SYNOPSIS ON

AN ANALYSIS OF VARIOUS INVESTMENT OPTIONS AVAILABE IN INDIA & SELECTING THE BEST PORTFOLIO MIX
BY

PRIYANKA Registration. No. 581120623

A Synopsis submitted in partial fulfillment of the requirements for the degree of Master of Business Administration of Sikkim Manipal University, INDIA

INSOFT
C 2, SECTOR 10, NOIDA 201 301 CENTER CODE : 01822
Sikkim Manipal University of Health, Medical and Technological Science Distance Education Wing Syndicate House, Manipal 576104

DECLARATION

I hereby declare that the synopsis entitled: A Synopsis on An Analysis Of Investment Option Available In India and Selecting The Best Portfolio Mix submitted in partial fulfillment of the requirement for the degree of Masters of Business Administration to Sikkim Manipal University, India, is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes. Place: Noida Date: ( ) Signature____________ (Reg. No. 581120623)

CERTIFICATE
The synopsis of PRIYANKA (Registration No. 581120623) A synopsis on An Analysis Of Investment Option Available In India and Selecting The Best Portfolio Mix is approved and is acceptable in quality and form.

Internal Examiner _______________)

External Examiner (Mr.

INDEX

PAGE NO. Executive Summary Introduction Problem of Study Objectives Research Methodology Analysis Conclusion Recommendation Bibliography 05 12 13 14 15 16 17 19 20

EXECUTIVE SUMMARY
In its broadest sense, an investment is the sacrifice of current money or other resources for future benefits. Numerous avenues of investment are available today. We can either deposit money in the bank account or purchase a long term government bond or invest in the equity shares of the company or contribute to a provident fund account or buy a stock option or acquire a plot of land or invest in some other form. Investment may be defined as an activity that commits funds in any financial / physical form in the present with an expectation of receiving additional return in the future. The two key aspects of any investment are time and risk. The sacrifice takes place and is certain. The benefit is expected in the future and tends to be uncertain. Income when not consumed immediately as expenditure promotes savings. A prudent and consistent saving habit of less income earners to set aside a certain amount of current income for the future income. 3 main objectives of the investment are 1. 2. 3. Earn return Future cash flow To avail tax saving schemes of government

In order to foster investment habits, many economies offer incentives in the form of tax saving schemes. Tax rates are applicable for a fiscal year, therefore to cut down on immediate tax expenditures an investor would invest in tax saving schemes offered by the government. These objectives of the investor to reduce present tax payments also offer a marginal return to investor in the future.

Today choosing a best investment plan is difficult because there are so many investment options available. These days we are getting more money compared to last decades. A five step procedure of investment includes the following: Set investment policy Perform investment analysis Construct a portfolio Revise the portfolio Evaluate the performance of the portfolio

1)

Set Investment Policy

The first step in the portfolio management process is to specify the ones investment objectives and constraints. The commonly stated investment goals are:INCOME - To provide a steady income through the regular interest or divided payment. GROWTH -To increase the value of the principal amount through capital appreciation. STABILITY Since income and growth represent two ways by which return is generated and investment objectives may be expressed in terms of return and risk. An investor will be interested in higher return and lower level risk. However the risk and return go hand to hand, so an investor has to bear a higher level of risk in order to earn a higher return.

2)

Perform Investment Analysis

It involves examining all the alternatives available to an investor within the broad categories of financial assets

1. GOVERNMENT SECURITIES - It's not uncommon to find investors who have a high percentage of their portfolio composed with these securities. A government securities investment fund would use almost all of these instruments, assuring the organization or individual the stability of his investment. Benefits and Risks of Investing In Government Securities One of the benefits of government securities is that some of them don't pay state or local taxes. That means a higher return on security investment. US Treasury Notes, Bills and Bonds fall within this category. Zero coupon bonds are included too. Unfortunately, TIPS have a limited advantage regarding taxes. Although they don't pay local or state taxes, they do pay federal taxes. The main risk is the cost of opportunity. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities. So, if you pursue this path, you may find yourself wondering a what if scenario Bank Fixed Deposits (FD) Fixed Deposit or FD is the most preferred

investment option today. It yields up to 8.5% annual return depends on the Bank and period. Minimum period is 15 days and maximum is 5 years and above. Senior citizens get special interest rates for Fixed Deposits. This is considered to be a safe investment because all banks operated under the guidelines of Reserve Bank of India. National Saving Certificate (NSC) NSC is backed by Govt. of India so it

is a safe investment method. Lock in period is 6 years. Minimum amount is Rs100 and no upper limit. You get 8% interest calculated twice a year. NSC comes under Section 80C so you will get an income tax deduction up to Rs. 1, 00,000. From FY 2005-'06 onwards interest accrued on NSC is taxable. Public Provident Fund (PPF)PPF is another form of investment backed by Govt. of India. Minimum amount is Rs500 and maximum is Rs70, 000 in a financial year. A PPF account can be opened in a head post office, GPO and selected branches of nationalized

banks. PPF also comes under Section 80C so individuals could avail income tax deduction up to Rs 1, 00,000. Lock in period for PPF is 15 years and interest rate is 8%. Unlike NSC, PPF interest rate is calculated annually. Both PPF and NSC considered being best investment option as it is backed by Government of India. Zero Coupon Bonds The main difference of a zero coupon bond is that it doesn't make any kind of payment during the period of the bond, only at the end. They have become quite popular in the last years. Treasury Bills These kinds of bonds are the shortest government security available. Considered a high risk investment, they don't offer any kind of interest gain during the lifetime of the bill, only at the end. They are very similar to zero coupon bonds, but the main difference is the amount of time they endure (only a few months instead of decades). Treasury Inflation-Protected Securities (TIPS) TIPS are one of two kinds of securities issued by the US Government that are protected from inflation. They are tied to the Consumer Price Index (CPI) in such a way that, if there is inflation or deflation, the initial investment increases or decreases, respectively. The payments are made every six months U.S. Savings Bonds These financial instruments are issued by the federal government in United States of America. They are absolutely risk free and in any case you will not be paid less than the face value of the bond. One of the major advantages of this bond is that you are exempted from paying any kind of tax when the government credits the interest proceeds from the bond into your account. Unlike other kind of government securities, these bonds can't be traded in the secondary market. They are sold to individual investors and can only be bought
8

directly from the U.S. Treasury. Post office deposits: A Post-Office Recurring Deposit Account (RDA) is a banking service offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after five years. The scheme, a systematic way for long term savings, is one of the best for the low income group 2. GOLD - This is another important commodity for investment. The price for gold depends mainly on the demand in your country. The quantity of oil that your country can produce or supply or posses at a particular time also decides the price. Gold prices can also decline drastically or increase all on a sudden. However they are not as risky as investing in the stock market. 3. MUTUAL FUNDS - Mutual funds are collective investments undertaken by commercial entities. They collect funds fro m individual and institutional investors and invest them in various stock options. The returns and risks are shared according to t he individual contribution in the total sum. Mutual funds are also less risky when compared with stock markets. Lesser risks and service of financial experts with regards to investing in stock market has contributed to the popularity of mutual funds and today it remains to be a financial instrument highly demanded in the market. Even if you have little money to invest you can choose this scheme. 4. FOREX - Forex expands foreign exchange. In this type of investment you can make profits by selling and buying foreign currencies. This is the most profitable investment. However you need to be prepared for taking lot of risks as foreign exchange rates fluctuate to a vast extent on the basis of internal and external factors. You need to comply with lots of formalities from the local government if you wish to engage in fore=890.

5. CORPORATE BONDS- A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.) Sometimes, the term "corporate bonds" is used to include all bonds except those issued by governments in their own currencies. Strictly speaking, however, it only applies to those issued by corporations. 6. ELSS- Equity Linked Saving Scheme (ELSS) Equity linked saving schemes is a kind of mutual funds like diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS. 7. LIFE INSURANCE - Life insurance is often used as an investment for retirement planning. Basic life insurance can be divided into two general categories, term insurance and whole life insurance. When you buy term insurance, you pay premiums in exchange for a death benefit over a specified period of time. This is the least expensive type of life insurance. Because the death benefit is all that you get with term insurance, it's never sold as an investment.
[1]

The

term is usually applied to longer-term debt instruments, generally with a maturity date

Construct a portfolio
It involves identifying those specific assets in which to invest in consideration with the risk and return an investor is compatible to. Also the proportion of the amount an investor should invest in each decided alternative so as to minimize risk and yield high returns in stipulated time period.

Revise the portfolio

10

It includes the periodic review of the portfolio .An investor may due to environmental factors withdraw his money from a particular asset and diversify it into some other instrument so as to meet the objectives.

Evaluate the performance of the portfolio

The investor is also required to periodically evaluate how his portfolio is performing in terms of risk, return and time period. Portfolio managers, to be successful, have to work on any one or more of the following strategies: Timing the market. Selection of superior stocks or groups of stocks. Making changes in the portfolio structure and/or strategy. Having a long-term investment philosophy.

While the above strategies do look impressive on paper, empirical studies made on the performance of the fund managers have proved that it is very unlikely that a fund manager consistently outperforms the market from these strategies in the long run and that it is therefore better to hold the market portfolio.

11

INTRODUCTION

This project deals with the different investment decisions made by different people and focuses on element of risk in detail while investing in securities. It also explains how portfolio hedges the risk in investment and giving optimum return to a given amount of risk. It also gives an in depth analysis of portfolio creation, selection, revision and evaluation. The report also shows different ways of analysis of securities for effective and efficient portfolio construction. It also gives a brief analysis of how to evaluate a portfolio. Investment is the active redirection of resources/assets to creating benefits in the future; the use of resources/assets to earn income or profit in the future. It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance matter for households, firms, or governments. An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (futures and options) or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. Investment comes with the risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky with respect to the investment owner because the possibility of losing money is not within the owner's control. It depends on the investment owner's mind whether the purpose is for lending the resource to someone else for economic purpose or not.

12

PROBLEM OF THE STUDY

This report would cover the material particularly useful and relevant for todays investment climate. It would prefer about what we can reasonably expect to accomplish by using what we learn and what we can realistically expect to achieve as an investor in todays investment world. As many investors have an unrealistic expectations and this ultimately leads to disappointments in results achieved. So through this report we try to remove all myths and cons of an investment in a policy or in a option available to an investor. Any investor before investing should take into consideration the safety, liquidity, returns, entry/exit barriers and tax efficiency parameters. We need to evaluate each investment option on the above-mentioned basis and then invest money. Today investor faces too much confusion in analyzing the various investment options available and then selecting the best suitable one. In the present project, investment options are compared on the basis of returns as well as on the parameters like safety, liquidity, term holding etc. thus assisting the investor as a guide for investment purpose. In last 5 decades or so the field of investment has received considerable attention from everyone. The issues off understanding are How should risk be measured? How should financial assets be valued? What is the relation between the risk and return? How efficiently financial markets function? What is the importance of assets allocation? What is the role of diversification in portfolio management? How successful are the various strategies followed by the investment practitioners?

13

Our project provides a guided tour of the so called complex world of investment and seeks to improve our skills in managing investments. However following limitations were faced while constructing a report The study was limited to only seven investment options. little amount of primary data associated with the project. project. study There was a constraint with regard to time allocated for the research Detailed study of the topic was not possible due to the limited size of the The data collected is basically confined to secondary sources, with very

OBJECTIVES OF THE STUDY

To help the investors to decide the effective portfolio of securities. To identify the best investment options available in the market so as to maximize the return and minimize the risk of investor. To study the role and impact of securities in investment decisions. To clearly defining the portfolio selection process. To select an optimal portfolio

14

RESEARCH METHODOLOGY
We are primarily interested in the view point of the individual investor. A major difference in the institutional investor and the individual investor is in regard to the time horizon. The objective of the report will be to understand the investment fields for the individual investor and to make sound decision that enhance the economic welfare. Govt Securities, Gold, Mutual Funds and Life Insurance were identified as major types of investment decision. Report contains data from secondary sources. The secondary data for the project regarding investment and various investment decisions were collected from websites, textbooks and internet and search engines. It includes current data about 6 best investment options available for 2013, which was obtained from websites. Stages of our research process 1. First we would analyze all the option available to a investor for the purpose of investment. 2. Each option would be studied in detail as to what will be the rate of return,

time of maturity, cash flow of an investment, risk involved, tax benefits in investing in a particular asset etc. 3. Construct a portfolio which will maximize the return and minimize the risk.

15

4. Come out with an intellectual decision as to diversify investment option so as to gain maximum return.

ANALYSIS
The project gives the brief idea regarding the various investment options that are prevailing in the financial markets in India. With lots of investment options like banks, Fixed Deposits, Government bonds, stock market, gold and mutual funds. The common investor ends up more confused than ever. Each and every investment option has its own merits and demerits. Here we have discussed about few investment options available. This report Describes the characteristics of various investment alternatives available to investors Explores the implications of modern research in the field of investment Present a framework for portfolio management Provides insight into the strategies followed by investment wizard of the world Sensitizes the reader to the pitfalls in the investment game Offers a set of guidelines for investors with varying inclinations

Many people consider investing to be a daunting activity. They are bewildered by the profusion and proliferation of the investment alternatives, rattled by the fluctuations in financial prices, overwhelmed by the presence of the mighty institutional investors, confounded by the exotic instruments and complicated investment strategies, confused by the intricacies of the tax system and exasperated by the financial scams that periodically rock the market. Notwithstanding these concerns, investing can be fairly manageable, rewarding and enjoyable experience, if we adhere to certain principles and guidelines. The successful investor thinks that

16

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or, inside information. What is needed is a sound intellectual framework for the decision making and the ability to keep emotions from corroding that framework.

CONCLUSION
Investment is a subjective matter. It is of crucial to invest the proper amount with Proper Avenue. There are plenty of investment avenues to invest the money but before making any investment, it is important to get the comprehensive information of that particular investment avenue. All the concerned data and facts need to know in details. It is very much advisable and prudent, not to take any decision of investment based on whims and fancies of people, never imitate the people. Investment made based on unsuitable advises may prove to be dangerous. Blind investment may become reason for collapse of wealth. So get the wide-ranging and sensible information based on some trustworthy source before making any investment. Before making investment decision gather data related to following: Amount of investment Risk & Return on investment Liquidity of investment Market perception of investment Timing of investment Various Options Available including shares, debentures, Mutual fund, FDs etc Remember the Importance of Diversification. Throughout the entire portfolio construction process, it is vital that you remember to maintain your diversification above all else. It is not enough simply to own securities

17

from each asset class; you must also diversify within each class. Ensure that your holdings within a given asset class are spread across an array of subclasses and industry sectors. Construct a Portfolio according to individual requirement If the portfolio manager is efficient and the investor is risk tolerant person and the investment is a long term perspective then it is better to invest in the MID-Caps & SMALL-Caps companies securities, where the growth of returns are higher than the LARGE-Caps . If investor is not risk tolerant person & short-term perspective its good to invest in large caps companies securities. Review , Rebalance and Evaluate a portfolio timely so as to get maximum returns

18

RECOMMENDATION
Diversification of portfolios in various projects or securities may reduce high risk and it provides the high wealth to the shareholders. There are several investments to choose from these include equities, debt, mutual funds and gold. Each class of assets has its peculiarities. At any instant, some of those assets will offer good returns, while others will be losers. Most investors in search of extraordinary investments try hard to find a single asset. Some look for the next infosys, other buys real estate or gold. Many of them deposit their savings in the Public Provident Fund (PPF) or post office deposits, others plump for debt mutual funds. Very few buy across all asset classes or diversify within an asset class. Therefore it has been widely said that Dont put all your eggs in one basket. The idea is to create a portfolio that includes multiple investments in order to reduce risk. Regardless of your means of method, keep in mind that there is no generic diversification model that will meet the needs of every investor. Your personal time horizon, risk tolerance, investment goals, financial means, and level of investment experience will play a large role in dictating your investment experience will play a large role in dictating your investment mix. Start by figuring out the mix of stock, bonds and cash that will be required to meet your needs. alternatives as needed. The Bottom Line Overall, a well-diversified portfolio is your best bet for consistent long-term growth of your investments. It protects your assets from the risks of large From there determine exactly which investments to in completing the mix, substituting traditional assets for

19

declines and structural changes in the economy over time. Monitor the diversification of your portfolio, making adjustments when necessary, and you will greatly increase your chances of long-term financial success.

BIBLIOGRAPHY
Websites www.bseindia.com www.myinvestmentidea.com www.investopedia.com www.citeman.com www.mutualfundsindia.com www.en.wikipedia.org/wiki/Investment www.ilikeinvesting.com/ www.investorwords.com/2599/investment.html www.investmentmap.com www.investmentcommission.in Text Books Investment Analysis and Portfolio Management - Prasanna Chandra Investments Portfolio Handbook Security Analysis and Portfolio Management - Sharpe & Alexander - Robert A Strong - Fischer & Jordan

Search Engine Google.com

20