Final Avenues of Investments1

Avenues of Investments
Chapter I
1.1 introduction
The word investment has many interpretations as it means different things to different
persons. For a person who as lent money to another, it may be an investment for a return.
Similarly, if a person purchases shares of a company, bullion or real estate for the purpose of
price appreciation, it is also an investment for him. Likewise, an insurance plan or a pension
plan
is an
investment to its purchaser. From these illustrations, it is clear that investment is a

commitment of funds for earning additional income. In other words, investment is considered
the sacrifice of certain present value of money in anticipation of a reward
1.2 definition of investment
The following are some important definitions of investment: an investment is a commitment
of funds made in the expectation of some positive rate of returns. If the investment is
properly undertaken, the returns will commensurate with risk the investor assumes. - donald
e. Fischer and ronald j. Jordan the purchase by an individual or institutional investor of a
financial or real asset that produces a return in proportion to the risk assumed over some
future investment period.-f
amling
according to the above definition the current
Page 1
commitment of funds for a period of time in order to derive a future flow of funds that will
compensate the investing unit.
-
For the time the funds are committed

For he expected rate of inflation.
For the uncertainty / risk involved in the future flow of funds
Investment is the employment of funds on assets with aim of earning income or capital
appreciation. Investment has two attributes namely time and risk. Present consumption is
scarified to get a return in the future. The sacrifice that has to be borne in certain but the
return in the future may be uncertain. It will therefore, be useful to understand all the
important meanings of the term investment before one can have its clear concept in mind.
There are basically three concepts of investment. They are,
1. Economic investment
2. Business investment
3. Financial investment
4. Gambling
1. Economic investment:
according to economists, the term investment refers to the
additions to the capital stock of the society. The capital stock includes goods which are used
in the production of other goods (buildings, equipment, investment etc.,)
2. Business investment: this refers to putting money or money held in a private business. For
example, if a men puts rs.1,00,000 in a newly opened general store, it will be said that his
investment in the business amounts to rs.1,00,000.
3. Financial investment: this refers to putting money into securities, i.e. Shares debentures,
mutual funds, bonds, life insurance, postal, bank deposit schemes etc., however, the term
financial investment is generally used for investment in, shares, bonds, postal, insurance,
bank deposit schemes, real estate, gold, derivates, mutual funds etc., therefore, this study
gives more concentration to financial investment.
Page 2
4. Gambling: gambling is an act of creating artificial and unnecessary risks for expected
increased return. A gamble is a very short term investment base on rumours and hunches.
Gambling is undertaken just for thrill and excitement. In short, gambling involves acceptance
of extraordinary risks even without a through knowledge about them for pecuniary gains.
Horse racing, playing cards, lottery etc., are some typical examples of gambling.
1.3 portpolio management
The portfolio management deals with the process of selection of investment from the number
of opportunities / avenues with different expected returns and carrying different levels of risk
and selection the investment is made with a view to provide the investors the maximum yield
for a given level of risk or ensure minimum be risk for a given level of return. Hence,
investment and portfolio management has emerged as one of the importand and specialized
branches of financial management.
1.4 factors influencing slelection of investment
Selection of investments should rather be based on research of various factors. The
fundamental consideration for investment should be a growth oriented company with
substantial future potential. The major objectives of investment are increasing the rate of
return and reducting the risk. Other objectives like safely, liquidity and profitability against
inflation can be considered on subsidiary objectives.
Return
Investors are always expected a good rate of ruturn from their investment. The investment
should earn reasonable and expected return on the investment before the selection of
investment the investor should keep in mind that the form of return. The return expectiong
from investments in securities are of two types. They are,
1. Periodic cash receips.
2. Capital gain.
1.periodic cash receips:cash dividends are payable as and when the companys after tax
earning that its board of directors divides to distribute to the shareholders. In care of
debentures, bonds, bank deposits, bublic deposits etc., the coupon rate is payable at the end of
each specified period..
Page 3
2. Capital gain: the second component of return is the change in the price of the investment
called the capital gain or loss. This element of return is the different between the purchase of
price and the price at which the asset can be or is sold. Therefore, it can be a gain or loss.
The combination of the periodic cash receipts and capital gain made on the investments
constitutes the total return on particulars investment as shown below in equation(1)
Cash payment recived + price change over the perios
Total return
-------------------------------------------------------------------purchase price of the sucurity
Capital appreciation
The other important objective of investment is appreciation of capital invested over a period.
The expectation of apppreciation in sucurities is in the following three ways.
i. Conservative growth
ii. Aggressive growth
iii. Speculation.
Conservative growth:
Investors with a goal to achieve conservative conservative growth seek to build an investment
portpolio that will make money over the long-term by capical appreciation known as wealth
building over time.
Aggressive growth:
Investor with a goal to achieve short-term and long-term capital gains opts for aggressive
growth in stock. Current income from dividends is of a low priority and the investors are risk
seekers.
Speculation:
Page 4
Both investment and speculation are somewhat interrelated.
It is said that speculation
requires investment and investments are to some extent speculative. Speculation is the
purchase or sale of anything in the hope of profit from anticipated change in price.
Accouding to emery, speculation consits in buying and selling commodities or securities or
other property in the hope of a profit from anticipated changes of value. As speculation
involves high risks, in order to take advantage of price fluctuations, stock brokers furnish a
separate list of sucurities for speculation purposes alone.
Safety and security of funds
The selected investment avenue should be under the legal and regulatory frame work. If it is
not under the legal frame work, it is difficult to represent the grievances, if any. Apporaval of
the law if self adds a flovor of safety. Even though approved by law, the safety of the
principal differs from one mode of investment to another. Investment made in government
assures more safety than with private party. From the safety point of view investment can be
ranked as follows bank deposits government bonds, uti units, debentures, shares and deposits
with the non-banking financial company.(nbfcs)
Risk
The lever of risk depends on the objective of investment. The investors expect greater return
should also be prepares to carry higher risk. Also an investors should assure that high risk high reward and low-risk, low-reward. By careful planning and periodical review of the
market situation, the investor can minimize their risk on the portfolio. Risk avoidance and
risk minimization are the important objectives of securities analysiss.
Risk and uncertainty:
Some times, a decision can lead to more than one possible outcome, such siturations are best
with uncertainly when it is not known exactly what will happen in future, but the variance
possiblities are neglected by their assumed probability of occurrence is called risk. The
difference between risk and uncertainty has been than uncertainty cannot be quantified while
risk can be quntified of the likelihood of future out comes.
Represented as follows:
Types of risk
Page 5
The risk is categorized into two types
1. Systematic risk
2. unsystematic risk
This is represented as follows:
Systematic risk:
Systematic risk refers to that portion of variation in return caused by factors that affect the
price of all securities. This movement is generally due to the response to economic, social and
changes. The systematic risk cannot be avoided.
Market risk:
Variation is prise sparked off due to real social, political and economic events is referred to as
market risk.
Interest rate risk the uncertainty in future market values and the size of future incomes,
caused by fluctuations in the general level of interest is known as interest rate risk.
Inflation risk:
An uncertainty of purchasing power is regarted to as an risk due to inflation.
Unsystematic risk:
unsystematic risk refers to that portion of the risk which is caused due to factors unique or
related to a firm or industry. For examples, if excise duty or customs duty on goods
increases, the share price of the industry declines. The unsystematic risk will arise due to the
following reasons.
External and internal business risk:
such as business cycle, govt. Policies and firms operations etc.,
Financial risk:
Page 6
financial risk is associated with the capital structure of a firm. A firm with no debt financing
has no financial risk.
Liquidity:
The liquidity of investment is the prime concern for investment prime made by an investor.
Before making investment, the investor should keep in mind the degree of liquidity required.
The investor should prefer for securities which ensure liquidity or marketability.
Tax considerations
the investor, before selecting the securities for investment will take into consideration the
provision of income tax, capital gains tax, and wealth tax to minimize tax burden and avail all
tax examption available.
Page 7
Chapter II
2.1 Finance vs Investment
investment decision and finance decision interact with each other like the two blades of a
pair of scissors, the investment (and savings) decision interacts with the finance (and
spending) decision to cut the pie (called total income) into mutually satisfactory (optional)
proportions. For many years finance and investment have encompassed the three major areas
of spending in the aggregate economy as stated in equation (2)
2.2 foundation of investment
Investment management and other disciplines
Investment principles are base on elements developed in a number of academis displine. This
may classified as basis (luxury items & furniture, consumable products, paint, sanitary wares,
tiles, items etc.,) and applied (dealership and distributor) as depicted in the above chart.
Trade/business is assigned a special classification since it is unnecessary to some parts of the
investment process but critical to some others.
The above disciplines are interacts with each other while investing in modern concepts, the
above mentioned disciplines are widely used while taking and investment decisions.
Investment process
The investment process involves a series of operations guiding to the purchase of investment
avenues in the market. The flowchart shows the stages and factors connected thereof.
2.3 investment avenues available in india
investing in the financial markets, arguably a subject of interest for scores, never formed
part of all discipline in our curriculam. A subject that would have shaped the monetary
destiny of each of us was never even considered. The concept of investor education never
existed a decade ago, and crystallized only after the ipo scam in 1994-95. Fundamantal and
technical analysis, which are the key to participating in the market were made available only
to the privileged sections of the society then. The investors intention relating to disposable
income makes the question that where, when and how to invest. In the past, investment
avenues were limited to precious assets,schemes o the post office and bank. At present
Page 8
investors can choose from a variety of instruments and assets. While making the choice, they
should consider the expected rate of return and available risk on their investment. Financial
education and
knowledge about the different avenues enable the investors to choose
investment intelligently. Investment avenues are of several kinds. Many types of investment
channels are also available. Therefore, the investors protection and awareness on investment
are becoming a necessity. To view above all, the securities and exchange board of india (sebi)
to the lead in making the indian retail investor well informed.
The various investment avenues can be classified under the following categories.
2.4 Investment media
The
financial
investment
avenues are further classified

with negotiable securities that
the
transferable
and
non
negotiable securities that are not

transferable.
The
negotiable
securities may yield variable

income or fixed income. These
are
equity
shares.
Bonds,
debentures, government securities and money market securities. The non negotiable securities
are not transferable. They yield only fixed income. They are deposits schemes of post offices,
banks, companies and non bankin financial institution, etc. There are tax-banefit schemes
such as public provident fund, gpf, national savings certificate etc., are also available.
Mutual fund, chit fund, and venture capital etc., are another types of financial investment
avenues. They are of recent in india. At present there are 1500 plus mf schemes in the market.
In the last decade, the mf industry has grown substantially and today mfs. Are the best suited
vehicles for individual investing. The non financial investment avenues also known as real
precious assets which are also part of the portfolio. They are gold, silver, arts, property etc.
Page 9
Chapter III
3.1 company profile
Unicon investments is a service sector company, providing financial services,
which has now emerged now as a one-stop investment solutions provider. Mr.
Gajendra nagpal and mr. Ram m. Gupta, who had great expertise and vision in
the field of finance, founded the company in 2004. The headquarter of the
company is in new delhi and its has its corporate offices in mumbai, kolkata,
chennai, hyderabad and noida.unicon, a professionally managed company, is
lead by a team with unparallel managerial acumen and an experience of more
than 200 years in the financial markets. The company boasts of having more
than 3500 employees, 100 branches, more than 600 partner locations and 2500
remisers providing it with a national footprint. The company has a customer
base of more than 200000 customers. It caters to both- the short term as well as
long term financial needs through a comprehensive diversification of
investment services. These services include offline & online trading in equity,
commodities, currency derivatives to debt markets to corporate finance &
portfolio management services. The company has a humungous presence in the
distribution of the 3rd party financial products like mutual funds, property
broking and insurance products. It also has prolific expertise on advising on life
insurance, general insurance, mutual funds & ipo. The distribution network is
backed by in-house back-office support to provide prompt and efficient
customer services.
Page 10
Group members
UU NN II C
UU NN II C
COC OO N N
CIO C O N
CIN N A S P U I
NOF I N A
TRC A O L N
RSF I E A
NSC E C R I A
MLC U M
NLV IC C E
AOE S D T VI I
RAI N IP T E R
ST IO E R
AIP E TV S E
MPS V E T D . I
SPT . V T
ALP T VR D TI E. S
P.L L T V T T
PL T V D T ..
.D L T
L T.D .
LD T . D
.
UU N I CN O I CU N O NU SNNI C E I ORC C EONU A MNR C L IM AIT EN PIO SE S I D STT U AAI RTP T L IAV E S NT S .E C L RP T E VVD A TI C .D L E LT V TS D I D S .P .O V R T S. L P T V D T . . L T D .
U N I C O N F I N C U A N P I P C V O T N . L F T I N D A. N C I A L I N T E R M E D I A R I E S P V T . L T D .
Page 11
The company proposes the following to the customers:

1. Personal relationship manager
This facility is provided to the customer on opening a trading account with the
company. A personal relationship manager is provided to the customer who can
be reached 24x7 and not only for instructing him in the trading affair but also
get specialized and customized advice and tips about the market which is their
competitive advantage
2. Competitive brokerage and dp charges
The company offers a brokerage of 0.50% (negotiable) on delivery and 0.10%
(negotiable) on intraday and f&o transactions plus service tax, sst and
transaction charges.
Only one time account opening charges and no annual maintenance
charges.
Margin financing @ 18%
Margin trading of 4 times the cash deposited for delivery based trade.
Margin trading of 10 times the cash deposited for intra-day based
trade
Buy today sell tomorrow for all securities facility
Management of portfolio and advises
Electronic transfer of funds can also be provided.
Page 12
3.2 products offerd

Equity
Commodity
Depository
Distribution
Nri services
Back office
Fixed income
Portfolio tracker
Mutual funds
General insurance
Life insurance
The snapshots of products of unicon are:

Equity
Unicon facilitates trading in secondary market in equity trading & derivative
(future & options) trading through its corporate membership of premier
exchange of the country namely national stock exchange (nse), bombay stock
exchange (bse). Unicon provides equity trading to the clients online as well as
off-line service. Unicon offers the unique feature where the customers get to
trade on nse, bse and derivatives all on one screen.
Page 13
Products offerings for trading
I. Unicon plus
It enables users to get a browser based trading terminal that can be accessed by
a unique id and password. This facility is available to all the customers of the
company the moment they get registered with it.
Ii. Unicon swift
Self directed investors get an application based terminal which is replica of neat
terminal for trading actively with more speed, greater analytical features and
priority access to relationship manager to trade over the phone
Commodity
Government of india has been given the permission to the multi commodity
trading after approximate thirty years of globalization & liberalization in world.
By inspiring from the n.s.e., & b.s.e. many other stock exchange lic, icici bank,
nse, central warehousing, agriculture industries etc. Had setup the online multicommodity exchange. This exchange will provide the present rate of the
commodity to the on line market these exchange will control by the forward
market commission which do work under ministry of consumer affair,food &
public distribution ,government of india.
Page 14
3.4 Unicon is the member of the two commodity exchange at present:
NCDEX
National commodity & derivatives exchange limited (ncdex) is a professionally
managed online multi commodity exchange incorporated on april 23, 2003 under
the companies act, 1956. It obtained
its
certificate for commencement of
business
on may 9, 2003. It has commenced

december
15,
2003.
its
operations
on
Ncdex
currently facilitates trading of thirty six commodities - cashew, castor seed, chana,
chilli, coffee, cotton, cotton seed oilcake, crude palm oil, expeller mustard oil,
gold, guar gum, guar seeds, gur, jeera, jute sacking bags, mild steel ingot,
mulberry green cocoons, pepper, rapeseed - mustard seed ,raw jute, rbd palmolein,
refined soy oil, rice, rubber, sesame seeds, silk, silver, soy bean, sugar, tur,
turmeric, urad (black matpe), wheat, yellow peas, yellow red maize & yellow
soybean meal. At subsequent phases trading in more commodities would be
facilitated.
MCX
MCX an independent and de-mutulised multi commodity exchange has permanent
recognition from government of india for facilitating online trading, clearing and
settlement operations for commodity futures markets across the country.
Headquartered in mumbai, mcx is led by an expert management team with deep
domain knowledge of the commodity futures markets. Inaugurated in november
2003 by shri mukesh ambani, chairman & managing director, reliance industries ltd,
mcx offers futures trading in the following commodity categories: agri commodities,
bullion, metals- ferrous & non-ferrous, pulses, oils & oilseeds, energy, plantations,
spices and other soft commodities.
Depository_
Page 15
Depository offer a safe, convenient way to hold securities as compared to
holding securities in paper form. Their service provides an integrated single
platform for all the clients ensuring a risk free, efficient and prompt depository
process.
Facilities provided by unicon
De-materialization:
physical shares can be converted into
electronic form through dematerialization at any of the unicon

branch.
Re-materialization:
electronic shares on request of re-
materialization enables one to convert dematerialized shares into

physical form.
Transfer:
one can transfer shares through inter and intra
depository services.
Ipo: using the demat account details one can apply for ipo and on
allotment the securities are transferred directly to the demat
account.
Corporate actions: in case one is eligible for any bonus and right
issues while holding the stock in demat account then allotment
would be transferred to the account.
Easi: this facility empowers the clients to view, download, print
updated holings with respective valuations over the internet though
demat account and avail host of services.
Distribution
Unicon
is fast emerging as a leader in the insurance and mutual funds
distribution space. Unicon has over 100 branches and a huge number of
business development executives who help to source and service the
Page 16
customers throughout the country. Unicon is fast becoming the preferred
vendor independent distribution houses because of providing efficient service
like free pick-up of collection of cheques/dds, keeping track of the premiums
etc to its customers.
Mutual funds
Mutual fund is a trust that pools the savings of a number of investors who share
a common financial goal. The money thus
collected
is invested into a variety of

securities, including stocks, bonds,
and
money-market
instruments.
Mutual funds issue units to the

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

the most suitable investment for the common
man as it offers
an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.
Insurance_
General insurance
Unicon offers all the products of general insurance under one umbrella. Unicon
comprises of a team of distinguished professionals from insurance, finance and
other management disciplines who have vast business & managerial experience.
Unicon team evaluates the client's business environment and studies the risk
profile. Based on the results of these evaluations, unicon team then suggests the
most cost effective , integrated insurance package that is perfectly suited to the
client's risk profile.
Page 17
Life insurance
Unicon offers you a peace of mind by offering various life insurance plans for
your unique & specific needs. For every financial problem, there is a solution
also is the philosophy of unicon. And is here to give one a complete financial
solutions. One can always have an access to their 83 branch offices situated at
prime locations of the city, or can call to their relationship manager for guide to
investments.
Following is the glimpse of life insurance plans:
- Protection plans
- Child plans
- Investment plans
- Saving plans
- Retirement and pension plans
- Nir plans
- Health plans
Property
Unicon is a specialized property broking company. It offers a total solution to
the clients inclusive of market research, marketing strategy, interaction with the
professional teams and sales or leasing of the property.
Nri services
Unicon offers a convenient and hassle-free way of investing in the indian
securities market to the people who are living outside india and wish to
participate in the indian growth story.
Page 18
procedure for nri operations in indian capital markets:
The nri can deal with only one bank
at any point of time.
He is allowed to invest only
5% of the paid up
capital of a company. The
aggregate paid up
value of equity of any
company
purchased by all nri's and
ocbs
cannot
exceed 10 percent of the
paid up capital of
the company and in the case
of convertible debentures,
the aggregate paid up value of
each series of debentures purchased
by all nri's and ocbs cannot exceed 10 % of the paid up value of each
series of convertible debentures.
He can enter only into delivery based trades, all deliveries must only be
routed through beneficiary accounts and not directly through the broker.
Shares bought by him cannot be sold unless the payout of the same is
received from exchange.
All purchase and sale transactions have to be reported to the rbi by the
designated bank.
original brokers contract notes have to be submitted to the designated
bank branch, within 24 hours of the transaction.

He will be required to make bill to bill payments/ settlements. No
adjustments of purchase against sale consideration should be done.
Shares cannot be bought against the shares sold in the same settlement.
All purchase and sales will be dealt separately for payments / receipts.
.
Backoffic
Page 19
unicon through its online back-office aims to increase the transparency and
provides the link to view the details of the account online anytime and
anywhere.
The following reports can be viewed online:
1 Sauda details
2 Financial ledger
3 Net position fot the day
4 Net position detail
Fixed income
The fixed income vertical of unicon group deals in sovereign paper, money
market/ fixed income instruments and merchant banking activities. Broadly, it
undertakes the following:
a.
Dealing in all types of money market instruments viz. Commercial

paper (origination & placement), certificate of deposit and treasury bills both in
primary and secondary market.
b.
Dealing in government securities (including securities of oil,

fertilizer & food bonds) and other psu/ corporate bonds with counterparties like
banks, primary dealers, mutual funds, insurance companies, regional rural
banks, co operative banks, central & state psus, housing finance companies,
nbfc & corporates.
c.
Retailing of central, state government securities and bonds to pf

trusts, universities & colleges.
d.
Advisory services to pf trusts.
e.
Arrangers for private placement of bonds & placing it with banks,

mutual funds, insurance companies & corporates.
f.
Raising of capital by way of initial public offers (ipo) and followon public offerings (fpo)
Page 20
g.
Securitization
of
receivable
portfolio
of
housing
finance
companies, banks & nbfcs by way of pass through certificates.
Portfolio tracker
The portfolio tracker is a simple yet powerful tool that lets you monitor the
value of your investments and other securities you've got your eye on. To set up
your portfolio, all you need to do is enter the quantities of your investments in
different things, and the price you made your purchases and sales at. Portfolio
tracker lets you monitor certain securities, it is not intended to reflect your
actual holdings or account information at any broker/dealer.
Competitors
India bulls financial services limited
India info line
Karvy securities
Fortis securities ( religare)
Share khan ltd
Icici securities ltd
Motilal oswal securities
Kotak securities
Hdfc securities
Chapter V
Investment avenues
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
Page 21
avenues to the investors. Though certainly not the best or deepest of markets in
the world, it has reasonable options for an ordinary man to invest his savings.
The money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle you may like to use savings in
order to get return on it in the future, this is called investment. One needs to
invest and earn return on your idle resoures and generate sum of money for a
specific goal in life and make a provision for an uncertain future .one of the
important reason why people needs to invest wisely is to meet the cost of
inflation. Inflation is the rate at which the cost of living increases. The cost of
living is simply what it costs to buy the goods and services you need to live.
Inflation causes money to lose value because it will not buy the same amountof
a good or service in the future as it does now or did in the past. The sooner one
starts investing the better. By investing early you allow your investments more
time to grow, whereby the concept of compounding increases your income, by
accumulating the principal and the interest or dividend earned on it, year after
year. Tha three golden rules for all investors are :
Invest early
Invest regularly
Invest for long term and not for short term
Investments
The dictionary meaning of investment is to commit money in order to earn a
financial return or to make use of the money for future benefits or advantages.
People commit money to investments with an expectation to increase their
future wealth by investing money to spend in future years. For example, if you
invest rs. 1000 today and earn 10 %over the next year, you will have rs.1100
one year from today. An investment can be described as perfect if it satisfies
all the needs of all investors. So, the starting point in searching for the perfect
investment would be to examine investor needs. If all those needs are met by
Page 22
the investment, then that investment can be termed the perfect investment.
Most investors and advisors spend a great deal of time understanding the
merits of the thousands of investments available in india. Little time, however,
is spent understanding the needs of the investor and ensuring that the most
appropriate investments are selected for him.
The investment needs of an investor
By and large, most investors have eight common needs from their investments:
1. Security of original capital;
2. Wealth accumulation;
3. Comfort factor;
4. Tax efficiency;
5. Life cover;
6. Income;
7. Simplicity;
8. Ease of withdrawal;
9. Communication.
Security of original capital: the chance of losing some capital has been a
primary need. This is perhaps the strongest need among investors in india, who
have suffered regularly due to failures of the financial system.
wealth accumulation: this is largely a factor of investment performance,
including both short-term performance of an investment and long-term
performance of a portfolio. Wealth accumulation is the ultimate measure of the
success of an investment decision.
Page 23
comfort factor: this refers to the peace of mind associated with an
investment. Avoiding discomfort is probably a greater need than receiving
comfort. Reputation plays an important part in delivering the comfort factor.
tax efficiency: legitimate reduction in the amount of tax payable is an
important part of the indian psyche. Every rupee saved in taxes goes towards
wealth accumulation.
life cover: many investors look for investments that offer good return with
adequate life cover to manage the situations in case of any eventualities.
Income: this refers to money distributed at intervals by an investment, which
are usually used by the investor for meeting regular expenses. Income needs
tend to be fairly constant because they are related to lifestyle and are well
understood by investors.
Ease of withdrawal: this refers to the ability to invest long term but withdraw
funds when desired. This is strongly linked to a sense of ownership. It is
normally triggered by a need to spend capital, change investments or cater to
changes in other needs. Access to a long-term investment at short notice can
only be had at a substantial cost.
Communication: this refers to informing and educating investors about the
purpose and progress of their investments. The need to communicate increases
when investments are threatened.
Security of original capital is more important when performance falls.
Performance is more important when investments are performing well.
Failures engender a desire for an increase in the comfort factor.
Perfect investment would have been achieved if all the above-mentioned needs
had been met to satisfaction. But there is always a trade-off involved in
Page 24
making investments. As long as the investment strategy matches the needs of
investor according to the priority assigned to them, he should be happy.
The ideal investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and his
expectations. Accurate planning gives accurate results. And for that there must
be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth
maximization.
Choosing the right investment options

After understanding the concept of investment, the investors would like to
know how to go about the task of investment, how much to invest at any
moment and when to buy or sell the securities, this depends on investment
process as investment policy, investment analysis, valuation of securities,
portfolio construction and portfolio evaluation and revision. Every investor
tries to derive maximum economic advantage from his investment activity.
For evaluating an investment avenues are based upon the rate of return, risk
and uncertainty, capital appreciation, marketability, tax advantage and
convenience of investment.
Investment options in india

Non-marketable financial assets
A good portion of the financial assets of individual investors is held in the form
of non-marketable financial assets like bank deposits, post office deposits,
company deposits, provident fund deposits. The main feature of these assets is
that they represent personal transactions between the investor and the issuer. For
Page 25
Example, when you open a saving bank a/c , you deal with bank personally. In
contrast, when you buy equity shares in the stock market you do not know who
is the seller.
Bank deposits
Bank deposit simply refers to opening a bank a/c & depositing money in it.
There are various kind of bank a/cs: current a/c, saving a/c, fixed deposit a/c.
While a deposit in current a/c does not earn any interest, deposits in other bank
a/c earn interest.
Company deposits
Many companies, large and small, solicit fixed deposits from the public.fixed
deposits mobilized by manufacturing companies are regulated by rbi. Key
feature of co. Deposits are as :
1. For a manufacturing co. The term of deposits can be one to three
years, whereas for a non-banking finance co. It can vary between
25 months to 5 years.
2. The interest rate on it are higher than those on bank deposits.
3. Company deposit represent unsecured loans.
4. It offers the facility for premature withdrawal to attract deposits.
Public provident fund scheme
Individuals & hufs can participate in this scheme. A ppf a/c may be opened at
any branch of the sbi or its subsidiaries or at specified branches of other
nationalized banks. The subscriber to a ppf a/c is required to make a min.
Deposit of rs.100 per year. The max. Permissible deposit per year is
Page 26
rs.70000/-.ppf currently earn a compound interest rate of 8% p.a. Which is
totally exempt from taxes.
Fixed income securities

It includes the following:
Government securities
Saving bonds
Private sector debentures
Public sector undertaking bonds
Government securities
Debt securities issued by the central government, state government and quasigovernment agencies are referred to as govt. Securities or gilt-edged securities.
Govt. Securities have maturities ranging from 3-20 years and carry interest rates
that usually vary between 8 and 10 %.
Rbi savings bonds
Individuals, hufs, and nris can invest in these bonds. The minimum amount of
investment is rs.1000/-. There is no upper limit. The maturity period is 5 years
from the date of issue. The interest rate is 8% p.a., payable half-yearly. These
bonds can be offered as security to banks for availing loans.
Private sector debenture
Akin to promissory notes, debentures are instruments meant for raising longterm debt. The obligation of a co. Towards its debenture holders is similar to
that of a borrower who promises to pay interest and principal at specified times.
When a debenture issue is sold to the investing public, a trustee is appointed
through deed. The trustee is usually a bank or financial institution.
Public sector undertaking bonds
Page 27
Psus issue debentures that are referred to as psu bonds. There are two broad
varieties of psu bonds: taxable bonds and tax-free bonds. There is no deduction
of tax at source on the interest paid on these bonds. They are transferable by
mere endorsement and delivery. There is no stamp duty applicable on transfer.
They are traded on stock exchanges.
Fixed deposits
It same as a term or time deposit. Money may be placed with a bank, merchant
bank, building society or credit union for a fixed term at a fixed rate of interest
which remains unchanged during the period of the deposit. Depositors may have
to accept an interest penalty if they break the deposit, ie, ask to take the money
out before the agreed period has expired.few points which fd investors must
consider at the time of investment,
1. Safety
Fds have conventionally been the premier choice for investors with a low risk
appetite; assured returns is the key factor which attracts investors towards
deposits. Stick to fds of the highest credit rating i.e. Those with a aaa rating
even if their rates seem modest vis--vis those offered by company deposits.
2. Tenure
Page 28
Short tenured fixed deposits continue to be your best bet. With interest rates on
the ascent, a further hike in rates offered by fixed deposits cannot be ruled out.
Locking your investments in longer tenured instruments may lead to an
opportunity loss.
3. Liquidity
Find out how fd fares on the pre-mature encashment front i.e. How easily can
your investment be liquidated. Also enquire about the penalty clauses, e.g. Do
you suffer a loss of interest and/or principal amount. Compare how various fds
rank on this parameter and pick the best deal; thereby try to minimise the impact
of illiquidity which is typically associated with fds.
4. Additional benefits
Fixed deposits from reputed entities offer additional benefits, e.g. They can be
used as collateral against which loans can be raised. Select a fixed deposit
scheme which scores favourably on such parameters- any investment portfolio
should comprise the right mix of safe, moderate and risky investments. While
mutual funds and stocks are the favorite contenders for moderate and risky
investments,fixed deposits, government bonds etc. Are considered safe
investments. Fixed deposits have been particularly popular among a large
section of investors in india as a safe investment option for a long period.with
fixed deposits or fds as they are popularly known, a person can invest an
amount for a fixed duration. The banks provide interest rates depending on this
loan amount and the tenure of deposit. Here are the benefits, drawbacks of fixed
deposits and precautions one should take while making such investments.
Mutual funds
A mutual fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
Page 29
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realized is
shared by its unit holders in proportion to the number of units owned by them.
Thus a mutual fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket
of securities at a relatively low cost. The flow chart below describes broadly the
working of a mutual fund:
Organisation of a mutual fund

There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
Mutual fund units are issued and redeemed by the fund management company
based on the fund's net asset value (nav), which is determined at the end of each
trading session. Nav is calculated as the value of all the shares held by the fund,
minus expenses, divided by the number of units issued. Mutual funds are
usually long term investment vehicle though there some categories of mutual
funds, such as money market mutual funds which are short term instruments.
Page 30
A) Equity funds
Equity funds are considered to be the more risky funds as compared to other
fund types, but they also provide higher returns than other funds. It is advisable
that an investor looking to invest in an equity fund should invest for long term
i.e. For 3 years or more. There are different types of equity funds each falling
into different risk bracket. In the order of decreasing risk level, there are
following
Types of equity funds: Aggressive growth funds
Growth funds
Page 31
Equity income /dividend yield
Diversified equity funds
Equity index funds
Value funds
B) Money market/liquid funds
Money market / liquid funds invest in short-term (maturing within one year)
interest bearing debt instruments. These securities are highly liquid and provide
safety of investment, thus making money market / liquid funds the safest
investment option when compared with other mutual fund types. However, even
money market / liquid funds are exposed to the interest rate risk. The typical
investment options for liquid funds include treasury bills (issued by
governments), commercial papers (issued by companies) and certificates of
deposit (issued by banks).
C) Hybrid funds
As the name suggests, hybrid funds are those funds whose portfolio includes a
blend of equities, debts and money market securities. Hybrid funds have an
equal proportion of debt and equity in their portfolio. There are following types
of hybrid funds in india:
Balanced funds
Growth-and-income funds
Asset allocation funds
D) Gilt funds
Page 32
Also known as government securities in india, gilt funds invest in government
papers (named dated securities) having medium to long term maturity period.
Issued by the government of india, these investments have little credit risk (risk
of default) and provide safety of principal to the investors
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the pros and cons
of investments in mutual fund.
Advantages of investing mutual funds:
A. Professional management - the basic advantage of funds is that, they are
professional managed, by well qualified professional. Investors purchase funds
because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is considered to be relatively less expensive way to
make and monitor their investments.
B. Diversification - purchasing units in a mutual fund instead of buying
individual stocks or bonds, the investors risk is spread out and minimized up to
certain extent. The idea behind diversification is to invest in a large number of
assets so that a loss in any particular investment is minimized by gains in others.
C. Economies of scale - mutual fund buy and sell large amounts of securities at
a time, thus help to reducing transaction costs, and help to bring down the
average cost of the unit for their investors.
D. Liquidity - just like an individual stock, mutual fund also allows investors to
liquidate their holdings as and when they want.
E. Simplicity - investments in mutual fund is considered to be easy, compare to
other available instruments in the market, and the minimum investment is small.
Page 33
Most amc also have automatic purchase plans whereby as little as rs. 2000,
where sip start with just rs.50 per month basis.
Equity shares
At the most basic level, stock (often referred to as shares) is ownership, or

equity, in a company. Investors buy stock in the form of shares, which represent
a portion of a company's assets (capital) and earnings(dividends). As a
shareholder, the extent of your ownership (your stake) in a company depends on
the number of shares you own in relation to the total number of shares available
for example, if you buy 1000 shares of stock in a company that has issued a
total of 100,000 shares, you own one per cent of the company.
While one per cent seems like a small holding, very few private investors are
able to accumulate a shareholding of that size in publicly quoted companies,
many of which have a market value running into billions of pounds. Your stake
may authorize you to vote at the company's annual general meeting, where
shareholders usually receive one vote per share.
In theory, every stockholder, no matter how small their stake, can exercise some
influence over company management at the annual general meeting. In reality,
however, most private investors' stakes are insignificant. Management policy is
far more likely to be influenced by the votes of large institutional investors such
as pension funds.
a) Stocks symbols
Page 34
A stock symbol, or 'epic' symbol, is the standard abbreviation of a stock's name.
You can find stock symbols wherever stock performance information is
published - for example, newspaper stock listings and investment websites.
Company names also have abbreviations called ticker symbols. However, it's
worth remembering that these may vary at the different exchanges where the
company is quoted.
b) Performance indicators
Here is a list of the standard performance indicators

Performance indicator
Closing price:
definition
the last price at which the stock was bought or sold
High and low : the highest and lowest price of the stock from the previous
trading day
52 week range: the highest and lowest price over the previous 52 weeks
Volume:
the amount of shares traded during the previous trading day
high and low

Net change:
the difference between the closing price on the last trading day
and the closing price on the trading day prior to the last.
Derivative market
Page 35
is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign
exchange (forex), commodity or any other asset. Derivative products initially
emerged as hedging devices against fluctuations in commodity prices and
commodity-linked derivatives remained the sole form of such products for
almost three hundred years. The financial derivatives came into spotlight in
post-1970 period due to growing instability in the financial markets. However,
since their emergence, these products have become very popular and by 1990s,
they accounted for about two thirds of total transactions in derivative products.
Types of derivatives
The most commonly used derivatives contracts are forwards, futures and
options, which we shall discuss in detail later. Here we take a brief look at
various derivatives contracts that have come to be used.
A. Forwards: a forward contract is a customized contract between two entities,
where settlement takes place on a specific date in the future at today's preagreed price.
B. Futures: a futures contract is an agreement between two parties to buy or
sell an asset at a certain time in the future at a certain price. Futures contracts
are special types of forward contracts in the sense that the former are
standardized exchange-traded contracts.
c. Options: options are of two types - calls and puts. Calls give the buyer the
right but not the obligation to buy a given quantity of the underlying asset, at a
given price on or before a given future date. Puts give the buyer the right, but
not the obligation to sell a given quantity of the underlying asset at a given price
on or before a given date.
Page 36
D. Swaps: swaps are private agreements between two parties to exchange cash
flows in the future according to a prearranged formula. They can be regarded as
portfolios of forward contracts. The two commonly used swaps are:
Interest rate swaps: these entail swapping only the interest related
cash flows between the parties in the same currency.
Currency swaps: these entail swapping both principal and interest
between the parties, with the cash flows in one direction being in a
different currency than those in the opposite direction.
Insurance
People need insurance in the first place. An insurance policy is primarily meant
to protect the income of the familys bread earners. The idea is if any one or
both die their dependents continue to live comfortably. The circle of life begins
at birth follower by education, marriage and eventually after a life time of work
we look forward to life of retirement. Our finances too tend to change as we go
through the various phases of life. In the first twenty of our life, we are
financially and emotionally dependents on our parents and their are no financial
commitments to be met. In the next twenty years we
gain financial
independence and provide financial independence to our families. This is also

the stage when our income may be unable to meet the growing expenses of a
young household. In the next twenty as we see our investments grow after our
children grow and become financially independent. Insurance is a provision for
the distribution of risks that is to say it is a financial provision against loss from
unavoidable disasters. The protection which it affords takes form of a guarantee
to indemnify the insured if certain specified losses occur. The principle of
insurance so far as the undertaking of the obligation is concerned is that for the
Page 37
payment of a certain sum the guarantee will be given to reimburse the insured.
The insurer in accepting the risks so distributes them that the total of all the
amounts is paid for this insurance protection will be sufficient to meet the losses
that occur. Insurance then provide divided responsibility. This principle is
introduced in most stores where a division is made between the sales clerk and
the cashiers department the arrangement dividing the risks of loss. The
insurance principle is similarly applied in any other cases of divided
responsibility. As a business however insurance is usually recognized as some
form of securing a promise of indemnity by the payment of premium and the
fulfilment of certain other stipulations
Types of insurance
A)
term insurance plans
Term insurance is the cheapest form of life insurance available. Since a term
insurance contract only pays in the event of eventuality the life cover comes at
low premium rates. Term insurance is a useful tool to purchase against risk of
early death and protection of an asset.
B) Endowment plans
Endowment plans are savings
and protection plans that
provide a dual benefit of
protection
as
well
as
savings. Endowment plans

pay a death benefit in the event of an
eventuality should the customer survive the benefit period a maturity benefit is
paid to the life insured.
C) Whole of life plans
Page 38
A whole of life plan provides life insurance cover to an individual up to a
specified age. A whole of life plan is suitable for an individual who is looking
for an extended life insurance cover and /or wants to pay premium over as long
as tenure as possible to reduce the amount of upfront premium payment.
D) Pension plans
Pension plans allow an individual to save in a tax deferred manner. An
individual can either contribute through regular premiums or make single
premium investments. Savings accumulate over the deferment period. Once the
contract reaches the vesting age , the individual has the option of choosing an
annuity plan from a life insurance company. An annuity is paid till the life the
lifetime of the insured or a predetermined period depending upon the annuity
option chosen by the life insured.
E) Unit linked insurance plans
Unit linked insurance plan (ulip) is life insurance solution that provides for the
benefits of risk protection and flexibility in investment. The investment is
denoted as units and is represented by the value that it has attained called as net
asset value (nav). The policy value at any time varies according to the value of
the underlying assets at the time. In a ulip, the invested amount of the premiums
after deducting for all the charges and premium for risk cover under all policies
in a particular fund as chosen by the policy holders are pooled together to form
a unit fund. A unit is the component of the fund in a unit linked insurance
policy. The returns in a ulip depend upon the performance of the fund in the
capital market. Ulip investors have the option of investing across various
schemes, i.e., diversified equity funds, balanced funds, debt funds etc. It is
important to remember that in a ulip, the investment risk is generally borne by
the investor. In a ulip, investors have the choice of investing in a lump sum
(single premium) or making premium payments on an annual, half-yearly,
quarterly or monthly basis. Investors also have the flexibility to alter the
Page 39
premium amounts during the policy's tenure. For example, if an individual has
surplus funds, he can enhance the contribution in ulip. Conversely an individual
faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his ulip). Ulip investors
can shift their investments across various plans/asset classes (diversified equity
funds, balanced funds, debt funds) either at a nominal or no cost.
Expenses charged in a ulip

Premium allocation charge
A percentage of the premium is appropriated towards charges initial and
renewal expenses apart from commission expenses before allocating the units
under the policy.
Mortality charges
These are charges for the cost of insurance coverage and depend on number of
factors such as age, amount of coverage, state of health etc.
Fund management fees
Fees levied for management of the fund and are deducted before arriving at the
nav.
Administration charges
This is the charge for administration of the plan and is levied by cancellation of
units.
Surrender charges
Page 40
Deducted for premature partial or full encashment of units.
Fund switching charge
Usually a limited number of fund switches are allowed each year without
charge, with subsequent switches, subject to a charge.
Service tax deductions
Service tax is deducted from the risk portion of the premium.
Mutual funds
Mutual fund:mutual fund is a pool of money collected from investors and is invested according to stated
investment objectives mutual fund investors are like shareholders and they own the fund.
Mutual fund investors are not lenders or deposit holders in a mutual fund. Everybody else
associated with a mutual fund is a service provider, who earns a fee. The money in the mutual
fund belongs to the investors and nobody else. Mutual funds invest in marketable securities
according to the investment objective. The value of the investments can go up or down,
changing the value of the investors holdings.nav of a mutual fund fluctuates with market
price movements. The market value of the investors funds is also called as net assets.
Investors hold a proportionate share of the fund in the mutual fund. New investors come in
and old investors can exit, at prices related to net asset value per unit.
Emergence of mutual funds:Mutual funds now represent perhaps the most appropriate investment opportunity for most
small investors. As financial markets become more sophisticated and complex, investor need
a financial intermediary who provides the required knowledge and professional expertise on
successful investing. It is no wonder then that in the birthplace of mutual funds-the u.s.a.-the
fund industry has already overtaken the banking industry, with more money under mutual
fund management than deposited with banks. The indian mutual fund industry has already
opened up many exciting investment opportunities to indian investors. Despite the expected
continuing growth in the industry, mutual fund is a still new financial intermediary in india.
History of mutual funds:-
Page 41
In the second half of 19th century, investor in uk considered the stock market is good for the
investment. But for small investor it is not possible to operate in the market effectively. This
led to establishment of an investment company which led to the small investor to invest in
equity market. The first investment company was the scottish-american investment company,
set up in london in 1860.
Mutual fund industry in india:mutual fund is an instrument of investing money. Nowadays, bank rates have fallen down
and are generally below the inflation rate. Therefore, keeping large amounts of money in
bank is not a wise option, as in real terms the value of money decreases over a period of time.
One of the options is to invest the money in stock market. But a common investor is not
informed and competent enough to understand the intricacies of stock market. This is where
mutual funds come to the rescue. A mutual fund is a group of investors operating through a
fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost
efficient and very easy to invest in. By pooling money together in a mutual fund, investors
can purchase stocks or bonds with much lower trading costs than if they tried to do it on their
own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest
Benefits of investing in mutual funds
Professional management: mutual funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.
Diversification: Mutual funds invest in a number of companies across a broad cross-section of industries and
sectors. This diversification reduces the risk because seldom do all stocks decline at the same
time and in the same proportion. You achieve this diversification through a mutual fund with
far less money than you can do on your own.
Convenient administration: -
Page 42
Investing in a mutual fund reduces paperwork and helps you avoid many problems such as
bad deliveries, delayed payments and follow up with brokers and companies. Mutual funds
save your time and make investing easy and convenient.
Return potential: Over a medium to long-term, mutual funds have the potential to provide a higher return as
they invest in a diversified basket of selected securities.
Low costs: mutual funds are a relatively less expensive way to invest compared to directly investing in
the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investors.
Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related
prices from the mutual fund. In closed-end schemes, the units can be sold on a stock
exchange at the prevailing market price or the investor can avail of the facility of direct
repurchase at nav related prices by the mutual fund.
Transparency: You get regular information on the value of your investment in addition to disclosure on the
specific investments made by your scheme, the proportion invested in each class of assets and
the fund manager's investment strategy and outlook.
Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs
and convenience.
Types of mutual funds
Mutual fund schemes may be classified on the basis of its structure and its objective:By structure:Open-ended funds:Page 43
An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at net asset value ("nav")
related prices. The key feature of open-end schemes is liquidity.
Closed-ended funds:A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest
in the scheme at the time of the initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where they are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at nav related prices. Sebi regulations stipulate that
at least one of the two exit routes is provided to the investor.
Interval funds:Interval funds combine the features of open-ended and close-ended schemes. They are open
for sale or redemption during pre-determined intervals at nav related prices.
Money market funds:The aim of money market funds is to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on
these schemes may fluctuate depending upon the interest rates prevailing in the market. These
are ideal for corporate and individual investors as a means to park their surplus funds for
short periods.
Load funds:A load fund is one that charges a commission for entry or exit. That is, each time you buy or
sell units in the fund, a commission will be payable. Typically entry and exit loads range from
1% to 2%. It could be worth paying the load, if the fund has a good performance history.
Page 44
Various
types
mutual
funds:
of
equity
funds: Equity funds are
the
more
risky
considered to be
funds
as
compared to other fund types,
but they also provide higher returns than other funds. It is advisable that an investor looking
to invest in an equity fund should invest for long term i.e. For 3 years or more. There are
different types of equity funds each falling into different risk bracket. In the order of
decreasing risk level, there are following types of equity funds:-
Aggressive growth funds:In aggressive growth funds, fund managers aspire for maximum capital appreciation and
invest in less researched shares of speculative nature. Because of these speculative
investments aggressive growth funds become more volatile and thus, are prone to higher risk
than other equity funds.
Growth funds: Growth funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they
are different from aggressive growth funds in the sense that they invest in companies that are
expected to outperform the market in the future. Without entirely adopting speculative
strategies, growth funds invest in those companies that are expected to post above average
earnings in the future.
Specialty funds: -
Page 45
Specialty funds have stated criteria for investments and their portfolio comprises of only
those companies that meet their criteria. Criteria for some specialty funds could be to
invest/not to invest in particular regions/companies. Specialty funds are concentrated and
thus, are comparatively riskier than diversified funds. There are following types of specialty
funds:
Sector funds:Equity funds that invest in a particular sector/industry of the market are known as sector
funds. The exposure of these funds is limited to a particular sector (say information
technology, auto, banking, pharmaceuticals or fast moving consumer goods) which is why
they are more risky than equity funds that invest in multiple sectors.
Foreign securities funds:Foreign securities equity funds have the option to invest in one or more foreign companies.
Foreign securities funds achieve international diversification and hence they are less risky
than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk
and country risk.
Mid-cap or small-cap funds:Funds that invest in companies having lower market capitalization than large capitalization
companies are called mid-cap or small-cap funds. Market capitalization of mid-cap
companies is less than that of big, blue chip companies (less than rs. 2500 crore but more
than rs. 500 crore) and small-cap companies have market capitalization of less than rs. 500
crore. Market capitalization of a company can be calculated by multiplying the market price
of the company's share by the total number of its outstanding shares in the market. The shares
of mid-cap or small-cap companies are not as liquid as of large-cap companies which gives
rise to volatility in share prices of these companies and consequently, investment gets risky.
Option income funds:While not yet available in india, option income funds write options on a large fraction of their
portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as
Page 46
a risky instrument. These funds invest in big, high dividend yielding companies, and then sell
options against their stock positions, which generate stable income for investors.
Diversified equity funds: Except for a small portion of investment in liquid money market, diversified equity funds
invest mainly in equities without any concentration on a particular sector(s). These funds are
well diversified and reduce sector-specific or company-specific risk. However, like all other
funds diversified equity funds too are exposed to equity market risk. One prominent type of
diversified equity fund in india is equity linked savings schemes (elss). As per the mandate, a
minimum of 90% of investments by elss should be in equities at all times. Elss investors are
eligible to claim deduction from taxable income (up to rs 1 lakh) at the time of filing the
income tax return. Elss usually has a lock-in period and in case of any redemption by the
investor before the expiry of the lock-in period makes him liable to pay income tax on such
income(s) for which he may have received any tax exemption(s) in the past.
Equity index funds: Equity index funds have the objective to match the performance of a specific stock market
index. The portfolio of these funds comprises of the same companies that form the index and
is constituted in the same proportion as the index. Equity index funds that follow broad
indices (like s&p cnx nifty, sensex) are less risky than equity index funds that follow narrow
sectoral indices (like bsebankex or cnx bank index etc). Narrow indices are less diversified
and therefore, are more risky.
Value funds:Value funds invest in those companies that have sound fundamentals and whose share prices
are currently under-valued. The portfolio of these funds comprises of shares that are trading
at a low price to earnings ratio (market price per share / earning per share) and a low market
to book value (fundamental value) ratio. Value funds may select companies from diversified
sectors and are exposed to lower risk level as compared to growth funds or specialty funds.
Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) Which
make them volatile in the short-term. Therefore, it is advisable to invest in value funds with a
long-term time horizon as risk in the long term, to a large extent, is reduced.
Page 47
Equity income or dividend yield funds: The objective of equity income or dividend yield
equity funds is to generate high recurring
income and steady capital appreciation for
investors by investing in those companies which
issue high dividends (such as power or utility
companies
whose
share
prices
fluctuate
comparatively lesser than other companies'

share prices). Equity income or dividend yield
equity funds are generally exposed to the lowest
risk level as compared to other equity funds.
Debt / income funds:Funds that invest in medium to long-term debt instruments issued by private companies,
banks, financial institutions, governments and other entities belonging to various sectors (like
infrastructure companies etc.) Are known as debt / income funds. Debt funds are low risk
profile funds that seek to generate fixed current income (and not capital appreciation) to
investors. In order to ensure regular income to investors, debt (or income) funds distribute
large fraction of their surplus to investors. Although debt securities are generally less risky
than equities, they are subject to credit risk (risk of default) by the issuer at the time of
interest or principal payment. To minimize the risk of default, debt funds usually invest in
securities from issuers who are rated by credit rating agencies and are considered to be of
"investment grade". Debt funds that target high returns are more risky. Based on different
investment objectives, there can be following types of debt funds:Diversified debt funds: Debt funds that invest in all securities issued by entities belonging to all sectors of the market
are known as diversified debt funds. The best feature of diversified debt funds is that
investments are properly diversified into all sectors which results in risk reduction. Any loss
incurred, on account of default by a debt issuer, is shared by all investors which further
reduces risk for an individual investor.
Focused debt funds: -
Page 48
Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined
to investments in selective debt securities, issued by companies of a specific sector or
industry or origin. Some examples of focused debt funds are sector, specialized and offshore
debt funds, funds that invest only in tax free infrastructure or municipal bonds. Because of
their narrow orientation, focused debt funds are more risky as compared to diversified debt
funds. Although not yet available in india, these funds are conceivable and may be offered to
investors very soon.
High yield debt funds: As we now understand that risk of default is present in all debt funds, and therefore, debt
funds generally try to minimize the risk of default by investing in securities issued by only
those borrowers who are considered to be of "investment grade". But, high yield debt funds
adopt a different strategy and prefer securities issued by those issuers who are considered to
be of "below investment grade". The motive behind adopting this sort of risky strategy is to
earn higher interest returns from these issuers. These funds are more volatile and bear higher
default risk, although they may earn at times higher returns for investors.
Assured return funds: Although it is not necessary that a fund will meet its objectives or provide assured returns to
investors, but there can be funds that come with a lock-in period and offer assurance of
annual returns to investors during the lock-in period. Any shortfall in returns is suffered by
the sponsors or the asset management companies (amcs). These funds are generally debt
funds and provide investors with a low-risk investment opportunity. However, the security of
investments depends upon the net worth of the guarantor (whose name is specified in advance
on the offer document). To safeguard the interests of investors, sebi permits only those funds
to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns
in the future. In the past, uti had offered assured return schemes (i.e. Monthly income plans of
uti) that assured specified returns to investors in the future. Uti was not able to fulfill its
promises and faced large shortfalls in returns. Eventually, government had to intervene and
took over uti's payment obligations on itself. Currently, no amc in india offers assured return
schemes to investors, though possible.
Fixed term plan series: -
Page 49
Fixed term plan series usually are closed-end schemes having short term maturity period (of
less than one year) that offer a series of plans and issue units to investors at regular intervals.
Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan
series usually invest in debt / income schemes and target short-term investors. The objective
of fixed term plan schemes is to gratify investors by generating some expected returns in a
short period.
Gilt funds:Also known as government securities in india, gilt funds invest in government papers (named
dated securities) having medium to long term maturity period. Issued by the government of
india, these investments have little credit risk (risk of default) and provide safety of principal
to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk.
Interest rates and prices of debt securities are inversely related and any change in the interest
rates results in a change in the nav of debt/gilt funds in an opposite direction.
Money market / liquid funds:Money market / liquid funds invest in short-term (maturing within one year) interest bearing
debt instruments. These securities are highly liquid and provide safety of investment, thus
making money market / liquid funds the safest investment option when compared with other
mutual fund types. However, even money market / liquid funds are exposed to the interest
rate risk. The typical investment options for liquid funds include treasury bills (issued by
governments), commercial papers (issued by companies) and certificates of deposit (issued
by banks).
Hybrid funds:As the name suggests, hybrid funds are those funds whose portfolio includes a blend of
equities, debts and money market securities. Hybrid funds have an equal proportion of debt
and equity in their portfolio. There are following types of hybrid funds in india:
Balanced funds: The portfolio of balanced funds includes assets like debt securities,
convertible securities,
and equity and preference shares held in a relatively equal proportion. The objectives of
balanced funds are to reward investors with a regular income, moderate capital appreciation
Page 50
and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate
for conservative investors having a long term investment horizon.
Growth-and-income funds: Funds that combine features of growth funds and income funds are known as growth-andincome funds. These funds invest in companies having potential for capital appreciation and
those known for issuing high dividends. The level of risks involved in these funds is lower
than growth funds and higher than income funds.
Asset allocation funds: Mutual funds may invest in financial assets like equity, debt, money market or non-financial
(physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable
asset allocation strategy that allows fund managers to switch over from one asset class to
another at any time depending upon their outlook for specific markets. In other words, fund
managers may switch over to equity if they expect equity market to provide good returns and
switch over to debt if they expect debt market to provide better returns. It should be noted
that switching over from one asset class to another is a decision taken by the fund manager on
the basis of his own judgment and understanding of specific markets, and therefore, the
success of these funds depends upon the skill of a fund manager in anticipating market trends.
Commodity funds:Those funds that focus on investing in different commodities (like metals, food grains, crude
oil etc.) Or commodity companies or commodity futures contracts are termed as commodity
funds. A commodity fund that invests in a single commodity or a group of commodities is a
specialized commodity fund and a commodity fund that invests in all available commodities
is a diversified commodity fund and bears less risk than a specialized commodity fund.
"precious metals fund" and gold funds (that invest in gold, gold futures or shares of gold
mines) are common examples of commodity funds.
Page 51
Real estate funds:Funds that invest directly in real estate or
lend to real estate developers or invest in
shares/securitized assets of housing finance
companies, are known as specialized real
estate funds. The objective of these funds
may be to generate regular income for
investors or capital appreciation.
Exchange traded funds (etf):Exchange
traded
funds
provide
investors with combined benefits of a closed-end and an open-
end mutual fund.
Exchange traded funds follow stock market indices and are traded on stock exchanges like a
single stock at index linked prices. The biggest advantage offered by these funds is that they
offer diversification, flexibility of holding a single share (tradable at index linked prices) at
the same time. Recently introduced in india, these funds are quite popular abroad.
Fund of funds:Mutual funds that do not invest in financial or physical assets, but do invest in other mutual
fund schemes offered by different amcs, are known as fund of funds. Fund of funds maintain
a portfolio comprising of units of other mutual fund schemes, just like conventional mutual
funds maintain a portfolio comprising of equity/debt/money market instruments or non
financial assets. Fund of funds provide investors with an added advantage of diversifying into
different mutual fund schemes with even a small amount of investment, which further helps
in diversification of risks. However, the expenses of fund of funds are quite high on account
of compounding expenses of investments into different mutual fund schemes.
Fund structure and constituents:Mutual funds in india have a 3-tier structure of sponsor-trustee-amc .sponsor is the promoter
of the fund. Sponsor creates the amc and the trustee company and appoints the boards of both
these companies, with sebi approval. A mutual fund is constituted as a trust. A trust deed is
signed by trustees and registered under the indian trust act. The mutual fund is formed as trust
in india, and supervised by the board of trustees. The trustees appoint the asset management
Page 52
company (amc) to actually manage the investors money. The amcs capital is contributed by
the sponsor. The amc is the business face of the mutual fund. Investors money is held in the
trust (the mutual fund). The amc gets a fee for managing the funds, according to the mandate
of the investors. The trustees make sure that the funds are managed according to the
investors mandate. Sponsor should have atleast 5-year track record in the financial services
business and should have made profit in atleast 3 out of the 5 years. Sponsor should
contribute atleast 40% of the capital of the amc. Trustees are appointed by the sponsor with
sebi approval. Atleast 50% of trustees should be independent. Atleast 50% of the amcs board
should be of independent members. An amc cannot engage in any business other than
portfolio advisory and management. An amc of one fund cannot be trustee of another
fund.amc should have a net worth of at least rs. 10 crore at all times. Amc should be
registered with sebi amc signs an investment management agreement with the trustees.
Trustee company and amc are usually private limited companies. Trustees oversee the amc
and seek regular reports and information from them. Trustees are required to meet atleast 4
times a year to review the amc the investors funds and the investments are held by the
custodian. Sponsor and the custodian cannot be the same entity. R&t agents manage the sale
and repurchase of units and keep the unit holder accounts. If the schemes of one fund are
taken over by another fund, it is called as scheme take over. This requires sebi and trustee
approval. If two amcs merge, the stakes of sponsors changes and the schemes of both funds
come together. High court, sebi and trustee approval needed. If one amc or sponsor buys out
the entire stake of another sponsor in an amc, there is a takeover of amc.
Page 53
Conclusion
Over the years, much of the mystery about financial markets have been removed layer by
layer. Besides, Indian market are now one of the best regulated markets in the world. Hence,
it is also time that along with increasing the overall literacy, we as a country also focus on
increasing financial literacy. This would turn India from a country of good savers to a country
of wise savers and help build financially strong and secure India.People should learned first
and then investor should consult their financial advisor before investing.If people have
adequate knowledge then they can earn good return in stock market.Intraday trading should
not be traded by normal man as they lose money due to volatility in the market.People should
invest in stock market as a long term investor rather than short term because in short term risk
is many and profit are less.F&o do cover risk of future so my advice is those have adequate
knowledge should invest in f&o segment and others should start first with cash market with
long term perspective.
Page 54
Bibliography
www.infoindia.com
www.proiectindia.com
www.nifty.co.in
www.sipnsurf.com
Wiblography: Securities laws and regulations of financial markets

National securities depository limited
Fundamentals of futures & options markets- john c. Hull
Financial derivatives- s. L. Gupta
Page 55

Final Avenues of Investments1

Uploaded by

Copyright:

Available Formats

Final Avenues of Investments1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Avenues of Investments1

Uploaded by

Copyright:

Available Formats

Avenues of Investments

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

according to the above definition the current

For the time the funds are committed

according to economists, the term investment refers to the

-------------------------------------------------------------------purchase price of the sucurity

It is said that speculation

knowledge about the different avenues enable the investors to choose

avenues are further classified

negotiable securities that are not

securities may yield variable

The company proposes the following to the customers:

3.2 products offerd

The snapshots of products of unicon are:

certificate for commencement of

on may 9, 2003. It has commenced

physical shares can be converted into

electronic form through dematerialization at any of the unicon

electronic shares on request of re-

materialization enables one to convert dematerialized shares into

one can transfer shares through inter and intra

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

is invested into a variety of

Mutual funds issue units to the

assets of the mutual fund. Thus a mutual fund is

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

at any point of time.

He is allowed to invest only

capital of a company. The

value of equity of any

purchased by all nri's and

exceed 10 percent of the

the company and in the case

the aggregate paid up value of

each series of debentures purchased

bank branch, within 24 hours of the transaction.

Dealing in all types of money market instruments viz. Commercial

Dealing in government securities (including securities of oil,

Retailing of central, state government securities and bonds to pf

Advisory services to pf trusts.

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

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

Choosing the right investment options

Investment options in india

Fixed income securities

Organisation of a mutual fund

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

Here is a list of the standard performance indicators

the last price at which the stock was bought or sold

the amount of shares traded during the previous trading day

high and low

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

term insurance plans

savings. Endowment plans

Expenses charged in a ulip

compared to other fund types,

comparatively lesser than other companies'

investors with combined benefits of a closed-end and an open-

end mutual fund.