.periodic cash receips:cash dividends are payable as and when the company’s after tax

earning that its board of directors divides to distribute to the shareholders. In care of


debentures, bonds, bank deposits, bublic deposits etc., the coupon rate is payable at the end of

each specified period..

2. Capital gain: the second component of return is the change in the price of the investment

called the capital gain or loss. This element of return is the different between the purchase of

price and the price at which the asset can be or is sold. Therefore, it can be a gain or loss.

The combination of the periodic cash receipts and capital gain made on the investments

constitutes the total return on particulars investment as shown below in equation(1)

Cash payment recived + price change over the perios

Total return = --------------------------------------------------------------------

purchase price of the sucurity

Capital appreciation

The other important objective of investment is appreciation of capital invested over a period.

The expectation of apppreciation in sucurities is in the following three ways.

i. Conservative growth

ii. Aggressive growth

iii. Speculation.

Conservative growth:

Investors with a goal to achieve conservative conservative growth seek to build an investment

portpolio that will make money over the long-term by capical appreciation known as wealth

building over time.

Aggressive growth:

Investor with a goal to achieve short-term and long-term capital gains opts for aggressive

growth in stock. Current income from dividends is of a low priority and the investors are risk

seekers.


Speculation:

Both investment and speculation are somewhat interrelated. It is said that speculation

requires investment and investments are to some extent speculative. Speculation is the

purchase or sale of anything in the hope of profit from anticipated change in price.

Accouding to emery, ‘speculation consits in buying and selling commodities or securities or

other property in the hope of a profit from anticipated changes of value’. As speculation

involves high risks, in order to take advantage of price fluctuations, stock brokers furnish a

separate list of sucurities for speculation purposes alone.

Safety and security of funds

The selected investment avenue should be under the legal and regulatory frame work. If it is

not under the legal frame work, it is difficult to represent the grievances, if any. Apporaval of

the law if self adds a flovor of safety. Even though approved by law, the safety of the

principal differs from one mode of investment to another. Investment made in government

assures more safety than with private party. From the safety point of view investment can be

ranked as follows bank deposits government bonds, uti units, debentures, shares and deposits

with the non-banking financial company.(nbfcs)

Risk

The lever of risk depends on the objective of investment. The investors expect greater return

should also be prepares to carry higher risk. Also an investors should assure that “high risk -

high reward and low-risk, low-reward”. By careful planning and periodical review of the

market situation, the investor can minimize their risk on the portfolio. Risk avoidance and

risk minimization are the important objectives of securities analysiss.

Risk and uncertainty:

Some times, a decision can lead to more than one possible outcome, such siturations are best

with uncertainly when it is not known exactly what will happen in future, but the variance

possiblities are neglected by their assumed probability of occurrence is called risk. The

difference between risk and uncertainty has been than uncertainty cannot be quantified while

risk can be quntified of the likelihood of future out comes.

Represented as follows:


Types of risk

The risk is categorized into two types

1. Systematic risk

2. unsystematic risk

This is represented as follows:

Systematic risk:

Systematic risk refers to that portion of variation in return caused by factors that affect the

price of all securities. This movement is generally due to the response to economic, social

and changes. The systematic risk cannot be avoided.

Market risk:

Variation is prise sparked off due to real social, political and economic events is referred to as

market risk.

Interest rate risk the uncertainty in future market values and the size of future incomes,

caused by fluctuations in the general level of interest is known as interest rate risk.

Inflation risk:

An uncertainty of purchasing power is regarted to as an risk due to inflation.

Unsystematic risk:

unsystematic risk refers to that portion of the risk which is caused due to factors unique or

related to a firm or industry. For examples, if excise duty or customs duty on goods

increases, the share price of the industry declines. The unsystematic risk will arise due to the

following reasons.

External and internal business risk:

such as business cycle, govt. Policies and firm’s operations etc.,


Financial risk:

financial risk is associated with the capital structure of a firm. A firm with no debt financing

has no financial risk.

Liquidity:

The liquidity of investment is the prime concern for investment prime made by an investor.

Before making investment, the investor should keep in mind the degree of liquidity required.

The investor should prefer for securities which ensure liquidity or marketability.

Tax considerations

the investor, before selecting the securities for investment will take into consideration the

provision of income tax, capital gains tax, and wealth tax to minimize tax burden and avail all

tax examption available.


Chapter II

2.1 Finance vs Investment

investment decision and finance decision interact with each other like the two blades of a

pair of scissors, the investment (and savings) decision interacts with the finance (and

spending) decision to cut the pie (called total income) into mutually satisfactory (optional)

proportions. For many years finance and investment have encompassed the three major areas

of spending in the aggregate economy as stated in equation –(2)

2.2 foundation of investment

Investment management and other disciplines

Investment principles are base on elements developed in a number of academis displine. This

may classified as basis (luxury items & furniture, consumable products, paint, sanitary wares,

tiles, items etc.,) and applied (dealership and distributor) as depicted in the above chart.

Trade/business is assigned a special classification since it is unnecessary to some parts of the

investment process but critical to some others.

The above disciplines are interacts with each other while investing in modern concepts, the

above mentioned disciplines are widely used while taking and investment decisions.

Investment process

The investment process involves a series of operations guiding to the purchase of investment

avenues in the market. The flowchart shows the stages and factors connected thereof.

2.3 investment avenues available in india

investing in the financial markets, arguably a subject of interest for scores, never formed

part of all discipline in our curriculam. A subject that would have shaped the monetary

destiny of each of us was never even considered. The concept of investor education never

existed a decade ago, and crystallized only after the ipo scam in 1994-95. Fundamantal and

technical analysis, which are the key to participating in the market were made available only

to the privileged sections of the society then. The investor’s intention relating to disposable

income makes the question that where, when and how to invest. In the past, investment

avenues were limited to precious assets,schemes o the post office and bank. At present


investors can choose from a variety of instruments and assets. While making the choice, they

should consider the expected rate of return and available risk on their investment. Financial

education and knowledge about the different avenues enable the investors to choose

investment intelligently. Investment avenues are of several kinds. Many types of investment

channels are also available. Therefore, the investor’s protection and awareness on investment

are becoming a necessity. To view above all, the securities and exchange board of india (sebi)

to the lead in making the indian retail investor well informed.

The various investment avenues can be classified under the following categories.

2.4 Investment media

The financial investment

avenues are further classified

with negotiable securities that

the transferable and non

negotiable securities that are not

transferable. The negotiable

securities may yield variable

income or fixed income. These

are equity shares. Bonds,

debentures, government securities and money market securities. The non negotiable securities

are not transferable. They yield only fixed income. They are deposits schemes of post offices,

banks, companies and non bankin financial institution, etc. There are tax-banefit schemes

such as public provident fund, gpf, national savings certificate etc., are also available.

Mutual fund, chit fund, and venture capital etc., are another types of financial investment

avenues. They are of recent in india. At present there are 1500 plus mf schemes in the market.

In the last decade, the mf industry has grown substantially and today mfs. Are the best suited

vehicles for individual investing. The non financial investment avenues also known as real

precious assets which are also part of the portfolio. They are gold, silver, arts, property etc.


Chapter III

3.1 company profile

Unicon investments is a service sector company, providing financial services,

which has now emerged now as a one-stop investment solutions provider. Mr.

Gajendra nagpal and mr. Ram m. Gupta, who had great expertise and vision in

the field of finance, founded the company in 2004. The headquarter of the

company is in new delhi and its has its corporate offices in mumbai, kolkata,

chennai, hyderabad and noida.unicon, a professionally managed company, is

lead by a team with unparallel managerial acumen and an experience of more

than 200 years in the financial markets. The company boasts of having more

than 3500 employees, 100 branches, more than 600 partner locations and 2500

remisers providing it with a national footprint. The company has a customer

base of more than 200000 customers. It caters to both- the short term as well as

long term financial needs through a comprehensive diversification of

investment services. These services include offline & online trading in equity,

commodities, currency derivatives to debt markets to corporate finance &

portfolio management services. The company has a humungous presence in the

distribution of the 3rd party financial products like mutual funds, property

broking and insurance products. It also has prolific expertise on advising on life

insurance, general insurance, mutual funds & ipo. The distribution network is

backed by in-house back-office support to provide prompt and efficient

customer services.


Group members

UNICON CAPITAL SERVICES PVT. LTD.

UNICON INSURANCE ADVISORS PVT. LTD.

UNICON COMMODITIES PVT. LTD.

UNICON REAL ESTATES PVT.LTD.

UNICON SECURITIES PVT.LTD.

UNICON FINCAP PVT. LTD.

UNICON FINANCIAL INTERMEDIARIES PVT. LTD.


The company proposes the following to the customers:

1. Personal relationship manager

This facility is provided to the customer on opening a trading account with the

company. A personal relationship manager is provided to the customer who can

be reached 24x7 and not only for instructing him in the trading affair but also

get specialized and customized advice and tips about the market which is their

competitive advantage

2. Competitive brokerage and dp charges

The company offers a brokerage of 0.50% (negotiable) on delivery and 0.10%

(negotiable) on intraday and f&o transactions plus service tax, sst and

transaction charges.

Only one time account opening charges and no annual maintenance

charges.

Margin financing @ 18%

Margin trading of 4 times the cash deposited for delivery based trade.

Margin trading of 10 times the cash deposited for intra-day based

trade

Buy today sell tomorrow for all securities facility

Management of portfolio and advises

Electronic transfer of funds can also be provided.


3.2 products offerd

Equity

Commodity

Depository

Distribution

Nri services

Back office

Fixed income

Portfolio tracker

Mutual funds

General insurance

Life insurance

The snapshots of products of unicon are:

Equity

Unicon facilitates trading in secondary market in equity trading & derivative

(future & options) trading through its corporate membership of premier

exchange of the country namely national stock exchange (nse), bombay stock

exchange (bse). Unicon provides equity trading to the clients online as well as

off-line service. Unicon offers the unique feature where the customers get to

trade on nse, bse and derivatives all on one screen.


Products offerings for trading

I. Unicon plus

It enables users to get a browser based trading terminal that can be accessed by

a unique id and password. This facility is available to all the customers of the

company the moment they get registered with it.

Ii. Unicon swift

Self directed investors get an application based terminal which is replica of neat

terminal for trading actively with more speed, greater analytical features and

priority access to relationship manager to trade over the phone

Commodity

Government of india has been given the permission to the multi commodity

trading after approximate thirty years of globalization & liberalization in world.

By inspiring from the n.s.e., & b.s.e. many other stock exchange lic, icici bank,

nse, central warehousing, agriculture industries etc. Had setup the online multi-

commodity exchange. This exchange will provide the present rate of the

commodity to the on line market these exchange will control by the forward

market commission which do work under ministry of consumer affair,food &

public distribution ,government of india.


3.4 Unicon is the member of the two commodity exchange at present:

NCDEX

National commodity &

derivatives exchange limited

(ncdex) is a professionally

managed online multi

commodity exchange

incorporated on april 23, 2003

under the companies act, 1956. It

obtained its certificate for

commencement of business on

may 9, 2003. It has commenced its operations on december 15, 2003. Ncdex

currently facilitates trading of thirty six commodities - cashew, castor seed, chana,

chilli, coffee, cotton, cotton seed oilcake, crude palm oil, expeller mustard oil,

gold, guar gum, guar seeds, gur, jeera, jute sacking bags, mild steel ingot,

mulberry green cocoons, pepper, rapeseed - mustard seed ,raw jute, rbd palmolein,

refined soy oil, rice, rubber, sesame seeds, silk, silver, soy bean, sugar, tur,

turmeric, urad (black matpe), wheat, yellow peas, yellow red maize & yellow

soybean meal. At subsequent phases trading in more commodities would be

facilitated.

MCX

MCX an independent and de-mutulised multi commodity exchange has permanent

recognition from government of india for facilitating online trading, clearing and

settlement operations for commodity futures markets across the country.

Headquartered in mumbai, mcx is led by an expert management team with deep

domain knowledge of the commodity futures markets. Inaugurated in november

2003 by shri mukesh ambani, chairman & managing director, reliance industries ltd,


mcx offers futures trading in the following commodity categories: agri commodities,

bullion, metals- ferrous & non-ferrous, pulses, oils & oilseeds, energy, plantations,

spices and other soft commodities.

Depository_

Depository offer a safe, convenient way to hold securities as compared to

holding securities in paper form. Their service provides an integrated single

platform for all the clients ensuring a risk free, efficient and prompt depository

process.

Facilities provided by unicon

De-materialization : physical shares can be converted into

electronic form through dematerialization at any of the unicon

branch.

Re-materialization: electronic shares on request of re-

materialization enables one to convert dematerialized shares into

physical form.

Transfer: one can transfer shares through inter and intra

depository services.

Ipo: using the demat account details one can apply for ipo and on

allotment the securities are transferred directly to the demat

account.

Corporate actions: in case one is eligible for any bonus and right

issues while holding the stock in demat account then allotment

would be transferred to the account.

Easi: this facility empowers the clients to view, download, print

updated holings with respective valuations over the internet though

demat account and avail host of services.


Distribution

Unicon is fast emerging as a leader in the insurance and mutual funds

distribution space. Unicon has over 100 branches and a huge number of

“business development executives” who help to source and service the

customers throughout the country. Unicon is fast becoming the preferred

“vendor independent” distribution houses because of providing efficient service

like free pick-up of collection of cheques/dd’s, keeping track of the premiums

etc to its customers.

Mutual funds

Mutual fund is a trust that pools the

savings of a number of investors

who share a common financial

goal. The money thus collected is

invested into a variety of securities,

including stocks, bonds, and

money-market instruments. Mutual

funds issue units to the investors,

which represent an equitable right in the assets of the mutual fund. Thus a

mutual fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.

Insurance_

General insurance

Unicon offers all the products of general insurance under one umbrella. Unicon

comprises of a team of distinguished professionals from insurance, finance and

other management disciplines who have vast business & managerial experience.


Unicon team evaluates the client's business environment and studies the risk

profile. Based on the results of these evaluations, unicon team then suggests the

most cost effective , integrated insurance package that is perfectly suited to the

client's risk profile.

Life insurance

Unicon offers you a peace of mind by offering various life insurance plans for

your unique & specific needs. For every financial problem, there is a solution

also is the philosophy of unicon. And is here to give one a complete financial

solutions. One can always have an access to their 83 branch offices situated at

prime locations of the city, or can call to their relationship manager for guide to

investments.

Following is the glimpse of life insurance plans:

- Protection plans

- Child plans

- Investment plans

- Saving plans

- Retirement and pension plans

- Nir plans

- Health plans

Property


Unicon is a specialized property broking company. It offers a total solution to

the clients inclusive of market research, marketing strategy, interaction with the

professional teams and sales or leasing of the property.

Nri services

Unicon offers a convenient and hassle-free way of investing in the indian

securities market to the people

who are living outside india

and wish to participate in the

indian growth story.

procedure for nri

operations in indian

capital markets:

The nri can deal with

only one bank at any

point of time.

He is allowed to invest only 5% of the paid up capital of a company. The

aggregate paid up value of equity of any company purchased by all nri's

and ocbs cannot exceed 10 percent of the paid up capital of the company

and in the case of convertible debentures, the aggregate paid up value of

each series of debentures purchased by all nri's and ocbs cannot exceed

10 % of the paid up value of each series of convertible debentures.

He can enter only into delivery based trades, all deliveries must only be

routed through beneficiary accounts and not directly through the broker.

Shares bought by him cannot be sold unless the payout of the same is

received from exchange.

All purchase and sale transactions have to be reported to the rbi by the

designated bank.


original brokers contract notes have to be submitted to the designated

bank branch, within 24 hours of the transaction.

He will be required to make bill to bill payments/ settlements. No

adjustments of purchase against sale consideration should be done.

Shares cannot be bought against the shares sold in the same settlement.

All purchase and sales will be dealt separately for payments / receipts.

.

Backoffic

unicon through its online back-office aims to increase the transparency and

provides the link to view the details of the account online anytime and

anywhere.

The following reports can be viewed online:

1 Sauda details

2 Financial ledger

3 Net position fot the day

4 Net position detail

Fixed income

The fixed income vertical of unicon group deals in sovereign paper, money

market/ fixed income instruments and merchant banking activities. Broadly, it

undertakes the following:

a. Dealing in all types of money market instruments viz. Commercial

paper (origination & placement), certificate of deposit and treasury

bills both in primary and secondary market.

b. Dealing in government securities (including securities of oil,

fertilizer & food bonds) and other psu/ corporate bonds with

counterparties like banks, primary dealers, mutual funds, insurance


companies, regional rural banks, co operative banks, central &

state psus, housing finance companies, nbfc & corporates.

c. Retailing of central, state government securities and bonds to pf

trusts, universities & colleges.

d. Advisory services to pf trusts.

e. Arrangers for private placement of bonds & placing it with banks,

mutual funds, insurance companies & corporates.

f. Raising of capital by way of initial public offers (ipo) and follow-

on public offerings (fpo)

g. Securitization of receivable portfolio of housing finance

companies, banks & nbfcs by way of pass through certificates.

Portfolio tracker

The portfolio tracker is a simple yet powerful tool that lets you monitor the

value of your investments and other securities you've got your eye on. To set up

your portfolio, all you need to do is enter the quantities of your investments in

different things, and the price you made your purchases and sales at. Portfolio

tracker lets you monitor certain securities, it is not intended to reflect your

actual holdings or account information at any broker/dealer.

Competitors

India bulls financial services limited

India info line

Karvy securities

Fortis securities ( religare)

Share khan ltd

Icici securities ltd

Motilal oswal securities


Kotak securities

Hdfc securities

Chapter V

Investment avenues

Savings form 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. One needs to

invest and earn return on your idle resoures 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 needs to invest wisely is to meet the cost of

inflation. Inflation is the rate at which the cost of living increases. The cost of

living is simply what it costs to buy the goods and services you need to live.

Inflation causes money to lose value because it will not buy the same amountof

a good or service in the future as it does now or did in the past. The sooner one

starts investing the better. By investing early you allow your investments more

time to grow, whereby the concept of compounding increases your income, by

accumulating the principal and the interest or dividend earned on it, year after

year. Tha three golden rules for all investors are :

Invest early

Invest regularly

Invest for long term and not for short term

Investments

The dictionary meaning of investment is to commit money in order to earn a

financial return or to make use of the money for future benefits or advantages.

People commit money to investments with an expectation to increase their

future wealth by investing money to spend in future years. For example, if you

invest rs. 1000 today and earn 10 %over the next year, you will have rs.1100

one year from today. An investment can be described as perfect if it satisfies

all the needs of all investors. So, the starting point in searching for the perfect

investment would be to examine investor needs. If all those needs are met by

the investment, then that investment can be termed the perfect investment.

Most investors and advisors spend a great deal of time understanding the

merits of the thousands of investments available in india. Little time, however,


is spent understanding the needs of the investor and ensuring that the most

appropriate investments are selected for him.

The investment needs of an investor

By and large, most investors have eight common needs from their investments:

1. Security of original capital;

2. Wealth accumulation;

3. Comfort factor;

4. Tax efficiency;

5. Life cover;

6. Income;

7. Simplicity;

8. Ease of withdrawal;

9. Communication.

Security of original capital: the chance of losing some capital has been a

primary need. This is perhaps the strongest need among investors in india, who

have suffered regularly due to failures of the financial system.

wealth accumulation: this is largely a factor of investment performance,

including both short-term performance of an investment and long-term

performance of a portfolio. Wealth accumulation is the ultimate measure of the

success of an investment decision.

comfort factor : this refers to the peace of mind associated with an

investment. Avoiding discomfort is probably a greater need than receiving

comfort. Reputation plays an important part in delivering the comfort factor.


tax efficiency: legitimate reduction in the amount of tax payable is an

important part of the indian psyche. Every rupee saved in taxes goes towards

wealth accumulation.

life cover: many investors look for investments that offer good return with

adequate life cover to manage the situations in case of any eventualities.

Income: this refers to money distributed at intervals by an investment, which

are usually used by the investor for meeting regular expenses. Income needs

tend to be fairly constant because they are related to lifestyle and are well

understood by investors.

Ease of withdrawal: this refers to the ability to invest long term but withdraw

funds when desired. This is strongly linked to a sense of ownership. It is

normally triggered by a need to spend capital, change investments or cater to

changes in other needs. Access to a long-term investment at short notice can

only be had at a substantial cost.

Communication: this refers to informing and educating investors about the

purpose and progress of their investments. The need to communicate increases

when investments are threatened.

Security of original capital is more important when performance falls.

Performance is more important when investments are performing well.

Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs

had been met to satisfaction. But there is always a trade-off involved in

making investments. As long as the investment strategy matches the needs of

investor according to the priority assigned to them, he should be happy.

The ideal investment strategy should be a customized one for each investor

depending on his risk-return profile, his satisfaction level, his income, and his


expectations. Accurate planning gives accurate results. And for that there must

be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth

maximization.

Choosing the right investment options

After understanding the concept of investment, the investors would like to

know how to go about the task of investment, how much to invest at any

moment and when to buy or sell the securities, this depends on investment

process as investment policy, investment analysis, valuation of securities,

portfolio construction and portfolio evaluation and revision. Every investor

tries to derive maximum economic advantage from his investment activity.

For evaluating an investment avenues are based upon the rate of return, risk

and uncertainty, capital appreciation, marketability, tax advantage and

convenience of investment.

Investment options in india

Non-marketable financial assets

A good portion of the financial assets of individual investors is held in the form

of non-marketable financial assets like bank deposits, post office deposits,

company deposits, provident fund deposits. The main feature of these assets is

that they represent personal transactions between the investor and the issuer. For

Example, when you open a saving bank a/c , you deal with bank personally. In

contrast, when you buy equity shares in the stock market you do not know who

is the seller.


Bank deposits

Bank deposit simply refers to opening a bank a/c & depositing money in it.

There are various kind of bank a/c’s: current a/c, saving a/c, fixed deposit a/c.

While a deposit in current a/c does not earn any interest, deposits in other bank

a/c earn interest.

Company deposits

Many companies, large and small, solicit fixed deposits from the public.fixed

deposits mobilized by manufacturing companies are regulated by rbi. Key

feature of co. Deposits are as :

1. For a manufacturing co. The term of deposits can be one to three

years, whereas for a non-banking finance co. It can vary between

25 months to 5 years.

2. The interest rate on it are higher than those on bank deposits.

3. Company deposit represent unsecured loans.

4. It offers the facility for premature withdrawal to attract deposits.

Public provident fund scheme

Individuals & hufs can participate in this scheme. A ppf a/c may be opened at

any branch of the sbi or its subsidiaries or at specified branches of other

nationalized banks. The subscriber to a ppf a/c is required to make a min.

Deposit of rs.100 per year. The max. Permissible deposit per year is

rs.70000/-.ppf currently earn a compound interest rate of 8% p.a. Which is

totally exempt from taxes.

Fixed income securities

It includes the following:

Government securities

Saving bonds

Private sector debentures


Public sector undertaking bonds

Government securities

Debt securities issued by the central government, state government and quasi-

government agencies are referred to as govt. Securities or gilt-edged securities.

Govt. Securities have maturities ranging from 3-20 years and carry interest rates

that usually vary between 8 and 10 %.

Rbi savings bonds

Individuals, hufs, and nris can invest in these bonds. The minimum amount of

investment is rs.1000/-. There is no upper limit. The maturity period is 5 years

from the date of issue. The interest rate is 8% p.a., payable half-yearly. These

bonds can be offered as security to banks for availing loans.

Private sector debenture

Akin to promissory notes, debentures are instruments meant for raising long-

term debt. The obligation of a co. Towards its debenture holders is similar to

that of a borrower who promises to pay interest and principal at specified times.

When a debenture issue is sold to the investing public, a trustee is appointed

through deed. The trustee is usually a bank or financial institution.

Public sector undertaking bonds

Psus issue debentures that are referred to as psu bonds. There are two broad

varieties of psu bonds: taxable bonds and tax-free bonds. There is no deduction

of tax at source on the interest paid on these bonds. They are transferable by

mere endorsement and delivery. There is no stamp duty applicable on transfer.

They are traded on stock exchanges.

Fixed deposits


It same as a term or time deposit. Money may be placed with a bank, merchant

bank, building society or credit union for a fixed term at a fixed rate of interest

which remains unchanged during the period of the deposit. Depositors may have

to accept an interest penalty if they break the deposit, ie, ask to take the money

out before the agreed period has expired.few points which fd investors must

consider at the time of investment,

1. Safety

Fds have conventionally been the premier choice for investors with a low risk

appetite; assured returns is the key factor which attracts investors towards

deposits. Stick to fds of the highest credit rating i.e. Those with a “aaa” rating

even if their rates seem modest vis-à-vis those offered by company deposits.

2. Tenure

Short tenured fixed deposits continue to be your best bet. With interest rates on

the ascent, a further hike in rates offered by fixed deposits cannot be ruled out.

Locking your investments in longer tenured instruments may lead to an

opportunity loss.

3. Liquidity

Find out how fd fares on the pre-mature encashment front i.e. How easily can

your investment be liquidated. Also enquire about the penalty clauses, e.g. Do

you suffer a loss of interest and/or principal amount. Compare how various fds


rank on this parameter and pick the best deal; thereby try to minimise the impact

of illiquidity which is typically associated with fds.

4. Additional benefits

Fixed deposits from reputed entities offer additional benefits, e.g. They can be

used as collateral against which loans can be raised. Select a fixed deposit

scheme which scores favourably on such parameters- any investment portfolio

should comprise the right mix of safe, moderate and risky investments. While

mutual funds and stocks are the favorite contenders for moderate and risky

investments,fixed deposits, government bonds etc. Are considered safe

investments. Fixed deposits have been particularly popular among a large

section of investors in india as a safe investment option for a long period.with

fixed deposits or fds as they are popularly known, a person can invest an

amount for a fixed duration. The banks provide interest rates depending on this

loan amount and the tenure of deposit. Here are the benefits, drawbacks of fixed

deposits and precautions one should take while making such investments.

Mutual funds

A mutual fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested in

capital market instruments such as shares, debentures and other securities. The

income earned through these investments and the capital appreciation realized is

shared by its unit holders in proportion to the number of units owned by them.

Thus a mutual fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket

of securities at a relatively low cost. The flow chart below describes broadly the

working of a mutual fund:


Organisation of a mutual fund

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

Mutual fund units are issued and redeemed by the fund management company

based on the fund's net asset value (nav), which is determined at the end of each

trading session. Nav is calculated as the value of all the shares held by the fund,

minus expenses, divided by the number of units issued. Mutual funds are

usually long term investment vehicle though there some categories of mutual

funds, such as money market mutual funds which are short term instruments.


A)Equity funds

Equity funds are considered to be the more risky funds as compared to other

fund types, but they also provide higher returns than other funds. It is advisable

that an investor looking to invest in an equity fund should invest for long term

i.e. For 3 years or more. There are different types of equity funds each falling

into different risk bracket. In the order of decreasing risk level, there are

following

Types of equity funds:-

Aggressive growth funds Growth funds Equity income /dividend yield Diversified equity funds


Equity index funds Value funds

B)Money market/liquid funds

Money market / liquid funds invest in short-term (maturing within one year)

interest bearing debt instruments. These securities are highly liquid and provide

safety of investment, thus making money market / liquid funds the safest

investment option when compared with other mutual fund types. However, even

money market / liquid funds are exposed to the interest rate risk. The typical

investment options for liquid funds include treasury bills (issued by

governments), commercial papers (issued by companies) and certificates of

deposit (issued by banks).

C)Hybrid funds

As the name suggests, hybrid funds are those funds whose portfolio includes a

blend of equities, debts and money market securities. Hybrid funds have an

equal proportion of debt and equity in their portfolio. There are following types

of hybrid funds in india:

Balanced funds Growth-and-income funds Asset allocation funds

D) Gilt funds

Also known as government securities in india, gilt funds invest in government

papers (named dated securities) having medium to long term maturity period.

Issued by the government of india, these investments have little credit risk (risk

of default) and provide safety of principal to the investors

Pros & cons of investing in mutual funds:


For investments in mutual fund, one must keep in mind about the pros and cons

of investments in mutual fund.

Advantages of investing mutual funds:

A. Professional management - the basic advantage of funds is that, they are

professional managed, by well qualified professional. Investors purchase funds

because they do not have the time or the expertise to manage their own

portfolio. A mutual fund is considered to be relatively less expensive way to

make and monitor their investments.

B. Diversification - purchasing units in a mutual fund instead of buying

individual stocks or bonds, the investors risk is spread out and minimized up to

certain extent. The idea behind diversification is to invest in a large number of

assets so that a loss in any particular investment is minimized by gains in others.

C. Economies of scale - mutual fund buy and sell large amounts of securities at

a time, thus help to reducing transaction costs, and help to bring down the

average cost of the unit for their investors.

D. Liquidity - just like an individual stock, mutual fund also allows investors to

liquidate their holdings as and when they want.

E. Simplicity - investments in mutual fund is considered to be easy, compare to

other available instruments in the market, and the minimum investment is small.

Most amc also have automatic purchase plans whereby as little as rs. 2000,

where sip start with just rs.50 per month basis.

Equity shares


At the most basic level, stock (often referred to as shares) is ownership, or

equity, in a company. Investors buy stock in the form of shares, which represent

a portion of a company's assets (capital) and earnings(dividends). As a

shareholder, the extent of your ownership (your stake) in a company depends on

the number of shares you own in relation to the total number of shares available

for example, if you buy 1000 shares of stock in a company that has issued a

total of 100,000 shares, you own one per cent of the company.

While one per cent seems like a small holding, very few private investors are

able to accumulate a shareholding of that size in publicly quoted companies,

many of which have a market value running into billions of pounds. Your stake

may authorize you to vote at the company's annual general meeting, where

shareholders usually receive one vote per share.

In theory, every stockholder, no matter how small their stake, can exercise some

influence over company management at the annual general meeting. In reality,

however, most private investors' stakes are insignificant. Management policy is

far more likely to be influenced by the votes of large institutional investors such

as pension funds.

a) Stocks symbols

A stock symbol, or 'epic' symbol, is the standard abbreviation of a stock's name.

You can find stock symbols wherever stock performance information is

published - for example, newspaper stock listings and investment websites.

Company names also have abbreviations called ticker symbols. However, it's

worth remembering that these may vary at the different exchanges where the

company is quoted.

b) Performance indicators


Here is a list of the standard performance indicators

Performance indicator definition

Closing price: the last price at which the stock was bought or sold

High and low : the highest and lowest price of the stock from the previous

trading day

52 week range: the highest and lowest price over the previous 52 weeks

Volume: the amount of shares traded during the previous trading day

high and low

Net change: the difference between the closing price on the last trading day

and the closing price on the trading day prior to the last.

Derivative market

is a product whose value is derived from the value of one or more basic

variables, called underlying. The underlying asset can be equity, index, foreign

exchange (forex), commodity or any other asset. Derivative products initially

emerged as hedging devices against fluctuations in commodity prices and

commodity-linked derivatives remained the sole form of such products for

almost three hundred years. The financial derivatives came into spotlight in

post-1970 period due to growing instability in the financial markets. However,

since their emergence, these products have become very popular and by 1990s,

they accounted for about two thirds of total transactions in derivative products.


Types of derivatives

The most commonly used derivatives contracts are forwards, futures and

options, which we shall discuss in detail later. Here we take a brief look at

various derivatives contracts that have come to be used.

A. Forwards: a forward contract is a customized contract between two entities,

where settlement takes place on a specific date in the future at today's pre-

agreed price.

B. Futures: a futures contract is an agreement between two parties to buy or

sell an asset at a certain time in the future at a certain price. Futures contracts

are special types of forward contracts in the sense that the former are

standardized exchange-traded contracts.

c. Options: options are of two types - calls and puts. Calls give the buyer the

right but not the obligation to buy a given quantity of the underlying asset, at a

given price on or before a given future date. Puts give the buyer the right, but

not the obligation to sell a given quantity of the underlying asset at a given price

on or before a given date.

D. Swaps: swaps are private agreements between two parties to exchange cash

flows in the future according to a prearranged formula. They can be regarded as

portfolios of forward contracts. The two commonly used swaps are:

Interest rate swaps : these entail swapping only the interest related

cash flows between the parties in the same currency.

Currency swaps : these entail swapping both principal and interest

between the parties, with the cash flows in one direction being in a

different currency than those in the opposite direction.


Insurance

People need insurance in the first place. An insurance policy is primarily meant

to protect the income of the family’s bread earners. The idea is if any one or

both die their dependents continue to live comfortably. The circle of life begins

at birth follower by education, marriage and eventually after a life time of work

we look forward to life of retirement. Our finances too tend to change as we go

through the various phases of life. In the first twenty of our life, we are

financially and emotionally dependents on our parents and their are no financial

commitments to be met. In the next twenty years we gain financial

independence and provide financial independence to our families. This is also

the stage when our income may be unable to meet the growing expenses of a

young household. In the next twenty as we see our investments grow after our

children grow and become financially independent. Insurance is a provision for

the distribution of risks that is to say it is a financial provision against loss from

unavoidable disasters. The protection which it affords takes form of a guarantee

to indemnify the insured if certain specified losses occur. The principle of

insurance so far as the undertaking of the obligation is concerned is that for the

payment of a certain sum the guarantee will be given to reimburse the insured.

The insurer in accepting the risks so distributes them that the total of all the

amounts is paid for this insurance protection will be sufficient to meet the losses

that occur. Insurance then provide divided responsibility. This principle is

introduced in most stores where a division is made between the sales clerk and

the cashiers department the arrangement dividing the risks of loss. The

insurance principle is similarly applied in any other cases of divided

responsibility. As a business however insurance is usually recognized as some

form of securing a promise of indemnity by the payment of premium and the

fulfilment of certain other stipulations


Types of insurance

A) term insurance plans

Term insurance is the cheapest form of life insurance available. Since a term

insurance contract only pays in the event of eventuality the life cover comes at

low premium rates. Term insurance is a useful tool to purchase against risk of

early death and protection of an asset.

B) Endowment plans

Endowment

plans are

savings and

protection plans

that provide a

dual benefit of

protection as well as savings. Endowment plans pay a death benefit in the event

of an eventuality should the customer survive the benefit period a maturity

benefit is paid to the life insured.

C) Whole of life plans

A whole of life plan provides life insurance cover to an individual up to a

specified age. A whole of life plan is suitable for an individual who is looking

for an extended life insurance cover and /or wants to pay premium over as long

as tenure as possible to reduce the amount of upfront premium payment.

D) Pension plans

Pension plans allow an individual to save in a tax deferred manner. An

individual can either contribute through regular premiums or make single

premium investments. Savings accumulate over the deferment period. Once the

contract reaches the vesting age , the individual has the option of choosing an

annuity plan from a life insurance company. An annuity is paid till the life the


lifetime of the insured or a predetermined period depending upon the annuity

option chosen by the life insured.

E) Unit linked insurance plans

Unit linked insurance plan (ulip) is life insurance solution that provides for the

benefits of risk protection and flexibility in investment. The investment is

denoted as units and is represented by the value that it has attained called as net

asset value (nav). The policy value at any time varies according to the value of

the underlying assets at the time. In a ulip, the invested amount of the premiums

after deducting for all the charges and premium for risk cover under all policies

in a particular fund as chosen by the policy holders are pooled together to form

a unit fund. A unit is the component of the fund in a unit linked insurance

policy. The returns in a ulip depend upon the performance of the fund in the

capital market. Ulip investors have the option of investing across various

schemes, i.e., diversified equity funds, balanced funds, debt funds etc. It is

important to remember that in a ulip, the investment risk is generally borne by

the investor. In a ulip, investors have the choice of investing in a lump sum

(single premium) or making premium payments on an annual, half-yearly,

quarterly or monthly basis. Investors also have the flexibility to alter the

premium amounts during the policy's tenure. For example, if an individual has

surplus funds, he can enhance the contribution in ulip. Conversely an individual

faced with a liquidity crunch has the option of paying a lower amount (the

difference being adjusted in the accumulated value of his ulip). Ulip investors

can shift their investments across various plans/asset classes (diversified equity

funds, balanced funds, debt funds) either at a nominal or no cost.


Expenses charged in a ulip

Premium allocation charge

A percentage of the premium is appropriated towards charges initial and

renewal expenses apart from commission expenses before allocating the units

under the policy.

Mortality charges

These are charges for the cost of insurance coverage and depend on number of

factors such as age, amount of coverage, state of health etc.

Fund management fees

Fees levied for management of the fund and are deducted before arriving at the

nav.

Administration charges

This is the charge for administration of the plan and is levied by cancellation of

units.

Surrender charges

Deducted for premature partial or full encashment of units.

Fund switching charge

Usually a limited number of fund switches are allowed each year without

charge, with subsequent switches, subject to a charge.

Service tax deductions

Service tax is deducted from the risk portion of the premium.

Mutual funds

Mutual fund:-

mutual fund is a pool of money collected from investors and is invested according to stated

investment objectives mutual fund investors are like shareholders and they own the fund.


Mutual fund investors are not lenders or deposit holders in a mutual fund. Everybody else

associated with a mutual fund is a service provider, who earns a fee. The money in the mutual

fund belongs to the investors and nobody else. Mutual funds invest in marketable securities

according to the investment objective. The value of the investments can go up or down,

changing the value of the investor’s holdings.nav of a mutual fund fluctuates with market

price movements. The market value of the investors’ funds is also called as net assets.

Investors hold a proportionate share of the fund in the mutual fund. New investors come in

and old investors can exit, at prices related to net asset value per unit.

Emergence of mutual funds:-

Mutual funds now represent perhaps the most appropriate investment opportunity for most

small investors. As financial markets become more sophisticated and complex, investor need

a financial intermediary who provides the required knowledge and professional expertise on

successful investing. It is no wonder then that in the birthplace of mutual funds-the u.s.a.-the

fund industry has already overtaken the banking industry, with more money under mutual

fund management than deposited with banks. The indian mutual fund industry has already

opened up many exciting investment opportunities to indian investors. Despite the expected

continuing growth in the industry, mutual fund is a still new financial intermediary in india.

History of mutual funds:-

In the second half of 19th century, investor in uk considered the stock market is good for the

investment. But for small investor it is not possible to operate in the market effectively. This

led to establishment of an investment company which led to the small investor to invest in

equity market. The first investment company was the scottish-american investment company,

set up in london in 1860.

Mutual fund industry in india:-

mutual fund is an instrument of investing money. Nowadays, bank rates have fallen down

and are generally below the inflation rate. Therefore, keeping large amounts of money in

bank is not a wise option, as in real terms the value of money decreases over a period of time.

One of the options is to invest the money in stock market. But a common investor is not

informed and competent enough to understand the intricacies of stock market. This is where

mutual funds come to the rescue. A mutual fund is a group of investors operating through a

fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost


efficient and very easy to invest in. By pooling money together in a mutual fund, investors

can purchase stocks or bonds with much lower trading costs than if they tried to do it on their

own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest

Benefits of investing in mutual funds

Professional management: -

mutual funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects of

companies and selects suitable investments to achieve the objectives of the scheme.

Diversification: -

Mutual funds invest in a number of companies across a broad cross-section of industries and

sectors. This diversification reduces the risk because seldom do all stocks decline at the same

time and in the same proportion. You achieve this diversification through a mutual fund with

far less money than you can do on your own.

Convenient administration: -

Investing in a mutual fund reduces paperwork and helps you avoid many problems such as

bad deliveries, delayed payments and follow up with brokers and companies. Mutual funds

save your time and make investing easy and convenient.

Return potential: -

Over a medium to long-term, mutual funds have the potential to provide a higher return as

they invest in a diversified basket of selected securities.

Low costs: -

mutual funds are a relatively less expensive way to invest compared to directly investing in

the capital markets because the benefits of scale in brokerage, custodial and other fees

translate into lower costs for investors.

Liquidity: -

In open-end schemes, the investor gets the money back promptly at net asset value related

prices from the mutual fund. In closed-end schemes, the units can be sold on a stock


exchange at the prevailing market price or the investor can avail of the facility of direct

repurchase at nav related prices by the mutual fund.

Transparency: -

You get regular information on the value of your investment in addition to disclosure on the

specific investments made by your scheme, the proportion invested in each class of assets and

the fund manager's investment strategy and outlook.

Flexibility: -

Through features such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans, you can systematically invest or withdraw funds according to your needs

and convenience.

Types of mutual funds

Mutual fund schemes may be classified on the basis of its structure and its objective:-

By structure:-

Open-ended funds:-

An open-end fund is one that is available for subscription all through the year. These do not

have a fixed maturity. Investors can conveniently buy and sell units at net asset value ("nav")

related prices. The key feature of open-end schemes is liquidity.

Closed-ended funds:-

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15

years. The fund is open for subscription only during a specified period. Investors can invest

in the scheme at the time of the initial public issue and thereafter they can buy or sell the

units of the scheme on the stock exchanges where they are listed. In order to provide an exit

route to the investors, some close-ended funds give an option of selling back the units to the

mutual fund through periodic repurchase at nav related prices. Sebi regulations stipulate that

at least one of the two exit routes is provided to the investor.


Interval funds:-

Interval funds combine the features of open-ended and close-ended schemes. They are open

for sale or redemption during pre-determined intervals at nav related prices.

Money market funds:-

The aim of money market funds is to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safer short-term instruments such as

treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on

these schemes may fluctuate depending upon the interest rates prevailing in the market. These

are ideal for corporate and individual investors as a means to park their surplus funds for

short periods.

Load funds:-

A load fund is one that charges a commission for entry or exit. That is, each time you buy or

sell units in the fund, a commission will be payable. Typically entry and exit loads range

from 1% to 2%. It could be worth paying the load, if the fund has a good performance

history.


Various types of mutual funds:

equity funds: -

Equity funds are considered to be the more risky funds as compared to other fund types, but

they also provide higher returns than other funds. It is advisable that an investor looking to

invest in an equity fund should invest for long term i.e. For 3 years or more. There are

different types of equity funds each falling into different risk bracket. In the order of

decreasing risk level, there are following types of equity funds:-


Aggressive growth funds:-

In aggressive growth funds, fund managers aspire for maximum capital appreciation and

invest in less researched shares of speculative nature. Because of these speculative

investments aggressive growth funds become more volatile and thus, are prone to higher risk

than other equity funds.

Growth funds: -

Growth funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they

are different from aggressive growth funds in the sense that they invest in companies that are

expected to outperform the market in the future. Without entirely adopting speculative

strategies, growth funds invest in those companies that are expected to post above average

earnings in the future.

Specialty funds: -

Specialty funds have stated criteria for investments and their portfolio comprises of only

those companies that meet their criteria. Criteria for some specialty funds could be to

invest/not to invest in particular regions/companies. Specialty funds are concentrated and

thus, are comparatively riskier than diversified funds. There are following types of specialty

funds:

Sector funds:-

Equity funds that invest in a particular sector/industry of the market are known as sector

funds. The exposure of these funds is limited to a particular sector (say information

technology, auto, banking, pharmaceuticals or fast moving consumer goods) which is why

they are more risky than equity funds that invest in multiple sectors.

Foreign securities funds:-

Foreign securities equity funds have the option to invest in one or more foreign companies.

Foreign securities funds achieve international diversification and hence they are less risky

than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk

and country risk.


Mid-cap or small-cap funds:-

Funds that invest in companies having lower market capitalization than large capitalization

companies are called mid-cap or small-cap funds. Market capitalization of mid-cap

companies is less than that of big, blue chip companies (less than rs. 2500 crore but more

than rs. 500 crore) and small-cap companies have market capitalization of less than rs. 500

crore. Market capitalization of a company can be calculated by multiplying the market price

of the company's share by the total number of its outstanding shares in the market. The shares

of mid-cap or small-cap companies are not as liquid as of large-cap companies which gives

rise to volatility in share prices of these companies and consequently, investment gets risky.

Option income funds:-

While not yet available in india, option income funds write options on a large fraction of their

portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as

a risky instrument. These funds invest in big, high dividend yielding companies, and then sell

options against their stock positions, which generate stable income for investors.

Diversified equity funds: -

Except for a small portion of investment in liquid money market, diversified equity funds

invest mainly in equities without any concentration on a particular sector(s). These funds are

well diversified and reduce sector-specific or company-specific risk. However, like all other

funds diversified equity funds too are exposed to equity market risk. One prominent type of

diversified equity fund in india is equity linked savings schemes (elss). As per the mandate, a

minimum of 90% of investments by elss should be in equities at all times. Elss investors are

eligible to claim deduction from taxable income (up to rs 1 lakh) at the time of filing the

income tax return. Elss usually has a lock-in period and in case of any redemption by the

investor before the expiry of the lock-in period makes him liable to pay income tax on such

income(s) for which he may have received any tax exemption(s) in the past.

Equity index funds: -

Equity index funds have the objective to match the performance of a specific stock market

index. The portfolio of these funds comprises of the same companies that form the index and

is constituted in the same proportion as the index. Equity index funds that follow broad

indices (like s&p cnx nifty, sensex) are less risky than equity index funds that follow narrow


sectoral indices (like bsebankex or cnx bank index etc). Narrow indices are less diversified

and therefore, are more risky.

Value funds:-

Value funds invest in those companies that have sound fundamentals and whose share prices

are currently under-valued. The portfolio of these funds comprises of shares that are trading

at a low price to earnings ratio (market price per share / earning per share) and a low market

to book value (fundamental value) ratio. Value funds may select companies from diversified

sectors and are exposed to lower risk level as compared to growth funds or specialty funds.

Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) Which

make them volatile in the short-term. Therefore, it is advisable to invest in value funds with a

long-term time horizon as risk in the long term, to a large extent, is reduced.

Equity income or dividend yield funds: -

The objective of equity income or dividend yield equity funds is to generate high recurring

income and steady capital

appreciation for investors by

investing in those companies which

issue high dividends (such as

power or utility companies whose

share prices fluctuate

comparatively lesser than other

companies' share prices). Equity

income or dividend yield equity

funds are generally exposed to the

lowest risk level as compared to other equity funds.

Debt / income funds:-

Funds that invest in medium to long-term debt instruments issued by private companies,

banks, financial institutions, governments and other entities belonging to various sectors (like

infrastructure companies etc.) Are known as debt / income funds. Debt funds are low risk

profile funds that seek to generate fixed current income (and not capital appreciation) to

investors. In order to ensure regular income to investors, debt (or income) funds distribute

large fraction of their surplus to investors. Although debt securities are generally less risky


than equities, they are subject to credit risk (risk of default) by the issuer at the time of

interest or principal payment. To minimize the risk of default, debt funds usually invest in

securities from issuers who are rated by credit rating agencies and are considered to be of

"investment grade". Debt funds that target high returns are more risky. Based on different

investment objectives, there can be following types of debt funds:-

Diversified debt funds: -

Debt funds that invest in all securities issued by entities belonging to all sectors of the market

are known as diversified debt funds. The best feature of diversified debt funds is that

investments are properly diversified into all sectors which results in risk reduction. Any loss

incurred, on account of default by a debt issuer, is shared by all investors which further

reduces risk for an individual investor.

Focused debt funds: -

Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined

to investments in selective debt securities, issued by companies of a specific sector or

industry or origin. Some examples of focused debt funds are sector, specialized and offshore

debt funds, funds that invest only in tax free infrastructure or municipal bonds. Because of

their narrow orientation, focused debt funds are more risky as compared to diversified debt

funds. Although not yet available in india, these funds are conceivable and may be offered to

investors very soon.

High yield debt funds: -

As we now understand that risk of default is present in all debt funds, and therefore, debt

funds generally try to minimize the risk of default by investing in securities issued by only

those borrowers who are considered to be of "investment grade". But, high yield debt funds

adopt a different strategy and prefer securities issued by those issuers who are considered to

be of "below investment grade". The motive behind adopting this sort of risky strategy is to

earn higher interest returns from these issuers. These funds are more volatile and bear higher

default risk, although they may earn at times higher returns for investors.

Assured return funds: -

Although it is not necessary that a fund will meet its objectives or provide assured returns to

investors, but there can be funds that come with a lock-in period and offer assurance of


annual returns to investors during the lock-in period. Any shortfall in returns is suffered by

the sponsors or the asset management companies (amcs). These funds are generally debt

funds and provide investors with a low-risk investment opportunity. However, the security of

investments depends upon the net worth of the guarantor (whose name is specified in advance

on the offer document). To safeguard the interests of investors, sebi permits only those funds

to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns

in the future. In the past, uti had offered assured return schemes (i.e. Monthly income plans of

uti) that assured specified returns to investors in the future. Uti was not able to fulfill its

promises and faced large shortfalls in returns. Eventually, government had to intervene and

took over uti's payment obligations on itself. Currently, no amc in india offers assured return

schemes to investors, though possible.

Fixed term plan series: -

Fixed term plan series usually are closed-end schemes having short term maturity period (of

less than one year) that offer a series of plans and issue units to investors at regular intervals.

Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan

series usually invest in debt / income schemes and target short-term investors. The objective

of fixed term plan schemes is to gratify investors by generating some expected returns in a

short period.

Gilt funds:-

Also known as government securities in india, gilt funds invest in government papers (named

dated securities) having medium to long term maturity period. Issued by the government of

india, these investments have little credit risk (risk of default) and provide safety of principal

to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk.

Interest rates and prices of debt securities are inversely related and any change in the interest

rates results in a change in the nav of debt/gilt funds in an opposite direction.

Money market / liquid funds:-

Money market / liquid funds invest in short-term (maturing within one year) interest bearing

debt instruments. These securities are highly liquid and provide safety of investment, thus

making money market / liquid funds the safest investment option when compared with other

mutual fund types. However, even money market / liquid funds are exposed to the interest

rate risk. The typical investment options for liquid funds include treasury bills (issued by


governments), commercial papers (issued by companies) and certificates of deposit (issued

by banks).

Hybrid funds:-

As the name suggests, hybrid funds are those funds whose portfolio includes a blend of

equities, debts and money market securities. Hybrid funds have an equal proportion of debt

and equity in their portfolio. There are following types of hybrid funds in india:

Balanced funds: -

The portfolio of balanced funds includes assets like debt securities, convertible securities,

and equity and preference shares held in a relatively equal proportion. The objectives of

balanced funds are to reward investors with a regular income, moderate capital appreciation

and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate

for conservative investors having a long term investment horizon.

Growth-and-income funds: -

Funds that combine features of growth funds and income funds are known as growth-and-

income funds. These funds invest in companies having potential for capital appreciation and

those known for issuing high dividends. The level of risks involved in these funds is lower

than growth funds and higher than income funds.

Asset allocation funds: -

Mutual funds may invest in financial assets like equity, debt, money market or non-financial

(physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable

asset allocation strategy that allows fund managers to switch over from one asset class to

another at any time depending upon their outlook for specific markets. In other words, fund

managers may switch over to equity if they expect equity market to provide good returns and

switch over to debt if they expect debt market to provide better returns. It should be noted

that switching over from one asset class to another is a decision taken by the fund manager on

the basis of his own judgment and understanding of specific markets, and therefore, the

success of these funds depends upon the skill of a fund manager in anticipating market trends.


Commodity funds:-

Those funds that focus on

investing in different

commodities (like metals, food

grains, crude oil etc.) Or

commodity companies or

commodity futures contracts are

termed as commodity funds. A

commodity fund that invests in

a single commodity or a group

of commodities is a specialized

commodity fund and a

commodity fund that invests in

all available commodities is a

diversified commodity fund and bears less risk than a specialized commodity fund. "precious

metals fund" and gold funds (that invest in gold, gold futures or shares of gold mines) are

common examples of commodity funds.

Real estate funds:-

Funds that invest directly in real estate or lend to real estate developers or invest in

shares/securitized assets of housing finance companies, are known as specialized real estate

funds. The objective of these funds may be to generate regular income for investors or capital

appreciation.

Exchange traded funds (etf):-

Exchange traded funds provide investors with combined benefits of a closed-end and an

open-end mutual fund. Exchange traded funds follow stock market indices and are traded on

stock exchanges like a single stock at index linked prices. The biggest advantage offered by

these funds is that they offer diversification, flexibility of holding a single share (tradable at

index linked prices) at the same time. Recently introduced in india, these funds are quite

popular abroad.


Fund of funds:-

Mutual funds that do not invest in financial or physical assets, but do invest in other mutual

fund schemes offered by different amcs, are known as fund of funds. Fund of funds maintain

a portfolio comprising of units of other mutual fund schemes, just like conventional mutual

funds maintain a portfolio comprising of equity/debt/money market instruments or non

financial assets. Fund of funds provide investors with an added advantage of diversifying into

different mutual fund schemes with even a small amount of investment, which further helps

in diversification of risks. However, the expenses of fund of funds are quite high on account

of compounding expenses of investments into different mutual fund schemes.

Fund structure and constituents:-

Mutual funds in india have a 3-tier structure of sponsor-trustee-amc .sponsor is the promoter

of the fund. Sponsor creates the amc and the trustee company and appoints the boards of both

these companies, with sebi approval. A mutual fund is constituted as a trust. A trust deed is

signed by trustees and registered under the indian trust act. The mutual fund is formed as trust

in india, and supervised by the board of trustees. The trustees appoint the asset management

company (amc) to actually manage the investor’s money. The amc’s capital is contributed by

the sponsor. The amc is the business face of the mutual fund. Investors’ money is held in the

trust (the mutual fund). The amc gets a fee for managing the funds, according to the mandate

of the investors. The trustees make sure that the funds are managed according to the

investors’ mandate. Sponsor should have atleast 5-year track record in the financial services

business and should have made profit in atleast 3 out of the 5 years. Sponsor should

contribute atleast 40% of the capital of the amc. Trustees are appointed by the sponsor with

sebi approval. Atleast 50% of trustees should be independent. Atleast 50% of the amc’s board

should be of independent members. An amc cannot engage in any business other than

portfolio advisory and management. An amc of one fund cannot be trustee of another

fund.amc should have a net worth of at least rs. 10 crore at all times. Amc should be

registered with sebi amc signs an investment management agreement with the trustees.

Trustee company and amc are usually private limited companies. Trustees oversee the amc

and seek regular reports and information from them. Trustees are required to meet atleast 4

times a year to review the amc the investors’ funds and the investments are held by the

custodian. Sponsor and the custodian cannot be the same entity. R&t agents manage the sale

and repurchase of units and keep the unit holder accounts. If the schemes of one fund are


taken over by another fund, it is called as scheme take over. This requires sebi and trustee

approval. If two amcs merge, the stakes of sponsor’s changes and the schemes of both funds

come together. High court, sebi and trustee approval needed. If one amc or sponsor buys out

the entire stake of another sponsor in an amc, there is a takeover of amc.


Conclusion

Over the years, much of the mystery about financial markets have been removed “layer by

layer”. Besides, Indian market are now one of the best regulated markets in the world. Hence,

it is also time that along with increasing the overall literacy, we as a country also focus on

increasing financial literacy. This would turn India from a country of good savers to a country

of wise savers and help build financially strong and secure India.People should learned first

and then investor should consult their financial advisor before investing.If people have

adequate knowledge then they can earn good return in stock market.Intraday trading should

not be traded by normal man as they lose money due to volatility in the market.People should

invest in stock market as a long term investor rather than short term because in short term risk

is many and profit are less.F&o do cover risk of future so my advice is those have adequate

knowledge should invest in f&o segment and others should start first with cash market with

long term perspective.


Bibliography

www.infoindia.com

www.proiectindia.com

www.nifty.co.in

www.sipnsurf.com

Wiblography:-

Securities laws and regulations of financial markets

National securities depository limited

Fundamentals of futures & options markets- john c. Hull

Financial derivatives- s. L. Gupta

http://www.sipnsurf.com/

http://www.nifty.co.in/

http://www.proiectindia.com/

http://www.infoindia.com/

final avenues of investments1

Documents

definition of investment

economic investment

concepts of investment

term financial investment

future investment period

short term investment

mutual funds

employment of funds