1 Final Project

Risk Profiling of investors 02019103909

CERTIFICATE OF AUTHENTICITY

This is to certify that the Summer Training Project Report titled “Risk profiling of Investors” is

an original work submitted by Kumar Gaurav, Enrollment No. 02019103909, MBA III

semester, student of Gitarattan International Business School (giBS) for the partial fulfillment of

Master of Business Administration (MBA) program of Guru Gobind Singh Indraprastha

University under the guidance of Ms. Swati Narula and the same has not been submitted to any

other University or Institute for award of any Degree or Diploma.

Ms. Swati Narula Dr. S.S. Narula

Assistant Professor Director

Project Guide Gitarattan International Business School

Gitarattan International Business School


DECLARATION

I, Mr. Kumar Gaurav, Enrollment No. 02019103909, MBA III Semester hereby declare that,

the Summer Training Project Report titled “Risk profiling of Investors” is an original work

done by me under the guidance of Ms. Swati Narula and has not been submitted to any other

university or institute for the award of any degree or diploma or fellowship.

Mr. Kumar Gaurav

Enrollment No. 02019103909



ACKNOWLEGEMENT

Expressing gratitude is not just an exercise or formality, rather doing so evokes the memories of

the association with these people. Although it would be difficult to thank all those who

contributed towards completion of my project, yet I would specifically thank a few people.

Project preparation is a venture that requires co operation of many people. I feel pleasure in

taking this opportunity to express my sincere regards to my supervisor. Ms. Swati Narula,

Assistant Professor (Finance), Gitarattan International Business School, N. Delhi. Without her

guidance, valuable suggestions, constructive criticisms and encouragement through out the

course of the project, the present shape of the work would not have been possible.

I wish to place on record my gratitude to Dr. S.S. Narula, Director and Mr. Rajesh.S.Pyngavil,

Program Coordinator, MBA, Gitarattan International Business School, N. Delhi for their

continuous encouragement and advice which were of immense help to me. I am also thankful to

all teachers, non teaching staff and all my friends of the institute for their kind help.

I express my gratitude towards Mr Anubhav Talwar, Regional Manager, Niveshak Mpowered to

facilitate me to work on this project.



INDEX

TOPIC PAGE NO.

1. Executive Summary-------------------------------------------------------------------------

2. Chapter 1- Introduction --------------------------------------------------------------------

3. Chapter 2- Review of Literature----------------------------------------------------------

4. Chapter 3- Research Methodology and Design-----------------------------------------

5. Chapter 4- Analysis and interpretation of Data-----------------------------------------

6. Chapter 5- Conclusion and Recommendations -----------------------------------------

7. References -----------------------------------------------------------------------------------

8. Appendix -------------------------------------------------------------------------------------

9. Annexure -------------------------------------------------------------------------------------



EXECUTIVE SUMMARY

The objective of this project report is to learn about the investment strategies and investment

pattern of an investor. For this a detailed study was carried out with the help of market research

in order to gauge the awareness levels and investment patterns related to investing amongst

different categories of investors.

The present study takes a step towards Risk profiles of the investors. The central objective of

the study was to make investor’s aware of their rights and to bring to the kind notice of investors

the benefits of investing in different financial assets and choose between them.

A primary research was conducted in the region of New Delhi and NCR regions. The survey was

carried out amongst people of different age groups, gender, income and occupation. The survey

results show that awareness levels related to investing is not as low as it was earlier although it is

not the most preferred amongst all the investment avenues available.

The project was taken to know about, the main aspects of different investment available and

what the preferences of customers are. Also to determine the reason for their preference.

A survey was conducted to collect information about the preferences of the customer. The

sample size of the survey was 60.A questionnaire was filled from the people of different age

groups and occupations.

The survey results show that awareness levels related to mutual fund investing is not as low as it

was earlier although it is not the most preferred amongst all the investment avenues available.



Chapter 1: Introduction



INTRODUCTION

Determining Risk And The Risk Pyramid

You might be familiar with the risk-reward concept, which states that the higher the risk of a

particular investment, the higher the possible return. But, many investors do not understand how

to determine the level of risk their individual portfolios should bear. This article provides a

general framework that any investor can use to assess his or her personal level of risk and how

this level relates to different investments.

Risk-Reward Concept

This is a general concept underlying anything by which a return can be expected. Anytime you

invest money into something there is a risk, whether large or small, that you might not get your

money back. In turn, you expect a return, which compensates you for bearing this risk. In theory

the higher the risk, the more you should receive for holding the investment, and the lower the

risk, the less you should receive.

For investment securities, we can create a chart with the different types of securities and their

associated risk/reward profile.

Although this chart is by no means scientific, it provides a guideline that investors can use when

picking different investments. Located on the upper portion of this chart are investments that



offer investors a higher potential for above-average returns, but this potential comes with a

higher risk of below-average returns. On the lower portion are much safer investments, but these

investments have a lower potential for high returns.

The Five Investment Risk Categories

Conservative: This investor isn’t willing to tolerate "noticeable downside market fluctuations,"

and is willing to forego most all significant upside potential, relative to the markets, to achieve

this goal. In English, they really really don't want to get their monthly statement and see less

money than they had before (unless it was due to withdrawals).

Most conservative investors want their portfolio to provide them with an inflation-adjusted

income stream to pay their living expenses. They're either currently dependent on their

investments to give them a retirement paycheck, or are expecting this to happen soon. Some are

on tight budgets and are barely making a living as it is, so they are very afraid of losing what

little money they have left. They do not have time to recoup any losses (because they can't go

back to work for a multitude of reasons). Some realize they don't need their portfolio to provide

income for more than five years, because of low life expectancy, so growth is not the objective.

The majority of their money should be held in cash and high-quality short- and intermediate-

maturity bonds. Very risky asset classes are typically avoided altogether.

Satisfying their needs is hard to achieve when inflation is high, or rising, because the market

value of fixed income securities typically are declining due to increasing interest rates. So

investing defensively is not without risk. There is no way to eliminate all risks when investing. In

this case, the potential for the large loss of nominal dollars (how many dollars one has relative to

how many they started with), are low but the loss of real dollars (the inflation-adjusted worth of

those dollars) is significant. This is due to the loss of purchasing power due to the prices of

everything in their family budget going up.



So the investments most desired by Conservative investors are the ones that lose the most value

from inflation. Investing defensively is not without risk, and there is no free lunch, nor a magic

investment to solve one's problems, for anyone in investing!

In this case, the potential for the large loss of nominal dollars (how many dollars one has relative

to how many they started with) is low, but the loss of real dollars (the inflation-adjusted worth of

those dollars) is significant. This is caused by the loss of purchasing power due to the prices of

everything in their family budget going up.

Cash (savings accounts, money market funds, and CDs) most always loses real value over time

because of the combined effect of taxes and inflation. There isn't much one can do if this

happens, except to have exposure beforehand to asset classes that benefit when inflation

increases (real estate and tangible/commodity-based mutual funds, like the precious metals and

energy sectors). The catch is most of these are the same asset classes that are minimized, because

they're "too risky" or don't provide an income yield.

Because Conservative investors are still "investing," they should have a higher return over most

rolling three-year periods than investing 100% in fixed annuities, CDs, and other bank

investments.

The typical range of annual returns in down financial markets are -3% to +2%, in flat markets

3% to 6%, and in up markets 7% to 9%.

Conservative portfolios produce the highest annual income yields - typically in the range of 4%

to 7%.

Conservative portfolios produce very little capital gains distributions.

If an investor is so risk adverse that they cannot tolerate ANY downside risk to the nominal

value of their money, then we recommend using annuitized fixed annuities, money market funds,

or just putting their money in the bank.



We don't use an investor risk tolerance category for these ultra-conservative investors because

we don't think these folks are investors in the first place. They have resigned to the fact that their

real returns will be negative after considering taxes and inflation, and just care about not seeing

the number of dollars they have decline. They should just hide it all in the safest vehicles

possible. But not "under the mattress" because of its purchasing power will be substantially

eroded from being 100% exposed to inflation.

Moderately Conservative: If a worried investor can tolerate a little more risk than the

Conservative investor, but still is adverse to large short-term downside fluctuations, and wants a

little more return with a little less income, then this is the category for them.

The typical investor in this category is either retired and getting their paycheck from portfolio

income, soon to be retired, or has been burned by poor investment management and lost a lot of

money in the past. These folks want to be protected somewhat from large downside market

fluctuations and are willing to not fully participate when the markets rally upwards to get it.

Informed investors realize that if their life expectancy is more than a decade, then having

exposure to investments that increase in value is needed to provide income in the later years.

These folks want to be protected somewhat from large downside market fluctuations and are

willing to not fully participate when the markets rally upwards to get it.

Their portfolio will still fall when the markets decline, but they want to be somewhat protected

from sudden double-digit percentage declines in their portfolios. They want to be in the game,

but they are definitely playing defense. They also want to see low double-digit percentage gains

when the financial markets are going up. This is achieved by having a significant exposure to

fixed income securities, several different types of stocks, real estate, and commodities that track

inflation. Core equity asset classes are used, but very risky asset classes are still held to a

minimum.

Moderately Conservative portfolios produce significant annual income yields - typically in the

range of 3% to 6%.



Moderately Conservative portfolios produce little capital gains distributions.

They're typically going to achieve returns a little more than taxes and inflation. When the major

markets are increasing, they could realize double-digit returns. The typical range of annual

returns in down financial markets are -5% to +1%, in flat markets 2% to 8%, and in up markets

9% to 12%.

Moderate: The majority of investors are in this middle-of-the-road category. The reasons for

people to be in this category are too many to list here. The most common is the desire to invest

long-term for retirement or college funding.

These folks want good returns, and know they're taking some risk to get them. They should

expect returns similar to a basket of similarly weighted market indices. Their portfolio should go

up less than the markets as a whole, but should also go down less when markets go down.

A Moderate portfolio will hold a balanced mix of most all-major viable asset classes (for

maximum diversification), which will include conservatively-managed bond funds as well as

high-risk stock funds. This category typically uses the largest number of asset classes to both

reduce risk and increase profits. Both safe and risky asset classes are utilized pragmatically.

Balance between profits and loss reduction is the goal.

They know they will lose money if the markets go down, but also expect to be along for the ride

if they go up.

Moderate portfolios produce modest annual income yields - typically in the range of 2% to 4%.

Moderate portfolios produce a moderate amount of capital gains distributions.

Moderate investment portfolios are usually compared to the S&P500 to see how well they're

doing. When the S&P500 is going up, it should be up a little more than a Moderate investment

portfolio (if it's very well managed). When the S&P500 is down, the Moderate portfolio should

be down less.



They're typically going to achieve returns greater than taxes and inflation. When the major

markets are increasing, they could easily realize double-digit returns. The typical range of annual

returns in down financial markets are -8% to +4%, in flat markets 5% to 9%, and in up markets

10% to 15%.

Moderately Aggressive: If an investor wants to outperform a basket of similarly weighted

indices when the markets are up, and doesn’t mind too much being down a little more than the

markets when they are down, then this is the category for them.

They are taking on more downside risk than the markets, but expect to be substantially ahead of

the game when markets go up. Fixed income positions are minimized and risky asset classes are

fully utilized. Most of the bond and international stock mutual funds in this portfolio are

aggressively-managed.

These folks want to take the risks of winning the game by playing hard offense, but still don’t

want to lose too much in a short period of time. Most Moderately Aggressive investors want to

accumulate a significant amount of wealth in the future, and are willing to wait a significant

amount of time for the rewards (and to recoup short-term losses), and have a little income to

contribute to the portfolio over time.

They know they will lose a high percentage of their money if the markets go down (more than

the S&P500), but also expect to profit greatly if they go up. More emphasis is put on making

money than preventing the loss of money.

Moderately Aggressive portfolios produce the little annual income yields - typically in the range

of 0.5% to 2%.

Moderately Aggressive portfolios produce a high amount of capital gains distributions.

They're typically going to achieve long-term returns far greater than taxes and inflation. When

the major markets are increasing, they expect to realize double-digit returns. The typical range of

annual returns in down financial markets are -10% to 0%, in flat markets 1% to 10%, and in up

markets 11% to 20%.



Aggressive: Damn the torpedoes, full speed ahead! These investors want to substantially

outperform the markets and (should) know they are exposed to much more risk than the markets.

They could easily lose up to 40% of their portfolio value in a few months, and it may take years

to recoup these losses.

These investors typically hold mostly growth, small-cap, and sector mutual funds (or stocks).

Any fixed-income mutual funds in the portfolio are a small percentage of the portfolio, and also

are of the riskier type that are aggressively-managed.

The purpose of any cash held is to handle unexpected withdrawals, and to take advantage of

perceived buying opportunities.

Aggressive investors are typically younger (The Invincibles), and intend to contribute relatively

large amounts into the portfolio periodically over time.

Most aggressive investors either want to accumulate substantial wealth in the future, are in a

hurry, have enough income from other sources to fund their living expenses, and/or have time to

work and recoup losses. Some just may have not yet personally experienced significant losses in

the markets, so their bravery usually ends up being their own downfall.

They should know they would lose a very high percentage of their money if the markets go

down, but also expect to profit greatly if they go up. Most all emphasis is put on making money

and little, other than the diversification benefits of using mutual funds with asset allocation, is

used in preventing the loss of money.

Aggressive portfolios produce the little-to-no annual income yields - typically in the range of 0%

to 0.75%.

Aggressive portfolios produce a very high amount of capital gains distributions.

They're typically going to achieve long-term returns far greater than taxes and inflation. When

the major markets are increasing, they expect to realize large double-digit returns. The typical



range of annual returns in down financial markets are -15% to -5%, in flat markets -3% to 7%,

and in up markets 15% to 25%.

Investment Risk Pyramid

After deciding on how much risk is acceptable in your portfolio by acknowledging your time

horizon and bankroll, you can use the risk pyramid approach for balancing your assets.

This pyramid can be thought of as an asset allocation tool that investors can use to diversify their

portfolio investments according to the risk profile of each security. The pyramid, representing

the investor's portfolio, has three distinct tiers:

Base of the Pyramid– The foundation of the pyramid represents the strongest

portion, which supports everything above it. This area should be comprised of

investments that are low in risk and have foreseeable returns. It is the largest

area and composes the bulk of your assets.

Middle Portion– This area should be made up of medium-risk investments that

offer a stable return while still allowing for capital appreciation. Although more



risky than the assets creating the base, these investments should still be

relatively safe.

Summit– Reserved specifically for high-risk investments, this is the smallest

area of the pyramid (portfolio) and should be made up of money you can lose

without any serious repercussions. Furthermore, money in the summit should

be fairly disposable so that you don't have to sell prematurely in instances

where there are capital losses.

Personalizing the Pyramid

Not all investors are created equally. While others prefer less risk, some investors prefer even

more risk than others who have a larger net worth. This diversity leads to the beauty of the

investment pyramid. Those who want more risk in their portfolios can increase the size of the

summit by decreasing the other two sections, and those wanting less risk can increase the size of

the base. The pyramid representing your portfolio should be customized to your risk preference.

It is important for investors to understand the idea of risk and how it applies to them. Making

informed investment decisions entails not only researching individual securities but also

understanding your own finances and risk profile. To get an estimate of the securities suitable for

certain levels of risk tolerance and to maximize returns, investors should have an idea of how

much time and money they have to invest and the returns they are looking for.

NEED FOR RISK PROIFILNG

Investors today have many options where to invest their hard earned money but each option

comes with a risk-reward tradeoff associated to it. One may choose to invest in instruments

that have the potential to deliver high returns but on the flipside these very instruments also

carry the risk of suffering huge losses during a rough patch, which may not be acceptable to

the investor.

The biggest mistake that investors tend to make is to make investments in one type of

instrument only. Its like putting all eggs in one basket devoid of any kind of diversification.



This is a dangerous way to invest where one is putting most of the capital at a risk of

permanent loss.

The answer to this predicament is to find out one's attitude towards investing or one's risk

profile and then arrive at a suitable asset allocation, where one could put money into different

investment options. By doing so, risk is spread out and quite mitigated. It means to diversify

the investment allocation in a manner which quite ensures that no one type of investment

would determine the entire success or failure of achieving one's financial goals or objectives.

Understanding one's risk profile or attitude towards investing is the first step towards

investing the right way.

WHAT IS ASSET ALLOCATION

Asset allocation is the tool which is used for building a diversified investment portfolio. It

determines the extent of one's portfolio that would be invested in different asset classes, such as

stocks, bonds, cash, etc.

One asset allocation strategy does not fit all, normally the younger one is the higher is the

appetite for risk and the older one grows risk appetite reduces. Hence at a younger age one is

more inclined towards wealth creation and so prefers to see the portfolio grow. As one moves



closer towards retirement the preference gradually shifts towards protecting the wealth created

and thus a preservation approach to investments is adopted.

Asset allocation used for building or redesigning the investment portfolio depends on the profile

of the investor amongst other things, which can range from being defensive to aggressive as he

moves from the accumulation to the spending phase of his lifecycle.

Studies have shown that asset allocation determines more than 90% of portfolio performance. *

* From the study on the importance of asset allocation by Brinson Hood and Beebower. Determinants of Portfolio

Performance, Financial Analysts Journal, 1991.

Who should consider Asset Allocation?

Well, ideally speaking it is recommended for every investor who wants to optimize risk adjusted

returns through portfolio diversification.

Purpose of Asset Allocation

Asset Allocation helps you with

Risk Mitigation Aids in reducing risk through portfolio diversification.

Regular Income Helps investing in assets that provide for income to meet regular

expenses.

Growth of Facilitates allocation in high return yielding instruments to attain



Capital capital appreciation.

Needs / Liquidity Addresses the need for liquidity.

OBJECTIVE:

The study has the following objectives:

1. To identify critical factors that influence the buying behavior of individuals on the basis of the

following: -

i. Growth

ii. Safety

iii. Increase in Wealth

2. To compare the buying and involvement pattern of people across different age groups and

different occupations.

3. To find the importance of investment to a common man.

4. To find the preference of consumer regarding various investment options.

5. To know the customer preference for traditional investment plans, mutual funds and ULIP

products offered by different insurance companies.

SCOPE OF THE STUDY:

The Scope of the Research study would include the Geographic & Demographic region of Delhi & NCR.

LIMITATION OF THE STUDY:

It was not possible to understand thoroughly about the different investment options

available in market within 45 days.

All the work was limited in some limited areas of Delhi so the findings should not be

generalized.



The area of research was Delhi; it was too vast an area to cover within 45 days.

Mindset of people may vary depending upon their age, gender, income etc

People mind set about the survey was an obstacle in acquiring complete information &

positive interaction.

COMPANY PROFILE

Niveshak Mpowered

Niveshak is a Company incorporated under the Indian Companies Act 1956. Niveshak is created

solely with a view to provide a platform for the Investors to enable them to take informed

decision for investing their hard earned money, in seeking this goal, Niveshak also endeavors to

develop a qualified and well-informed cadre of Financial Advisors and Distributors by

empowering the practicing Financial Advisors/Distributors with better/relevant knowledge/skills

and by training the young college and B-School graduates with adequate knowledge/skills.

Niveshak is an initiative of SPA Capital Services Ltd. and Acsys Software (India) Pvt. Ltd.

BOARD MEMBERS

Mr. Kamal Somani, FCA,

He is a senior finance professional with over 30 years of experience in

investment banking, securities broking and corporate finance. His vast experience and vision has

enabled the Group to establish itself as a respected financial services provider in the country. He

looks after the overall group strategies and leads securities broking, investment advisory and

investment banking activities of the Group.

Mr. Sandeep Parwal, B.Com (Hons), FCA,

He has over 20 years of experience in various aspects of financial services. He handles Gitarattan International Business School


investment advisory, insurance broking and merchant banking activities of the Group. His

expertise in providing customized innovative solutions with unmatched speed provides a

distinctive edge to the Group's capability.

Mr. V. Shankar,

He is an alumnus of Indian Institute of Management Calcutta and Indian Institute of Technology

Madras, is the Managing Director of Computer Age Management Services (CAMS), the largest

RTA in India. Computer Age Management Services Pvt. Ltd. (CAMS), offers a comprehensive

package of Transaction Processing and Customer Care services to the Mutual Fund industry, and

has been constantly raising the bar in customer service since 1995. CAMS today has the most

appropriate and advanced technology employed, with the best network for service delivery

through its network of Service Centers in all major cities in India. Currently CAMS provides this

comprehensive package of services to 18 Indian Mutual Fund families as services provider. Of

every 100 Mutual Fund transactions processed in India, CAMS processes 50 or more. CAMS is

clearly the #1 choice for Mutual Funds in India.

Mr. Shanks is also a Director at Acsys Software., which is a leading Technology and Software

Solution Provider in the niche vertical of the Mutual Fund Industry both in India and abroad

GROUP COMPANIES

SPA Capital Service Ltd

SPA Group promoted in 1995, by a team of financial professionals, provides value added

financial services like corporate finance and wealth management services to Indian companies

and HNIs. SPA Group has established itself as one of India's leading financial advisory house,

offering various financial services like securities broking, insurance broking, corporate finance,

merchant banking, financial advisory, risk management and wealth management.



SPA Capital Services Ltd. is a flagship company of SPA Group, engaged in advisory and

distribution services of mutual funds & insurance and is ranked amongst the top 5 financial

intermediaries of the country. The company has a distribution network of over 200 sub-brokers

across India being serviced by its 58 branches. The company has mobilized over Rs. 5 lac crores

for various mutual funds during the last 10 years and is currently having AUM over Rs.20,000

crores with hundreds of satisfied customers.

Acsys Software (India) Pvt. Ltd

is a leading Technology and Software Solution Provider in the niche vertical of the Mutual Fund

Industry both in India and abroad. Its Software products and services covering many application

areas are termed "Best of Brand" services within the Indian Fund Industry. Acsys designs

software solutions and products to keep pace with today's changing market place. Its software

applications and products, support all participants in the fund industry, be it the Fund House, the

Distributor and/or Investor.

In addition, Acsys has a large pool of in-house expertise to continually develop appropriate and

advanced technology requirements to the financial services market in general and Fund Industry

in particular.

Profile

Acsys Software (India) Pvt. Ltd., incorporated in 1996, was originally the software division of

Computer Age Management Services (P) Ltd., (CAMS). It was hived off as a joint venture in

association with Alliance Capital LLP of the USA. Currently, Acsys Software is fully owned by

the original Indian promoters and is an affiliate Company to CAMS.

CAMS is India's largest Transfer Agency for Open Ended Funds dominating more than 60% of



the market. CAMS offer Outsourced Transaction Processing, Customer Care, Fund Accounting

and related Transfer Agency Services.

Acsys Software products for Asset Management Companies, Distributors and related entities

come with the following advantages:

Substantial knowledge of business and domain of the Mutual Fund Industry. It understands the

needs easily and is able to harness the software solutions for new products and services faster.

Its Software Products and services are put through extreme process conditions through its

stake-holder's businesses.

It operates in a dynamic environment dictated by enormous growth in the Indian Mutual Fund

Industry in a very short span.

Demonstrated capabilities overseas, through offshore development, which resulted in an

entity migrating from a multiple database and legacy systems environment to a "state of the art"

open architecture software solution - See Case Study.

Members of NICSA and ALFI, leading Fund Forums in US and Europe. Thereby continually

tracking trends in the overseas Investment Industry.

Multi-currency functionality to include Euro compliancy.

Acsys has a library of core products, which meets the software requirements of Mutual Fund

Asset Management Companies, Fund Distributors and other intermediaries. All its products are

designed and customized using Client Server Architecture for Oracle Databases with Power

Builder and other Internet enabled front ends, using JAVA, XML and other revolutionary tools

for 24/7 web delivery. Acsys Software has production facilities at Chennai, India and provides

client service from Luxembourg for Europe.



CHAPTER:-2

REVIEW OF LITERATURE



What is Investment?

Investment refers to a commitment of funds to one or more assets that

will be held over some future time period. It is important to understand

the difference between savings and investments. Anything not

consumed today and saved for future use can be considered as savings.

Almost all of us save money. It is important to channel these savings

into productive investment avenues. For our purposes, investment will mean a measurable asset

retained in order to increase one's personal wealth. A financial asset is one that generates income

and contributes to accumulation and growth of wealth over a period of time. The two elements in

investments are generation of income on a periodic basis and/or growth in value over a period of

time.

Why Invest?

We all work for money. It is equally important to ensure that money works for us. We should

inculcate the habit of reliance on a secondary source of income. We invest to improve our future

welfare. Anticipated future consumption may be by other family members, such as education

funds for children or by ourselves, possibly on retirement when we are unable to work and

produce for our daily needs. Regardless of why we invest we should all seek to manage our

wealth effectively, obtaining the most from it. This includes protecting our assets from inflation,

taxes and other factors.

Investment Fundamentals - Some of the fundamental rules of investments are:

Start Early



Invest Regularly

Ensure Higher Returns On Your

Investments

How do we invest?

If we are making investment decisions today that will directly affect our future wealth, it would

make sense that we utilize a plan to help guide our decisions. First, let's define financial

planning.

Financial planning is the process of meeting one's life goals through the proper management of

one's finances. Life goals can include buying a home, saving for child's education, or planning

for retirement.

Financial planning provides direction and meaning to one's financial decisions. It allows one to

understand how each financial decision affects other areas of finances. By viewing each financial

decision as part of a whole, one can consider its short and long-term effects on life goals. One

can also adapt more easily to life changes and feel more secure that goals are on track.

Start early

The younger you start, the more time compounding (Compounding is the

concept of adding accumulated interest back to the principal, so that interest

is earned on interest from that moment on. In other words, compounding

refers to generating earnings from previous earnings.) has to work for you,

and the wealthier you can become. The next best thing to starting early is starting now.

Make regular investments

Don't be haphazard. Remain disciplined, and make saving a priority. Do whatever it takes to

maximize your contributions. Even small investments made regularly can surprise you some

years down the line.



Be patient

Do not touch your investments. Compounding only works if you allow your investment to grow.

The results will seem slow at first, but persevere. Most of the magic of compounding returns

comes at the very end.

Always remember that every day that your money stays invested is a day your money is working

hard for you, helping you ensure a financially secure future.

WHAT ARE AVAIKABLE INVESTMENT OPTIONS?

Following are the short-term and long-term financial investment options available for the

investors as per their risk profile.

Short-Term Investment

Savings Bank Account

Use only for short-term (less than 30 days) surpluses Often the first

banking product people use, savings accounts offer low interest (4%-5%

p.a.), making them only marginally better than safe deposit lockers.

Money Market Funds (also known as liquid funds)

Offer better returns than savings account without compromising liquidity Money market funds

are a specialized form of mutual funds that invest in extremely short-term fixed income

instruments. Unlike most mutual funds, money market funds are primarily oriented towards

protecting your capital and then, aim to maximize returns.

Money market funds usually yield better returns than savings accounts, but lower than bank

fixed deposits. With the flexibility to issue cheques from a money market fund account now

available, explore this option before putting your money in a savings account.

Money market funds or liquid funds invest in debt securities with less than one year to maturity

such as treasury bills, commercial papers and certificate of deposits.

Since liquid funds have very short-term maturity, the risk of NAV fluctuation is low. Liquid

funds provide safety of principal and liquidity.



Bank Fixed Deposit (Bank FDs)

For investors with low risk appetite, best for 6-12 months investment period

Also referred to as term deposits, this product would be offered by all banks. Minimum

investment period for bank FDs is 30 days.

The ideal investment time for bank FDs is 6 to 12 months as normally interest on bank less than

6 months bank FDs is likely to be lower than money market fund returns.

It is important to plan your investment time frame while investing in this instrument because

early withdrawals typically carry a penalty.

Long Term Investment

Post Office Savings Schemes (POSS)

Low risk and no TDS

POSS are popular because they typically yield a higher return than bank FDs. The monthly

income plan could suit you if you are a retired individual or have regular income needs.

Besides the low (Government) risk, the fact that there is no tax deducted at source (TDS) in a

POSS is amongst the key attractive features.

The Post Office offers various schemes that include National Savings Certificates (NSC),

National Savings Scheme(NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring

Deposit Scheme.

Public Provident Fund (PPF)

Best fixed-income investment for high tax payers

PPF is a very attractive fixed income investment option for small investors primarily because of -

An 11% post-tax return - effective

pre-tax rate of 15.7% assuming a

30% tax rate



A tax-rebate - deduction of 20% of

the amount invested from your tax

liability for the year, subject to a

maximum Rs60,000 for a tax rebate

Low risk - risk attached is

Government risk

So, what's the catch? Lack of liquidity is a big negative. You can withdraw your investment

made in Year 1 only in Year 7 (although there are some loan options that begin earlier).

If you are willing to live with poor liquidity, you should invest as much as you can in this

scheme before looking for other fixed income investment options.

Company Fixed Deposits (FDs)

Option to maximize returns within a fixed-income portfolio

FDs are instruments used by companies to borrow from small investors. Typically FDs are open

throughout the year. Invest in FDs only if you have surplus funds for more than 12 months.

Select your investment period carefully as most FDs are not encashable prior to their maturity.

Just as in any other instrument, risk is an embedded feature of FDs, more so because it is not

mandatory for non-finance companies to get a credit rating for this instrument.

Investors should consciously (either though a credit rating or through an expert) select the

companies they invest in. Quite a few small investors have lost their life's savings by investing in

FDs issued by companies that have run into financial problems.

Bonds and Debentures

Option for large investments or to avail of some capital gains tax rebates

Besides company FDs, bonds and debentures are the other fixed-income instruments issued by

companies. As a result of an illiquid secondary market and a lack-lustre primary market,

investment in these instruments is largely skewed towards issues from financial institutions.

While you might find some high-yielding options in the secondary market, if you do not want the Gitarattan International Business School


problems associated with bad deliveries and the transfer process or you want to invest a large

sum of money, the primary market is the better option.

Mutual Funds

Unless you rate high on our Investment IQ Test, use mutual funds as a vehicle to invest

have you ever made an investment in partnership with someone else? Well, mutual funds work

on more or less the same principles. Investors pool together their money to buy stocks, bonds, or

any other investments. Investing through mutual funds allows an investor to -

Avail the services of a professional

money manager (who manages the

mutual fund)

Access a diversified portfolio

despite making a limited investment

Our primer investing in Mutual Funds should educate you a lot more on the benefits of investing

in mutual funds and strategies you could employ.

Life Insurance Policies

Don't buy life insurance solely as an investment

Life insurance premiums, depending upon the policy selected, include the costs of -

Death-benefit coverage

Built-in investment returns (average

8.0% to 9.5% post-tax)

Significant overheads, including

commissions.



This implies that if you buy insurance solely as an investment, you are incurring costs that you

would not incur in alternate investment options.

It is, however, important to insure your life if your financial needs and profile so require. Use

our Are You Adequately Insured planning tool to find out if you need life insurance, and if yes,

how much.

Equity Shares

Maximum returns over the long-term, invest funds you do not need for at least five years

There are two ways in which you can invest in equities-

Through the secondary market (by

buying shares that are listed on the

stock exchanges)

Through the primary market (by

applying for shares that are offered

to the public)

Over the long term, equity shares have offered the maximum return to investors. As an

investment option, investing in equity shares is also perceived to carry a high level of risk.

INVESTMENT PROCESS

Nobody plans to fail but many fail to plan. It is important for the investor to realize that planning

is very important. He has to take the client through the systematic process of financial planning

outlined below. The financial planning process consists of six steps that help

the investor/client take a "big picture" look at where he is financially. Using



these six steps, the investor can work out where he is now, what he may need in the future and

what he must do to reach his goals. These six steps are:

Establishing and defining the client-planner relationship.

The financial planner should clearly explain or document the services to be provided to you and

define both his and your responsibilities. The planner should explain fully how he will be paid

and by whom. You and the planner should agree on how long the professional relationship

should last and on how decisions will be made.

Gathering client data, including goals.

The financial planner should ask for information about your financial situation. You and the

planner should mutually define your personal and financial goals, understand your time frame for

results and discuss, if relevant, how you feel about risk. The financial planner should gather all

the necessary documents before giving you the advice you need.

Analyzing and evaluating your financial status.

The financial planner should analyze your information to assess your current situation and

determine what you must do to meet your goals. Depending on what services you have asked for,

this could include analyzing your assets, liabilities and cash flow, current insurance coverage,

investments or tax strategies.

Developing and presenting financial planning recommendations and/or alternatives.

The financial planner should offer financial planning recommendations that address your goals,

based on the information you provide. The planner should go over the recommendations with

you to help you understand them so that you can make informed decisions. The planner should

also listen to your concerns and revise the recommendations as appropriate.

Implementing the financial planning recommendations.

You and the planner should agree on how the recommendations will be carried out. The planner

may carry out the recommendations or serve as your "coach," coordinating the whole process

with you and other professionals such as attorneys or stockbrokers.Gitarattan International Business School


Monitoring the financial planning recommendations.

You and the planner should agree on who will monitor your progress towards your goals. If the

planner is in charge of the process, she should report to you periodically to review your situation

and adjust the recommendations, if needed, as your life changes.

INVESTMENT INSTRUMENTS

MUTUAL FUND

Introduction

Different investment avenues are available to investors. Mutual funds also offer good investment

opportunities to the investors. Like all investments, they also carry certain risks. The investors

should compare the risks and expected yields after adjustment of tax on various instruments

while taking investment decisions. The investors may seek advice from experts and consultants

including agents and distributors of mutual funds schemes while making investment decisions.

With an objective to make the investors aware of functioning of mutual funds, an attempt has

been made to provide information in question-answer format which may help the investors in

taking investment decisions.

What is a Mutual Fund?

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time. Mutual fund issues units to the investors in

accordance with quantum of money invested by them. Investors of mutual funds are known as

unit holders.Gitarattan International Business School


The profits or losses are shared by the investors in proportion to their investments. The mutual

funds normally come out with a number of schemes with different investment objectives which

are launched from time to time. A mutual fund is required to be registered with Securities and

Exchange Board of India (SEBI) which regulates securities markets before it can collect funds

from the public.

History of Mutual Funds in India and role of SEBI in mutual funds industry

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s,

Government allowed public sector banks and institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives

of SEBI are - to protect the interest of investors in securities and to promote the development of

and to regulate the securities market

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to

protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993.

Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital

market. The regulations were fully revised in 1996 and have been amended thereafter from time

to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the

interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those

promoted by foreign entities are governed by the same set of Regulations. There is no distinction

in regulatory requirements for these mutual funds and all are subject to monitoring and

inspections by SEBI. The risks associated with the schemes launched by the mutual funds

sponsored by these entities are of similar type.

How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management

company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor

who is like promoter of a company. The trustees of the mutual fund hold its property for the



benefit of the unit holder. Asset Management Company (AMC) approved by SEBI manages the

funds by making investments in various types of securities. Custodian, who is registered with

SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested

with the general power of superintendence and direction over AMC. They monitor the

performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of

trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of

the directors of AMC must be independent. All mutual funds are required to be registered with

SEBI before they launch any scheme.

What is Net Asset Value (NAV) of a scheme?

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

Mutual funds invest the money collected from the investors in securities markets. In simple

words, Net Asset Value is the market value of the securities held by the scheme. Since market

value of securities changes every day, NAV of a scheme also varies on day to day basis. The

NAV per unit is the market value of securities of a scheme divided by the total number of units

of the scheme on any particular date. For example, if the market value of securities of a mutual

fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the

investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the

mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

What are the different types of mutual fund schemes?

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/ Scheme



An open-ended fund or scheme is one that is available for subscription and repurchase on a

continuous basis. These schemes 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/ Scheme

A close-ended fund or scheme 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. 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 i.e. either repurchase facility or

through listing on stock exchanges. These mutual funds schemes disclose NAV generally on

weekly basis.

Schemes according to Investment Objective

A scheme can also be classified as growth scheme, income scheme, or balanced scheme

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. The

investors must indicate the option in the application form. The mutual funds also allow the



investors to change the options at a later date. 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.

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.

What are sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only those sectors or industries as

specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods

(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of

the respective sectors/industries. While these funds may give higher returns, they are more risky

compared to diversified funds. Investors need to keep a watch on the performance of those

sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

What are Tax Saving Schemes?

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,

1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity

Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax

benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth

opportunities and risks associated are like any equity-oriented scheme.

What is a Fund of Funds (FoF) scheme?



A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds

is known as a FoF scheme. An FoF scheme enables the investors to achieve greater

diversification through one scheme. It spreads risks across a greater universe.

What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one

buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund

for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well

as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and

those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The

investors should take the loads into consideration while making investment as these affect their

yields/returns. However, the investors should also consider the performance track record and

service standards of the mutual fund which are more important. Efficient funds may give higher

returns in spite of loads.

A no-load fund is one that does not charge for entry or exit. It means the investors can enter the

fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

Can a mutual fund impose fresh load or increase the load beyond the level mentioned in

the offer documents?

Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any

change in the load will be applicable only to prospective investments and not to the original

investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds

are required to amend their offer documents so that the new investors are aware of loads at the

time of investments.

What is a sales or repurchase/redemption price?

The price or NAV a unit holder is charged while investing in an open-ended scheme is called

sales price. It may include sales load, if applicable.

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases

or redeems its units from the unit holder. It may include exit load, if applicable.



What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unit holder

irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or

AMC and this is required to be disclosed in the offer document.

Investors should carefully read the offer document whether return is assured for the entire period

of the scheme or only for a certain period. Some schemes assure returns one year at a time and

they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he

can invest higher or lower percentage of the fund in equity or debt instruments compared to what

is disclosed in the offer document. It can be done on a short term basis on defensive

considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in

altering the asset allocation considering the interest of the investors. In case the mutual fund

wants to change the asset allocation on a permanent basis, they are required to inform the unit

holder and giving them option to exit the scheme at prevailing NAV without any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date of

launch of the new schemes. Investors can also contact the agents and distributors of mutual funds

who are spread all over the country for necessary information and application forms. Forms can

be deposited with mutual funds through the agents and distributors who provide such services.

Now a days, the post offices and banks also distribute the units of mutual funds. However, the

investors may please note that the mutual funds schemes being marketed by banks and post

offices should not be taken as their own schemes and no assurance of returns is given by them.

The only role of banks and post offices is to help in distribution of mutual funds schemes to the

investors.

Investors should not be carried away by commission/gifts given by agents/distributors for



investing in a particular scheme. On the other hand they must consider the track record of the

mutual fund and should take objective decisions.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are

given in the offer documents of the schemes.

How much should one invest in debt or equity oriented schemes?

An investor should take into account his risk taking capacity, age factor, financial position, etc.

As already mentioned, the schemes invest in different type of securities as disclosed in the offer

documents and offer different returns and risks. Investors may also consult financial experts

before taking decisions. Agents and distributors may also help in this regard.

How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of units applied for and such other

information as required in the application form. He must give his bank account number so as to

avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for

the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at

a later date should be informed to the mutual fund immediately.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to

the prospective investor by the mutual fund. The application form for subscription to a scheme is

an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer

document. An investor, before investing in a scheme, should carefully read the offer document.

Due care must be given to portions relating to main features of the scheme, risk factors, initial

issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's

track record, educational qualification and work experience of key personnel including fund

managers, performance of other schemes launched by the mutual fund in the past, pending

litigations and penalties imposed, etc.



When will the investor get certificate or statement of account after investing in a mutual

fund?

Mutual funds are required to despatch certificates or statements of accounts within six weeks

from the date of closure of the initial subscription of the scheme. In case of close-ended schemes,

the investors would get either a demat account statement or unit certificates as these are traded in

the stock exchanges. In case of open-ended schemes, a statement of account is issued by the

mutual fund within 30 days from the date of closure of initial public offer of the scheme. The

procedure of repurchase is mentioned in the offer document.

How long will it take for transfer of units after purchase from stock markets in case of

close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days from

the date of lodgment of certificates with the mutual fund.

As a unit holder, how much time will it take to receive dividends/repurchase proceeds?

A mutual fund is required to despatch to the unit holder the dividend warrants within 30 days of

the declaration of the dividend and the redemption or repurchase proceeds within 10 working

days from the date of redemption or repurchase request made by the unit holder.

In case of failures to despatch the redemption/repurchase proceeds within the stipulated time

period, Asset Management Company is liable to pay interest as specified by SEBI from time to

time (15% at present).

Can a mutual fund change the nature of the scheme from the one specified in the offer

document?

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes

of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written

communication is sent to each unit holder and an advertisement is given in one English daily

having nationwide circulation and in a newspaper published in the language of the region where

the head office of the mutual fund is situated. The unit holder have the right to exit the scheme at



the prevailing NAV without any exit load if they do not want to continue with the scheme. The

mutual funds are also required to follow similar procedure while converting the scheme form

close-ended to open-ended scheme and in case of change in sponsor.

How will an investor come to know about the changes, if any, which may occur in the

mutual fund?

There may be changes from time to time in a mutual fund. The mutual funds are required to

inform any material changes to their unit holder. Apart from it, many mutual funds send

quarterly newsletters to their investors.

At present, offer documents are required to be revised and updated at least once in two years. In

the meantime, new investors are informed about the material changes by way of addendum to the

offer document till the time offer document is revised and reprinted.

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on

daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes.

The NAVs of mutual funds are required to be published in newspapers. The NAVs are also

available on the web sites of mutual funds. All mutual funds are also required to put their NAVs

on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus

the investors can access NAVs of all mutual funds at one place

The mutual funds are also required to publish their performance in the form of half-yearly results

which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5

years and since inception of schemes. Investors can also look into other details like percentage of

expenses of total assets as these have an affect on the yield and other useful information in the

same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unit

holder at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being

published by the financial newspapers on a weekly basis. Apart from these, many research



agencies also publish research reports on performance of mutual funds including the ranking of

various schemes in terms of their performance. Investors should study these reports and keep

themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under

the same category. They can also compare the performance of equity oriented schemes with the

benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or

exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from the

investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly

basis which are published in the newspapers. Some mutual funds send the portfolios to their unit

holders.

The scheme portfolio shows investment made in each security i.e. equity, debentures, money

market instruments, government securities, etc. and their quantity, market value and % to NAV.

These portfolio statements also required to disclose illiquid securities in the portfolio, investment

made in rated and unrated debt securities, non-performing assets (NPAs), etc.

Some of the mutual funds send newsletters to the unit holder on quarterly basis which also

contain portfolios of the schemes.

Is there any difference between investing in a mutual fund and in an initial public offering

(IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue

price depending on market sentiment and perception of investors. However, in the case of mutual

funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund

scheme takes some time to make investment in securities. NAV of the scheme depends on the

value of securities in which the funds have been deployed.



If schemes in the same category of different mutual funds are available, should one choose

a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV

compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is

issuing units at Rs. 10 whereas the existing schemes in the same category are available at much

higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher

NAVs of similar type schemes of different mutual funds have no relevance. On the other hand,

investors should choose a scheme based on its merit considering performance track record of the

mutual fund, service standards, professional management, etc. This is explained in an example

given below.

Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes

are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes.

He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming

that the markets go up by 10 per cent and both the schemes perform equally good and it is

reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs.

99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it

would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same

return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the

schemes and allotment of higher or lower number of units within the amount an investor is

willing to invest, should not be the factors for making investment decision. Likewise, if a new

equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90,

should not be a factor for decision making by the investor. Similar is the case with income or

debt-oriented schemes.

On the other hand, it is likely that the better managed scheme with higher NAV may give higher

returns compared to a scheme which is available at lower NAV but is not managed efficiently.

Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as

much as inefficiently managed scheme with lower NAV. Therefore, the investor should give

more weightage to the professional management of a scheme instead of lower NAV of any

scheme. He may get much higher number of units at lower NAV, but the scheme may not give

higher returns if it is not managed efficiently.



How to choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund scheme

very carefully. They may also look into the past track record of performance of the scheme or

other schemes of the same mutual fund. They may also compare the performance with other

schemes having similar investment objectives. Though past performance of a scheme is not an

indicator of its future performance and good performance in the past may or may not be

sustained in the future, this is one of the important factors for making investment decision. In

case of debt oriented schemes, apart from looking into past returns, the investors should also see

the quality of debt instruments which is reflected in their rating. A scheme with lower rate of

return but having investments in better rated instruments may be safer. Similarly, in equities

schemes also, investors may look for quality of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same as mutual funds schemes?

Investors should not assume some companies having the name "mutual benefit" as mutual funds.

These companies do not come under the purview of SEBI. On the other hand, mutual funds can

mobilise funds from the investors by launching schemes only after getting registered with SEBI

as mutual funds.

Is the higher net worth of the sponsor a guarantee for better returns?

In the offer document of any mutual fund scheme, financial performance including the net worth

of the sponsor for a period of three years is required to be given. The only purpose is that the

investors should know the track record of the company which has sponsored the mutual fund.

However, higher net worth of the sponsor does not mean that the scheme would give better

returns or the sponsor would compensate in case the NAV falls.

Where can an investor look out for information on mutual funds?

Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-

yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in

India (AMFI)www.amfiindia.com. AMFI has also published useful literature for the investors.

Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds" section



for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents

filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI

available on the web site, a lot of information on mutual funds is given.

There are a number of other web sites which give a lot of information of various schemes of

mutual funds including yields over a period of time. Many newspapers also publish useful

information on mutual funds on daily and weekly basis. Investors may approach their agents and

distributors to guide them in this regard.

Can an investor appoint a nominee for his investment in units of a mutual fund?

Yes. The nomination can be made by individuals applying for / holding units on their own behalf

singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta

of Hindu Undivided Family, holder of Power of Attorney cannot nominate.

If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after

adjustment of expenses. Unit holders are entitled to receive a report on winding up from the

mutual funds which gives all necessary details.

How can the investors redress their complaints?

Investors would find the name of contact person in the offer document of the mutual fund

scheme whom they may approach in case of any query, complaints or grievances. Trustees of a

mutual fund monitor the activities of the mutual fund. The names of the directors of asset

management company and trustees are also given in the offer documents. Investors should

approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their

complaints,

If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal

of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned

mutual fund and follows up with it regularly. Investors may send their complaints to:

Securities and Exchange Board of India

Office of Investor Assistance and Education (OIAE)

Exchange Plaza, "G" Block, 4th Floor,



Bandra-Kurla Complex,

Bandra (E), Mumbai - 400 051.

Phone: 26598510-13

WHAT IS NAV?

What Is Net Asset Value (NAV) Of A Scheme?

The performance of a particular scheme of a mutual fund is denoted by Net

Asset Value (NAV).

Mutual funds invest the money collected from the investors in securities

markets. In simple words, Net Asset Value is the market value of the

securities held by the scheme. Since market value of securities changes every day, NAV of a

scheme also varies on day to day basis. The NAV per unit is the market value of securities of a

scheme divided by the total number of units of the scheme on any particular date. For example, if

the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has

issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20.

NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly -

depending on the type of scheme.

CHOOSE A MUTUAL FUND

How to Select a Mutual Fund - A 10-Part Guide to Picking Winning Mutual Funds

A small pooling of money some 8 decades ago by 3 fund managers to set up the first

mutual fund at Boston has grown into one of the industries managing trillions of



dollars in assets. This has also emerged as the most successful and attractive means for small

investors earn the prosperity of the stock market. Innovative concepts like Systematic Investment

Plans have further enabled common man to accumulate a large corpus of funds through small

savings.

While mutual funds have contributed in common man acquiring the prosperity of the stock

market, yet it makes sense to due a small amount of research before selecting a mutual fund.

Some such steps are given below:

Identify your goals

Are you looking for a short term investment or long term? Generally you should consider a

mutual fund for your long term needs. For short term only liquid or debt funds could be good. In

long term equity funds are the best option. For example if you want to accumulate for your

daughter's higher education or son's marriage or your old-age, equity funds are best!

Your time horizon

Knowing the time horizon of your investment is always good. It helps you maintain discipline.

Once you have decided you time horizon, you need not look at the daily NAVs, a periodic

monitoring (once in a year) would be more than sufficient. In the short term a fund may appear

doing bad, but in the long term the same fund may produce splendid returns.

Past performance may not be good always

The fund's past performance is a good indicator to look at but that is not the only criteria. May be

the reasons for a very good performance may not exist in the economy so the same fund may not

produce good results in future. Therefore, consider other important points as well.

Check the objective of the Fund

It is important for you to find a mutual fund or family of mutual funds that shares the same

investment philosophy as you do. As a growth investor you would like to invest in companies

that grow fast, whatever may be the price of the share at the time of purchase. Or as a value



investor you may consider the intrinsic value of a stock and faith in the business or philosophy of

the company. Just check that the way you look at stocks as an avenue of investment, fund also

does the same.

Look for an experienced fund manager with a good track record

Every year many join the fund management industry as fund managers. Some of them just want

to show some splendid performance and in the process may loose investors' money. Or some are

just reckless or without any discipline or focus. It pays to see the length of the experience,

qualification and the past performance of a fund manager. Do not go by just one or two years'

track record of the fund manager, consider a longer period.

Diversification

Invest in a fund that has a good amount of diversification. A number of funds with the similar

objective and philosophy will not give you diversification. The diversification means your assets

(even if invested in different funds of different companies) should have a portfolio that should

give you a flavor of different sectors and companies of different sizes within same or different

sectors.

Consider Expense Ratio

The cost of owning the fund! When you entrust your money to a mutual fund they have to incur

some cost to manage your money. This cost is charged to the fund. This is the expense or when it

is denoted as a percentage to the fund it is known as expense ratio. You should consider this.

Higher this ratio lower would be your returns since before the income of the fund is appropriated

to your funds this cost would be deducted from the income/profit of the fund.

Avoid Mutual Funds with High turnover Ratio

It's important to focus on the turnover rate - the percentage of the portfolio that is bought and

sold each year. Because higher the turnover ratio, lower would be your returns since higher

turnover would lead to higher cost of brokerages or custodial charges.

Consider Index Funds



For a common investor with a investment period of about 5-10 years and with an objective of

compounding money, index funds can be a great choice. They combine almost unfathomably

low turnover rates with rock bottom expense ratios and widespread diversification; in other

words, you really can have your cake and eat it, too.

By beginning a dollar cost averaging plan into low-cost index funds, you can be absolutely

certain you will out perform a majority of managed mutual funds on a long-term basis."

Consider the Fund Benchmark Index

It is essential to monitor if your fund manager is doing his job properly. Every fund has a

benchmark index. The idea is that the fund manager should deliver returns which are equal to or

more than the returns of that index. If the fund manager fails to deliver the same or higher returns

than the one generated by the index, that means his performance is poor.

Be open to Systematic Investment Plans

What is a recurring deposit account with a bank is the systematic investment plan in the case of a

mutual fund. You invest regularly a small sum over a period time to accumulate a larger corpus.

In the process you acquire shares at an average price which is lower than the peaks. It also

imbibes discipline and in the process allow you to create a sizeable fund.

BENEFITS OF INVESTING IN MUTUAL FUNDS

Portfolio Diversification

Portfolio Diversification from securities spread over various companies, industries, issuers

and maturities. The portfolio will not be affected by the bad performance of one or few of

the securities.

Low Transaction Cost

Low Transaction Cost from economies of scale. Since the fund invests large sum of money,

the transaction cost comes down. Small amounts of investors get benefits of the large pool.

Professional Managers



Professional Managers who are employed by mutual funds offer their expertise in managing

the investors' funds, given their knowledge of markets and securities, according to the

investment objective of the scheme.

Reduction In Risk

Portfolio diversification and the professional management of funds offer Reduction In Risk

for the investor. The investment is always a managed portfolio and not a single stock or

sector.

Flexible And Easy

Investors can choose their investment to suit their particular needs and preferences.

Minimum investment is low for most funds. Investors can choose systematic investment

plans to invest regularly. Mutual fund transactions are Flexible And Easy to conduct.

Liquidity

Mutual funds structure the portfolio is such a way that they are able to provide Liquidity to

the investor. Investor can take their money outhwen they need it.



INSURANCE

WHAT IS INSURANCE?

What Is Insurance?

Insurance is a basic form of risk management which provides protection against possible loss to

life or physical assets. A person who seeks protection against such loss is termed as insured, and

the company that promises to honour the claim, in case such loss is actually incurred by the

insured, is termed as Insurer. In order to get the insurance, the insured is required to pay to the

insurance company (i.e. the insurer) a certain amount, termed as premium, on a periodical basis

(say monthly, quarterly, annually, or even one-time).

Life Insurance

Insurance against risk of loss to one's life is covered under Life Insurance. Life insurance is also

known as long term insurance or life assurance. It includes Whole Life Assurance, Endowment

Assurance, Assurances for Children, Term Assurance, Money Back Policy etc.

General Insurance

Insurance against risk of loss to assets like car, house, accident etc. is covered under General or

Non-life Insurance. General insurance includes fire insurance, marine insurance, motor

insurance, theft insurance, health insurance, personal accident insurance etc.



Basic Difference between Life Insurance and General Insurance

Life insurance includes plans which are directly related with the person's life. On the other hand,

general insurance deals with plans which are not related to the life of the person. General

insurance plans seek to provide protection against loss to a person's assets or health and not to

his/her life.

Types Of Insurance Policies

Insurance provides compensation to a person for an anticipated loss to his life, business or an

asset. Insurance is broadly classified into two parts covering different types of risks:

Insurance Basics

Long-term (Life Insurance)

General Insurance (Non-life

Insurance)

Long-term Insurance

Long term insurance is so called because it is meant for a long-term period which may stretch to

several years or whole life-time of the insured. Long-term insurance covers all life insurance

policies. Insurance against risk to one's life is covered under ordinary life assurance. Ordinary

life assurance can be further clasified into following types:

Types of Ordinary Life Assurance :

1. Whole Life Assurance

Meaning : In whole life assurance, insurance company collects premium from the insured for

whole life or till the time of his retirement and pays claim to the family of the insured only after

his death.



2. Endowment Assurance

Meaning : In case of endowment assurance, the term of policy is defined for a specified period

say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an

event of his death within the policy's term or in an event of the assured surviving the policy's

term.

3. Assurances for Children

Meaning : Child's Deferred Assurance: Under this policy, claim by insurance company is paid

on the option date which is calculated to coincide with the child's eighteenth or twenty first

birthday. In case the parent survives till option date, policy may either be continued or payment

may be claimed on the same date. However, if the parent dies before the option date, the policy

remains continued until the option date without any need for payment of premiums. If the child

dies before the option date, the parent receives back all premiums paid to the insurance company.

School fee policy: School fee policy can be availed by effecting an endowment policy, on the life

of the parent with the sum assured, payable in installments over the schooling period.

4. Term Assurance

Meaning : The basic feature of term assurance plans is that they provide death risk-cover. Term

assurance policies are only for a limited time, claim for which is paid to the family of the assured

only when he dies. In case the assured survives the term of policy, no claim is paid to the

assured.

5. Annuities

Meaning : Annuities are just opposite to life insurance. A person entering into an annuity

contract agrees to pay a specified sum of capital (lump sum or by installments) to the insurer.

The insurer in return promises to pay the insured a series of payments until insured's death.



Generally, life annuity is opted by a person having surplus wealth and wants to use this money

after his retirement.

There are two types of annuities, namely: Immediate Annuity: In an immediate annuity, the

insured pays a lump sum amount (known as purchase price) and in return the insurer promises to

pay him in installments a specified sum on a monthly/quarterly/half-yearly/yearly basis. Deferred

Annuity: A deferred annuity can be purchased by paying a single premium or by way of

installments. The insured starts receiving annuity payment after a lapse of a selected period (also

known as Deferment period).

6. Money Back Policy

Meaning : Money back policy is a policy opted by people who want periodical payments. A

money back policy is generally issued for a particular period, and the sum assured is paid

through periodical payments to the insured, spread over this time period. In case of death of the

insured within the term of the policy, full sum assured along with bonus accruing on it is payable

by the insurance company to the nominee of the deceased.

General Insurance

Also known as non-life insurance, general insurance is normally meant for a short-term period of

twelve months or less. Recently, longer-term insurance agreements have made an entry into the

business of general insurance but their term does not exceed five years. General insurance can be

classified as follows:

Fire Insurance

Fire insurance provides protection against damage to property caused by accidents due to fire,

lightening or explosion, whereby the explosion is caused by boilers not being used for industrial

purposes. Fire insurance also includes damage caused due to other perils like strom tempest or

flood; burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion;

impact.



Marine Insurance

Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks

which these areas are exposed to are collectively known as "Perils of the Sea". These perils

include theft, fire, collision etc.

Marine Cargo: Marine cargo policy provides protection to the goods loaded on a ship against all

perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of

goods by sea as well as transportation of goods by land.

Marine Hull: Marine hull policy provides protection against damage to ship caused due to the

perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner

(shipowner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked

after by associations formed by shipowners for the purpose (P and I clubs).

Miscellaneous

As per the Insurance Act, all types of general insurance other than fire and marine insurance are

covered under miscellaneous insurance. Some of the examples of general insurance are motor

insurance, theft insurance, health insurance, personal accident insurance, money insurance,

engineering insurance etc.

What is a ULIP?

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy

which provides a combination of risk cover and investment. The dynamics of the capital market

have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT

LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE

INVESTOR.



What is a Unit Fund?

The allocated (invested) portions 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.

What is a Unit?

It is a component of the Fund in a Unit Linked Policy.

What Types of Funds do ULIP Offer?

Most insurers offer a wide range of funds to suit one's investment objectives, risk profile and

time horizons. Different funds have different risk profiles. The potential for returns also varies

from fund to fund. The following are some of the common types of funds available along with an

indication of their risk characteristics.

General

DescriptionNature of Investments Risk Category

Equity Funds Primarily invested in company stocks

with the general aim of capital

appreciation

Medium to High

Income, Fixed

Interest and Bond

Funds

Invested in corporate bonds, government

securities and other fixed income

instruments

Medium

Cash Funds Sometimes known as Money Market

Funds - invested in cash, bank deposits

and money market instruments

Low

Balanced Funds Combining equity investment with fixed

interest instruments

Medium

What is Net Asset Value (NAV)?



NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on

the website of the respective insurers.

What is the benefit payable in the event of risk occurring during the term of the policy?

The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the

event of risk to the life assured during the term as per the policy conditions.

What is the benefit payable on the maturity of the policy?

The value of the fund units with bonuses, if any is payable on maturity of the policy.

Can a partial encashment/withdrawal be made?

Yes, Products may have the "Partial Withdrawal" option which facilitates withdrawal of a

portion of the investment in the policy. This is done through cancellation of a part of units.

What happens if payment of premiums is discontinued?

Discontinuance within three years of commencement If all the premiums have not been paid

for at least three consecutive years from inception, the insurance cover shall cease immediately.

Insurers may give an opportunity for revival within the period allowed; if the policy is not

revived within that period, surrender value shall be paid at the end of third policy anniversary or

at the end of the period allowed for revival, whichever is later.

Discontinuance after three years of commencement At the end of the period allowed for

revival, the contract shall be terminated by paying the surrender value. The insurer may offer to

continue the insurance cover, if so opted for by the policy holder, levying appropriate charges

until the fund value is not less than one full year's premium. When the fund value reaches an

amount equivalent to one full year's premium, the contract shall be terminated by paying the fund

value.



BANKING PRODUCTS

Bank Deposits In India

Saving Bank Account.

Bank Recurring Deposit.

Bank Fixed Deposits.

Savings Bank Account

A Saving Bank account (SB account) is meant to promote the habit of saving among the people.

It also facilitates safekeeping of money. In this scheme fund is allowed to be withdrawn

whenever required, without any condition. Hence a savings account is a safe, convenient and

affordable way to save your money. Bank deposits are fairly safe because banks are subject to

control of the Reserve Bank of India with regard to several policy and operational parameters.

Bank also pays you a minimal interest for keeping your money with them.

Features

The minimum amount to open an account in a nationalized bank is Rs 100. If cheque books are

also issued, the minimum balance of Rs 500 has to be maintained. However in some private or

foreign bank the minimum balance is Rs 500 or more and can be up Rs. 10,000. One cheque

book is issued to a customer at a time.

A Savings account can be opened either individually or jointly with another individual. In a joint

account only the sign of one account holder is needed to write a cheque. But at the time of Gitarattan International Business School


closing an account, the sign of the both the account holders are needed.

Return

The interest rate of savings bank account in India varies between 2.5% and 4%. In Savings Bank

account, bank follows the simple interest method. The rate of interest may change from time to

time according to the rules of Reserve Bank of India. One can withdraw his/her money by

submitting a cheque in the bank and details of the account, i.e the Money deposited, withdrawn

along with the dates and the balance, is recorded in a passbook.

Advantages

It's much safer to keep your money at a bank than to keep a large amount of cash in your home.

Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India

with regard to several policy and operational parameters. The federal Government insures your

money. Saving Bank account does not have any fixed period for deposit. The depositor can take

money from his account by writing a cheque to somebody else or submitting a cheque directly.

Now most of the banks offer various facilities such as ATM card, credit card etc. Through

debit/ATM card one can take money from any of the ATM centres of the particular bank which

will be open 24 hours a day. Through credit card one can avail shopping facilities from any shop

which accept the credit card. And many of the banks also give internet banking facility through

with one do the transactions like withdrawals, deposits, statement of account etc.

How to open

Savings Bank Account can be opened in the name of an individual or in joint names of the

depositors by filling up the appropriate forms. A minor who have completed ten years of age can

also open and operate the account. At the time of opening an account one must submit the

documents like photocopy of passport or Electoral card, Postal identification cards as address

proof and two passport size photos.

Most banks also require an introduction for opening an SB account. The introduction may be

obtained either from an existing account holder or from a respectable citizen, well known to the



bank, who should normally call on the bank and sign in the column specially provided for the

purpose of introduction in the account opening form.

Bank Recurring Deposit

The Recurring deposit in Bank is meant for someone who want to invest a specific sum of

money on a monthly basis for a fixed rate of return. At the end, you will get the principal sum as

well as the interest earned during that period. The scheme, a systematic way for long term

savings, is one of the best investment option for the low income groups.

Features

The minimum investment of Recurring Deposit varies from bank to bank but usually it begins

from Rs 100/-. There is no upper limit in investing. The rate of interest varies between 7 and 11

percent depending on the maturity period and amount invested. The interest is calculated

quarterly or as specified by the bank. The period of maturity ranging from 6 months to 10 years.

The deposit shall be paid as monthly installments and each subsequent monthly installment shall

be made before the end of the calendar month and shall be equal to the first deposit. In case of

default in payment, a default fee is chargeable for delayed deposit at the rate of Rs. 1.50/- for

every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer

maturities.

Since a recurring deposit offers a fixed rate of return, it cannot guard against inflation if it is

more than the rate of return offered by the bank. Worse, lower the gap between the interest rate

on a recurring deposit and inflation, lower your real rate of return. Premature withdrawal is also

possible but it demands a loss of interest.



Returns

The rate of interest varies between 7 and 11 percent depending on the maturity period and

amount invested. The interest is calculated quarterly or as specified by the bank.

Amount invested

per month

Maturity amount

in 2 years

(5%interest)

Rs 100 Rs 2626

Rs 500 Rs 13,132

Rs 750 Rs 19,698

Rs 3,000 Rs 78,792

Advantages

Some Nationalised banks are giving more facilities to their customer, State Bank of India give

Free Roaming Recurring Deposit facility to their customers. They can transfer their account to

any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000

Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer, per year,

per branch.

How to open an Account

A Recurring Bank Deposit account can be opened at any branch of a bank that offers this facility.

However, some banks insist that you maintain a savings bank account with them to operate a

Recurring Bank Deposit account. The terms and conditions vary from bank to bank. When a

depositor opens a Recurring Bank Deposit account with a bank, a pass-book or an account

statement is issued to him.

Bank Fixed Deposits



A fixed deposit is meant for those investors who want to deposit a lump sum of money for a

fixed period; say for a minimum period of 15 days to five years and above, thereby earning a

higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of

the deposit.

Bank fixed deposits are one of the most common savings scheme open to an average investor.

Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary

from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the

amount deposited, premature withdrawal before maturity period (which involves a loss of

interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve

Bank of India.

Features

Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India

(RBI) with regard to several policy and operational parameters. The banks are free to offer

varying interests in fixed deposits of different maturities. Interest is compounded once a quarter,

leading to a somewhat higher effective rate.

The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an

unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-.

Before opening a FD account, try to check the rates of interest for different banks for different

periods. It is advisable to keep the amount in five or ten small deposits instead of making one big

deposit. In case of any premature withdrawal of partial amount, then only one or two deposit

need be prematurely encashed. The loss sustained in interest will, thus, be less than if one big

deposit were to be encashed. Check deposit receipts carefully to see that all particulars have been

properly and accurately filled in. The thing to consider before investing in an FD is the rate of

interest and the inflation rate. A high inflation rate can simply chip away your real returns.

Returns

The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the

maturity period (duration) of the FD and the amount invested. Interest rate also varies between

each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its



maturity. Some banks have facility to pay interest every quarter or every month, but the interest

paid may be at a discounted rate in case of monthly interest. The Interest payable on Fixed

Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit

period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years.

DurationInterest rate (%)

per annum

15-30 days 4 -7 %

30-45 days 5-8 %

46-90 days 6-8 %

91-180 days 6.5-9.5 %

181-365 days 7-9.5 %

1-1.5 years 8.5-10.25 %

1.5-2 years 8.5-10.5 %

2-3 years 9-10.5 %

3-5 years 9.5-10.5 %

5 years 9.5-11 %

Advantages

Bank deposits are the safest investment after Post office savings because all bank deposits are

insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get a

loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The interest

charged will be 2% more than the rate of interest earned by the deposit. With effect from A.Y.

1998-99, investment on bank deposits, along with other specified incomes, is exempt from

income tax up to a limit of Rs.12, 000/- under Section 80L. Also, from A.Y. 1993-94, bank

deposits are totally exempt from wealth tax. The 1995 Finance Bill Proposals introduced tax

deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/- and above per

annum.



How to apply

One can get a bank FD at any bank, be it nationalised, private, or foreign. You have to open a FD

account with the bank, and make the deposit. However, some banks insist that you maintain a

savings account with them to operate a FD. When a depositor opens an FD account with a bank,

a deposit receipt or an account statement is issued to him, which can be updated from time to

time, depending on the duration of the FD and the frequency of the interest calculation. Check

deposit receipts carefully to see that all particulars have been properly and accurately filled in.

POSTOFFICE SAVING SHCEME

Post Office Savings Schemes In India

Trapping rural savings has been a pressing need since time immemorial. The authorites have

taken undue advantage of the existence of post office even in remote nooks and corners of the

country. They are forced to undertake normal banking activities liken SB, TD, RD, MIS.

The systems and procedures handling these schemes are clumy, laborious and outdated. The

leathargy of bureaucraft in taking remedical action results in frittering away of scarce and

vluable resourcs. The rate of interest were reduced considerably and contineously from 1.1.99 to

1.3.2003. However these schemes offer bettr return most other avenues.

The silent features of the current schemes are given below

National Savings Certificates

(NSC)

National Savings Schemes (NSS)

Post Office Time Deposite

Post Office Recurring Deposit

Account (RDA)

Post Office Monthly Income

Scheme

Senior Citizen Scheme

Kisan Vikas Patra (KVP)



National Saving Certificates (NSC)

National Savings Certificates (NSC) are certificates issued by Department of post, Government

of India and are available at all post office counters in the country. It is a long term safe savings

option for the investor. The scheme combines growth in money with reductions in tax liability as

per the provisions of the Income Tax Act, 1961. The duration of a NSC scheme is 6 years.

Features

NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 for a

maturity period of 6 years. There is no prescribed upper limit on investment.

Individuals, singly or jointly or on behalf of minors and trust can purchase a NSC by applying to

the Post Office through a representative or an agent.

One person can be nominated for certificates of denomination of Rs. 100- and more than one

person can be nominated for higher denominations.

The certificates are easily transferable from one person to another through the post office. There

is a nominal fee for registering the transfer. They can also be transferred from one post office to

another

One can take a loan against the NSC by pledging it to the RBI or a scheduled bank or a co-

operative society, a corporation or a government company, a housing finance company approved

by the National Housing Bank etc with the permission of the concerned post master.

Though premature encashment is not possible under normal course, under sub-rule (1) of rule 16

it is possible after the expiry of three years from the date of purchase of certificate.

Tax benefits are available on amounts invested in NSC under section 88, and exemption can be

claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be

treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.



Return

It is having a high interest rate at 8% compounded half yearly. Post maturity interest will be paid

for a maximum period of 24 months at the rate applicable to individual savings account. A 1000

rs denomination certificate will increase to 1601Rs. on completion of 6 years.

Interest rates for the NSC Certificate of Rs 1000

Year Rate Of Interest

1 year Rs 81.60

2 years Rs 88.30

3 years Rs95.50

4 years Rs103.30

5 years Rs 111.70

6 years Rs 120.80

Advantages

Tax benefits are available on amounts invested in NSC under section 88, and exemption can be

claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be

treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.

NSCs can be transferred from one person to another through the post office on the payment of a

prescribed fee. They can also be transferred from one post office to another. The scheme has the

backing of the Government of India so there are no risks associated with your investment.

How to start

Any individual or on behalf of minors and trust can purchase a NSC by applying to the Post

Office through a representative or an agent. Payments can be made in cash, cheque or DD or by

raising a debit in the savings account held by the purchaser in the Post Office. The issue of

certificate will be subject to the realization of the cheque, pay order, DD. The date of the

certificate will be the date of realization or encashment of the cheque. If a certificate is lost,

destroyed, stolen or mutilated, a duplicate can be issued by the post-office on payment of the

prescribed fee.

National Savings Schemes (NSS)



National Savings Scheme (NSS) offers an assured return and tax rebates under Section 88 of the

Income Tax Act, 1961. The rate of interest is 9 per cent per annum, compounded annually.

NSS has a duration of four years as compared to NSC, which has a duration of six years. You

can extend the duration of your NSS units thereafter if you so desire.

NSS does not offer the benefits of liquidity. There is no premature withdrawal facility except in

case of the death of the holder. However, the interest accrued on NSS can be withdrawn at any

point. The deposit (principal) can be withdrawn only on maturity of the instrument at the end of

four years and the account can be closed at the discretion of the investor.

Features

NSS is mostly viewed upon as a tax-saving instrument. It combines growth in money (capital

appreciation) with cuts in tax outgo, albeit at a lower rate.

NSS is not meant for earning regular income. It serves primarily as an instrument to reduce tax

liability.

Since the NSS has a fixed rate of return, it cannot provide adequate safeguards against high

inflation rates.

It is a savings plan that also offers tax benefits, and it cannot be pledged as security to any bank

for availing a loan.

Your income is assured at the specified rate of interest. Since the NSS has the backing of the

GOI, this is a risk-free avenue of investment.

The NSS has the backing of the Government Of India. Therefore, you can be assured of getting

back your full investments. This is a safe option to go in for, as the risks are minimal.

Since the NSS is backed by the Government Of India, it requires no commercial rating, and is

deemed to be a risk-free investment.

Return

NSS has a duration of four years as compared to NSC, which has a duration of six years. You

can extend the duration of your NSS units thereafter if you so desire.



Advantages

National Savings Scheme units are issued in various denominations with the minimum

investment being Rs 100. There is no prescribed upper limit on investment. However, the

scheme offers a coupon of 9 per cent as compared to 9.5 per cent offered by NSC. Moreover, the

interest is compounded annually as against semi-annually in NSC.

The NSS offers tax incentives as per the provisions of the Income Tax Act, 1961. You can avail

of rebates on both the principal invested as well as the interest income under Section 88 of the

Income Tax Act. The annual interest income qualifies for exemption under Section 80L, i.e.,

interest income upto Rs 9,000 is tax-exempt. Moreover, interest income is not subject to TDS.

NSS units are held physically in the form of certificates that are issued to the investors by the

post office.

How to start

NSS is available at post offices across the country. You can open only one account in a year.

There is no prescribed upper limit to the amount you might want to invest in the scheme.

Accounts cannot be opened by an investor in the name of his/her spouse. But you can avail of the

nomination facility to nominate any person as the beneficiary.

Post Office Time Deposit Scheme

A Post-Office Time Deposit Account (RDA) is a banking service similar to a Bank Fixed

Deposit offered by Department of post, Government of India at all post office counters in the

country. The scheme is meant for those investors who want to deposit a lump sum of money for

a fixed period; say for a minimum period of one year to two years, three years and a maximum

period of five years. Investor gets a lump sum (principal + interest) at the maturity of the deposit.

Time Deposits scheme return a lower, but safer, growth in investment

Features

Time Deposits can be made for the periods of 1 year, 2 years, 3 years and 5 years. The minimum

investment in a post-office Time deposit is Rs 200 and then its multiples and there is no

prescribed upper limit on your investment.



Account may be opened by an individual, Trust, Regimental Fund and Welfare Fund.

The account can be closed after 6 months but before one year of opening the account. On such

closure the amount invested is returned without interest. 2 year, three year and five year accounts

can be closed after one year at a discount. They involve a loss in the interest accrued for the time

the account has been in operation.

Interest is payable annually but is calculated on a quarterly basis at the prescribed rates. Post

maturity interest will be paid for a maximum period of 24 months at the rate applicable to

individual savings account.

One can take a loan against a time deposit with the balance in your account pledged as security

for the loan

Returns

This investment option pays annual interest rates between 6.25 and 7.5 per cent, compounded

quarterly. Time deposit for 1 year offers a coupon rate of 6.25%, 2-year deposit offers an interest

of 6.5%, 3 years is 7.25% while a 5-year Time Deposit offers 7.5% return.

Duration of

Account

Quarterly

Compound

Interest

1 year 6.25%

2 years 6.5%

3 years 7.25%

5 years 7.5%

Advantages

In this scheme your investment grows at a pre- determined rate with no risk involved. With a

Government of India-backing, your principal as well as the interest accrued is assured under the

scheme. The rate of interest is relatively high compared to the 4.5% annual interest rates

provided by banks. Although the amount invested in this scheme is not exempted as per section

88 of Income Tax, the amount of interest earned is tax free under Section 80-L of Income Tax

Act.



How to start a Time Deposit

A Time Deposit account can be opened at any post-office in the country. Account may be

opened by an individual, i.e., Single, Joint A/B (not more than two adults) Trust, Regimental

Fund and Welfare Fund. On opening a Time Deposit, you will receive an account statement

stating the amount deposited and the duration of the account. The account can be closed after 6

months of opening the account. On such closure the amount invested is returned with/without

interest depending on the time the deposit was maintained.

Post Office Recurring Deposit Account (RDA)

A Post-Office Recurring Deposit Account (RDA) is a banking service offered by Department of

post, Government of India at all post office counters in the country. The scheme is meant for

investors who want to deposit a fixed amount every month, in order to get a lump sum after five

years. The scheme, a systematic way for long term savings, is one of the best investment option

for the low income groups.

Features

The minimum investment in a post-office RDA is Rs 10 and then in multiples of Rs. 5/- for a

period of 5 years. There is no prescribed upper limit on your investment.

The deposit shall be paid as monthly installments and each subsequent monthly installment shall

be made before the end of the calendar month and shall be equal to the first deposit. In case of

default in payment, a default fee is chargeable for delayed deposit at 0.20 Paise per month of

delay, for Rs.10 Denomination. After more than four defaults, the account shall be treated as

discontinued in case the account is not revived within two months from the fifth default.

For Advance deposits for 6 months or 12 months, a rebate is allowed at the prescribed rate (For

Rs 10 denomination:- Rs.1/- for 6 advance deposits, Rs.4/- for 12 advance deposits.

One withdrawal is allowed after one year of opening a post-office RDA on meeting certain

conditions. You can withdraw up to half the balance lying to your credit at an interest charged at

15%. The withdrawal or the loan may be repaid in one lump or in equal monthly installments.



Premature closure is allowed on completion of three years from the date of opening and in such

case, interest is payable as per the rate applicable for the Post Office Savings Bank Account.

After maturity of the account, it can be continued for a further period of 5 years with or without

further deposits. During this extended period, the account can be closed at any time.

Returns

The post-office recurring deposits offers a fixed rate of interest, currently at 7.5 per cent per

anum compounded quarterly.

Monthly

Investment

Total

Investment(60months)

Money returned

on Maturity

(after 60 months)

10 600 728.90

20 1,200 1457.80

50 3,000 3644.50

100 6,000 7289.00

500 30,000 36445.00

1000 60,000 72890.00

1375 82,500 100224.00

5000 3,00,000 364450.00

Advantages

The post office offers a fixed rate of interest unlike banks which constantly change their

recurring deposit interest rates depending on their demand supply position. As the post office is a

department of the government of India, it is a safe investment. The principal amount in the

Recurring Deposit Account is assured. Moreover Interest earned on this account is exempted

from tax as per Section 80L of Income Tax Act.

How to Start Post office RDA



A post-office RDA can be opened at any post office in the country by filling up the appropriate

forms. The account can be opened by an individual adult as a single person account, two adults

in a joint mode, or by a guardian on behalf of the minor who has attained the age of 10 years in

his own name. A pass book is issued at the time of opening the account. If there is a loss, theft or

the passbook is mutilated, a duplicate is issued on a charge. The deposit can be made personally

at the particular post office every month or can be made through an appointed agent, who would

collect the money from you and enter the same in your passbook.

Post Office Monthly Income Scheme

The post-office monthly income scheme (MIS) provides for monthly payment of interest income

to investors. It is meant for investors who want to invest a sum amount initially and earn interest

on a monthly basis for their livelihood. The MIS is not suitable for an increase in your

investment. It is meant to provide a source of regular income on a long term basis. The scheme

is, therefore, more beneficial for retired persons.

Features

Only one deposit is available in an account.

Only individuals can open the account; either single or joint.( two or three).

Interest rounded off to nearest rupee i.e, 50 paise and above will be rounded off to next rupee.

The minimum investment in a Post-Office MIS is Rs 1,000 for both single and joint accounts.

The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.

The duration of MIS is six years.

Returns

The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity. However, this



10 per cent bonus is not available in case of premature withdrawals. The minimum investment in

a Post-Office MIS is Rs 1,000 for both single and joint accounts.

Deposit Rs Monthly InterestAmount returned

on maturity

5,000 33 5,500

10,000 66 11,000

50,000 333 55,000

1,00,000 667 1,10,000

2,00,000 1,333 2,20,000

3,00,000 2,000 3,30,000

6,00,000 4,000 6,60,000

Advantages

Premature closure of the account is permitted any time after the expiry of a period of one year of

opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made

when the account is prematurely closed. Investors can withdraw money before three years, but a

discount of 5%. Closing of account after three years will not have any deductions. Monthly

interest can be automatically credited to savings account provided both the accounts standing at

the same post office. The interest income accruing from a post-office MIS is exempt from tax

under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest

income. The balance is exempt from Wealth Tax.

How to Open

You can buy a post office MIS at any post-office in India. When you open an MIS, you will get a

certificate issued by the post office. In addition, the investor is provided with a passbook to

record his transactions against his MIS.

Post Office Senior Citizen Scheme

A new savings scheme called â€˜Senior Citizens Savings Schemeâ€™ has been notified with

effect from August 2, 2004. The Scheme is for the benefit of senior citizens and maturity period



of the deposit will be five years, extendable by another three years. Initially the scheme will be

available through designated post offices through out the country.

Features

The minimum investment is 1000Rs and in multiples of Rs.1000 subject to a maximum of Rs.15

lakh.

Citizens of 60 years of age and above are eligible to invest. Single or joint account (with spouse

only) can be opened. Citizens who have retired under a voluntary or a special voluntary

retirement scheme and have attained the age of 55 years are also eligible, subject to specified

conditions.

The deposit will carry an interest of 9% per annum (taxable). The maturity period of the deposit

will be five years, extendable by another three years.

Premature withdrawal after a period of one year will be allowed, subject to some deductions.

The investments in the scheme will be non-tradable and non-transferable. However, nomination

facility will be available

Non-Resident Indians and Hindu Undivided Families are not eligible to invest in the scheme.

Returns

The deposit will carry an interest of 9% per annum (taxable).

Advantages

This Scheme is most beneficial to Senior citizens and provides a high rate of interest as

compared to bank interest of 4.5- 4.75%. Although the interest on the deposit is taxable, the

deposits themselves are tax free. As the post office is a department of the government of India, it

is a safe investment. The principal amount is assured

How to Start Post office Senior Citizens account



A Senior Citizen Account can be opened through any designated post office through out the

country. The account can be opened by any individual 60 years of age and above either

individually, or jointly (with spouse only).

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) doubles your money in 7 years and 3 months with the advantage of

premature withdrawal. KVP is sold through all Head Post Offices and other authorised post

offices throughout India. The rate of return is 9.75 per cent, compounded annually.

KVP accumulates money at a fixed rate, and your money doubles in 7 years and 3 months. But

KVP is not meant for regular income. It is for those looking for a safe avenue of investment

without the pressing need for a regular source of income.

Features

The minimum investment in KVP is Rs 100. Certificates are available in denominations of Rs

100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. The denomination of Rs 50,000 is

sold through head post offices only. There is no limit on holding of these certificates. Any

number of certificates can be purchased. A KVP is sold at face value; the maturity value is

printed on the Certificate.

It is a good option if you are looking for hassle-free investment as it assures a certain sum of

money at the expiry of the duration of your investment.

With a fixed rate of return, KVP does not provide safeguards against the perils of high inflation

rates.

Depending on whether the finance company or the bank from where you are raising the loan

accepts it or not. Some banks accept it for raising house loans.

Income is assured at the prescribed rate of interest. As mentioned, this is a risk-free investment

channel as the KVP comes with the backing of the Government of India.

Since the KVP has the backing of the Government of India and is, therefore, extremely safe, it

does not require any commercial rating.

KVP is not a bearer certificate, and is not easily transferable. Permission of the post master is

required for any transfer. These cannot be traded in the secondary market.



KVP cannot be traded in the secondary market and, hence, the question of its market value does

not arise.

KVP is held physically in the form of certificates that are issued to the investors by the post

office. The option of holding KVP in demat form is not available Although no TDS is applicable

on the interest income from KVP, there are no tax incentives as per the provisions of the Income

Tax Act, 1961.

Maturity on providing proper identity and by simple discharge of the certificate on the reverse.

Returns

KVP Scheme doubles money in seven years and three months.

What is the liquidity of KVP?

If the premature encashment takes place within a period of one year from the date of purchase of

the certificate, only the face value of the certificate shall be payable. No interest is payable in this

case.

After the expiry of one year, but before two years and six months from the date of the issue of

the certificate, the face value of the certificate together with simple interest at the specified rate

for the completed months for which the certificate has been held, shall be payable.

If a certificate is encashed any time after expiry of two-and-a-half years, the amount payable is

as specified by the government from time to time.

SAVE TAX BY SAVINGS

Choose Your Tax Saver



Section 80C of Income Tax Act, 1961, sets out a number of options or tax-saving

instruments that are eligible for tax deduction. Broadly, we can divide tax-saving

avenues into two categories:

Expenditure related deductions such as tuition fees and home loan principal

repayment; and

Investment instruments or options such as EPF (Employee's provident fund),

VPF (Voluntary provident fund), PPF (Public Provident Fund), NSC (National Savings

Certificates), ULIPs (Unit-linked insurance plans), ELSS (Equity linked savings scheme), SCSS

(Senior Citizens Savings Scheme), 5-Yr POTD (Post office time deposits), 5-Yr tax-saving fixed

deposits (FDs) of banks, Mutual funds pension plans , NABARAD (National Bank for

Agriculture and Rural Development) Rural Bonds and life insurance premium.Here's the brief

over view of various tax-saving avenues or options under section (u/s) 80C of the IT Act, 1961:

Expenditure avenues u/s 80C

The various expenses which are eligible for section 80C tax break are:

Tuition Fees: Expenses : only tuition fees - incurred on children's full time education in India

are eligible for deduction under section 80C. No other charges or expenses are allowed.

Repayment of principal sum of home Loans : The EMI (Equated Monthly Installment) that

you pay against your home loan comprises of two components - principal and interest. While

principal part is deductible under section 80C, there is a separate deduction for interest portion

under section (u/s) 24(b) of Income tax Act.

Expenses incurred on purchase of house property : Stamp duty, registration fees, and other

expenses incurred for the purpose of purchase of house property are also entitled for section 80C

deduction.

Investment options / avenues u/s 80C Various investment options can be broadly divided into



three categories: first is equity instruments, second is debt instruments and third one is life

insurance and pension plans.

Equity Instruments

Equity linked savings scheme (ELSS): Considered as the best section 80C option, it's a mutual

fund scheme investing entirely in equities and therefore has the potential to deliver the best

returns.

Debt Instruments

Public Provident Fund (PPF) : Among all the assured returns small saving schemes, Public

Provident Fund (PPF) is one of the best. Current rate of interest is 8% tax-free and the normal

maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs

70,000. A point worth noting is that interest rate is assured but not fixed.

Employee's Provident Fund (PF) : PF is automatically deducted from your salary. Both you

and your employer contribute to it. While employer's contribution is exempt from tax, your

contribution (i.e., employee's contribution) is counted towards section 80C investments. You also

have the option to contribute additional amounts through voluntary contributions (VPF). Current

rate of interest is 8.5% per annum (p.a.) and is tax-free.

National Savings Certificate (NSC) : National Savings Certificate (NSC) is a 6-Yr small

savings instrument eligible for section 80C tax benefit. Rate of interest is eight per cent

compounded half-yearly, i.e., the effective annual rate of interest is 8.16%. If you invest Rs

1,000, it becomes Rs 1601 after six years. The interest accrued every year is liable to tax (i.e., to

be included in your taxable income) but the interest is also deemed to be reinvested and thus

eligible for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS) : A recent addition to section 80C list, Senior

Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings



schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable

quarterly. Please note that the interest is payable quarterly instead of compounded quarterly.

Thus, unclaimed interest on these deposits won't earn any further interest. Interest income is

chargeable to tax.

5-Yr post office time deposit (POTD) scheme : POTDs are similar to bank fixed deposits.

Although available for varying time duration like one year, two year, three year and five year,

only 5-Yr post-office time deposit (POTD) - which currently offers 7.5 per cent rate of interest -

qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum (p.a.)

as the rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable.

5-Yr bank fixed deposits (FDs) : Tax-saving fixed deposits (FDs) of scheduled banks with

tenure of 5 years are also entitled for section 80C deduction

At present, rate of interest offered on these FD's is at par with plain vanilla FDs. For instance,

current - as on 2nd February 2009 - applicable rate of interest on ICICI Bank 'Tax-Saver Fixed

Deposit' is 8.25% per annum (p.a.) for general category and 8.75% for senior citizens which are

similar to what the bank is offering on its other fixed deposits of similar maturity. Likewise, SBI

(w.e.f. 01.01.2009) is currently offering rate of interest of 8.5% for general public and 9.0% for

senior citizens on SBI tax-saving FD's called "SBI tax saving scheme 2006 (SBITSS)" which are

also same as being offered on other FDs with similar tenure

.However, remember that unlike plain vanilla FDs, premature exit is not possible. Besides,

interest income is taxable.

NABARD rural bonds : There are two types of Bonds issued by NABARD (National Bank for

Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds

(BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C. At present,

'NABARD rural bonds' are not open for subscription. Last year NABARD opened the

subscription for these bonds - 5-Yr tenure carrying coupon rate / interest rate of 8.25% - during

end of January 2008 but received a lukewarm response.

Life Insurance & Pension Plans



Life Insurance : Any amount paid towards life insurance premium for yourself or your family

(spouse and children) is eligible for section 80C tax break.

This is the most popular investment avenue among all the tax-saving instruments but for all the

wrong reasons. If you would like to know why, please read "How to do Section 80C tax

planning".

Unit linked insurance plans (ULIPs) : Although, Ulips gets covered under life insurance, but

still require a specific mention due to their immense popularity. Undoubtedly, better than

traditional insurance plans; nevertheless, you should avoid them

Mutual fund pension plans : Another variable return instrument available under section 80C is

pension plans of mutual funds. There are only two such plans available in the market -Templeton

India Pension Plan (TIPP) and UTI Retirement Benefit Pension Plan (UTI-RBP). These are

open-ended debt-oriented mutual fund schemes with a maximum exposure of 40% to equities. In

the long run, you can expect these pension funds to deliver better returns than the assured return

schemes like PPF and NSC.

Pension plans of insurance companies : Contribution towards pension plans offered by

insurance companies qualifies for tax benefit under section 80CCC instead of section 80C.

However, the aggregate deduction allowed under section 80C and section 80CCC can't exceed

Rs one lakh.

There are basically two kinds of pension plans offered by the insurance companies: traditional

pension plans which invest mostly in fixed income products and unit-linked pension plans

(ULPPs) which are more flexible. If you want to invest, make sure that you buy pure pension

plan without a life cover. Also note that while pension (or annuity) is taxable, commutation of

pension is tax-free

Instead of using one product, one can use a combination of products.

Best Tax Saving Combo : EPF+PPF+ELSS+ Term Insurance Premium



CHAPTER: 3

RESEARCH METHODOLOGY AND

DESIGN



Research Methodology

The methodology of my research design is exploratory as well as descriptive. Study was

conducted on both the primary data as well as secondary data. But main focus was on primary

data. The methodology adopted by me is:

SAMPLING TECHNIQUE

The sampling technique used in this study is convenient sampling. Any person who had the

ability to save and invest is selected as respondent .

SAMPLE SIZE

The sample size for the research is 60.



Chapter: 4

DATA ANALYSIS AND INTERPRETATION



65%

15%

12% 8%

Investments made in past

FDs &/money market fundsGovt./securities & corporate bondsMutual fundsshares or Equity or Derivatives

The above figure shows that 65% of the respondents have invested in fixed deposits. This

displays the risk taking ability of the people. They usually invest in fixed deposits instead of

equity or mutual funds. They like to preserve their original investment.



78%

22%

% of cash & bank balance investors plan to invest now

less than 25% more than 25% but less than 50%more than 50% but less than 75% more than 75%

The above figure shows that 78% of the respondents want to invest less than 25% of their

income, which show that they are not willing to take any risk at this point of time. This could be

because of the economic slow down.



90%

10%

Risk profile of investorsconservative moderate aggressive

This figure shows the risk profile of investors. Investors are divide into three catogries :

Conservative

Moderate

Aggressive

90% of the respondents were conservative in their approach, 10% of them had moderate profile

and none of them were aggressive.

The 90% which are conservative had majority of people who were either not aware about the

functioning of other investment instruments or had known someone who had suffered loss in

recent time.



less than 1 year15%

1 to 2 years18%

2 to 5 years45%

More than 5 years22%

When is the earliest investor needs all or a substantial portion of investment

This figure shows the time horizon for which the investors are willing to invest their money.

Only 22% of the respondents are willing to invest over a period of 5 years. Investors are thinking

for short term rather than long term.

Some of the modern investment instruments do not generate good returns in short term and

which do generate good return are high on risk.



6%-8%10%

9%-11%52%

12%-15%25%

more than 15%13%

Expected rate of return on investment

This figure shows the expected rate of return on investment.



Chapter: 5

Conclusion and Recommendations



CONCLUSION

Investors are not willing to risk. Most of them are conservative in their approach.

Investors are not aware about various modern invest instruments and their functioning.

They need more information about the various products and companies need to take the

initiative of educating them.

Investors are willing to invest for a long period of time.

Most of the people are investing in fixed deposits because they want to preserve their

original investment.



RECOMMENDATION



REFERENCES

WEBSITES

1) www.iniveshak.com

2) http://www.moneycontrol.com/mf/bestpicks/index.php

3) http://www.amfiindia.com/spages/InvestorGuide.pdf

4) www.mutualfundsindia.com

5) www.valueresearchonline.com

6) http://www.webindia123.com/finance/post/time.htm (Last accessed on 15th July’10)

7) “Life Insurance Industry in India” http://www.irda.gov.in/insurance.htm (Last accessed on 17th

July’10)

8) http://www.raagvamdatt.com/postofficetime-deposit-account-fixed-term-deposit/193/htm(Last

accessed on 18th July’10)

9) http://www.investopedia.com


http://www.raagvamdatt.com/postofficetime-deposit-account-fixed-term-deposit/193/htm(Last

http://www.irda.gov.in/

http://www.webindia123.com/finance/post/time.htm%20(Last

http://www.valueresearchonline.com/

http://www.mutualfundsindia.com/

http://www.moneycontrol.com/mf/bestpicks/index.php%20

http://www.iniveshak.com/


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