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Transcript of Jayashree Mam Guide Project
`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Introduction to finance
Finance defined as the art and science of management of funds. Finance is the lifeblood
of business economy. We cannot imagine a business without finance in modern world. It
is the bases of all economic activities, no matter; the business is big or small.
Definition of finance
“Finance can be broadly defined as the activity concerned with planning, raising,
controlling and administering of funds in the business”
-H.E.Dougall and H.G.Guthmann
Financial management
Meaning:
Financial management is the specialized directly associated with the top management.
The significance of this function is not only seen in the line but also in the capacity of
staff in the overall administration of a company
Definition:
“Financial management is an area of financial decision making, harmonizing individual
motives and enterprise goals”
-Weston and Brigham
Features of finance:
1. Investment opportunities
2. Profitable opportunities
3. Optimal mix of funds
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
4. System of internal controls
5. Future decision making
Scope and Elements of financial management
1. Investment decision
2. Financial decision
3. Dividend decision
Objectives of financial management
1. Provide support for decision making. Financial management provides managers
with the information and knowledge they need to support operational decisions and to
understand the financial implications of decisions before they are made. It also enables
managers to monitor their decisions for any potential financial implications and for
lessons to be learned from experience, and to adapt or react as needed.
2. Ensure the availability of timely, relevant and reliable financial and non-
financial information. Financial management gives managers the information that
either forms the basis for calculating financial information, or is used for management
control and accountability purposes.
3. Manage risks. Financial management enables an organization to identify, assess and
consider the financial consequences of events that could compromise its ability to achieve
its goals and objectives and/or result in significant loss of resources. Financial
management is an important component of risk management and needs to be considered
with the full range of business risks, such as operational and strategic risks as well as
social, legal, political and environmental risks.
4. Use resources efficiently, effectively and economically. Financial management is necessary to ensure that an organization has enough resources to carry out
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
its operations, and that it uses these resources with due regard to economy, efficiency and
effectiveness.
5. Strengthen accountability. Financial management is essential for an organization to
understand and demonstrate how it has used the financial resources entrusted to it and
what it has accomplished with them.
6. Provide a supportive control environment. Financial management contributes to
promoting an organizational climate that fosters the achievement of financial
management objectives - a climate that includes commitment from senior management,
shared values and ethics, communication and organizational learning.
7. Comply with authorities and safeguard assets. Financial management is essential
to ensuring that an organization carries out its transactions in accordance with applicable
legislation, regulations and executive orders; that spending limits are observed; and that
transactions are authorized. It also provides an organization with a system of controls for
assets, liabilities, revenues and expenditures. These controls help to protect against fraud,
financial negligence, violation of financial rules or principles and losses of assets or
public money.
Functions of financial management
1. Estimation of capital requirements: A finance manager has to make estimation with
regards to capital requirements of the company. This will depend upon expected costs
and profits and future programmers and policies of a concern. Estimations have to be
made in an adequate manner which increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the
capital structure have to be decided. This involves short- term and long- term debt equity
analysis. This will depend upon the proportion of equity capital a company is possessing
and additional funds which have to be raised from outside parties.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
3. Choice of sources of funds: For additional funds to be procured, a company has
many choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and period of
financing.
4. Investment of funds: The finance manager has to decide to allocate funds into
profitable ventures so that there is safety on investment and regular returns is possible.
5. Disposal of surplus: The net profits decisions have to be made by the finance
manager. This can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other benefits like
bonus.
b. Retained profits - The volume has to be decided which will depend upon expansion,
innovational, diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash
management. Cash is required for many purposes like payment of wages and salaries,
payment of electricity and water bills, payment to creditors, meeting current liabilities,
maintenance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and utilize the
funds but he also has to exercise control over finances. This can be done through many
techniques like ratio analysis, financial forecasting, cost and profit control, etc.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Concept of Investment
India has become one of the fastest growing economies. Investment growth is eventually
linked to the growth of the economy. So most of the investors look for emerging markets
like India, where the growth rate is higher than the developed economies. Investing in
India is becoming a big attraction for the foreign investors especially due to the booming
Indian economy.
Every individual wants to invest his/her money in the right means. There are various
wonderful investment options in India. The challenge is to find out the right option that
can not only offer flexibility, but also provide good returns in the future.
Investment avenues in India
There are number of avenues available for foreign investment in India for both short term
and long term. The major options are real estate, bonds, mutual funds, money markets,
gold, and financial assets (non-marketable, LIC policies & equity shares). Today, there
are businesses and industries that are even 100% open for such investment. Some of the
sectors that are still not open for foreign investment include, rail transport, lottery
business, tobacco business, certain agricultural activities, atomic energy, mineral oils, etc.
Indian investors have greater opportunity as they have numerous options to select. Most
people will find that their investment objectives change throughout their lives. Capital
appreciation may be more important for the young investor, but once she enters her
golden years, that same investor may place a greater emphasis on gaining income.
Whatever your objective, knowing what investment options are out there is key.
Furthermore, as most successful investors will tell you, diversification is king. A
diversified portfolio not only reduces unwanted risk, but also contributes to a winning
portfolio. And having a well-diversified portfolio doesn't necessarily mean just buying
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
more than one stock; branching out into other areas of investment could be a viable
alternative..
Investments are an integral part of any business. Every company has investments in many
forms whether they are in projects or assets. Income from investments has a direct impact
on profitability of the company and it is one of the primary responsibilities of a finance
manager to effectively invest the company’s funds to optimize its profits.
Funds are invested for short term or long term depending on the availability or idleness of
funds. To explain further, sometimes company’s concern is to do expansion and therefore
it looks out for both acquisition and investment of funds in profitable projects or else it
uses its idle cash to invest in other assets or other companies through equity shareholding
etc. On the contrary, sometimes in seasonal businesses, the excess of working capital is
invested in short term investment options mostly consists of money market instruments.
In essence, for effective investment, investment alternatives need to be analyzed or
evaluated. Following attributes of investments can be taken into consideration for
evaluating the investments.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
DIFFERENT TYPE OF INVESTMENT AVENUES
1. EQUITY CAPITAL
Why Investment in Equity Capital
The simple answer is to achieve returns in excess of inflation over a period of ten or more
years. But if you would like to known a bit more
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TYPES OF INVESTMENT AVENUES
EQUITY CAPITAL
FIXED INCOME SECURITIES:
SMALL SCALE SCHEME
BANK DEPOSITS
PROTECTED THOUGH
INSURANCE
INVESTING IN REAL-ESTATE
INVESTING IN GOLD AND
SLIVER
`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
What is an Equity Share?
An equity share is a right to (a share in) the profits of a large company. If you want to
share in the company's profits, you have to buy an equity share. The prices of equity
shares are widely available, for example they are quoted in daily newspapers.
How do I make a Profit?
Every year, when the company draws up its accounts, the company profit for the year
will become apparent. The directors of the company will decide how much of the profit
to plough back into the company, and how much to distribute to the owners of the equity
- i.e. the shareholders. The profit is then distributed as an amount per share - called a
dividend. Companies like to increase their dividend year on year. As well as the profit
from the dividends, equity share owners will also benefit if the share price rises. This
means that the shareholders can sell their equity shares at a higher price than they were
bought originally.
So the investment return from equity shares comes from two sources the dividends paid
from the profits of the company, and the rise in the equity share price. This return,
combining these two sources of profit, has comfortably exceeded the rate of inflation in
the past.
Why does the Equity Investment Return Exceed the Rate of Inflation?
Companies make profits because they provide something that someone wants to buy,
either a product or a service. The purpose of a company is to make bigger and bigger
profits every year for its equity shareholders. To do this, the company charges for its
products/services. This charge has to at least cover all the costs in providing the product
(e.g. raw materials, people, advertising, distribution) and also make a profit.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
The costs in providing a product or service will increase with inflation year on year. The
company has to make a profit, so it naturally increases its charges. So, in a good business,
the profits will at the very least keep in line with inflation.
Companies are well aware that investors could just keep their money in the bank, and
watch it grow, practically risk free. The Directors therefore have to ensure that the return
they provide to the equity shareholders is commensurate with the higher level of risk that
their investors face - so they aim to achieve a return in excess of that which would
otherwise be available from a bank account.
Why Does the Share Price Rise?
The price of equity shares is determined by supply and demand in the market. When a
company's profits are expected to be particularly high, the equity share price normally
rises - more people want to share in those profits. In a similar way, when one company
makes a bid for another, the share price of the company being taken over generally rises,
because the demand for the equity shares has risen (the market knows that the company
doing the taking over has to buy out the existing holders of the equity shares).
Where Does Professional Investment Management Add Value?
Most investors do not have the time to constantly study individual companies and analyze
their earnings potential across all market sectors. Instead, they delegate investment
management to professional investment managers. These managers specialize in one
sector or country. They analyze companies both individually and by comparing with
other similar companies (for example, companies which make the same product or are in
the same part of the World).
From this careful analysis, the mangers will aim to spot those companies with good
prospects before other investment managers. They then buy the equity shares whilst they
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
are still cheap. In exactly the same way, the investment managers can sell those equity
shares in companies where the profits have now peaked.
Rather than invest in just one or two companies, the professional investment manager
will have a fund of sufficient size to allow investment in a large number of top rated
companies. This diversification means that the fund returns will be protected to a degree
if the equity shares of a particular company were to fall rapidly in value.
Investors feel that stocks involve too much risk. But there is some risk attached to every
investment product. It's just that it is more apparent in some and not so in others. Take
bank fixed deposits, the safest of them all. Abhishake Mathura, head of Investment
Advisory Services, ICICI Securities, says fixed deposits may give regular income but will
not beat inflation over the long term.
For instance, at retirement, it may appear that with a fund of Rs 1 crore and expenses of
Rs 8 lakh per annum, it is best to put all the money in a deposit that pays 8% per
annum.In reality, considering inflation and tax on the interest earned, this is not a good
investment decision," he says. This is because inflation will keep lowering the purchasing
power of your interest income, which will remain fixed for years on end.
That is why experts say that a person, even if he is nearing retirement, can invest 20%
funds into equities for extra returns. However, factors such as risk profile, time horizon
and standard of living must also be kept in mind while taking such decisions.
Reasons to InvestThere are a number of reasons to invest in stocks and other financial instruments:
To make money. Stocks can help shareholders gain a return on their investment in two
ways: with capital gains from the stock’s price rise; and with dividends, which companies
may distribute to shareholders depending on annual income. Investors in bonds are repaid
through interest, typically paid annually.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Financial flexibility. You can buy or sell your shares anytime during the trading day.
They are liquid assets, unlike other investments such as real estate. The financial
structure of equities can give owners flexibility to be able to sell when cash is needed
quickly such as during financial emergencies.
Tax advantages. Stock investments and related investments may offer tax rebates or other
benefits. In France the Plan epergne en actions (PEA) or in Belgium the stocks’ capital
gains tax regime are relevant examples. These tax benefits differ by European country
and are governed by laws that are subject to change. While tax benefits for some may
prove important to some investors, they are generally not considered the primary reason
for investing in equities.
Portfolio diversity. Generally, the more potentially profitable an investment, the higher its
risk. Stocks may generate huge earnings for a certain period of time, but can also present
a high risk for financial loss. When building investment portfolio, individual investors
often choose to mix distinct classes of assets to lower risk. They also consider an
investment horizon: The longer the investment period, the more attractive it can be to
invest in to invest in relatively risky assets, such as stocks, whose profits tend to exceed
losses over time.
To help spur a company’s or an economy’s growth. By investing in company shares,
individual investors can contribute to their development; savvy investors often choose
companies that show great promise.
Advantages of Investing in EquitiesThere are several benefits derived from investment in shares. Below are some of them:
Inflation rate is higher than commercial banks interest rate but lower than equity price
appreciation.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
You are protected from the eyes of the public. Nobody knows your worth except you tell
him/her. In other investments, people can easily look at the assets of the business or your
property (real estate) and come up with approximate worth of it.
The rate of growth is far beyond the bank interest rate.
Dividend: This is cash reward given to shareholders as part of the profit made by the
company at the end of each financial year. It is declared at the annual general meeting
(AGM) of the company. The larger the units of your shareholding, the more money you
receive at the end of each financial year. There are companies that have yearly dividend
policy. Your financial adviser should be able to tell you some of them.
Bonus issues: This is free shares given to existing shareholders of a company.
Sometimes, company declares bonus instead of dividend or both. For instance, in the
third quarter of the year 2007, First Bank of Nigeria declared one-for-one bonus. This
means a unit for every unit you already hold. For example, a man who holds 100,000
units previously will be given an additional 100,000 units free after the declaration of the
First Bank bonus making the values of his shares 200,000 units.
Capital appreciation: Price of shares move up or down responding to the forces of
demand and supply. For instance, few months ago there was a high demand of the shares
of Benue Cement Company of Nigeria which traded for about N6.00 per share. Due to
scarce nature of it and the good performance of the company, a unit of it now costs about
N 48.oo This implies that there is about 700% increment in the value of the stock. If you
had bought N50, 000 units of the shares at N6.00 per share, it means that you spent
300,000.00 buying the shares. Now, that it costs N48.00 per share, if you are to self your
shares, your returns would be 48x50,000,which is equal to 2.4 million naira. Thus your
capital has appreciated from N300, 000.00 to 2.4 million naira. Indeed stock business has
the potential of making you a millionaire overnight.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Disadvantages of investing in shares
The benefits of investing in share are many but there are few pitfalls to avoid. These
include:
Crash in share prices: Due to one reason or the other, sometimes share prices drop so
much. A discerning investor should know what to do at any point in time.
Sometimes companies go into liquidation thereby eroding the investments of ordinary
shareholders. For example, some banks in Nigeria that did not meet up with the N25
billion minimum capitals as directed by the central Bank of Nigeria (CBN) died with
investors’ money. You must be vigilant to watch over your investment if you consider it
important to you.
Fraudulent stock brokers: some stockbrokers are unfaithful to their clients. They may
collect your money when there is perceived information that these hares of a particular
company is a good one and instead of making the transactions in your name may divert
the money for their selfish interest, may be use it to make their own investments. When
the company has closed her book, they may call you for refund or may embezzle your
money like that. You must be careful in selecting your stockbroker.
Only institutional investors and ultra-high-net-worth individuals can access alternative
investments. Fraudulent stock brokers: some stockbrokers are unfaithful to their clients.
They may collect your money when there is perceived information that these hares of a
particular company is a good one and instead of making the transactions in your name
may divert the money for their selfish interest, may be use it to make their own
investments. When the company has closed her book, they may call you for refund or
may embezzle your money like that. You must be careful in selecting your stockbroker..
Alternatives invest in derivatives, which in turn, increase their risk.
Reality: Derivatives are commonly used investment tools designed to manage or hedge
out risks.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
5. Myth: Investors do not have access to their capital if they invest in alternatives.
Alternatives will always outperform stocks.
Reality: Just like traditional assets, alternatives are subject to inherent risks and will
outperform (or underperform) at different periods in time.
It is easy to pick the right alternative - all I need to do is look at historical performance.
Reality: Investors need to consider a wide array of factors beyond performance when
selecting which alternatives are best suited for them.
Investing in one type of hedge fund or private equity fund will diversify my portfolio.
Reality: Investing in only one type of alternative strategy may provide some
diversification benefits, but can also concentrate risk exposures.
Alternatives failed to protect investors during the financial crisis.
Reality: In general, investors with exposure to alternatives fared better during the
financial crisis than those with traditional portfolios.
Alternatives are too expensive.
Reality: Although fees for alternatives are typically higher than they are for traditional
investments, the fees pay for broader access to investments and are intended to align
manager and investor interests
2. FIXED INCOME SECURITIES:
An investment that provides a return in the form of fixed periodic payments and the
eventual return of principal at maturity. Unlike a variable-income security, where
payments change based on some underlying measure such as short-term interest rates, the
payments of a fixed-income security are known in advance.
Fixed income refers to any type of investment under which the borrower/issuer is obliged
to make payments of a fixed amount on a fixed schedule: for example, if the borrower
has to pay interest at a fixed rate once a year, and to repay the principal amount on
maturity.
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Fixed-income securities can be contrasted with equity securities, often referred to as
stocks and shares that create no obligation to pay dividends or any other form of income.
In order for a company to grow its business, it often must raise money: to finance an
acquisition, buy equipment or land or invest in new product development. The terms on
which investors will finance the company will depend on the risk profile of the company.
The company can give up equity by issuing stock, or can promise to pay
regular interest and repay the principal on the loan (bond, bank loan, or preferred stock).
The term "fixed" in "fixed income" refers to both the schedule of obligatory payments
and the amount. "Fixed income securities" can be distinguished from inflation-indexed
bonds, variable-interest rate notes, and the like. If an issuer misses a payment on a fixed
income security, the issuer is in default, and depending on the relevant law and the
structure of the security, the payees may be able to force the issuer into bankruptcy. In
contrast, if a company misses a quarterly dividend to stock (non-fixed-income)
shareholders, there is no violation of any payment covenant, and no default.
The term fixed income is also applied to a person's income that does not vary materially
over time. This can include income derived from fixed-income investments such as bonds
and preferred stocks or pensions that guarantee a fixed income. When pensioners or
retirees are dependent on their pension as their dominant source of income, the term
"fixed income" can also carry the implication that they have relatively
limited discretionary income or have little financial freedom to make large or
discretionary expenditures.
Fixed Income can be a very important investment class by which one can diversify
his/her portfolio to reduce risk. Putting all your money into equities can give you more
returns but it does carry high risk as well. Diversification is a basic concept of financial
planning and fixed income products come in handy to help us achieve this objective.
Different types of Fixed Income Securities:
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
A. Bonds
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is
a debt security, under which the issuer owes the holders a debt and, depending on the
terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the
principal at a later date, termed the maturity date. Interest is usually payable at fixed
intervals (semiannual, annual, and sometimes monthly). Very often the bond is
negotiable, i.e. the ownership of the instrument can be transferred in the secondary
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TYPES OF FIXED INCOME SECURITIES
COMPANY BONDS
PUBLIC PROVIDENT FUND (PPF)
FIXED MATURITY PLAN
(FMP)
NATIONAL SAVING CERTIFICATE (NSC)
FIXED INCOME-MUTUAL FUNDS
POST OFFICE MONTHLY INCOME
SCHEME (POMIS)
FIXED DEPOSITS-BANK AND COMPANY
`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
market. This means that once the transfer agents at the bank medallion stamp the bond on
the second market the bond is highly liquid.
Thus a bond is a form of loan or IOU:
The holder of the bond is the lender (creditor), the issuer of the bond is the borrower
(debtor), and the coupon is the interest. Bonds provide the borrower with external funds
to finance long-term investments, or, in the case of government bonds, to finance current
expenditure.
Certificates of deposit (CDs) or short term commercial paper are considered to be
money instruments and not bonds: the main difference is in the length of the term of the
instrument.
Bonds and stocks are both securities, but the major difference between the two is that
(capital) stockholders have an equity stake in the company (i.e. they are investors),
whereas bondholders have a creditor stake in the company (i.e. they are lenders). Being a
creditor, bondholders have absolute priority and will be repaid before stockholders (who
are owners) in the event of bankruptcy.
Another difference is that bonds usually have a defined term, or maturity, after which the
bond is redeemed, whereas stocks are typically outstanding indefinitely.
Ultimately the reason people invest in anything is to earn a return on their investment,
and bonds are no exception. Bonds as an asset class offer several unique attributes that
make them attractive to a wide variety of individuals.
To Earn a predictable stream of income
While there are exceptions, bonds pay a fixed rate of interest, at regular intervals, and on
pre-determined dates. The income stream that you earn when buying a bond is
predictable. Come rain or shine, as long as the issuer of your bond doesn’t go bankrupt,
you get your interest payment. Generally interest is paid every 6 months but there are
variations depending on the type of bond you buy.
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To diversify their portfolio
Bond prices and stock prices tend to move in opposite directions. When bond prices
are rising, often the stock market is performing poorly, and vice versa. Because of this
“lack of correlation” many investors who hold a lot of stocks in their portfolio, will add
some bonds into the mix to cushion the blow if the stock market does poorly.
Tax Savings
As we discuss in greater detail in our article on bonds and taxes, certain bonds, such as
Treasury and Municipals, offer some unique tax benefits which include not having to pay
federal, state, and or local government taxes.
Interest Rate Speculation
As we discuss in greater detail in our lesson on interest rates, one of the largest factors
that affects the price of a bond is movement in interest rates. As many types of bonds are
very sensitive to changes in interest rates, often time’s individuals find them a good
instrument to speculate on the future direction of interest rates.
A. Fixed maturity plans (FMP):
A closed-end fund that invests in debt and money market instruments of
the same maturity as the stated maturity of the plan. The focus of a fixed maturity plan is
to provide a stream of income through interest payments, while exposing the investor to a
lower level of risk.
In today’s investment world, FMP are considered better than Fixed deposits FMPs, as
they are popularly known, are the equivalent of a fixed deposit in a bank, with a caveat.
The maturity amount of a fixed deposit in a bank is 'guaranteed', but only 'indicated' in
the FMP of a mutual fund. The regulator does not allow fund companies to guarantee
returns, and hence the 'indicated returns' in FMPs.
Typically, the fund house fixes a 'target amount' for a scheme, which it ties up informally
with borrowers before the scheme opens. Since the fund house knows the interest rate
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
that it will earn on its investments, it can provide 'indicative returns' to investor’s .FMPs
are debt schemes, where the corpus is invested in fixed-income securities. The tenure can
be of different maturities, from one month to three years. They are closed-ended in
nature, which means that once the NFO (new fund offer) closes, the scheme cannot
accept any further investment. These FMP NFOs are generally open for 2 to 3 days and
are marketed to corporates and well-heeled, high net-worth individuals. Nevertheless, the
minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest
to FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money
market instruments, corporate bonds and sometimes even in bank fixed deposits.
The fund received is for a pre-specified tenure and the exit load from this plan is high
(usually 1 per cent to 3 per cent, depending on the time of redemption). So, the fund
manager has the liberty to deploy most of the funds mobilized under the scheme. The
actual return can vary slightly, if at all, from the indicated return. Against that, a bank
fixed deposit exactly prints the amount which is due to you on maturity on the FD
receipt. However, FMPs do earn better returns than fixed deposits of similar tenure.
FMPs are classified under the debt scheme category and enjoy certain tax benefits, such
as:
Dividend in the hands of the investor is tax-free. But the mutual fund has to deduct a
dividend distribution tax of 14.025 per cent in the case of individuals and Hindu
Undivided Families (HUFs), and 22.44 per cent in the case of corporates.
Long-term capital gains (investment of more than a year) enjoy indexation benefit.
Short-term capital gains are added to the income of the investor and taxed as per his/her
slab, whereas the interest on a bank deposit (except where special 80C approved) is
added to the income of the investor and taxed as per his/her slab.
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B. Mutual funds
A Mutual Fund in India is an entity which pools in people’s money and invests in stocks,
bond and other securities to generate a return.
Each investor is given units of the mutual fund in exchange for cash – he then becomes
an owner of the fund’s asset. The entity which does the collection and investing on behalf
of all investors mutually is called Asset Management Company (AMC).The AMC
releases a detailed prospectus of what the objectives are of the mutual fund, where it will
invest the collected money, for how long and who the fund manager will be.
The process by which a new mutual fund is launched to collect money from investors is
called New Fund Offer (NFO). This was, until some years back, called IPO which lead to
a lot of confusion and mistake of selling to the investors bought into mutual funds
mistaking these pseudo IPOs of mutual funds with those of stocks when a company goes
public.
How does it earn?
A mutual fund generates profits by using the investor’s money to buy and sell its
holdings. The Net Asset Value (NAV) of a mutual fund is calculated by summing up the
value of all its holdings (shares), subtracting the liabilities, and dividing the result by the
total number of securities it holds. The NAV is the value at which investors buy and sell
units of the mutual fund.
When a mutual fund makes profits by buying low and selling high, it can distribute its
earnings in two ways. First is by way of dividends which the investor receives. The
second is by way of growth of the mutual fund itself. This is the capital gain the mutual
fund generates for the investor over a period of time. As an investor, these are the two
ways you can make money from a mutual fund.
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Where do they invest?
Mutual Funds invest in a wide variety of securities. The ones that buy and sell shares of
companies are called equity mutual funds. So for example, Reliance Growth Mutual Fund
could buy shares of Infosys (among others) and expect to make a profit by the capital
appreciation of this stock.
Equity mutual funds can take a lot of risk by investing all of their money into stocks. In
this sense, their returns are tied to the fate of the stock market. So these are meant for
investors who can take some amount of risk.
Debt Mutual Funds are ones that invest in government securities, fixed deposits,
corporate debt and other short and medium term debt products. These are marked by
lower risk and high liquidity. Debt mutual funds are for risk adverse investors who want
to stay away from the volatility of the stock market.
WHAT ARE VARIOUS TYPES OF MUTUAL FUNDS?
A common man is so much confused about the various kinds of Mutual Funds that he is
afraid of investing in these funds as he cannot differentiate between various types of
Mutual Funds with fancy names. Mutual Funds can be classified into various categories
under the following heads:-
(A) ACCORDING TO TYPE OF INVESTMENTS: - While launching a new scheme,
every Mutual Fund is supposed to declare in the prospectus the kind of instruments in
which it will make investments of the funds collected under that scheme. Thus, the
various kinds of Mutual Fund schemes as categorized according to the type of
investments are as follows :-
(A) EQUITY FUNDS / SCHEMES
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(B) DEBT FUNDS / SCHEMES (ALSO CALLED INCOME FUNDS)
(C) DIVERSIFIED FUNDS / SCHEMES (ALSO CALLED BALANCED FUNDS)
(D) GILT FUNDS / SCHEMES
(E) MONEY MARKET FUNDS / SCHEMES
(F) SECTOR SPECIFIC FUNDS
(G) INDEX FUNDS
B) ACCORDING TO THE TIME OF CLOSURE OF THE SCHEME : While launching
new schemes, Mutual Funds also declare whether this will be an open ended scheme (i.e.
there is no specific date when the scheme will be closed) or there is a closing date when
finally the scheme will be wind up. Thus, according to the time of closure schemes are
classified as follows:-
(a) OPEN ENDED SCHEMES
(b) CLOSE ENDED SCHEMES
Open ended funds are allowed to issue and redeem units any time during the life of the
scheme, but close ended funds cannot issue new units except in case of bonus or rights
issue. Therefore, unit capital of open ended funds can fluctuate on daily basis (as new
investors may purchase fresh units), but that is not the case for close ended schemes. In
other words we can say that new investors can join the scheme by directly applying to the
mutual fund at applicable net asset value related prices in case of open ended schemes but
not in case of close ended schemes. In case of close ended schemes, new investors can
buy the units only from secondary markets.
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C) ACCORDING TO TAX INCENTIVE SCHEMES: Mutual Funds are also allowed to
float some tax saving schemes. Therefore, sometimes the schemes are classified
according to this also:-
(a) TAX SAVING FUNDS
(b) NOT TAX SAVING FUNDS / OTHER FUNDS
(D) ACCORDING TO THE TIME OF PAYOUT: Sometimes Mutual Fund schemes are
classified according to the periodicity of the pay outs (i.e. dividend etc.). The categories
are as follows:-
(a) Dividend Paying Schemes
(b) Reinvestment Schemes
The mutual fund schemes come with various combinations of the above categories.
Therefore, we can have an Equity Fund which is open ended and is dividend paying plan.
Before you invest, you must find out what kind of the scheme you are being asked to
invest. You should choose a scheme as per your risk capacity and the regularity at which
you wish to have the dividends from such scheme.
Common types of Mutual funds in India:
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Money market funds
These funds invest in short-term fixed income securities such as government bonds and
treasury bills. They are generally a safe investment, but you can’t expect your money to
grow quickly.
Fixed income funds
These funds buy investments that pay a fixed rate of return like government
and corporate bonds, and mortgages. They aim to have money coming into the fund on a
regular basis, mostly through interest that the fund earns. They are usually riskier than
money market funds, and the price can go up and down.
Mortgage funds
These funds invest in mortgages to create income for investors. The income comes from
the payments the mortgage holders make. Mortgage funds usually offer a higher level of
interest income than bonds and other fixed income investments due to the default risk of
mortgages. The type of mortgage varies, based on the objectives of the fund. Examples:
insured or government-guaranteed first mortgages on family homes and other properties,
mortgages on residential and commercial properties.
Growth or equity funds
These funds invest in equities like stocks and income trusts. These funds aim to grow
faster than money market or fixed income funds, so there is usually a higher risk that you
could lose money.
Balanced funds
These funds invest in a mix of equities and fixed income securities. They try to balance
the aim of achieving higher returns against the risk of losing money. Most of these funds
follow a formula to split money among the different types of investments. They tend to
have more risk than fixed income funds, but less risk than pure equity funds.
Index funds
These funds invest in equities or fixed income securities chosen to mimic a specific index
such as the S&P/TSX Composite Index. The value of the units or shares of the fund will
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go up or down as the index goes up or down. Some funds may track a large number of the
investments on an index, or a selection of the investments. Index funds typically have
lower costs than actively managed funds because the portfolio manager doesn’t have to
do as much research or make as many investment decisions.
Active vs. passive management Active management means that the portfolio manager buys and sells investments,
attempting to outperform the return of the overall market. Passive management involves
buying a portfolio of securities designed to track the performance of a market index.
Specialty funds
These funds invest in equities or fixed income securities in a specific region (for
example, Asia), or a specific sector (for example, information technology). Or, they may
focus on an emerging market, like eastern Europe, or a theme like socially responsible
investing. These funds sometimes have very high returns. At the same time, there is a
very high risk that you could lose money.
Real estate funds
These funds may invest directly in property or indirectly through real estate management
companies or real estate income trusts (REITs). REITs invest in properties that earn
income, such as shopping malls and office buildings. The risks of a real estate fund are
often higher than other types of funds, as are the returns.
Before you invest, understand the fund’s investment goals and make sure you are
comfortable with the level of risk. Learn more about how mutual funds work. You may
also want to speak with a professional adviser to help you decide which types of funds
best meet your needs.
Mutual funds provides the following benefits
Automatic diversification at various levels.
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Access to financial markets worldwide.
Access to all major asset classes.
A broad selection of fund types.
A diversity of investing styles.
Professional management.
Elimination of the need for individuals to perform detailed and ongoing securities
analysis.
The option of making automatic investments and withdrawals.
Many funds can be purchased with small initial and subsequent investments.
No transaction fees if you pick the right place to open your account.
No sales commissions if you choose no-load mutual funds or invest through a retirement
plan that offers no-load funds.
Disadvantages of mutual funds:
No Insurance: Mutual funds, although regulated by the government, are not insured
against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against
certain losses at banks, credit unions, and savings and loans, not mutual funds. That
means that despite the risk-reducing diversification benefits provided by mutual funds,
losses can occur, and it is possible (although extremely unlikely) that you could even lose
your entire investment.
Dilution: Although diversification reduces the amount of risk involved in investing in
mutual funds, it can also be a disadvantage due to dilution. For example, if a single
security held by a mutual fund doubles in value, the mutual fund itself would not double
in value because that security is only one small part of the fund’s holdings. By holding a
large number of different investments, mutual funds tend to do neither exceptionally well
nor exceptionally poorly.
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Fees and Expenses: Most mutual that pay for the fund’s management expenses
(usually around 1.0% to 1.5% per year for actively managed funds). In addition, some
mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some
funds buy and trade shares so often that the transaction costs add up significantly. Some
of these expenses are charged on an ongoing basis, unlike stock investments, for which a
commission is paid only when you buy and sell .
Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on
average, around 75% of all mutual funds fail to beat the major market indexes, like the
S&P 500, and a growing number of critics now question whether or not professional
money managers have better stock-picking capabilities than the average investor.
Loss of Control: The managers of mutual funds make all of the decisions about which
securities to buy and sell and when to do so. This can make it difficult for you when
trying to manage your portfolio. For example, the tax consequences of a decision by the
manager to buy or sell an asset at a certain time might not be optimal for you. You also
should remember that you trust someone else with your money when you invest in a
mutual fund.
Trading Limitations: Although mutual funds are highly liquid in general, most
mutual funds (called open-ended funds) cannot be bought or sold in the middle of the
trading day. You can only buy and sell them at the end of the day, after they’ve
calculated the current value of their holdings.
Size: Some mutual funds are too big to find enough good investments. This is especially
true of funds that focus on small companies, given that there are strict rules about how
much of a single company a fund may own. If a mutual fund has $5 billion to invest and
is only able to invest an average of $50 million in each, then it needs to find at least 100
such companies to invest in; as a result, the fund might be forced to lower its standards
when selecting companies to invest in.
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Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves
as protection against a large number of simultaneous withdrawals. Although this provides
investors with liquidity, it means that some of the fund’s money is invested in cash
instead of assets, which tends to lower the investor’s potential return.
Too Many Choices: The advantages and disadvantages listed above apply to mutual
funds in general. However, there are over 10,000 mutual funds in operation, and these
funds vary greatly according to investment objective, size, strategy, and style. Mutual
funds are available for virtually every investment strategy (e.g. value, growth), every
sector (e.g. biotech, internet), and every country or region of the world. So even the
process of selecting a fund can be tedious.
Tax aspects of mutual funds help the investors:
Choose the most tax-advantaged way to determine the cost of your mutual
fund shares.When you sell shares of a mutual fund, you owe tax on your gain. But determining the
gain can be tricky, especially if you've invested at various times. The IRS allows you to
choose among several methods to determine the cost of your initial investments, which is
called your cost basis. Learn more about cost basis.
Keep your RecordsAs a long-term investor, you may find yourself selling shares that are five, 10, 15 or more
years old. That's why it's important to keep your annual mutual fund statements with your
other important papers. These statements include the price of the mutual fund shares you
bought through the years.
Don't forget reinvested dividends.When you automatically reinvest dividends, you increase the cost of your shares (cost
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basis) and decrease the taxes owed upon sale. If you forget to include dividends in the
cost of your investment, you might pay taxes on gains you never realized.
Avoid check writing features on mutual funds other than money market
funds.If you write a check against a bond fund, for example, you have sold bond fund shares
and caused a taxable event. Write several of these checks and the recordkeeping can
become difficult. Money market funds seek to preserve the value of a share price at $1.
When you sell $1 shares that you bought at $1, there is less of a chance that the sale will
be a taxable event.
Consider the tax implications of exchanging from one fund to another . Even if you're electronically transferring shares of one mutual fund to another mutual
fund, you are selling the shares of the first fund and buying shares of the second. The sale
of the first fund is a taxable event unless the funds are in a retirement plan or other tax-
deferred account.
Review your withholding or estimated tax payments if you make a big
sale.If you do not have enough tax withheld by the end of the year, you could owe taxes on
your gain as well as an IRS penalty. If you're making a sizeable sale, consider talking to
your company payroll department about adjusting your withholding to accommodate the
taxes you'll owe. Another option is to make an estimated tax payment to cover the
additional taxes.
Check out year-end distribution dates.This often occurs in December. You may want to delay purchasing shares in a fund until
after this date, which is called the ex-dividend date, to avoid taxes on an investment you
just made.
C. Public provident funds (PPF)
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PPF is a 30 year old statutory scheme of the Central Government started with the
objective of providing old age income security to the unorganized sector workers and
self-employed persons. Presently, there are nearly 30 lakh PPF account holders in India
across banks and post offices. If you are looking for a safe investment that gives you tax
benefits and decent returns, PPF could be the answer for you. Let us find all about PPF in
this article.
What are public provident funds?
The Public Provident Fund or PPF, as it is called is a central government backed
investment scheme that allows the risk-conscious investor to invest his money for the
long term and earn interest on it. Public Provident Fund is an excellent way to get tax Net
in our country; the PPF is an excellent tool for retirement planning, especially for the
exemptions under Section 80C of the Income Tax Act. Since there is no Social Security
non-salaried person. This article will explain what PPF actually is and the next article
will guide you through the process of opening a PPF account for yourself.
Advantages of public provident fund:
Lowest Risk than any other Government or private sector schemes in India
Tax Benefits – You are eligible for 20% tax rebate. The Maximum you can invest is
Rs.20,000.
1. Great Returns – 8.7% Compounded Annually
No Tax on Interest Earned – This is perhaps the great feature. Unlike other Schemes, the
Tax on Interest earned from PPF is NIL,
Flexibility of Investment – You can invest from Min. Rs.500 per annum to Maximum
Rs.1, 00,000 per Annum by this Scheme.
Exempt from All Wealth Tax – The Corpus accumulated under PPF is exempt from all
types of Wealth Taxes.
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The Disadvantages of the Public Provident Fund
The Interest rate keeps changing –Once upon a time (In 80s), the interest rate from PPF
was as high as 17% per annum. The Government has gradually reduced the interest rate
to 12%, 10%, 9.5% and today it is 8% only.
Long Locking Period – The Long locking period of 15 years is another disadvantage.
Because if one have to put aside money for 15 Full years than why to go for Fixed return
Instruments? Instead of that why not go for Equity because in the long run (More than 10
years), the risk from equity becomes almost ZERO.
Lack of Liquidity – Your money is stuck for years on end. It is not as easy as selling
some shares or mutual fund units.
Tax benefits
Public Provident Fund scheme stands out in terms of benefits offered. This is because
investment in PPF scheme falls under triple E (Exemption) regimen i.e. Principal, Interest
and outflow all are tax exempted. This means that you get tax benefits from investing
your money and also the interest and maturity payments are tax exempt.
D. National saving certificate:
National Savings Certificate or NSC certificate is the most popular and safest tax saving
plan in India. It is considered as the long term tax saving investment plan for the
investors. National Savings Certificate (NSC certificate) is financially supported by
Indian government and this tax saving Certificate issued by postal department of India.
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Tax benefit
Investors have a investment process into a NSC is that there is a tax benefit that is
available when the investment is made into the instrument. The amount invested is
allowed as a deduction under Section 80C of the Income Tax Act and this is part of the
overall Rs. 1 lakh limit that is present here. At the same time there is an amount that is
earned as interest every year and this figure is reinvested because it is not paid out. The
amount that is reinvested is also considered as a part of the overall tax deduction and
hence this can be added on to the deduction figure which is a good benefit for the
investor. The interest earned is however taxable and hence this has to be considered on a
yearly basis in the tax workings. In most other instruments the tax benefit is available
only on the initial amount invested and not the interest earned
Advantages of NSC for the investors
NSC is short term investment and best for tax saving especially for Government
employees, salaried people and businessmen.
One can take loan by keeping NSC as collateral security.
There is no maximum limit of investment, though tax benefit under 80cc is up to 1 lakh.
There is no tax deduction at source.
It can be purchased on behalf of a minor too.
It can be purchased at any post office and can be transferred to any post office to collect
maturity amount.
Rate of interest is more than fixed deposits and once taken at any rate will not change in
subsequent years.
Interest is compounded 6 monthly and the interest is reinvested and provide tax rebate
under 80cc
Disadvantages of NSC investments
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Trusts cannot buy NSC.
There is lock in period of 5 years for NSC VIII issue and 10 years for NSC IX issue.
If rate of interest increases in next year, here it will be fixed on same rate of interest at
which it was purchased, however it is more an advantage as the rates are in fact going to
decrease in coming years.
Thus if NSC is purchased every month for 5 years and is reinvested on maturity one can
get a handsome amount of monthly pension on retirement
E. Post office monthly income scheme (POMIS):
If you are looking for a decent capital gain with a secured investment option then Post of
Monthly Income Scheme (POMIS) may end your search. Generally, we end up parking
our funds in fixed deposits and in other debt investments plans but POMIS promises
better benefits as compared to others. Let’s have a look at what POMIS is, how it
functions and what all it offers.
Post Office Monthly Income Scheme plan is one of the many investment options offered
by Post Office in India. Apart from delivering mails, post office offers a bouquet of
services that include sale of forms, bill collection, savings schemes, life insurance cover
etc.
Schemes offered by Post Offices are risk free as there is no touch of equity in them.
POMIS is also one such scheme. Let us have a look at the features and benefits of
POMIS.
Post Office MIS Interest Rate
This is a scheme from the Indian postal service that earns you an interest of 8% per
annum, and generates a monthly income for you. So if you invest Rs. 100,000 in it – your
annual interest at 8% will be Rs. 8,000, and you will get Rs. 666.67 monthly.
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The maturity period of the scheme is 6 years, at the end of which you will get your
money back. You cannot redeem your money within a year, but you can redeem it after
that upon paying a penalty.
Minimum and Maximum Investment
The minimum sum you can invest is Rs. 1,500, and you can go up to Rs. 450,000 in case
of a single account and Rs. 900,000 in case of a joint account.
Tax on Post Office MIS
There is no TDS on the Post Office MIS, but the interest income is taxable in your hands.
The interest income from post office MIS used to be tax free under section 80L, but that
section has been withdrawn from April 1 2005.
Interest can be automatically credited to your bank
At the time of opening the scheme you can give in your bank account details, and interest
will be automatically credited to your bank every month.
Transfer from one post office to another
There is a provision that allows you to transfer your money from one post office to
another. So, if you opened your account in one post office, and moved to another place
you can fill up a transfer form with them, and move your scheme to another post office.
Benefits & Features of Post Office Monthly Income Scheme Account
Minimum investment amount is Rs.1500/- or in multiple thereafter.
A single account can hold maximum amount up to Rs. 4.50 lakhs and in case of a joint
account Rs.9 lakhs is permissible.
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Interest rate of 8.5% per annum payable monthly i.e. 01.04.2012
Maturity period is 5 years.
Claiming Bonus on Maturity has been undone i.e. 01.12.2011.
Account can be opened by an individual, two/three adults jointly, and a minor through a
guardian.
You can avail a facility of premature closure of account after 1 year but on or before 3
years @ 2.00% discount.
There would be a Deduction of 1% if account is closed prematurely at any time after
three years.
There is no Tax rebate
Tax Deduction at Source (TDS) is not applicable.
This scheme provides minors with a separate limit of investment of Rs. 3 lakhs and the
same is not compiled with the limit of guardian.
It also provides you with auto credit facility of monthly interest to saving account if both
accounts are at the same post office.
Deposits are also exempt from wealth tax.
Opening of this account by Non-Resident Indian / HUF is not permissible.
Nomination facility is also available under this scheme.
You can also avail the facility of reinvesting your amount on maturity of the account.
Inflation ProtectionThe POMIS is not inflation protected, which means whenever inflation is above the
current guaranteed interest rate of 8.50 per cent; the return from the scheme earns no real
returns. However, when the inflation rate is below 8.50 per cent, it does manage a
positive real rate of return.
GuaranteesThe interest rate in the POMIS is guaranteed and is currently 8.50 per cent per annum and
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paid out monthly. The interest rates on this scheme will be notified before April 1 of that
year, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent.
LiquidityThe POMIS is liquid, despite the 5-year stipulated lock-in. The liquidity is offered in the
form of withdrawals subject to conditions and penalties.
The facility of pledging the deposit in the POMIS account to obtain loan is not permitted
as it defeats the purpose of regular income.
1. Premature withdrawal or closure of the POMIS account is permitted after completion of
one year from the date of opening of the account after deducting a penalty for early
withdrawal or closure that varies from 1-2 per cent depending on the completed tenure of
the account.
2. If the account is closed on or before the completion of three years of opening the account,
an amount equal to 2 per cent of the deposit is deducted and the remainder paid to you.
3. If the account is closed after completion of three years from opening the account, an
amount equal to 1 per cent of the deposit is deducted and the remainder paid to you.
The savings and MIS account have passbooks with rules applicable to the accounts stated
in them.
3. SMALL SCALE SCHEME:
The small saving schemes presently in operation have significant relevance, especially
for salaries people and other fixed income investors like retired persons.
Tax Benefits:
All these small savings schemes are entitled to some tax benefits or the other, like Income
tax etc. the actual quantum of benefits varies from scheme to scheme. In fact it is mainly
these Tax benefits which attract people to invest in these benefits which attract people to
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invest in this scheme since the rate of return on them may be fixed and is usually not very
high. The schemes are also often advantageous for those in high tax brackets.
4. BANK DEPOSITS:
Banks needs two things to survive 100% for your money and 90% of your faith. Investors
invest in both Saving Accounts and Term Deposits Bank can pay 4% interest on Saving
Accounts and 7.0% to 8.5% p.a. on term Deposits.
5. PROTECTED THOUGH INSURANCE:
“Insurance is a just a way of spreading financial risk from individual shoulders to the
shoulders of us all as a group”
The LIC offers several types of Life Insurance Policies. Recently it reduced the premium
rates and increased bonus rates. Strictly speaking these schemes are for protection only,
not for annual yields and capital appreciation.
Tax benefits:
There is a tax rebate under section 88on Life Insurance Premium. Many investors
especially those in higher tax brackets, used to buy Life insurance mainly to take
advantages of these tax benefits. Insurance premium along with contributions to
provident fund etc. are eligible for tax rebate up to a maximum of Rs 70000. One may
like to take full advantages of this option every year.
Take a Loan from LIC
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Wherever possible take a loan from LIC under its various schemes provided you intend to
use the amount for productive purpose, like house construction, investment in real estate
and financial assets.
6. INVESTING IN REAL-ESTATE:
The greatest attraction of real estate investments is that it acts as a partial hedge against
inflation. Accordingly real estate prices go up during inflationary times. Real estate
investment includes Agricultural land, Farm house, urban land, House property and
Commercial property.
In the late eighties and early nineties, property development or investments in property
emerged as an alternative and profitable mode of investment. The was due to increased
urbanization.
The different types of real estate investments are as follows –
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Rental – The aim of this form of investment is to rent out Property to a tenant and earn
a continuous stream of rent from the tenant. The value of the property also increases over
a period of time. The risk in this form of investment is the owner of the property has to
find out a tenant and also need to pay for the maintenance expenses.
Trading – Basically traders in real estate in order to make a quick profit buy properties
for a short tem ( six months) and sell them at a profit. Traders look out for buying
undervalued properties/very hot properties and sell them at a profit.
Long Term Investment – There is a certain group of investors who invests in real
estate basically plot of land from a long term perspective. The objective is over a period
of time the value of the property will rise and the owner will make a profit by selling it.
The biggest flaw in this investment is money is blocked for an indefinite period.
7. INVESTING IN GOLD AND SLIVER:
These are traditional investments in all countries, but perhaps more so in India, they offer
fairly good protection in long run against inflation. However, though for investment
purposes it may not be good mode of investment still it has to be purchased in small
quantity for social and other obligations etc.. earlier gold prices used to run diametrically
opposite to share prices. But this is not so now because of the other variable modes of
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investment. Gold remains our cherished desire but can’t be a source of rich returns on our
investment made out of our hard-earned savings.
INTRODUCTION
The chapter research design includes the following contents:
Title of the study.
Statement of the study.
Objectives of the study.
Methodology.
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Sampling technique.
Sources of data collection.
Limitations of the study.
Research design is concerned with turning the research question into a testing project.
Best design depends on your research questions. Every design has its positive and
negative side. Research design can be divided into fixed and flexible research designs
(Robson, 1993 other have referred to this distinction with ‘quantitation research designs’
and ‘qualitative research designs’. However, fixed designs need not be quantitative, and
flexible design needs not to be qualitative. in fixed designs the design of the study is
fixed before the main stage of data collection take place. Fixed designs are normally
theory-driven; otherwise it is impossible to know in advance which variables need to be
controlled and measured. Often these variables are quantitative. Flexible designs allow
for more freedom during the data collection. One reason for using a flexible research
design can be that the variable of interest is not quantitatively measurable, such as
culture. In other cases, theory might not be available before one starts the research.
Title of the study
The study is entitled “A Study on best investment options for Indian investors”.
Statement of the problem
The research is titled A study on best investment options for Indian investors with
reference to top investment company of India.
Objectives of study
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Every investment comes with risks; it is impossible to speak about return without
motioning the risks inherited in it. So an investor must analyze various investments
vehicles available to him with risk involving in it and must come to a decision, whether
to go for it or not. A prospective investor can also collect information from various
sources such as interview, magazines, newspaper, reports, etc.
PRIMARY OBJECTIVES
The Primary Objectives of the study are,
1. To know the various investment avenues available to a prospective investor.
2. To analyze those investment avenues.
3. To report the performance of these Investment vehicles.
4. To understand the risk and return patterns of various Investment vehicles.
5. To study the preferences of the investor.
SECONDARY OBJECTIVES
1. To assist a prospective investor in investing.
2. To know in depth knowledge of various investment vehicles.
3. To present information about investment avenue
Research Methodology
The system of collecting data for research projects is known as research
methodology. The data may be collected for either theoretical or practical research. For
example management research may be strategically conceptualized along with
operational planning methods and change management. Formulating of research
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questions along with sampling whether probable or non-probable is followed by
measurement that includes surveys and scaling. This is followed by research design,
which may be either experimental or quasi-experimental. The last two stages are data
analysis and finally writing the research paper, which is organized carefully into graphs
and tables so that only important relevant data is shown.
Sources of data
There are two important sources to collect the information needed, they are:
1. Primary sources
2. Secondary sources
Primary sources
Primary sources refer to those sources where the information is directly collected
from the population by the researcher.
The primary data is a combination of descriptive and exploratory was undertaken
to study was done by taking 50 sample size, using sample techniques, sampling methods
and preparation of questionnaire were used to gather data for survey.
Secondary sources
Secondary data is the information collected is drawn from the various sources
such as:
Books
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Internet
Magazines
Sampling
Sampling is that part of statistical practice with the selection of a subset of
individual observations within a population of individuals intended to yield some
knowledge about the population of concern, especially for the purposes of making
predictions based on statistical inference. Sampling is broadly divided into probability
sampling and non-probability sampling.
Probability sampling
A probability sampling scheme is one in which every unit in the population has a
chance (greater than zero) of being selected in the sample, and this probability can be
accurately determined. The combination of these traits makes it possible to produce
unbiased estimates of population totals, by weighting sampled units according to their
probability of selection.
Probability sampling includes:
Simple random sampling
Systematic sampling stratified sampling
Probability proportional to size sampling
Cluster or Multistage sampling.
Non-probability sampling
Non-probability sampling is any sampling method where some elements of the
population have no chance of selection (these are sometimes referred to as ‘out of
coverage ‘/’ under covered’), or where the probability of selection can’t be accurately
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determined. It involves the selection of elements based on assumptions regarding the
population of interest, which forms the criteria for selection.
Non-probability sampling includes:
Accidental sampling
Quota sampling
Purposive sampling
Judgmental sampling.
Sampling technique
The sampling technique includes both internal and external data. Internal data
were the company manuals, annual reports, brochures, etc. external data are current
information regarding the company obtained from online sources, magazines etc.
Non-probability sampling technique is used to conduct this study. Judgmental sampling
technique has been implemented
Sampling size
For this research sample size of 50 respondents was used.
Data collection
Data collection is a term used to describe a process of preparing and collecting
data –for example as part of a process improvement or similar project. The purpose of
data collection is to obtain information to keep on record, to make decisions about
important issues, to pass information on to others. Primarily, data is collected to provide
information regarding a specific topic.
Data collection usually takes place early on in an improvement project, and is often
formalized through a data collection plan which often contains the following activity.
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Pre collection activity- agrees on goals, target data, definitions, methods etc.
Collection – data collection
Present findings – usually involves some form of sorting analysis and/or presentation
Limitations of study
Since this study is restricted to Bangalore it cannot be generalized to all the places.
More information and time might have yielded better result.
Introduction:
The company profile can be summarized in this chapter. The chapter gives a brief idea
about the study of best investment options for Indian investors. It gives the history of the
investors of different industry.
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Bajaj capital
Bajaj Group is an Indian conglomerate founded by Jamnalal Bajaj in
1926, Mumbai. Bajaj Group is one of the oldest & largest conglomerates based
in Mumbai, Maharashtra. The group comprises 34 companies & its flagship
company Bajaj Auto is ranked as the world's fourth largest two- and three-wheeler
manufacturer. Some of the notable companies are Bajaj Electricals, Mukand Ltd & Bajaj
Hindustan Ltd. Involvement in various industries that include automobiles (2- and 3-
wheelers), home appliances, lighting, iron and ste45el, insurance, travel and finance. The
group is headed by Rahul Bajaj.
History:
Bajaj Capital Limited ("Bajaj Capital") is India's premier "Investment Services"
Company, with nearly 50 years of experience in helping people protect and grow their
wealth. We've helped to create more millionaires than any other firm in India. But it's our
deep personal relationships with clients that truly set us apart.
No other firm can match the depth of our experience and our dedication to personal
service. The markets may fluctuate, but our dependability never does.
Bajaj Capital holds the Certificate of Registration [INM000010544] to act as Merchant
Banker (Cat-I), Underwriter, Dealer on the OTC Exchange of India, Depository
Participant [IN-DP-NSDL-267-2006] of NSDL, granted by the Securities and Exchange
Board of India. Further, Bajaj Capital is an AMFI Registered ARN [0010] holder and has
also been granted the Certificate of Registration [Regn.No.03310] to act as Point of
Presence by the Pension Fund Regulatory Authority for the NPS Schemes.
Bajaj Capital Limited, a financial services company, provides investment advisory and
financial planning services to individual investors, corporate houses, institutional
investors, non-resident Indians, and high net worth clients in India. It offers investment,
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insurance, tax saving, retirement, financial, cash flow, and children’s future planning
services. The company also distributes various financial and investment products, such as
mutual funds, life and general insurance, bonds, post office schemes, fixed deposits,
initial public offerings, and real estate property investments. In addition, it provides
investment banking services for private and public sector enterprises. The company
operates through a network of investment centers. Bajaj Capital Limited was founded in
1964 and is based in New Delhi, India.
Milestone
Establishing company milestones is a necessity for anyone negotiating an agreement with
a venture capital investor, to fund a biotech startup. When you think about it, though, all
this talk about “milestones” is just another way of saying setting goals or planning an
agenda, and you don’t have to be involved with a VC company to do that. In fact, having
a clear picture of what you want to accomplish and in what timeframe is an important
part of running any business, and a requirement for writing a business plan. To get you
started, I’ve created a list of suggested milestones to consider, specific to the biotech
industry, including goals focused on R&D, business management and financial targets.
Objectives
To serve our clients with utmost dedication and integrity so that we exceed their
expectations and build enduring relationships.
To offer unparalleled quality of service through complete knowledge of products,
constant innovation in services and use of the latest technology.
To always give honest and unbiased financial solutions and earn our client’s everlasting
trust.
To serve the community by educating individuals on the merits of investments and in turn
help shape a financially responsible citizen.
To create value for all stake holders by ensuring profitable growth.
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To build an amicable environment that accords respect to every individual and permits
their personal growth.
To utilize the power of teamwork to function as a family and build a seamless
organization.
360 financial planning
360 financial planning is a unique software-based simulation that takes a holistic view of
your life-long financial needs and charts a personalized investment strategy to help you
meet them.
Broadly, it involves:
Identification your current financial status
Listing and prioritizing your goals
Creating a sound investment plan to achieve them
Monitoring the plan to facilitate swift corrective action
360 financial planning is based on the premise that every individual has certain basic
financial needs that are expressed at various stages of life (getting married, buying assets
like homes, vehicles, or providing for your child’s education and wedding and retiring
finally). With the help of 360 financial planning, you can prepare yourself well in time
for all these goals.
Why do you need Bajaj capital’s 360 financial planning?
You may have dreams, needs and desires. For example, you could be dreaming of:
Owing a new car
Buying a dream house
Providing your children with the best education
Planning a grand wedding for your children
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Having a great time after your retirement
But in today’s world of skyrocketing costs and increasing inflation, how many of these
dreams can you hope to turn into reality? By planning well, you can utilized your limited
resources to the fullest 360 financial planning helps you see the big picture and invest for
specific long-term and short-term goals well in time
Who needs 360 financial planning?
Everyone does! Because everyone has a right to dream. And realizing dreams in easier
when you work to plan that’s
Reliable realistic
Proven
Bajaj capital’s 360 financial planning program could make a difference to all those who
wish to lead a worry-free. Financially secure life
Here’s is how financial plans are prepared:
The process begins with identifying your needs with the help of the need analysis form
Our financial planners then use the especially-created 360 financial planning software to
generate a personalized snapshot
The snapshot gives you a graphic account of all your financial requirements, at every
stage of your future life.
Based on the snapshot, out experts work out an investment strategy.
Once implemented, our experts keep regular track of your investments.
Briefly 360 financial planning comprises:
Investment planning: to make wealth grow
Cash flow planning: to provide for assets and meet the periodic cash requirements
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Tax planning: to save on taxes and increase your income
Insurance planning: to protect yourself, if your family and your assets
Children’s future planning: to give your children a financially secure future
Retirement planning: because retirement is a time to relax, not to get worried
Investment planning:
Everyone needs to save for a rainy day. Once you have saved enough to take care of
emergencies, you should start thinking about investing and to money grow. We can help
you plan your investments so that you can reap adequate benefits and achieve your
financial goals
Bajaj capital’s investment planning services includes:
Risk profiling
Asset allocation and portfolio rebalancing
Creation and accumulation of wealth through systematic investment plans (SIP)
Regular review of progress and portfolio rebalancing
Essentially, investment planning involves identifying your financial goals throughout
your life, and prioritizing them investment planning is important because it helps you to
derive the maximum benefit from your investments. Your success as an investors depend
upon your ability to choose the right investment options. This, in turn, depends on your
requirements, needs and goals. For most investors. However, the three prime criteria of
evaluating any investment option are liquidity, safe and return.
Investment planning also helps you to decide upon the right investment strategy. Besides
your individual requirement, your investment strategy would also depend upon your age.
Personal circumstances and your risk appetite. These aspects are typically taken care of
during investments planning. Investment planning also helps you to strike a balance
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between risk and returns. By prudent planning. It is possible to arrive at an optimal mix
of risk and returns that suits your particular needs and requirements.
Cash flow planning
In simple terms, cash flow refers to the inflow and outflow of money. It is a record of
your income and expenses. Though this sound simple, very few people actually take the
time out to find out what comes in and what goes out of their hands each month.
Cash flow planning refers to the process of identifying the major expenditures in future
(both short-term and long –term) and making planned investments so that the required
amount is accumulated within the required time frame. Cash flow planning is the first
thing that should be done prior to starting an investment exercise. Because only then will
you be in a position to know how your finances look like, and what is it that you can
invest without causing a strain on yourself. It will also enable you to understand if a
particular investment matches with your flow requirement.
So does it involve looking at future cash flows only? Not really. You should always do a
cash flow for yourself as on date, and you will realize that you could have a potential
savings amount within each month of your working life. This is the amount that you
should look at saving for meeting your financial goals. The best way of doing this is to
have a personal budget.
Why is cash flow planning important?
Cash flow plans are commonly used by business houses. Without a viable cash flow plan,
a company could easily spend more than its revenue, putting it in peril. Unfortunately,
most of us do not realize that a cash flow plan is as important for people like us as well.
The principle that apply to corporate finance and to our personal lives are largely the
same. There has never been a bigger need than today for families and individuals to work
out cash flow plans. Without proper cash flow planning one could easily get caught in the
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debt trap of course, it goes without saying that creating a plan is not enough. One also
needs to implement the plan, besides bringing about a change in the splendid habits. Cash
flow plan brings you face-to-face with what you should ideally be saving, and investing
in a systematic and regular manner, and what would it mean to you to withdraw from
your portfolio after a couple of years. It brings down in numbers what your financial
future has in store for you. And gives you and give a crystal clear view (as much as in
possible with inflation and the interest rate scenario
Tax Planning
Proper tax planning is a basic duty of every person which should be carried out
religiously. Basically, there are three steps in tax planning exercise. These three steps in
tax planning are:
Calculate your taxable income under all heads i.e. Income from salary .House property ,
business & Profession , Capital Gains and income from other sources
Calculate tax payable on gross taxable income for whole financial year.
After you have calculated the amount of your tax liability , you have two options to
choose from:
1. Pay your tax
2. Minimize your tax through prudent tax planning.
Most of the people rightly choose option ‘B’ here you have to compare the advantages of
several taxes saving schemes and depending upon your age. Social liabilities, tax slabs
and personal preferences, decide upon a right mix of investments, which shall reduce
your tax liability to zero or the minimum possible.
Every citizen has a fundamental right to avail all the tax incentives provident by the
government. Therefore, through prudent tax planning not only income-tax liability is
reduced but also a better future is ensuring due to compulsory savings in highly safe
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government schemes. We sincerely advise all our readers and clients to plan their
investments in such a way that the post-tax yield is the highest possible keeping in view
the basic parameters of safety and liquidity.
Insurance planning
“Insurance is not for the persona who passes away, it for those who survive” goes a
popular saying that explains the important of insurance planning.
It is extremely important that every person, especially the breadwinner, covers the risks
to his life, so that his family’s quality of life does not undergo any drastic change in case
of an unfortunate eventuality. Insurance planning is concerned with ensuring adequate
coverage against insurable risks. Calculating the right level of risk cover is a specialized
activity, requiring considerable expertise.
Proper insurance planning can help you look at the possibilities of getting a wider
coverage for the same amount of premium or the same level of coverage for a reduced
premium. Hence, the need for proper insurance planning, insurance, simply put, ease the
cover for the risk that we run during our lives. Insurance enables us to alive our lives to
the fullest , without worrying about the financial impact of the events that could hamper
it, in other words, insurance protects us from the contingencies that could affect us, so
what are the risk that we run? To name few- the risk on our lives that is, the worries of
replacement of the income that will contribute the running of household. The risk of
medical contingency (since they have the capability of depleting our wealth considerably)
and risks to assets (since the replacement of these can have tremendous financial
implication). If we can imagine a situation where our goals are disturbed by acts beyond
our control, we can realize the relevance of insurance in our lives. Insurance planning
takes in to an account the risk that surround you and then provides an adequate coverage
against those risks, there is no risk not worth insuring yourself against, and insurance
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should first and foremost be looked as a measure to guard a risk –the risk of your dreams
going away due to events beyond your control
Children Future Planning
Like every parent, you too must be overjoyed to watch your child grow. All parents want
to give the best possible upbringing to their children. This includes all good education
and securities in case of any eventuality soon, your little bundle of joy will grow up, and
it will be thank to provide for his or her higher education and wedding. The purpose of
children future planning is to create a corpus for foreseeable expenditures such as those
on a higher education and wedding to provide an adequate security cover during their
growing year.
Children’s future planning acquires other added importance because children education
and wedding are not high priority life goals, which can be postponed nor can they be a
compromise on the amount. Good education as always been the passport to secure future.
Today, career opportunities have grown manifold, and there are many professional
courses that your child aspires forever. Cost of higher education have also increased
exponentially
Like most parents, you might be saving regular lily to ensure a safe tomorrow for your
child. However, savings alone is no longer enough. For ensuring adequate funding of
your child education, you as a parent need to do two things
Invest appropriate amount systematically and at regular intervals
Provide for a financial security blanket to cover any eventuality
It is never too early to start saving and investing for your child’s future.
Especially in today context, for example, the cost of professional degree is approximately
Rs 2.5 lakhs. If your child is one year old today, after seventeen years when he or she
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goes to college, you may require a sum of Rs 6.3 lakhs assuming an annual rate of
inflation of 6%
There are many products which your financial planner can use to achieve the above
objectives. For example, he could suggest a children’s future plan offered by good
insurance company, to build a corpus for our child’s higher education and provide for a
security cover in the event of the parents unfortunate demise. Children’s plans are also
available under unit-linked option. Being unit-liked, they offer access to investments in
all kind of asset classes – equity, debt and cash.
Retirement planning
Some like it. Some don’t. But retirement is a really for every working person.
Most young people today think of retirements as a distant reality. However, it is
important to plan for your post-retirement life if you wish to retain your financial
independence and maintain a comfortable standard of living even when you are no longer
earning. This is extremely important, because, unlike developed nation. India does not
have a social security net. Retirement planning acquires added importance because of the
fact that though longevity has increased, the number of working year haven’t
Retirement planning services involves:
Computing that amount that would be required post-retirement. This is done after taking
inflation and time value of money into account.
Building your retirement corpus using systematic investment plans(SIPs) and other long-
term growth orient products
Ensuring adequate post-retirement income through safe investments. The assets
allocation and selection of investment vehicles keep changing as your risk-bearing
capacity diminishes.
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Plan for a worry free retirement:
In simple words, retirement planning means making sure you will have enough money to
live on after retiring from work. Retirement should be the best period of your life, when
you can literally sit back and relax or enjoy your life by reaping benefits of what you earn
in so many years of hard work. But it is easier said than done. To achieve a hussies-free
retired life, you need to make prudent investment decisions during your working life, thus
putting your hard-earned money to work for you in future.
TATA CAPITAL
Tata Capital Limited is a subsidiary of Tata Sons Limited. The Company is registered
with the Reserve Bank of India as a Systemically Important Non Deposit Accepting Core
Investment Company. A trusted and customer centric one-stop financial services
provider, Tata Capital Limited, and its subsidiaries cater to the diverse needs of retail,
corporate and institutional customers by offering a wide range of fund and fee based
financial services.
Tata Group is an Indian multinational conglomerate company headquartered in Mumbai,
Maharashtra, India.[3] It encompasses seven business sectors: communications and
information technology, engineering, materials, services, energy, consumer products and
chemicals. Tata Group was founded in 1868 by Jamsetji Tata as a trading company. It has
operations in more than 80 countries across six continents. Tata Group has over 100
operating companies with each of them operating independently. Out of them 32 are
publicly listed.[4] The major Tata companies are Tata Steel, Tata Motors, Tata
Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Global Beverages, Tata
Teleservices, Titan Industries, Tata Communications and Taj Hotels.[5] The
combined market capitalization of all the 32 listed Tata companies was INR 6 Trillion
($96.87 billion) as of Sep 2013.[6] Tata receives more than 58% of its revenue from
outside India.[7]
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Tata Group remains a family-owned business, as the descendants of the founder (from
the Tata family) own a majority stake in the company. The current chairman of the Tata
group is Cyrus Pallonji Mistry, who took over from Rattan Tata in 2012.[8] Tata Sons is
the promoter of all key Tata companies and holds the bulk of shareholding in these
companies. The chairman of Tata Sons has traditionally been the chairman of the Tata
group. About 66% of the equity of Tata Sons is held by philanthropic trusts endowed by
members of the Tata family.
The Tata Group and its companies & enterprises is perceived to be India's best-known
global brand within and outside the country as per an ASSOCHAM survey.[9] The 2009,
annual survey by the Reputation Institute ranked Tata Group as the 11th most reputable
company in the world.[10] The survey included 600 global companies. The Tata Group has
helped establish and finance numerous quality researches, educational and cultural
institutes in India.[11][12] The group was awarded the Carnegie Medal of Philanthropy in
2007 in recognition of its long history of philanthropic activities.
The company has grown from an asset financier to diversified financial services company
organized under fee and fund based business lines, which are operated through the
company and its seven subsidiaries Tata Capital is a customer centric organization, with
the capability to offer a comprehensive suite of products and services to retail, corporate
and institutional customers Reinforcing this commitment towards customer centricity.
We have created a unique common sales and service structure - a ‘one stop shop’ for the
customer, servicing his entire financial requirements through a ‘single window’ .At the
heart of this unique model lies the concept of presenting a one-point interface to the
customers through which all their financial needs get serviced
Tata Capital Limited
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Public issue of secured Non-Convertible Debentures (NCDs) aggregating Rs 5,000
Million. With an option to retain over-subscription of Rs 10,000 Million. For issuance of
additional NCDs.
Background
Tata Capital Ltd (TCL) is a customer centric diversified financial services company in
India, providing services either directly or through subsidiaries, to retail, corporate and
institutional clients in the areas of retail finance, corporate finance, investment banking,
retail broking and distribution, wealth management and private equity. The company was
incorporated on March 8, 1991 and actively commenced business operations since
September, 2007. The company is a wholly owned subsidiary of Tata Sons Ltd, the apex
holding company of the Tata’s.
Objects of the Issue
The funds raised through this issue, will be used for
a) Lending and investments,
b) Repay existing loans and
c) Business operations (capital expenditure and working capital requirements)
Purpose of Tata capital
Attain leadership through business excellence in the sectors we operate in, while
upholding our values and integrity, to improve the quality of life of the communities we
serve
Recommendation
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Rating agencies like ICRA and CARE have assigned LAA+ and AA+ rating to the NCD.
ICRA rating of LAA+ indicate high-credit quality and low credit risk and rating by
CARE of AA+ indicates high safety for timely servicing of debt obligations. However in
the current economic scenario we consider the issue of Tata Capital to be a high risk and
moderate return proposition. We therefore recommend investors to adopt a cautious
approach.
Values of Tata capital
Integrity: We must conduct our business fairly, with honesty and transparency.
Everything we do must stand the test of public scrutiny.
Understanding: We must be caring, show respect, compassion and humanity for our
colleagues and customers around the world, and always work for the benefit of the
communities we serve.
Excellence: We must constantly strive to achieve the highest possible standards in our
day-to-day work and in the quality of the goods and services we provide.
Unity: We must work cohesively with our colleagues across the group and with our
customers and partners around the world, building strong relationships based on
tolerance, understanding and mutual cooperation.
Responsibility: We must continue to be responsible, sensitive to the countries,
communities and environments in which we work, always ensuring that what comes from
the people goes back to the people many times over
Observations with respect to Tata Capital NCD issue
Positives
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Lower leverage: The Company has a debt to equity ratio of 2.7 times as on
September 2008. This is therefore quite low as compared to other finance companies
which have debt equity ratio in the range of 5-8 times. Also the company intends to repay
a portion of the debt with the issue proceeds thereby lowering cost for the company.
Sufficient capital: Despite risk of higher NPA’s that the company faces in light of the
slowing economy, the company is adequately capitalized with a Capital adequacy ratio
(CAR) of 26.1% as on September 2008. Also the company is subject to the capital
adequacy requirements prescribed by the RBI where it is currently required to maintain a
minimum ratio of 10% as prescribed under the Non-Banking Financial norms. As per the
latest RBI circular, this limit has been increased to 12% by March 31, 2009 and to 15%
by March 31, 2010. However as a part of its corporate governance policy the company
maintains capital adequacy ratio higher than the statutorily prescribed limit.
Better liability management: The sources of funds for the company mainly were
in the form of loan funds from bank and commercial papers. Through this issue, the
company will be able to diversify its sources of funds which in turn will result in better
asset- liability management.
Strong parentage: TCL in owned 100% by Tata Sons Limited. This strong parentage
would allow the company to grow by leveraging the strength of the “Tata” brand and by
exploiting the synergies with other Tata Group companies. The strong parentage also
provides comfort on the ability of the company to remain adequately capitalized in
relation to the risk embedded in its portfolio. Despite the expected pressure of rising
NPA’s in the current scenario, TCL’s position in the TATA group would ensure strong
support from the Group
Concerns
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Losses in the past: The Company has incurred a net loss of Rs. 2273 lakhs (before
tax) for the nine months period ended December 31, 2008. The loss up to September
2008 was only Rs 299 lakh which imply that the company has incurred a loss of Rs.1974
lakh in the last quarter ending December 2008. According to the company these losses
are primarily due to the prevailing market conditions and high cost of borrowing. It the
company continues to incur further losses, the company’s results of operations and
financial condition will be adversely affected.
Asset quality: As on September 2008, the company had a loan book of Rs.68280
million, out of which loans to construction equipment and SME formed approximately
70% of the loans. The slowdown in industrial activity is likely to expose the loan book of
TCL to a higher credit risk. This may in turn lead to an increase in the number and value
of company’s NPA.
Although the company was incorporated in 1991, active commencement of business
operations began only in September, 2007. As a result, there is limited historical financial
and operating information available to evaluate its past performance. The return that the
company has generated in the past from advances and investments stands at 8.5% and
8.6% respectively in FY08.Also the cost of funds stands at 8.3%. Because of limited
operating history, the historical financial results may not accurately predict its future
performance. Therefore limited operating history may make it difficult for prospective
investors to evaluate its business.
No details on deployment of issue proceeds: The Company has indicated that
the funds raised through the issue will be used for its various financing activities
including lending and investments, to repay its existing loans and for future capital
expenditures; however the company has not given any details with respect to the same.
The company has indicated that it would have flexibility to deploy the proceeds received
from the Issue. Pending utilization of the proceeds out of the issue the company intends
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to temporarily invest funds in high quality interest bearing liquid instruments including
money market mutual funds, deposits with banks or temporarily deploy the funds in
investment grade interest bearing securities as may be approved by the Board.
Introduction
This chapter deals with the analyzing of the data, where, based on the data
obtained the tables and figures. The table shows the data in numbers and the figures are
graphical representation of the data.
Table no 4.1:Table showing occupation of respondents
Occupation Respondents Percentage
Private job 20 40%
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Government job 5 10%
Business 19 38%
Retire 6 12%
Total 50 100%
Analysis:
The question covers the target repondents who were chosen for this study. The reason
behind asking this question was to find the occupation of the respondents where it was
found that 20 reponendents beloanged to private sector, 5 respondents to public sector ,
19 owned their business and the rest 6 were retired.
Another reson for asking this question to people of different occupations was to know
what level the occupation of the people would effect yhe investment decision.
Figure 4.1:Graph showing occupation of repondents
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Private job Government job Business Retire
20
5
19
6
40
10
38
12
Respondents
Percentages
Interpretation:
The graph depicts the different occupation of the respondents, where 40% of the
population belong to private sector, 10% belong to public sector 38% of respondents are
business people and rest 12% are retired persons.
Table no 4.2: Table showing annual income of respondents
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Annual
income
Respondents Percentage
1-1.5 Lacks 23 46%
1.5 to 3
lacks
15 30%
3 lacks and
Above
12 24%
Total 50 100
Analysis:
The reason behind asking this question was to find out the annual income of the
respondents. It was found that 23 respondents were getting annual income between 1-1.5
lacks, 15 respondents belonged to income group 1.5- 3 lacks and 12 respondents
belonged to the income group 3 lacks and above. This also tells that the annual incomes
of the respondents place an important role for to obtain the benefits of investment options
in India.
Figure 4.2: Graph showing annual income of respondents
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
1-1.5 Lacks 1.5 to 3 lacks 3 lacks and Above0
5
10
15
20
25 23
15
12
0.46 0.3 0.24
Respondents
Percentage
Interpretation:
This graph depicts that 46% of the respondents belonged to the income group of 1-
1.5 lacks, 30% belonged to income group of 1.5-3 lacks and rest of 24% belonged to
income of 3 lacks and above.
Table no 4.3: Percentage of annual income the respondents save to
invest
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Options Respondents Percentage
5 to 10% 19 38%
10 to 20% 25 50%
20% and above 6 12%
Total 50 100
Analysis:
The main aim of asking this question was to find out the percentage of
respondents annual income do they save to invest. Of 50 respondents it was found that 19
people will save 5-10% of their income to invest , 25 people will save 10-20% to invest
and 6 people will save 12% of their income to invest.
Figure 4.3: Percentage of respondent’s annual income do they save to
Invest
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
5 - 10 % 10 - 20 % 20% and above0
5
10
15
20
25
19
25
6
0.380000000000001 0.5 0.12
Respondents
Percentage
Interpretation:
This graph depicts that 38% of the respondents will save 5-10% of their annual income
for investments, 50% of respondents will save 10-20% of their annual income for
investments and rest of the 12% of respondents will save 20% and above of their annual
income to invest in future.
Table no 4.4: Percentage of respondents preferring the different
investment options
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Options Respondents Percentage
Returns 6 12%
Minimum Investment
Amount
12 24%
Locking Period 8 16%
Risk 9 18%
Type of investment Option 8 16%
Other Factors 7 14%
Total 50 100%
Analysis:
As given in the above table 6 respondents prefers main at returns, 12 respondents
prefers to get minimum investment amount, 8 respondents prefers locking period, 9
respondents prefers on risk taking, 8 respondents prefers other type of investment options
and the rest 7 respondents prefers other factors before investing in a particular investment
options.
Figure no 4.4: Respondents preferring before investing in a particular
investment option
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Interpretation:
From the above table we can understand that 22 respondents prefer to invest for long
term and 28 respondents prefer to invest for short term.
Table no 4.5: Table showing the duration preferred by the respondents
to invest
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Options Respondents Percentage
Long term 22 44%
Short term 28 56%
Total 50 100
Analysis:
From the above table we can understand that 22 respondents prefer to invest for
long term and 28 respondents prefer to invest for short term.
Figure no 4.5: Graph showing the duration preferred by respondents to
invest
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Long term Short term
2228
0.44
0.56
Respondents Percentage
Interpretation:
From this above table we can clearly understand that 44% of respondents prefer to
invest their money in long term and 56% of respondents prefer to invest their money in
short term according to their requirements.
Table no 4.6: Table showing preference of respondents to invest their
money
Options Respondents Percentage
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Mutual Funds 11 22%
ULIP Plans 6 12%
Fixed Deposit 16 32%
Post Office Deposit 8 16%
Real-estate 6 12%
Share / Commodity
Market
1 2%
Other Investment
Options
2 4%
Total 50 100%
Analysis:
This question was asked to find out the percentage of respondents preferring to
invest money in different investment options. Therefore 11 respondents preferred to
invest in mutual funds, 6 respondents preferred to invest in ULIP Plans, 16 respondents
preferred to invest in fixed deposits, 8 respondents preferred to invest in post office
deposits, 6 respondents preferred to invest their money in real-estate, 1 respondents
preferred to invest their money in share/ commodity market and rest of respondents
prefers to invest their money in other investment options.
Figure no 4.6: Graph showing preference of respondents to invest their
money
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
22%
12%
32%
16%
12%
2%4%
Mutual funds
ULIP Plans
Fixed deposit
Post office deposit
Real-estate
Share\ Commodity market
Other investment options
Interpretation:
From the above graph we can understand that 22% of respondents prefer to invest
their money in mutual funds, 12% of respondents prefer to invest their money in ULIP
Plans, 32% of respondents prefer to invest their money in fixed deposits, 16% of
respondents prefer to invest their money in post office deposits, 12% of respondents
prefer to invest their money at real-estate, 2% of respondents prefer to invest their money
at shares/ commodity market and rest of 4% of respondents prefer to invest their money
at other type of investment options.
Table no 4.7: Table showing the investment options which has less risk
Options Respondents Percentage
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Mutual Funds 17 34%
ULIP Plans 4 8%
Fixed Deposit 19 38%
Post Office Deposit 3 6%
Real-estate 4 8%
Share / Commodity
Market
1 2%
Other Investment
Options
2 4%
Total 50 100%
Analysis:
The intension of asking this question for the respondents is to know that which
investment options has less risk according to their view. We came to know that 17
respondents t mutual funds, 4 respondents for ULIP Plans, 19 respondents prefers to
fixed deposits, 3 respondents prefers post office deposits, 4 respondents prefers real-
estate, 1 respondents prefers share/commodity market and last 2 respondents prefers other
investment options.
Figure no 4.7: Graph showing the investment option which has less risk
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
18%
30%
8%
16%
12%
6%
10%
Mutual funds
ULIP Plans
Fixed deposits
Post office deposits
Real-estate
Share/ Commodity markets
Other investment options
Interpretation:
In this above graph we can understand that 18% of respondents prefers mutual
funds, 30% of respondents prefers ULIP plans, 8% of respondents prefers fixed deposits,
16% of responds prefers post office deposits, 12% of respondents prefers real-estate, 6%
of respondents prefers shares/commodity market and rest of 10% of respondents prefers
to other investment options, so that they have less risk to obtain in investing their money.
Tables no 4.8: Table showing the investment option which gives more
returnsPage 77
`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Options Respondents PercentageMutual Funds 9 18%
ULIP Plans 15 30%
Fixed Deposit 4 8%
Post Office
Deposit
8 16%
Real-estate 6 12%
Share /
Commodity
Market
3 6%
Other Investment
Options
5 10%
Total 50 100%
Analysis:
In above table we observe that 9 respondents prefers more returns from mutual
funds, 15 of respondents from ULIP plans, 4 respondents from fixed deposits, 8
respondents from post office deposits, 6 respondents from real-estate, 3 of respondents
from share/commodity markets and rest of 5 respondents from other investment options.
All the respondents made their own choice to get more returns.
Figure no 4.8: Graph showing the investment option which gives more
returns
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
0
2
4
6
8
10
12
14
16
18
9
15
4
86
35
0.18
0.3
0.08
0.16
0.12
0.06
0.1
Respondents Percentage
Interpretation:
The above graph shows that 18% of respondents prefer mutual funds, 30% prefer
ULIP Plans, 8% prefer Fixed Deposits, 16% prefer Post office, 12% prefer Real Estate,
6% prefer Share and commodities, and10% prefer other investment options to get more
returns.
Table no 4.9: Table showing the investment options which does not
require minimum investment amount
Options Respondents Percentage
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
Mutual Funds 10 20%
ULIP Plans 2 4%
Fixed Deposit 13 26%
Post Office Deposit 9 18%
Real-estate 5 10%
Share / Commodity
Market
3 6%
Other Investment
Options
8 16%
Total 50 100%
Analysis:
As seen in the above table 10 respondent said Mutual Funds, 2 respondents said ULIP
Plans, 13 respondents said Fixed Deposits, 9 respondents said post office, 5 respondents
said real estate, 3 respondents said share and commodity market and 8 respondents said
other investment options does not require minimum investment amount.
Figure no 4.9: Table showing investment which does not require
minimum investment amount
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20%
4%
26%18%
10%
6%
16%
Mutual funds
ULIP Plans
Fixed deposit
Post office deposit
Real-estate
Share/Commodity market
Oter investments op-tions
Interpretation:
The graph depicted that 20% of respondents prefer mutual funds,4% of respondents
prefer ULIP plans,26% of respondents prefer fixed deposits, 18% of respondents prefer
post office deposits, 10% of respondents prefer real-estate, 6% of respondents prefer
share/commodity market and rest of 16% of respondents prefer other investments
options which does require to minimum investments.
Table no 4.10: Table showing which Mutual Fund give better returns
Options Respondents Percentage
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Franklin
Templeton
12 24%
Reliance 8 16%
ICICI
Prudential
5 10%
SBI 10 20%
Others 15 30%
Total 50 100%
Analysis:
As shown in the above table 12 respondents prefer Franklin Templeton, 8 respondents
prefer Reliance, 5 respondents prefer ICICI Prudential, 10 respondents prefer SBI and 15
respondents prefer other Mutual Fund for better returns.
Figure no 4.10: Graph showing which Mutual Fund give better returns
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0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
Franklin Templeton, 24%
Reliance, 16%
ICICI Prudential, 10%
SBI , 20%
Others, 30%
Respondents
Interpretation:
From above seen graph we can understand that 24% of respondents go to Franklin
Templeton, 16% of respondents to Reliance, 10% of respondents to ICICI Prudential,
20% of respondents prefers to SBI and 30% of respondents to other Mutual Funds for
better returns.
Table no 4.11: Table showing reason for not investing in Mutual fund
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Options Respondents Percentage
Risk 18 36%
Return 12 24%
Other reasons 20 40%
Total 50 100
Analysis:
There are some people who do go for Mutual Funds. 18 respondents say risk is the main
factor, 12 respondents say returns is the main reason, and 12 respondents prefer other
reasons for not investing in Mutual Fund.
Figure no 4.11: Graph showing reason for not investing in Mutual Fund
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Risk
Return
Other reasons
18
12
20
0.36
0.24
0.4
Respondents
Percentage
Interpretation:
In the above graph depicts we can understand that 36% of respondents prefer the risk,
24% of respondents prefer returns and rest of 40% of respondents prefer other reasons for
which they are not interested in investing at mutual funds.
Table no 4.12: Table showing percentage of respondents who do proper
analysis before investing in share market
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Options Respondents Percentage
Yes 33 66%
No 17 34%
Total 50 100
Analysis:
From the above table we can observe that 33 out of 50 respondents said that they will do
proper analysis before investing their amount in share market and rest of the 17
respondents said that they will not do proper analysis before investing in share market
Figure no 4.12: Graph showing percentage of respondents who do
proper analysis before investing in share market
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Yes No
33 17
0.660000000000002 0.34
Percentage
Respondents
Interpretation:
Form the above table we can understand that 66% of people do proper analysis and the
rest will not do proper analysis before investing in share market.
Table no 4.13: Table showing reason for not investing in share or
commodity market
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Options Respondents Percentage
Risk 16 32%
Lack of
Knowledge
20 40%
Return Factor 14 28%
Total 50 100
Analysis:
From the above table we can get to know that out of 50 respondents 16 prefer risk as the
main factor, 20 prefer lack of knowledge as the main factor and remaining 20 prefer
returns as the main factor for not investing money in share market.
Figure no 4.13: Graph showing reasons for not investing in share
market
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Risk Lack of knowledge Retrun factor
16 20 14
0.320000000000001 0.4 0.28
PercentageRe-spon-dents
Interpretation:
From the above graph we can understand that 32% of respondents are not interested to
invest their money due to risk, 40% of respondents are not interested due to lack of
knowledge in them and rest of respondents due to returns factors in share/ commodity
market.
Table no 4.14: Table showing the experience of investing in
share/commodity market
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Options Respondents Percentage
Face Losses 12 24%
Earned Profit 15 30%
No Profit No Loss 23 46%
Total 50 100
Analysis:
The table clearly shows the experience of investing in share market. 12 respondents faced
losses, 15 respondents have earned profit and rest of the respondents experienced no
profit and no loss in investing in share/commodity market.
Figure no 4.14: Graph showing the experience of investing in share
market
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12
15
23
24%
30%
46%
Face losses
Earned profit
No profit no loss
Interpretation:
From above graph it can be observed that 24% of respondents experienced facing loss,
30% of respondents earned profit and rest of respondents experienced no profit no loss in
share/commodity market.
Table no 4.15: Table showing reason for investing in real estate
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Options Respondents Percentages
Gives Good
returns
16 32%
Has Less Risk 11 22%
Loan Facility is
available for
investment
23 46%
Total 50 100
Analysis:
From the above table 16 respondents say that they can get good returns, 11 respondents
say that there is less risk and 23 respondents say that the loan facility is available for
investing in real estate.
Figure no 4.15: Graph showing reason for investing in real estate
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Gives good returns Has less risk Loan facility is available for investment
16 11 23
32% 22% 46%
Percentage
Re-spon-dents
Interpretation:
From the above graph we can understand that 32% of respondents prefer because of good
returns, 22% of respondents prefer due to less risk and rest of 46% of respondents gave
reasons about loan facilities is available for investments.
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Table no 4.16: Table showing reason for investing in Fixed
Deposits/Post office Schemes
Options Respondents Percentage
Returns 22 44%
No Risk
Investment
28 56%
Total 50 100
Analysis:
From the above table we can conclude that the 22 respondents believe for investing in
fixed deposits/ post office deposits scheme because of more returns and on the other hand
28 respondents believe in investing in fixed deposits/ post office deposits schemes
because of no risk investment.
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Figure no 4.16: Table showing the reason for investing in Fixed
deposits/Post office deposits
Returns
No risk investment
44% 56%
Percentage
Interpretation:
The intension behind asking this question is to know the reason behind investing in fixed
deposits/post office deposits schemes .It was found that 44% of respondents prefers
because of more returns and rest of 56% of respondents because of no risk in
investments.
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5.1 Findings:1. It was found that the respondents will save more than 50% of their annual income to
invest in different investment options because they think that it will give better returns
2. It was found that 24% of respondents preferred to invest in investment option which has
minimum investment amount as it gives more profits.
3. It was also found that 56% of respondents preferred to go for short term investments due
to the knowledge of profit and loss.
4. This study revealed that the 32% of respondents preferred to invest their money in fixed
deposit rather than any of the investment options.
5. This study also revealed fact that 38% of respondents preferred to have a less risk in
respect of all investment options to investors.
6. It was found that 30% of respondents said that they prefer ULIP plans because they get
more profit in investing in it.
7. It was found from 26% of respondents that fixed deposits does not require minimum
investment amount.
8. This study revealed that 24% of respondents prefer Franklin Templeton Mutual fund to
invest their money as it yield better returns.
9. It was found that 40% of respondents preferred not investing in mutual funds because of
various other reasons.
10. This study revealed the fact that 66% of respondents will invest their money in share
market by properly analyzing before investing in it.
11. It was found that 40% of respondents don’t have interest in investing in share/commodity
market due to lack of knowledge in investing there.
12. This study also revealed that 46% of respondents have experienced of investing in
share/commodity market.
13. Form this study 46% of respondents gave their reasons of availability of loan facility for
investing in real-estate.
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14. We can conclude that 56% of respondents invest their amount in Fixed Deposit / Post
Office Deposit Schemes due to no risk in investing and gain more return.
15. It was found that only 6% of investors invest in share and commodity market as it
involves high risk.
16. As per the study we can conclude that all investors prefers less risk and high returns in
their investment options we can see in the form of percentage.
5.2 Suggestions:
It has been found from this study was investors can invest their funds to get more
return with help of getting more knowledge about the options of investments. However
they are the some suggestions that could be followed by the investors in order to make
the use of the different options provided for the investors to give more effective
participations. They are:
1. Clearly investors have to define about their goals in which they want to invest in different
options. So that tit will be no confusions to investors to invest in that.
2. The investors should have look at income on the investments options to gain more profits
because people are giving up on potential income.
3. With any investment, there is always the risk involved. It should be overcome by having
expertise to guide or to collect the information to avoid risk it will help the investors to
get more profit with less risk.
4. Some investments options like real-estate, shares etc..., have the potential for earnings
and growth in value.
5. Some investments perform better than others in certain situations the investors can put
their money in a variety of investment options can help to reduce their risk.
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6. Investing in such instruments like National Savings Certificates (NSCs), public provident
fund (PPF) and post office deposits small-savings scheme will fetch higher returns for the
investors.
7. Mutual funds that invest in short-term bonds, usually pays better interest rates than a
savings account but not as much as a certificate of deposit (CD).
8. In mutual fund investors can invest their money without any hindrance of minimum
investment amount or past experience.
9. For the investors probably don't need to worry about alternative investments options at
the start of their new investing career. They are generally got high-risk/high-reward
securities that are much more speculative than plain old stocks and bonds. But they
gradually get the opportunity for big profits, but they require some specialized
knowledge.
10. The investors to not fear to invest their money in shares and commodity market. The only
thing needed is to have adequate knowledge about it.
11. If investors want invest in share and commodity market it is better to have a broker who
has adequate knowledge about it.
12. The investors should update with daily process in shares and commodity market as it
involves high level of fluctuations.
5.3 Conclusion:
To conclude, in a country like India where there is a huge investors to invest their
funds to different options to get more profits there are also many investment options
which has its own sets of advantages and disadvantages. Every person in the country
would like to invest in different investment options for one or the other reasons. The main
reason why people invest the money is to make their future safe for uncertainties and also
to meet their family future demands. Many people invest in fixed deposits, post offices,
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Mutual funds, real estates, gold and other jewelers etc. but there are very few who invest
in shares and commodities market
The main reason for this is the fear of high. The share market involves high
volatility because of which one cannot make the predictions whether the share prices will
rise or fall. The share market which yields high returns at the time falls to that extent
where the investor cannot get back his own money which he has invested. Another reason
is the lack of knowledge. The investor should have adequate amount of knowledge and
should keep updating about the day to day share market. The above study also shows that
there are very few who make the courage of investing in shares and commodities.
Sometimes even people don’t invest because of the fraud happens in share market.
To overcome these hindrances the government has set up the organization called
Securities Exchange board of India. This is the organization which protects the interest of
investors by setting up rules and regulations for all financial market. It has also providing
knowledge about the market how it functions and what precautions should be taken while
investing. It’s ultimately the people who should take knowledge about the market and
avoid the risk at list to some extent.
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ANNEXURE
I, Namratha.N, am a student of Malleswaram Ladies Association- Academic of Higher
Learning, undertaking a project titled “Best Investment Option for Indian Investors” with
reference to top players of different industrial segments in partial fulfillment of the
requirements of the Bachelor of Business Management (BBM) program of Bangalore
University. I request you to help me in completing the project by answering the enclosed
questionnaire. I assure you that all the information provided by you will be treated in
strict confidential and used for academic purposes only.
Thanking you,
Namratha. N
Questionnaire:
Questionnaire to analyze the best investment option available to the
investors:
1. What is your Occupation?
a. Private Job
b. Govt. Job
c. Business
d. Retired
2. What is your annual Income?
a. 1-1.5 Lacks
b. 1.5 to 3 lacks
c. 3 lacks and Above
3. What percentage of your annual income do you save to Invest?
a. 5 to 10%
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`A STUDY ON INVESTMENT AVENUES FOR INDIAN INVESTORS
b. 10 to 20%
c. 20% and above
4. What do you look before investing in a particular investment option?
a. Returns
b. Minimum Investment Amount
c. Locking Period
d. Risk
e. Type of investment Option
f. Other Factors
5. Do you prefer to invest for long term or short duration?
a. Long Term
b. Short Term
6. Where do you prefer to invest your money?
a. Mutual Funds
b. ULIP Plans
c. Fixed Deposit
d. Post Office Deposit
e. Real-estate
f. Share / Commodity Market
g. Other Investment Options
7. Which Investment Option has less risk?
a. Mutual Funds
b. ULIP Plans
c. Fixed Deposit
d. Post Office Deposit
e. Real-estate
f. Share / Commodity Market
g. Other Investment Options
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8. Which option gives more returns?
a. Mutual Funds
b. ULIP Plans
c. Fixed Deposit
d. Post Office Deposit
e. Real-estate
f. Share / Commodity Market
g. Other Investment Options
9. Which option don’t require minimum investment amount?
a. Mutual Funds
b. ULIP Plans
c. Fixed Deposit
d. Post Office Deposit
e. Real-estate
f. Share / Commodity Market
g. Other Investment Options
10. If you invest in mutual fund which mutual fund gives better returns?
a. Franklin Templeton
b. Reliance
c. ICICI Prudential
d. SBI
f. Others
11. Reason for not investing mutual funds?
a. Risk
b. Returns
c. Other Reasons
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12. If you invest in Share Market you do proper analysis before investing?
a. Yes
b. No
13. Why you have not invested in Share / Commodity Market?
a. Risk
b. Lack of Knowledge
c. Return Factor
14. Your experience of investing in share / commodity market?
a. Face Losses
b. Earned Profit
c. No Profit No Loss
15. Reason for investing in Real Estate?
a. Gives Good returns
b. Has Less Risk
c. Loan Facility is available for investment
16. Reason for investing in Fixed Deposit / Post Office Deposit Schemes?
a. Returns
b. No Risk Investment
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Portfolio Management- Inderpal Singh
Jaswinder Kaur
Gurpreet Singh
www.google.com
www.bajaj capital.com
www.mbaskool.com/brandguide/banking-and.../1251-bajaj-capital.html
en.wikipedia.org/wiki/Tata Group
www.projects4mba.com
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