EXECUTIVE SUMMARY

When there are surplus funds available in the organization it is always a very prudent decision to invest these funds elsewhere to earn some returns on them even if the funds are available for a very short period of time.

GAIL makes its investment of surplus funds according to the guidelines specified by the DPE and Ministry of Finance. As per the guidelines all the CPSEs (Central public Sector Enterprises) should invest only in Treasury Bills, G-Secs, Term Deposits, CDs, Commercial Papers, Inter-Corporate Deposits and public Sector Mutual Funds.GAIL for investing its surplus funds considers only term deposits and CLTD a/c as there is zero risk factor involved in them.

In this research project, I have studied the returns which GAIL is earning with its current investment policy. My motive here was to find out whether GAIL should continue with its investment policies or whether considering investing in other options such as Public sector Mutual Funds would help GAIL earn better returns on its idle funds, even if it is invested for a very short period of time of less than 7 days.

I studied mutual fund investment as an option because they have various schemes which help to earn steady and reasonable returns on investment, with high level of liquidity.Moreover investment can be made for less than 7 days which s not possible with FDs or CLTDs. And also returns earned on them are also tax free. I studied and analyzed the risk and the performance of 3 public sector Mutual Funds, UTI, SBI and LIC.

It was found that there is not much volatility in the performance of these mutual funds and the risk factor is also very meagre. GAIL should consider investing in these Funds.

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RESEARCH OBJECTIVE

1. To the short term surplus investment pattern of GAIL.

2. To study the new avenues of investment for GAIL that are allowed by Department of Public Enterprises.

3. To determine the risk involved in these investment options.

4. To analyze the returns from the various investment options available to GAIL.

5. To recommend the optimal investment option that should be considered by GAIL to earn more returns.

2

RESEARCH DESIGN & METHODOLOGY

A descriptive research is conducted here as the requirement here was to find out the characteristics, features, advantage, disadvantage, the risk involved and the related performance of various investible options available to GAIL.

SOURCES OF DATA:

Majority of the data used in this report is secondary in nature, which are collected from the reports and files and annual report of the company.

Information was also collected from concerned officials of the Company.

I visited the website of GAIL, DPE, Finance Ministry, Investment Commission of India, Association of Mutual Funds of India etc.

INSTRUMENTS USED:

With the help of MS Excel I prepared the charts and graphs to depict the information and also to calculate the returns from various investible options.

DATA COLLECTION:

Data was collected from the Secondary sources that is, the websites, reports, articles, books etc.

LIMITATIONS:

As according to the DPE guidelines GAIL is allowed to invest only in Public sector MF where it is true that the volatility is less and therefore much less riskier than other Mutual funds. Had GAIL been allowed to invest in other Mutual funds it could have earned much higher returns. As a 90 days FD with SBI will help GAIL earn an interest return of 3% p.a. , But the same amount for the same period if invested in some other mutual funds would have earned almost double returns.

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1. INTRODUCTION

ABOUT THE COMPANY

GAIL (India) Limited, is India's flagship Natural Gas company, integrating all aspects of the Natural Gas value chain (including Exploration & Production, Processing, Transmission, Distribution and Marketing) and its related services. In a rapidly changing scenario, Company is spearheading the move to a new era of clean fuel industrialisation, creating a quadrilateral of green energy corridors that connect major consumption centres in India with major gas fields, LNG terminals and other cross border gas sourcing points. GAIL is also expanding its business to become a player in the International Market.

Table 1.1

Incorporated 16th August ,1984Turnover (2009-10) Rs. 24,996 croreNet Profit (2009-10) Rs. 3,140 croreEmployees 3,480Registered Office 16 Bhikaiji Cama Place, R.K.

Puram, New Delhi 110066Market Shares 78% Market Share in Natural Gas

Transmission70% Market share in Natural Gas Marketing

GAIL (India) Ltd. is involved in activities expanding to Gas Processing for fractionating LPG, Propane, SBP Solvent and Pentane; transmission of Liquefied Petroleum Gas (LPG); Petrochemicals like HDPE and LLDPE; leasing bandwidth in Telecommunications. The company has extended its presence in Power, Liquefied Natural Gas (LNG) re-gasification, City Gas Distribution and Exploration & Production through equity and joint venture participations. It is steadily developing its overseas presence and through this it wants to focus on maintaining its dominant position in the gas business, especially the transmission segment.

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HISTORY

GAIL (India) Ltd. (erstwhile Gas Authority of India Ltd), India's principal gas transmission and marketing company, was set up by the Government of India in August 1984 to create gas sector infrastructure for sustained development of the natural gas sector in the country.

The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991. During 1991-93, three LPG plants were constructed and some regional pipelines acquired, enabling GAIL to begin its regional gas distribution in various parts of India.

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations, catering to the city's vast public transport fleet.

In 1999, GAIL set up northern India's only petrochemical plant at Pata.

GAIL became the first Infrastructure Provider Category II Licensee and signed the country's first Service Level Agreement for leasing bandwidth in the Delhi-Vijaipur sector in 2001, through its telecom business GAILTEL. In 2001, GAIL commissioned world's longest and India's first Cross Country LPG Transmission Pipeline from Jamnagar to Loni.

GAIL today has reached new milestones with its strategic diversification into Petrochemicals, Telecom and Liquid Hydrocarbons besides gas infrastructure. The company has also extended its presence in Power, Liquefied Natural Gas re-gasification, City Gas Distribution and Exploration & Production through equity and joint ventures participations. Incorporating the new-found energy into its corporate identity, Gas Authority of India was renamed GAIL (India) Limited on November 22, 2002.

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VISION

Be the Leading Company in Natural Gas and beyond, with Global Focus, Committed to Customer Care, Value Creation for all Stakeholders and Environmental Responsibility.

MISSION

To accelerate and optimise the effective and economic use of Natural Gas and its fractions to the benefit of national economy

Key Elements of GAIL's Vision:

Leading Company

Be the undisputed leader in the Natural Gas market in India and a significant player in the global natural gas industry, by growing aggressively while maintaining the highest level of operating standards

Natural Gas and Beyond

Focus on all aspects of the Natural Gas value chain and beyond including Exploration, Production, Transmission, Marketing, Extraction, Processing, Distribution, utilisation including Petrochemicals and Power and Natural Gas related infrastructure, products and services

Global Focus

Create and strengthen significant global presence to pursue strategic, attractive opportunities that leverage GAIL's capabilities while effectively managing business risks

Customer Care

Anticipate and exceed customer expectations through the provision of highest quality infrastructure, products and services

Value Creation for All Stakeholders

GAIL will create superior value for all stakeholders including shareholders, customers, employees, business partners, surrounding communities and the nation

Environmental Responsibility

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GAIL is committed to operational excellence in all we do with a focus on continuous efforts to improve environmental performance for ourselves and our customers and will be sensitive to the needs of the environment in all our actions

Today, GAIL's Business Portfolio includes:

7,700 km of Natural Gas high pressure trunk pipeline with a capacity to carry 157 MMSCMD of natural gas across the country.

7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid hydrocarbons.

North India's only gas based integrated Petrochemical complex at Pata with a capacity of producing 4,10,000 TPA of Polymers.

1,922 km of LPG Transmission pipeline network with a capacity to transport 3.8 MMTPA of LPG.

27 oil and gas Exploration blocks and 3 Coal Bed Methane Blocks.

13,000 km of OFC network offering highly dependable bandwidth for telecom service providers.

Joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra, Lucknow, Bhopal, Agartala and Pune, for supplying Piped Natural Gas (PNG) to households and commercial users, and Compressed Natural Gas (CNG) to the transport sector.

Participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG Terminal in Kerala.

GAIL has been entrusted with the responsibility of reviving the LNG terminal at Dabhol as well as sourcing LNG.

Established presence in the CNG and City Gas sectors in Egypt through equity participation in three Egyptian companies: Fayum Gas Company SAE, Shell CNG SAE and National Gas Company SAE.

Stake in China Gas Holding to explore opportunities in the CNG sector in mainland China

A wholly-owned subsidiary company GAIL Global (Singapore) Pte Ltd in Singapore

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DOMESTIC BUSINESS INITIATIVES

The Company established a world class National Gas Management Centre (NGMC) with an objective of round-the-clock marketing and control of transmission assets of the Company from a single location. NGMC deals with the Company’s natural gas transportation and LPG transmission business throughout India in which live data is available at a centralized location for monitoring of pipeline and delivery condition of all major customers’ terminals. National Gas Management Centre, which is the first of its kind for the gas business in India, encompasses management of entire gas trading of the Company, transportation and LPG transmission business throughout India with the availability of live data at centralized location for monitoring pipeline parameters, delivery conditions at all major customer terminals, gas reconciliation and accounting for entire gas business. To ensure efficient real time management and gas nominations, delivery and allocation with accurate gas reconciliation, a Gas Management System (GMS), a web enabled system, is also available in NGMC, which integrates all the shippers, suppliers, customers and transporters of gas to provide better co-ordination and transparency in Gas Transportation business. The Company is in the process of acquiring 19% equity stake in ONGC Petro-additions Limited (OPaL) along with co-promoter status. OPaL is setting up a petrochemical complex at Dahej in Gujarat for producing 1.1 million tonnes per annum of ethylene, which is scheduled to be commissioned by the end of the year 2012. Further, the Company has signed Memorandum of Understanding (MoU) with- - IOCL for evaluating the potential of setting up of petrochemical complex in Barauni, Bihar and - IFFCO to evaluate the potential of setting up of gas based power plant& other industries including chemicals, fertilizers, CNG & PNG in India In its efforts to reduce Green House Gas (GHG) emissions, the Company has signed an agreement for sale of steam through waste heat recovery at its Vaghodia processing plant. The Company has initiated steam conversion project based on waste heat recovery system from gas turbines. This rare, multi-benefit project would not only utilize Clean Development Mechanism (CDM) for power generation, but also lead to conservation of gas as well as increased energy efficiency.1

1 GAIL’s Annual Reports

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GLOBAL BUSINESS INITIATIVES

The Company is globalizing its business activities with an objective of exploring growth opportunities and entering new markets. The Company is continuously pursuing gas sector business opportunities abroad. The Company has been successful in Myanmar, Egypt, China and Oman in securing participation in gas sector related projects and also has participating interest in two offshore blocks (A-1 & A-3) in Myanmar and one onshore block (Block 56) in Oman. The Company has secured participating interest in three retail gas companies in Egypt and one retail gas company in China. Further, GAIL India Ltd. has a wholly owned subsidiary company namely GAIL Global (Singapore) Pte Ltd; at Singapore for pursuing overseas business of the Company. In addition The Company has recently formed a Joint Venture with China Gas Global Energy Holdings Limited wherein The Company and China Gas are equal partners. In order to have long term association with China Gas and also to expand business in the fast growing downstream Chinese gas sector, the Joint Venture(JV) will pursue opportunities in CNG, City Gas, Pipeline, CBM, LNG and E&P projects.

In addition, The Company has been nominated as a nodal agency from Indian side by Government of India for pursuing ran-Pakistan –India (IPI) natural gas pipeline project and Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project for supply of gas to India from Iran and Turkmenistan respectively. The Company signed a Memorandum of Understanding (MoU) with Delta Compressor of Argentina for pursuing CNG opportunities abroad and SIBUR Holding for pursuing gas processing& gas based petrochemical opportunities in Russia.2

2 GAIL’s Annual Reports

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Figure 1.1 PROJECTED CAPEX – Rs.49155 Cr

Figure 1.2 PROJECTED BORROWINGS – Rs.28700 Cr

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3 GAIL investor presentation, November 09

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Figure 1.3 GAIL’S EXISTING INFRASTRUCTURE4

MILESTONES4 GAIL investor presentation, November 09

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2009-10

1. GAIL signs an MoU with Kerala State Industrial Development Corporation Limited (KSIDC), Government of Kerala for Natural Gas Infrastructure and City Gas Distribution in Thiruvananthpuram.

2. GAIL approves an investment of Rs. 8,000 crore for setting up of new pipelines and augmenting capacity of an existing pipeline.

3. GAIL signs a Gas Co-operation Agreement with Infrastructure Development Department (IDD) Karnataka to develop natural gas distribution and city gas infrastructure, to develop the use of eco-friendly fuels, especially Natural Gas/CNG/PNG/R-LNG and to promote a Joint Venture (JV) for domestic, industrial and transport sectors in the state of Karnataka.

4. GAIL is awarded Oil and Gas Pipeline Transportation Company for the year 2007-08

in recognition for leading performance growth of infrastructure, optimal utilization during hydrocarbon transportation in India while meeting norms of health, safety and environment protection.

5. GAIL signs agreement with Rajasthan Rajya Vidyut Utpadan Nigam for Gas based power plant for supply of natural gas for 160 MW gas power plant of RRVUNL at Ramgarh.

6. GAIL signed two contracts for sourcing of natural gas from PY-1 field for supply to a power plant in Tamil Nadu to develop the natural gas distribution and city gas infrastructure, to develop the use of eco-friendly fuels, especially Natural Gas/CNG/PNG/R-LNG and to promote a Joint Venture (JV) for domestic, industrial and transport sectors in the state of Kerala.

7. GAIL gets SCOPE Meritorious Award for Corporate Governance for the year 2007-08.

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FUTURE PLANS:

The company is expanding its pipeline network substantially to add another 6,600 km of pipelines within the next three years. In addition, it is investing in its E&P blocks besides investing in its joint venture projects such as Brahmaputra Cracker and ONGC Petro Additions. The projected capital expenditure for the next five years is Rs 49,155 crore - almost thrice its current gross block.

In the near term, the rising production from Reliance Industries’ KG basin fields will bring in additional transmission revenues for the company, while any E&P success could add to future growth visibility. But rest of its projects will take long to generate returns.

FINANCIALS:

Over the last three years, the company has spent an average of Rs 270 crore annually on the E&P business towards survey and dry well expenditure. So far, in the first nine months of FY10, it has written off Rs 108 crore. As a result, the company is likely to write-off another Rs 150 crore in the March ‘10 quarter. The company has been cash rich with over Rs 3,000 crore of annual operating cash flows.

However, its ambitious investment plans for the next five years will necessitate it to raise debt of Rs 28,700 crore in the next five years. Since FY04, Gail is sharing subsidy on LPG and has so far contributed Rs 8,200 crore on a cumulative basis. Subsidy sharing has always remained the most influential factor for Gail’s profits and which will remain equally uncertain in future as in the past.

A reduction in subsidy burden was the key driver of Gail’s good performance in the December ‘09 quarter. Over the last five years, the company’s net sales have grown at a cumulative annual growth rate (CAGR) of 15% and net profit at a CAGR of 10%. In the nine months ended December ‘09, the company’s profits are only marginally higher than that of the year-ago period.

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2. FINANCIAL PERFORMANCE5

Table 2.1 INCOME

NET SALES (Rs. In crores)2008-09 2007-08 % increaseRs. 23,776 Rs. 18,008 32%

Table 2.2 SEGMENT WISE TURNOVER (Rs. In crores)

S.No Particulars 2008-09 2007-081 Transmission services

a) Natural Gas 2,216 2,026b) LPG transmission 380 382

2 Gas trading 15,435 10,3323 Petrochemicals 2,705 2,5694 LPG &other Liquid

Hydrocarbons2,964 2,641

5 GAILTEL 24 286 Unallocated 52 30

Total Sales 23,776 18,008

Table 2.3 TOTAL INCOME (Rs. In crores)

2008-09 2007-08 % increaseRs. 24,578 Rs. 18,594 32%

Table 2.4 COST OF SALES

Cost of sales including depreciation and interest (Rs. In crores)2008-09 2007-08 % increaseRs. 20,369 Rs. 14,709 38%

5 GAIL’s Annual Reports

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GAIL’S FINANCIAL PERFORMANCE IN THE PAST 5 YEARS

Table 2.5

FINANCIAL 2004-05 2005-06 2006-07 2007-08 2008-09

Gross sales

12927.07 14875.49 16545.85 18580.21 24292.24

Profit after tax

1953.91 2310.07 2386.67 2601.46 2803.70

Net worth 8559.65 9874.81 11,262.42 12,842.38 14,575.12

Figure 2.1

6

The Gross sales and profits have been showing an increasing trend over the past five years.

6 GAILs Annual Report 2008-09

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RESERVES AND SURPLUS

Table 2.6

Year Reserve and surplus

Percentage change

2004-05 7780.46 17.895%

2005-06 9127.64 17.315%

2006-07 10547.26 15.553%

2007-08 12159.23 15.283%

2008-09 13501.15 11.036%

Figure 2.2

7

The reserves and surplus were at Rs. 13,501crores at the end of the FY 2008-09as compared to Rs. 12,159 crores at the end of the last FY 2007-08.

7 GAILs Annual Report 2008-09

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INVESTMENTS AND EARNINGS IN THE LAST 5 YEARS8

Table 2.7

Years Investments Dividend income on investment

Interest income on investment

2004-05 783.95 119.34 146

2005-06 1443.35 174.44 221.86

2006-07 1463.84 190.8 249.55

2007-08 1490.88 201.16 268.57

2008-09 1737.27 216.29 384.54

Figure 2.3

GAIL (India) will invest Rs 8,000 crore in laying over 2,400 km of pipelines in three years.The company, at present, operates about 7,100 km gas pipelines and is working on doubling its network by Mar 2012 at an investment of around Rs 28,000 crore.

It can be seen that over the years, the income from the interest earned on investment has increased in a much steeper way than the income from the dividend of investment.

3. TYPES OF INVESTMENTS

8 GAILs Annual Report 2008-09

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There are a variety of different types of investments available today. There are short-term investments, long-term investments, and as many different investment strategies as there are investors.

SHORT-TERM VS. LONG-TERM: A COMPARISON Obviously, there are differences between short-term and long-term investments. Short-term investments are designed to be made only for a little while, and hopefully show a significant yield, whereas long-term investments are designed to last for years, showing a slow but steady increase so that there is a significant yield at the end of the term.

ADVANTAGES OF SHORT-TERM INVESTMENTS The main advantages to short-term investments are the potential for fast growth and the fact that the term may only last a few weeks to a few months. Though there tends to be more fluctuation in many forms of short-term loans, these loans allow more control over the money and it usually isn't out of the possession for very long.

DISADVANTAGES OF SHORT-TERM INVESTMENTS

As mentioned above, short-term investments tend to be a bit riskier and show a much higher rate of fluctuation than their long-term counterparts. While there is a good chance that you'll make money with a short-term investment, there is also a chance that you'll lose money.

This is especially the case when dealing with the stock market, since many of the short-term investments made with stocks and bonds involve precision timing to sell when the stocks or bonds are at their peak just before they begin to drop.

ADVANTAGES OF LONG-TERM INVESTMENTS Just the opposite of short-term investments, long-term investments have the ability to gain small amounts of money over a longer period of time. The slow-but-steady pace of long-term investments allow for a much greater degree of stability and a much lower risk than short-term investments. They also are ideal for making the savings or retirement fund grow. The investments usually continue to grow over the years, maturing just as you need them.

DISADVANTAGES OF LONG-TERM INVESTMENTS Of course, the main disadvantage of long-term investments is that they increase in value slowly and can take years to mature.

For those individuals who need a high yield in a short period of time, long-term investments are definitely not the way to go... between the fees that are associated with some types of investment and the small fluctuations that any investment will experience, many long-term investments might actually go down in value before they begin to climb over time.Additionally, with many of the long-term investments that you'll find, you tend to have much less control over the money until the investment matures. There are usually penalties or fines for early withdrawal or selling stocks and bonds through long-term investment programs.

4. INDIAN STOCK MARKET IN 2010

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The prevailing economic conditions, both domestic and global, suggest the Indian stock market is poised to continue to rally in 2010 even though US and European Markets have yet to recover from recession effect. Key factor remains the impact of Q4 results and strong GDP growth of around 8%. However point of caution needs to be the phase wise withdrawal of financial support given by Indian government to the market. So far, the recovery in India has been driven by domestic consumption and government expenditure. However, corporate investment is expected to surge in 2010 due to the strong GDP growth which will increase capacity utilisation.  Stocks in the infrastructure and power sectors may be the front runners in 2010 as they receive strong policy support from the Indian government. But one must be cautious that the interest rate cycle might start moving up with the strong GDP performance and relatively high inflation. If it does, banking stocks will be affected severely as was seen in the past.We have witnessed a global financial crisis in 2008-09 which is still very much an unforgettable incident and taught us good lessons.  During the bull rally (2003-2007) there was considerable exuberance. This was the time when interest rates were low. Credit was available and that too cheaply. Not just that, corporate profits were growing at a healthy rate. Stock markets were notching strong gains. But the global credit crisis changed all that. The abundant liquidity, not surprisingly, led to asset bubbles that finally burst. So if one learned a good lesson should go for companies with less debt, enough cash and strong return ratios. These are the ones who will be able to tide over the crisis and generate strong returns to shareholders in the long term beyond 2010.9

5. INVESTMENT POLICY

9http://www.merinews.com/topic/indian-stock-market.shtml

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GAIL (India) Ltd. has to follow the guidelines and policies as prescribed by the Ministry of Finance, Department of Public Enterprises and Ministry of Petroleum & Natural Gas regarding investment of its funds.

MINISTRY OF FINANCE10

The Ministry of Finance is an important ministry within the Government of India. It concerns itself with taxation, financial legislation, financial institutions, capital markets, centre and state finances, and the Union Budget.

The Union Finance Ministry of India comprises five departments:

Department of Economic Affairs Department of Expenditure Department of Revenue Department of Disinvestments Financial Services

On 1st December, 2008 MOF in an office memorandum pronounced that the Central Govt. Ministries and departments should place their surplus funds with public sector banks in order to avoid undesirable competition amongst banks leading to arbitrary hikes in deposit rates, which have consequences for the economy, the Govt. Decided that the practise of inviting competitive bids for bulk deposits should be discontinued and all ministries /departments under their control should place their deposits with the bank with whom they have regular business.

To control the cost of credit in the circumstances when there was a global slowdown, the MOF and Ministry of Heavy Industries and Public Enterprises came out with some set of instruction which were issued to all the CPSEs.

The Finance Minister had a meeting with the Public Sector Banks and CMDs of CPSEs- Based on the discussion the following instruction were issued.

1. All Public Sector Banks were advised to publish their card rates for bulk deposits of

Rs.1 crore and above.

2. All CPSEs were advised surplus funds may be placed with one or more PSBs

3. CPSEs shall not deploy their funds through a bidding process with any public sector banks or withdraw the funds from any PSB prematurely for depositing them elsewhere.

4. Placing of deposits with Public Sector Banks at card rates will deemed to be a transparent process

DEPARTMENT OF PUBLIC ENTERPRISES

10http://finmin.nic.in/

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In their 52nd Report (3rd Lok Sabha), the Estimates Committee referred to the absence of any organisation in the Government to provide policy and overall guidance to the Central Public Enterprises (PSEs) and stressed the need for setting up a centralised coordinating unit which could also make continuous appraisal of the performance of public enterprises. This led to the setting up of the Bureau of Public Enterprises (BPE) in 1965. BPE was later constituted as an independent administrative unit within the Ministry of Finance, Department of Expenditure in 1969. As a result of the re-organisation of the Ministries/Departments of the Central Government in September, 1985, BPE was transferred from Ministry of Finance to the Ministry of Industry. In May, 1990, BPE was conferred the status of a full-fledged Department and is now known as the Department of Public Enterprises (DPE) in the Ministry of Heavy Industries and Public Enterprises.

The Department of Public Enterprises acts as a nodal agency for all PSEs and assists in policy formulation pertaining to the role of PSEs in the economy as also in laying down policy guidelines on performance improvement and evaluation, financial accounting, personnel management and in related areas.

Guidelines for Investment of Surplus Funds by Public Sector Enterprises11

Principles concerning investments

i. Investments should be made only in instruments with maximum safety.

ii. There should be no element of speculation on the yield obtaining from the investment.

iii. There should be a proper commercial appreciation before any investment decision of surplus funds is taken. The surplus availability may be worked out for a period of minimum one year at any point of time.

iv. Funds should not be invested by the PSE at a particular rate of interest for a particular period of time while the PSE is resorting to borrowing at an equal or higher rate of interest for its requirements for the same period of time.

v. Investment decision should be based on sound commercial judgement. The availability should be worked out based on cash flow estimates taking into account working capital requirements, replacement of assets and other foreseeable demands.

vi. The remaining period of maturity of any instrument of investment should not exceed one year from the date of investment where the investment is made in an instrument already issued. Where investment is made in an instrument newly issued, the final maturity of the instrument should not exceed one year. However, only in the case of term deposits with banks, it can be up to three years.

Eligible Investments 

Investments may be made in one or more of the following instruments, subject to

11 http://dpe.nic.in/

21

principles outlined in the previous paragraph:

1. Term deposits with any scheduled commercial bank [i.e., banks incorporated in India] and with a paid up capital of at least Rs. 100 Crores, fulfilling the capital adequacy norms as prescribed by the R.B.I. from time to time. These adequacy norms should be reflected in the last published balance sheet.

2. Instruments which have been rated by an established Credit Rating Agency and have been accorded the highest credit rating signifying highest safety e.g. certificates of deposits, deposits schemes or similar instruments issued by scheduled commercial banks/term lending institutions including their subsidiaries, as well as commercial paper of corporate..

3. Inter-corporate loans are permissible to be lent only to Central PSEs, which have obtained highest credit rating awarded by one of the established Credit Rating Agencies for borrowings for the corresponding period.

4. Any debt instrument, which has obtained highest credit rating from an established Credit Rating Agency.

Authority Competent to Invest

i. Decisions on investment of surplus funds shall be taken by the Public Sector PSU Board. However, decisions involving investing short-term surplus funds up to one year maturity may be delegated up to prescribed limits of investment, to a designated group of Director[s], which should invariably include CMD & Director (Finance)/Head of Finance internally. Where such delegation is made, the delegation order should spell out the levels of approval and the powers of each official, which should be strictly observed. Where such delegation is exercised, there should be a proper system of automatic internal reporting to the Board at its next meeting in all cases.

ii. PSEs should ensure that all investment decisions are in accordance with the regulations as per the Company Law & Government of India instructions and any other relevant legislation and rules as applicable. Any investment already made, which is not in conformity with the above guidelines should not be renewed after maturity.

Amendments made to the DPE guidelines over the years

1 st November, 1995

22

1. PSUs will not be allowed to invest their surplus funds in UTI and other public and private mutual funds as they are equity based and are, therefore, inherently risky.

2. Public enterprises can select treasury bills and Government of India securities up to three years maturity period for the investment of surplus funds.

3. Instead of the condition of Rs.100 Crores as paid up capital there will be a condition of Rs.100 Crores as ‘net worth’ of the bank, i.e. the paid up capital plus free reserves of the bank should not be less than Rs.100 Crores.

4. It is clarified that credit ratings issued by rating agencies are broadly classified as investment grade and non-investment grade. Since "highest credit rating" would mean the top most in the investment grade, which would limit choice and probably lower the overall yield, PSUs will now be free to invest in instruments falling under investment credit rating.

11 th March, 1996

PSUs were advised that the investment of surplus funds in UTI and other public and private sector mutual funds should not be made as they are inherently risky. The existing holdings of PSUs in various schemes of UTI and similar mutual funds schemes of other public sector and private sector mutual funds may be phased out over a period of three years.

2 nd July, 1996

Finance sector PSUs, get registered with RBI as NBFCs, in case where it is not already done and completely falls in line with the directive/monitoring process of RBI. The NBFCs in Public Sector registered with RBI will be outside the purview of the above referred guidelines issued by DPE.

14 th February, 1997

Taking into account the various factors regarding the establishment and investment activities of UTI and recognition of Units as eligible securities under the Indian Trusts Act, 1882, and the regulatory frame work of SEBI, it has been decided to remove the existing restrictions on investment of surplus funds of PSEs in the Units/Schemes of UTI as contained in the above mentioned guidelines.

25 th November, 1999

The public sector enterprises may be allowed to invest their surplus funds in the call money deposits after taking individual approvals from the Reserve Bank of India.

29 th September, 2005

Allow CPSEs to invest their surplus funds in the Call Money Market.

31 st August, 2007

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Only Navratna and Miniratna CPSEs are permitted to invest in SEBI regulated public sector mutual funds.

Navratna and Mini-ratna CPSEs to invest in equity schemes of SEBI regulated Public Sector Mutual Funds up to 30% of available surplus funds of the concerned CPSEs.

11 th April,2008

It has been accordingly decided that at least to the extent of 60% of funds under the control of Ministries/Departments/other agencies/entities etc. be placed with Public Sector Banks. Moreover, in order to avoid undesirable competition amongst banks leading to arbitrary hikes in deposit rates (even for short periods) which have consequences for the economy, it has been decided that the practice of inviting competitive bids for bulk deposits should be discontinued forthwith.

15 th April, 2008

It is clarified that the limit of 30% of available surplus funds is for investment in Public Sector Mutual Funds as a whole and not for only equity schemes of Public Sector Mutual Funds.

24 th Feb 2009

CPSEs should not invite bids from the private sector banks also for placing their bulk deposits, and

All CPSEs parking their funds with banks should renew all deposits maturing upto 30.06.2009 with the same bank, with which they have placed deposits, at the published bulk deposit card rates

Ministry of Petroleum and Natural Gas

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The Ministry of Petroleum & Natural Gas is a branch of the Government of India. It has the responsibility of exploration and production of oil and natural gas, their refining, distribution and marketing, import, export, and conservation of petroleum products and liquefied natural gas in India.

The Ministry of Petroleum & Natural Gas along with The Department of Public Enterprises makes guidelines for the different public sector enterprises.

Given below are some of the circulars sent by Ministry of Petroleum & Natural Gas and the DPE:

1. On 31st January 2008, a circular was issued that preference should be given to Public Sector Banks for handling government transactions & there should be no discontinuation of bids by the Public Sector Enterprises to avoid competition among banks to get the investment.

The banks raise their interest rates to get the PSU to deposit its money there and this leads to increase in bank rates, which is a very unhealthy situation especially in the present scenario of recession where RBI is trying to control the rates.

2. On 2nd January 2009, another circular was released in which it was mentioned that CPSEs should place surplus funds with PSBs to the extent of 60% or more and at the same time prohibiting them to invite bids for the same.

3. On 12th January 2009, a circular was issued which has led to t he removal of the prohibition on investment of surplus funds of CPSEs in mutual funds.

6. INVESTMENT PRIORITY OF GAIL

1. Conformance to DPE guidelines25

2. Security & safety3. Transparency4. Maximization of returns

INVESTMENT OPTIONS AVAILABLE TO GAIL

Table 6.1

Investment instrument

Issued By Residual Maturity

Treasury Bills GOI Up to 1yearGOI securities GOI Up to 3 yearTerm deposits Scheduled commercial

banksUp to 3 year

Certificate of deposits/ Deposit schemes

Scheduled commercial banks

Up to 1 year

Commercial Papers Corporates Up to 1 yearInter-Corporate deposits/Loans

Central PSUs Up to 1 year

Any other Debt Instrument Up to 1 year

Besides all these instrument GAIL is also allowed to invest in Public Sector Mutual funds as per the amendment to the DPE guideline o 14th February, 1997.

In the 182nd board meeting of GAIL, held on 9th October, 2002. The BOD granted opening of Corporate Liquid Term Deposit Account (CLTD a/c) with SBI.In the 230th meeting held on 27th October, 2005 Dir(Finance) was authorized to open/close & operate CLTD a/c with HDFC bank, ICICI bank or any other nationalized or scheduled commercial banks in India.CLTD a/c shall enable GAIL to earn interest on the funds received during the second-half of the day.

Currently, GAIL invests only in Fixed Deposits and Corporate Liquid Term Deposits (CLTD).

TERM/FIXED DEPOSITS

A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is

26

purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice. Term deposits are an extremely safe investment and are therefore very appealing to conservative, low-risk investors. By having the money tied up you'll generally get a higher rate with a term deposit compared with a demand deposit.

ADVANTAGES OF TERM DEPOSITS:

Short term deposits are convenient because they do not require you to lock in The funds for the long term. These term deposits generally have tenure of a few months to a couple of years. The customer can generally choose the exact term that he is most comfortable with based on various options provided by the bank.

Short term deposits offer a relatively higher rate of interest and therefore are better than leaving money in the savings account, where you receive a relatively lesser amount.

In fact short term deposits are the perfect blend of high interest rates without the necessity of blocking money for a long period of time.

The current deposit rates of SBI are:

Table 6.2

SBI card Rates 12

Interest Rates for Deposits of Rs. One Crore & Above (% p.a.)Tenors Rates

w.e.f. 03.03.2010

Revised

w.e.f. 27.03.2010

7 days to 14 days 1.50 1.50

15 days to 30 days 2.00 2.00

31 days to 45days 2.25 2.25

46 days to 90 days 3.00 3.00

91 days to 180 days 3.50 3.50

181 days to 270 days

4.50 4.50

1 year and above 6.00 6.00

CORPORATE LIQUID TERM DEPOSIT (CLTD)

12 http://www.statebankofindia.com/

27

The revised interest rates on Domestic Term Deposits of Rs One Crore & above with effect from 27.03.2010 would be as under:

13Corporate Liquid Term Deposit (CLTD) scheme is a deposit scheme for corporates, Institutions & Firms with its unique facility of the partial withdrawals (unitized break up) to the depositors without the need for premature encashment of the entire deposit. Thus the product provides liquidity to the depositors with high return and convenience.

Customer has the flexibility to choose the period of deposit from 15 days to 3 years.

Rate of interest for CLTD will be the card rate applicable for the contracted tenure of the deposit. No differential rate of interest is applicable.

Minimum amount of deposit to be maintained is Rs.25000/-.Subsequent deposit in multiples of Rs.5000/- with a minimum of Rs.25000/- . Max cap is Rs.4.95 crores.

Whenever any cheque is presented by the customer in case of inadequate balance in the current account for payment of the cheque the shortfall amount is broken in multiples of Rs.5000/- in’ last in first out’ basis from the CLTD and the cheque is honoured without any hassle to the customer.

No loan /overdraft facility is available under the scheme.

Rules applicable for premature withdrawal for fixed deposit are applicable for the part amount of deposit broken for withdrawal.

Usual formalities applicable for opening current account and TDR/STDR account including KYC procedure are applicable for opening accounts under the scheme.

Table 6.3

CLTD Rates

Name of the Bank Interest Rate

SBI 2%HDFC 3.75%

13 http://www.indorebank.org/cltd.htm28

AMOUNT DEPOSITED IN SHORT TERM DEPOSITS BY GAIL 14

Table 6.4

Year CLTD Short term deposit

2004-05 17.79 2426.212005-06 58.73 3667.522006-07 78.6 2133.552007-08 44.4 3323.882008-09 82.20 1838.63

Figure 6.1 Figure 6.2

14 GAILs annual report 2008-09

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TREASURY BILLS

These are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.

TYPES OF TREASURY BILLS:

There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 6 months and 12months Treasury bills etc. In India, at present, the Treasury Bills are issued for the following tenors 91-days, 182-days and 364-days Treasury bills.

BENEFITS OF INVESTMENT IN TREASURY BILLS:

No tax deducted at source Zero default risk being sovereign paper Highly liquid money market instrument Better returns especially in the short term Transparency Simplified settlement High degree of tradability and active secondary market facilitates meeting unplanned

fund requirements.

TREASURY BILLS - AN EFFECTIVE CASH MANAGEMENT PRODUCT:

Treasury Bills are very useful instruments to deploy short term surpluses depending upon the availability and requirement. Even funds which are kept in current accounts can be deployed in treasury bills to maximise returns. Treasury bills can be purchased for any number of days depending on the requirements. This helps in deployment of idle funds for very short periods as well. Further, since every week there is a treasury bills auction, one can purchase treasury bills of different maturities as per requirements so as to match with the respective outflow of funds. At times when the liquidity in the economy is tight, the returns on treasury bills are much higher as compared to bank deposits even for longer term. Besides, better yields and availability for very short tenors, another important advantage of treasury bills over bank deposits is that the surplus cash can be invested depending upon the staggered requirements

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GOVERNMENT SECURITIES (G-SECS)

These are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. The term Government Securities includes:

Central Government Securities. State Government Securities Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit '.The market borrowing of the Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans.

GOVERNMENT SECURITIES ARE OF THE FOLLOWING TYPES:

Dated Securities are generally fixed maturity and fixed coupon securities usually carrying semi-annual coupon.

Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. Partly Paid Stock is stock where payment of principal amount is made in instalments

over a given time frame. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds immediately.

Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over a benchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate payable on it.

Bonds with Call/Put Option Capital indexed Bonds are bonds where interest rate is a fixed percentage over the

wholesale price index. These provide investors with an effective hedge against inflation.

BENEFITS OF INVESTING IN GOVERNMENT SECURITIES:

No tax deducted at source Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals. Qualifies for SLR purpose. Zero default risk being sovereign paper Highly liquid.

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Transparency in transactions and simplified settlement procedures through CSGL/NSDL

 

CERTIFICATE OF DEPOSIT (CD)

CD is a fixed-deposit investment option offered by banks and lending institutions. It offers higher interest rates than conventional savings accounts because it requires investors to deposit funds for a specified term ranging from one month to more than five years. However, like savings accounts, CDs are a secure form of investment, as they are insured by government agencies.

This scheme was introduced in July 1989, to enable the banking system to mobilise bulk deposits from the market, which they can have at competitive rates of interest.

The major features are:

Who can issue: Scheduled commercial banks (except RRBs) and All India Financial Institutions within their `Umbrella limit’. CRR/SLR: Applicable on the issue price in case of banks Investors: Individuals (other than minors), corporations, companies, trusts, funds, associations etc Maturity:Min: 7 days Max: 12 Months (in case of FIs minimum 1 year and maximum 3 years). Amount:Min: Rs.1 Lac, beyond which in multiple of Rs.1 Lac Interest rate:Market related. Fixed or floating Loan:Against collateral of CD not permitted Pre-mature cancellation: Not allowed Transfer Endorsement & delivery: Any time Nature Usance Promissory note: Can be issued in Dematerialisation form only w.e.f June 30, 2002 other conditions • If payment day is holiday, to be paid on next preceding business day • Issued at a discount to face value • Duplicate can be issued after giving a public notice & obtaining indemnity

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COMMERCIAL PAPER

Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations and foreign governments commonly use this type of funding.

1. An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.

2. An unsecured and unregistered short-term obligation issued by an institutional borrower to investors who have temporarily idle cash.

3. Short-term, unsecured, discounted, and negotiable notes sold by one company to another in order to satisfy immediate cash needs.

CP, as a privately placed instrument, was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

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INTER-CORPORATE DEPOSITS

Inter-corporate deposits are deposits made by one company with another company, and usually carry a term of six months. They are unsecured loans extended by corporate with excess funds to other corporate bodies. The rates in this market are higher as compared to that of other markets.

The three types of inter-corporate deposits are: three month deposits, six month deposits, and call deposits.

The inter-corporate deposits market shows a number of interesting characteristics:

1. The biggest advantage of inter-corporate deposits is that the transaction is free from bureaucratic and legal hassles. The business world otherwise is regulated by a number of rules and regulations. The existence of the inter-corporate deposits market shows that the corporate world can be regulated without rules.

2. The market of inter-corporate deposits maintains secrecy. The brokers in this market never reveal their lists of lenders and borrowers, because they believe that if proper secrecy is not maintained the rate of interest can fall abruptly.

3. The market of inter-corporate deposits depends crucially on personal contacts. The decisions of lending in this market are largely governed by personal contacts.

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7. GAILS INVESTMENT POLICY PRESENT SCENARIO

Figure 7.1

*Not considered currently

Currently GAIL invests its temporary surplus funds in term deposits with schedule commercial banks and in CLTD a/c, fulfilling the requirement as specified in DPE guidelines.

GAIL is not considering the option of Inter Corporate Deposits as not many companies in the public sector are AAA rated, which is a pre-requisite for the option to take place and another thing is those companies which are in need of funds or are ready to accept the deposits from GAIL require it for more than 365 days.

GAIL does not consider Mutual Fund investment because the company is not given any guarantee on the principal amount or the returns. Moreover it is subject to market risk and it is more of a speculation which is taking place.

As mutual funds are not considered by GAIL, in the following pages I will try to study more about the mutual funds, how much and what is the risk involved in them, are the returns worthy enough if the risk is undertaken, will it be beneficial for GAIL if it considers investing in them in future.

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8. MUTUAL FUNDS

A mutual fund is a professionally-managed investment that offers diversity, liquidity and convenience. Each mutual fund is made up of individual stocks, bonds, or money market securities. Because a mutual fund pools the money of many individuals, it has the buying power to invest in hundreds of different securities at once. In exchange for The money invested in a mutual fund, the fund gives you units in the fund that represent The participation in the fund.

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 organisational set up of a mutual fund:

36

TYPES OF MUTUAL FUNDS

SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund

An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. 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 the units are listed. These mutual funds schemes disclose NAV generally on weekly basis.

FUND ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

37

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

FUNDS BASED ON SIZE OF THE COMPANIES INVESTED IN:

Large cap funds: Funds that invest in companies whose total market cap is above Rs40bn.

Mid cap funds: Funds that invest in companies whose market cap is between Rs20-40bn.

Small cap funds: Funds that invest in companies whose market cap is below Rs20bn

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What is NET ASSET VALUE?

Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, and then dividing the result (total net assets) by the total number of shares outstanding. Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00.

WHAT ARE THE BENEFITS OF MUTUAL FUNDS?

1. Convenience: Investors who have the time and the money can build their portfolio by buying one security at a time. But identifying, researching and monitoring securities can be a full-time job that requires a lot of commitment. Alternatively, investors can simply buy a mutual fund in the market that will save them a lot of time and regular monitoring of the performance of the individual securities that make up the fund.

2. Diversification: A single fund can hold securities from 100s of different issuers or companies, far more than what an individual investor can realistically manage to hold in their individual portfolios. This diversification reduces the risk of a loss due to problems in one particular company or industry.

3. Professional management: A mutual fund is managed by professional investors who do this full time. The resources available to them like traders who have practical experience in when to buy and sell securities, research team and access to company management is far more than what an individual investors can achieve on his own.

4. Liquidity: Like shares, mutual funds are also liquid investments that can be bought or sold freely so that investors have access to their money when needed. However, certain shares might not trade freely because there is not market for them, and then the investor is stuck. Mutual funds do not face this problem of illiquidity.

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15 DISADVANTAGES OF MUTUAL FUNDS

1. Cost: Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are very complicated.

2. Dilution. It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

3. Taxes. When making decisions about the money, fund managers don't consider investor’s personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

15 http://www.yousaytoo.com/20-advantages-and-4-disadvantages-of-mutual-funds/8357440

9. SWOT Analysis

1. Fixed Deposits

Strengths

Investment is secure and there is no risk involved.

Returns are assured.

Returns are not affected by market fluctuations.

Weaknesses

Low rate of return.

The principal has to be deposited for a fixed period up to maturity of the scheme. Some penalty is levied if it is withdrawn before the due date.

Investment cannot be instantly liquefied.

Opportunities

Due to the assured returns it provides, Fixed Deposits are favoured by risk averse people & no risks are involved in it.

When stock market conditions are volatile, Fixed Deposits are preferred.

Threats

Other forms of investment instruments have come in the market, like: stocks, bonds, mutual funds, forex, etc. that provide higher returns.

They offer less returns than other instruments.

41

2. Corporate Liquid Term Deposits

Strengths

Returns are comparable with Fixed Deposits.

Interest is earned on investment every seventh day.

Funds can be liquefied as and when required without any charges.

Weaknesses

Returns are fixed but lesser than some other investment instrument like mutual funds.

Opportunities

As they give interest after seven days, they are a good investment instrument for very short periods.

Threats

They are threatened by mutual funds liquefied schemes that provide higher returns than them.

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3. Mutual Funds

Strengths

High returns on investments than Fixed Deposits.

Investment does not have a maturity date – the open ended funds and liquid funds.

Funds can be liquefied as and when required.

They provide interest on very short term investments, also less than a week.

Weaknesses

Returns are not fixed but variable.

Some risk factor is ignored.

There is uncertainty in returns at times.

Opportunities

As they give high returns, they are preferred by most of the investors.

Some schemes offer tax benefits also in form of dividends.

Threats

Due to uncertain returns, some people shy away from them.

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FUND HOUSES

According to the guidelines issued by DPE and the amendments made to it thereafter, GAIL is allowed to invest its surplus funds only in the SEBI regulated Public sector Mutual funds.

DPE clarifies Public Sector Mutual Funds as Mutual Fund registered with and regulated by SEBI where the Government of India, its financial institutions and public sector banks holds/hold individually or collectively more than 50% of equity/shares in the Asset Management Company of that Mutual Fund.

I have taken here three fund houses considering the guidelines prescribed by DPE.

For Mutual funds investment, I am considering liquid funds as a good option, because they match our purpose of investing for short term.

44

10. LIQUID FUNDS

Liquid funds are ultra short-term debt funds, which invest in money market instruments such as certificates of deposit, commercial papers and treasury bills, on an overnight basis or for few days or months.Liquid funds basically invest in short-term debt with maturities of less than a year, treasury securities and money market instruments. These instruments are held for a period of three to six months or even lower time period such as for few days or months. This type of funds does not invest in the debt securities having maturity period of more than one year.

Many investors find these funds attractive as they provide the prevailing yield in the market, good liquidity and low interest rate risk because of 10% or less mark-to-market component as per SEBI guidelines.

Some of the key advantages of this type of mutual funds can be summarized as below. Investors can park their short term cash in this funds to earn good return. Lower tax on interest earned by the investors. No entry and exit load is charged on the investment amount. Low annual fee of 0.30 to 0.70 per cent is applicable to manage the funds. Redemption time within 1 day. Minimum investment requirement is Rs 5000.

LIQUID FUND VS FD:

Liquid or liquid plus funds are attractive for the investors wishing to earn a good return in short time periods.

Now the key question is whether liquid or liquid plus funds are safe than the bank savings accounts. In case of liquid plus funds, neither the principal is protected nor there is any fixed percentage of return. Liquid plus funds have higher exposures ( 30% ) in long term debt securities, which have the interest rate risk and also the credit risk. So, liquid plus funds are more risky than the bank FD.Again, liquid funds are short-term debt funds that invest their corpus in T-Bills, Money Market Instruments, Certificate of Deposits, Commercial Papers, Corporate bonds and Debentures. These instruments are traded in the market and hence, their prices fluctuate. So they are somewhat riskier, but at the same time they offer higher returns than a bank savings account.

But there are certain advantages of investing in liquid funds over FD in short term periods.

Investors can park there idle cash balances in liquid funds for earning interest for very short time periods like 7 - 20 days. But this is not possible with Bank FD. Even bank savings account provides interest on average quarterly balances maintained in the savings account. But in case of liquid fund investor can earn the interest on daily basis upon the exact balances maintained in the fund. As there is no entry or exit load one can withdraw fund whenever requirement arises or can put more money into the fund if there is short term cash surplus.

45

UTI Mutual Fund

UTI Mutual Fund came into existence on 1st February 2003. Bank of Baroda (BOB), Punjab National Bank (PNB) and State Bank of India (SBI) and Life Insurance Corporation of India (LIC) are the sponsors of the UTI Mutual Fund. UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (AMC). UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 for undertaking portfolio management services and also acts as the manager and marketer to offshore funds.

UTI Mutual Fund has a nationwide network consisting 70 UTI Financial Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. The fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry.

I have selected UTI liquid fund- cash plan and UTI treasury advantage fund for analysis.

UTI LIQUID FUND - CASH PLAN - GROWTH

The UTI Liquid Cash Plan is positioned as a low-risk, low-volatility fund which aims at offering reasonable returns to investors looking to park short-term surpluses. The fund attaches importance to low credit risk, portfolio diversification and stability of returns.

The scheme aims to generate steady and reasonable income, with low risk and high level of liquidity from a portfolio of money market securities and high quality debt.

Figure 9.116

16 http://www.mutualfundsindia.com/fundfactsheet.asp

46

UTI TREASURY ADVANTAGE FUND - IP – GROWTH

The fund plans to generate income through investments in quality oriented debt and Money Market Instruments.

Figure 9.2

47

SBI Mutual Fund

SBI Mutual Fund is India's largest bank sponsored mutual fund with an investor base of over 3 million. SBI Mutual Fund is a joint venture between the State Bank of India, India's largest banking enterprise and Societe Generale Asset Management of France, one of the world's leading fund management companies.

Since its inception SBI Mutual Fund has launched thirty-two schemes and successfully redeemed fifteen of them. SBI Mutual Fund schemes have consistently outperformed benchmark indices. SBI Mutual is the first bank-sponsored fund to launch an offshore fund - Resurgent India Opportunities Fund.Presently, SBI Mutual Fund manages over Rs. 17000 crores of assets. The fund has a network of 100 collection branches, 26 investor service centres, 28 investor service desks and 40 district organisers.

SBI MAGNUM INSTA CASH FUND

To provide the investors an opportunity to earn returns through investment in debt & money market securities, while having the benefit of a very high degree of liquidity to meet unexpected needs of cash.

Figure 9.317

LIC Mutual Fund

17http://www.mutualfundsindia.com/fundfactsheet.asp

48

LIC Mutual Fund was set up by Life Insurance Corporation of India on 19th June 1989 with a corpus of Rs. 2 crores. LIC Mutual Funds are managed by LIC Mutal Fund Asset Management Company Ltd which was formed on 20th April 1994 in compliance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1993.

LIC MF LIQUID FUND

LIC MF Liquid Fund seeks to generate reasonable returns with low risk and high liquidity through investments primarily in money market securities.

Figure 9.418

18 http://www.mutualfundsindia.com/fundfactsheet.asp

49

11. Comparative Calculation of Returns on the Investible Options Available to GAIL

Let us consider that Gail has some surplus funds available with it of Rs.100 Crore.I will try to calculate the income which these surplus funds can generate for the short period of time they are lying unutilised.

Following the Guidelines of DPE, I will focus on three major investment options for investing this surplus fund.

a. Fixed/Term Depositsb. CLTDc. Public Sector Mutual fund.

For Calculating the interest earned on these funds, Formula of simple interest is considered.

The simple interest formula is as follows:

Interest = Principal × Rate × Time

Where:  'Interest' is the total amount of interest earned,'Principal' is the amount Deposited,'Rate' is the interest rate (%) per annum.'Time' is the time period.

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FOR LESS THAN 7 DAYS

Table 11.1

Investing in Mutual Funds Of UTI ,SBI and LIC

Principal name of the schemeRate of return

Duration Amount Profit

1,00,00,00,000 UTI Liquid cash Plan- Growth 0.011 1days

1,00,00,30,137 30,137

1,00,00,00,000 UTI Liquid cash Plan- IP- Growth 0.012 1 days

1,00,00,32,877 32,877

1,00,00,00,000 UTI Liquid cash Plan- Growth 0.022 2 days

1,00,01,20,548

1,20,548

1,00,00,00,000 UTI Liquid cash Plan- IP- Growth 0.025 2 days

1,00,01,36,986

1,36,986

1,00,00,00,00

0 UTI treasury Advantage fund 0.054 5 days1,00,07,39,72

67,39,72

6

1,00,00,00,000

SBI Magnum Insta Cash- Cash Plan 0.013 1 days

1,00,00,35,616 35,616

1,00,00,00,000 LIC MF Liquid fund- Growth 0.014 1 days

1,00,00,38,356 38,356

* Treasury advantage fund is Liquid plus fund which has a minimum lock in period of 5 days

Investment in Term deposits and CLTD can't be made for less than 7 days

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RETURN FOR SEVEN DAYS

Table 11.2.1

Investing in Mutual Funds Of UTI ,SBI and LIC

Principal name of the schemeRate of return Duration Amount Profit

1,00,00,00,000 UTI Liquid cash Plan- Growth 0.0812 7 days

1,00,15,57,260 15,57,260

1,00,00,00,000

UTI Liquid cash Plan- IP- Growth 0.1556 7 days

1,00,29,84,110 29,84,110

1,00,00,00,000 UTI treasury Advantage fund 0.0866 7 days

1,00,16,60,822 16,60,822

1,00,00,00,000

SBI Magnum Insta Cash- Cash Plan 0.0928 7 days

1,00,17,79,726 17,79,726

1,00,00,00,000 LIC MF Liquid fund- Growth 0.0961 7 days

1,00,18,43,014 18,43,014

Table 11.2.2

Investment in Term deposits

Principalname of the Bank Interest Rate Duration Amount Tax (33.99%) PAT

1,00,00,00,000 SBI 0.015 7 days 1,00,02,87,671 97779.45205 1,89,892

1,00,00,00,000 HDFC 0.035 7days 1,00,06,71,233 228152.0548 4,43,081

Deposit in CLTD a/c can’t be made for 7 days. The minimum period of deposit is 15 Days.

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RETURNS FOR MORE THAN 7 DAYS

Table 11.3.1

Investing in Mutual Funds Of UTI ,SBI and LIC

Principal name of the schemeRate of return Duration Amount Profit

1,00,00,00,000 UTI Liquid cash Plan- Growth 0.35 1 month 1,02,87,67,123 2,87,67,123

1,00,00,00,000 UTI Liquid cash Plan- IP- Growth 0.39   1,03,20,54,795 3,20,54,795

1,00,00,00,000 UTI treasury Advantage fund 0.43   1,03,53,42,466 3,53,42,466

1,00,00,00,000

SBI Magnum Insta Cash- Cash Plan 0.4   1,03,28,76,712 3,28,76,712

1,00,00,00,000 LIC MF Liquid fund- Growth 0.39   1,03,20,54,795 3,20,54,795

Principal name of the schemeRate of return Duration Amount Profit

1,00,00,00,000 UTI Liquid cash Plan- Growth 0.99 3months 1,24,41,09,589 24,41,09,589

1,00,00,00,000 UTI Liquid cash Plan- IP- Growth 1.11   1,27,36,98,630 27,36,98,630

1,00,00,00,000 UTI treasury Advantage fund 1.23   1,30,32,87,671 30,32,87,671

1,00,00,00,000

SBI Magnum Insta Cash- Cash Plan 1.14   1,28,10,95,890 28,10,95,890

1,00,00,00,000 LIC MF Liquid fund- Growth 1.06   1,26,13,69,863 26,13,69,863

Principal name of the schemeRate of return Duration Amount Profit

1,00,00,00,000 UTI Liquid cash Plan- Growth 1.83 6 months 1,90,24,65,753 90,24,65,753

1,00,00,00,000 UTI Liquid cash Plan- IP- Growth 2.07   2,02,08,21,918

1,02,08,21,918

1,00,00,00,000 UTI treasury Advantage fund 2.38   2,17,36,98,630

1,17,36,98,630

1,00,00,00,000

SBI Magnum Insta Cash- Cash Plan 2.03   2,00,10,95,890

1,00,10,95,890

1,00,00,00,000 LIC MF Liquid fund- Growth 2.11   2,04,05,47,945

1,04,05,47,945

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Table 11.3.2

Investment in Term deposits

Principalname of the Bank

Interest Rate Duration Amount Tax(33.99%) PAT

1,00,00,00,000 SBI 0.02 30 days 1642710.47 558357.2888 1084353.18

    0.03 90 days 7392197 2512607.76 4879589.24

    0.035 180 days 17248459.96 5862751.54 11385708.4

    0.045 270 days 33264887.06 11306735.11 21958151.9

    5.25 350 days 50308008 17099691.92 33208316.1

Rate of interest for CLTD will be the same card rate applicable for the contracted tenure of the deposit as of the bank. No differential rate of interest is applicable.

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12. Risk in Mutual Funds

Every type of investment, including Mutual Funds, involves risk.

Risk refers to the possibility that an investor might lose money, either principal or earnings or both. A fund’s investment objective and its holdings are influential factor in determining how risky a fund is. Reading the prospectus helps an investor to understand the risk associated with that particular fund.

Risk and potential returns are directly related.

This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. The longer an investment time horizon is, the less affected one is by short-term volatility.

In the offer document of Mutual Funds, there is a clause mentioned “MUTUAL FUNDS ARE SUBJECT TO MARKET RISKS”. This means that mutual funds never take the guarantee that there will be assured returns. This is especially true in case of equity mutual funds (because they provide higher returns, so greater risk is associated with them).

Different mutual fund categories have inherently different risk characteristics and they cannot be compared. A bond fund with below average risk, for example, should not be compared to a stock fund with below average risk. Even though both funds have low risk for their respective categories, stock funds overall have a higher risk/return potential than bond funds.

a. Of all the asset classes, cash investment (i.e. money markets) offer the greatest price stability but have yielded the lowest long-term returns. Bonds typically experience more short-term price swings, and in turn have generated long-term returns.

b. Stocks historically have been subject to the greatest short-term price fluctuations – and have provided the highest long term returns.

Investors looking for a fund which incorporates all asset classes may consider a balanced or hybrid mutual fund. These funds can be very conservative or very aggressive.

Asset allocation portfolios are mutual funds that invest in other mutual funds with different asset classes. At the discretion of the managers, securities are bought, sold, and shifted between funds with different asset classes according to market conditions.

Mutual funds face risks based on the investment they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest

rates.\55

INTEREST-RATE RISK

Unlike stock market where an upward movement of market leads to upward movement in stock prices, it is a fall in the market yield that pushes up the prices of debt securities. This happens because there exists an inverse relationship between the yield and the price of bond.

So, if there is an upward movement of interest rates after one has invested in a bond fund, the prices of bonds will go down leading to a corresponding fall in the NAVs of the bond funds.

The risk is also dependent upon the maturity and duration of the bond and generally, the longer a fund’s duration or average maturity, the higher its interest-rate risk, or the more sensitive the NAV of the fund will be to changes in interest rates.

One can reduce the interest rate risk by choosing a bond fund with a shorter duration or average maturity.

CREDIT RISK

Just like shares where the performance of the company has some bearing on the stock prices, credibility of the issuer is of importance in debt instruments. The risk of the issuer not being able to make payments on his liabilities (debt instrument) is termed as default risk or credit risk.

MARKET RISK

The prices and interest rates start varying a lot if the market conditions are volatile and not stable. But this change is more pronounced in stocks than bonds.

Bonds are not affected by the volatility of the share markets.

PRICE RISK

Money market funds are primarily exposed to REINVESTMENT RISK- the risk that money has to be reinvested at a lower rate due to decline in interest rate at times or the risk that the earnings from the bond might increase after it has been redeemed by the investor.

This risk can be reduced by investing the funds for extremely small durations so that investment is safe and not exposed to the volatilities.

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CONCLUSION:

So from the above calculations and analysis it is clear that Mutual funds help to earn the investor much greater returns as compared to the other short term investment options.

It is true that there is some inherent risk involved in the case of Mutual funds whereas the other options are risk free. But the risks in the public sector mutual funds are not very high. They provide the investor with stable returns at low-risk and also high liquidity. And one advantage is also that dividend from mutual funds are tax free in the hands of the investor.

FINDINGS:

From the whole study of short term investible options, it can be said that GAIL should consider investing a part of its surplus funds in the Public Sector Mutual Fund along with investing in Term deposits and CLTDs.

Public Sector Mutual Fund invests mostly in treasury bills, certificate of deposits and the commercial papers, where the risk factor is very low. Surplus Funds can earn returns/interest even if it is deposited for less than 7 days which is not possible in case of FD’s and CLTD’s.

RECOMMENDATIONS:

It is true that investing in Term Deposits are extremely safe and therefore are very appealing to the conservative and low risk investors. The other investible option followed by GAIL of CLTD are also good as they are one step better than FD/Term Deposits as it enables GAIL to earn interest on the Fund Received during the second half of the day (The funds received after the banking hours can’t be deposited in FDs, which leads to idling of funds in the current a/c).

But in both these options followed by GAIL the returns are limited to the card rates applicable for the contracted period of deposit. And in FDs the minimum period of deposit is 7days and in CLTDs it is 15 days. Moreover if amount is withdrawn prematurely, there is a penalty fees which is charged.

It is here that Mutual Fund investment scores over the earlier ones. Thus I recommend that-

GAIL should consider investing in Liquid fund schemes of the Mutual Fund as they invest in debt-money market instruments like CDs, commercial Papers and treasury bills where the risk content is very low and also helps in earning a reasonable income in a short period.

Very short term investments (less than a week) should be done in liquid mutual funds i.e. 30% of the available funds (maximum amount as allowed by the DPE). The rest 70% amount should be deposited in the Fixed Deposits and CLTDs.

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The liquid mutual funds of UTI – The LIQUID CASH PLAN & The TREASURY ADVANTAGE FUND will serve as a good source of income, especially for very short period (less than 7 days).

The surplus cash with GAIL on any particular day can also be invested in the liquid funds overnight to earn dividend over it.

The regular payments of GAIL can be invested in Mutual Funds when they are with company (before payment) & dividend can be earned on them.

For Example, GAIL has to make ONGC payment twice a month. So, the company can invest the surplus cash that it has in liquid mutual funds for 15 days and redeem it on the 15 th day & make payment. In this way, dividend can be earned on the money invested which otherwise would have been lying idle and useless till payment.

Thus considering Mutual funds would be a good decision for GAIL.

Therefore if surplus funds are available for a short duration of less than or equal to 7 days, Gail should invest them in these liquid funds and thus earn some decent returns on them.

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APPENDIX

Liquid Funds, Solid Returns19

Savings bank accounts now provide higher effective interest. Even so, liquid funds may

be a better option to park your short-term cash.

A savings bank account is perceived by many investors as the safest option for parking cash,

despite yielding a pitiable return. Lakhs of crores worth of people’s money is sitting in

savings bank accounts; sometimes even highly educated and savvy people believe that there is

no alternative to savings bank accounts of good banks for parking their liquid money. Is there

a better alternative—one that offers slightly higher interest and combines reasonable safety?

No, we are not encouraging you to invest in stocks. There is a better option for earning fairly

good returns—liquid funds, managed by mutual fund companies. Usually companies and high

net worth individuals (HNIs) invest in liquid funds. Retail investors are still averse to parking

their money in such funds, despite the low costs and better returns they offer compared to a

savings account. But they are, indeed, good options. Read on.

Liquid funds invest in debt-and money-market instruments like certificates of deposit (CDs),

commercial paper and treasury bills. Treasury bills are short-term debt instruments issued by

Government of India which carry a tenor of three months, six months or one year. These

funds are benchmarked against the CRISIL Liquid Fund Index. Most liquid funds do not have

any entry or exit load. TP Raman, managing director of Sundaram BNP Paribas Mutual Fund,

says that “liquid funds are an ideal vehicle for parking funds before a final and long-term

investment decision is made.  Also, they can be handy if money is needed at short notice. But

they are not ideal for longer terms.” Industry experts believe that 15 days to three months is

the ideal period to remain invested in a liquid fund for optimal returns.

19http://www.moneylife.in/article/5780.html

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Earlier, banks were calculating the interest rate on savings accounts at 3.5% per annum on the

lowest available balance between the 11th and the last day of the month. Following a recent

RBI diktat, from 1st April banks are offering you daily interest on the minimum balance

available in the account per day. The interest rate remains at 3.5%. For instance, if you

maintain a daily balance of Rs10,000 for 30 days, you will get Rs349.80 (Rs11.66 per day) as

interest. This will bump up your returns from a savings bank account. Even so, liquid funds

are worth a look. “Liquid funds do offer better returns than bank savings accounts. The 

average  return given  by  liquid  funds  in the  recent  past  was 4% annualised for  a one-

month period,  where savings  accounts  do not  offer more than 3.5%,” says Ganti N Murthy,

head—fixed income, Peerless Mutual Fund.

However, choosing the best liquid fund can be a tough task, as there are more than 40 liquid

funds offered by various fund houses. “An investor has to look at consistent performance

when comparing the returns of one fund over another. Before investing in such funds, you

should check the background of the promoters of the fund house, the background of the fund

manager and how long he has been managing the fund,” adds Mr Murthy.

Where To Invest?

We have crunched some numbers to help you zero in on one of the better ones. Liquid funds

have yielded an average return of 3.70%, 6.28% and 6.20% in one year, three years and five

years, respectively. JM High Liquidity has given the highest return of 7.78% since inception,

followed by UTI Money Market (7.55%), Birla Sun Life Cash Plus (7.23%), Templeton India

TMA (7.07%), Birla Sun Life Cash Manager (7.03%) and ICICI Prudential Liquid Plan

(7.01%).

We analysed 55 funds launched during 2005 to 2010 (till date). As a group, these funds have

generated an average return of 5.82% since inception. Of these, 21 funds generated returns

higher than the average, ranging from 6% to 7.78%. As many as 15 funds have outperformed

their respective benchmarks, while 40 funds have underperformed their benchmarks since

inception. Reliance Liquid Fund, which posted a 4.98% return since inception, was the worst

performer, followed by ICICI Prudential Sweep Plan (5.15%), HDFC Cash Management

Fund-Call Plan (5.30%), HSBC Cash Fund (5.55%) and IDFC Cash Fund (5.81%).  

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Following the SEBI diktat of  2 February 2010 to all fund companies, liquid funds will be less

volatile from 1 July 2010, as all money-market and debt securities, including floating-rate

securities, with residual maturity of over 91 days will be valued at the weighted average price

at which they are traded on the particular valuation day.

What about the tax aspect? “Liquid fund dividends are tax-free in the hands of the investor

but under the growth option, short-term capital gains will need to be paid if redeemed within a

year,” says Mr Raman of Sundaram BNP Paribas. These funds can be redeemed within 24

hours and carry a very low annual charge ranging from 0.30% to 0.70

LIQUID FUNDS BETTER THAN SHORT-TERM FDs20

20 http://www.mydigitalfc.com/news/liquid-funds-better-short-term-fds-355

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If you are attracted to invest in bank fixed deposits because of the safety factor, you will do well to avoid the ultra-short-term fixed deposits and look for avenues such as short-term liquid schemes offered by mutual funds.

That is because most banks offer a lower rate of interest on term deposits of up to 90 days than the savings rate of 3.5 per cent.

What it means for an investor is that if you invest in a fixed deposit with tenure of less than 90 days, you will earn a lower return on your investment than other avenues where you could park your money for a similar tenure. Thus, you will be better off even to keep your liquid asset lying in your savings account and earn more.

In fact, once the daily rate calculation method in your savings accounts kicks in from April 1 this year, you will gain another 30 to 50 basis points (one basis point is equal to one-hundred of the percentage) over and above the present 3.5 per cent savings bank interest rate.

Banks such as IDBI Bank, Bank of Baroda, State Bank of India offer an interest rate of 3.25 per cent, 3 per cent and 3.25 per cent respectively on a deposit for a 90-day period.

With short-term yields firming up and likely to hold steady over the next few months, financial experts advise investors to park their money in liquid funds as an alternative to savings bank.

Anil Chopra, group chief executive officer, Bajaj Capital, said, “Investors who have money for a short term, can generally invest in liquid funds because they are by all means better than deposits. All these funds have given, on an average, the tax-free returns of over 6.5 per cent per annum.”

Liquid fund as the name suggests are mutual fund schemes that keep money “liquid” (almost cash). These liquid funds are debt funds that work in money market instruments. It is a market where short-term borrowing and lending takes place.

“Since there is lack of awareness among retail investors, they tend to park funds in these short-term deposits. They could on the other hand, invest in short-term liquid funds where they can earn higher yields and it’s safe also,” said Himanshu Kohli, chief executive officer, Client Associates Private Wealth Management.

Many liquid mutual funds such as Birla Sun Life Short Term Opportunities, JM Money Manager and LIC Savings Plus, to name a few, have yielded a return of 7.06 per cent, 6.01 per cent and 5.70 per cent respectively.

“Retail investors normally park their funds in these (under 90-day deposits) to avoid unusual outflows from their savings account. However, these short-term deposits are largely availed of by companies. The participation from the retail side is not very large,” said KVS Manian, group head of retail and branch banking, Kotak Mahindra Bank.

BIBLIOGRAPHY

1. Rustagi R. P., Investment management

2. Rustagi R.P , Financial management

3. Company reports on short-term investment

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4. GAIL(India) Limited, Annual Report 2008-2009

5. GAIL investor presentation, November 09

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7. http://www.merinews.com/topic/indian-stock-market.shtml

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9. http://finmin.nic.in/

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22. http://www.mydigitalfc.com/news/liquid-funds-better-short-term-fds-355

23. http://www.pnbgilts.com/gsec.asp

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30. http://economictimes.indiatimes.com/features/investors-guide/GAILs-rich-valuations-indicates-limited-upside-in-short-term/articleshow/5496785.cms

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