Final Summer Interns Project

Summer Training Project On
“Spectrum of Investment Avenues in India”
Submitted To
ANJUMAN I ISLAM’s ALLANA INSTITUTE OF MANAGEMENT STUDIES
Required For Partial Fulfilment of MMS Program
By
Shaikh Mohd. Jahir Munna Alli - 47
Under The Guidance Of
AHMAR BALBALE
(Channel Partner)
AM INVESTMENT
For The Academic Year
2009 – 2010
1 Spectrum of Investment Avenues in India
Declaration
I Mr. Shaikh Mohd. Jahir Munna Alli, student of

MMS (Specialization – Finance, Semester III) of
Anjuman-I-Islam‟s Allana Institute of Management
Studies hereby declare that I have completed this
Summer Internship project on “Spectrum of
Investment Avenues in India” in the academic year
2009 - 2010. The information submitted is true and
original to the best of my knowledge.
I further certify that I have no objection and grant the
rights to Anjuman-I-Islam‟s Allana Institute of
Management Studies or Mumbai University to publish
any chapter / Projects if they deem fit in journals or
magazines or newspapers without any permission.
Place : Mumbai
Date :
Name : Shaikh Mohd. Jahir Munna Alli.
Class : MMS – II, Sem – III
Roll No. : 47
Signature :

ACKNOWLEDGEMENT
If words are considered as a symbol of approval and token

of appreciation then let the words play the heralding role
expressing my gratitude.
I am indebted to the reviewer of the project Mr. Ahmer

Balbale, my project guide for his support and guidance. I
would sincerely like to thank him for all his efforts.
I am also grateful to Mr. Pradeep (Senior Manager – AM

Investment Ltd), Mr. Shamsher and Mr. Mahmood Balbale for
helping me understand the concept of various investment
and for providing their insights in the making of this project.
I would like to thank the University of Mumbai, for giving its

student a platform to stay abreast with changing business
scenario, with the help of theory as a base and practical as
a solution.
Last but not least, I would like to express my sincere thanks to

Dr. Vidya Hattangadi (Director, Allana Institute of
Management Studies, Mumbai) for her indirect help and all
other staff members of Allana Institute of Management
Studies for their co-operation and also my parents for giving
the best education.

INDEX
Sr.no Topic Page No.
1 Executive Summary 5
2 Company Profile 7
3 Introduction 8
3.1 Types of Investors
3.2 Why One Should Invest their Money?
3.3 Points to consider before making any investment
3.4 Why portfolio is given so much importance
4 What is Investment Analysis? 15
5 Importance of Decision Making 20
6 Risk and Return 22
7 Investment Avenues in India 26
7.1 Investment in Shares
7.2 Investment in Derivative
7.3 Investment in Commodity Market
7.4 Mutual Fund Scheme
7.5 Investment in Gold And Silver (BULLION)
7.6 Deposit With Banks
7.8 Postal Saving Scheme/ Postal Office Saving
Scheme
7.9 Public Provident Scheme
7.10 LIC Scheme
7.11 Investment in Money Market Securities
7.12 investment in Real Estate Properties
8 Recommendation 69
9 Billiography 70

Executive Summary
There has been a phenomenal growth in the Indian capital
market in recent year. The number of investor has grown up to 30
millions. The Government of India has initiated a change in the
economic and financial policies of the country. The liberalised schemes
were announced with a view to overcome the foreign exchange crisis
due to adverse Balance of Payment in 1991.
The abolition of controller of capital issue and establishment of

Securities and Exchange Board of India (SEBI) which have significantly
contributed in changing investment scenario.
The need for investment arise not only for the institution but also
for the individual with surplus fund which they desire to invest for short
or long period with safety and fair return. For investors, various
alternative avenues of investment are available with specific features,
advantages and limitation and is suitability under certain
circumstances.
It‟s for the investor to find out the best alternative means of
Investment Avenue which is suitable for his needs and requirements.
Some investment avenues provide maximum safety but low return
while some investment avenues offers attractive return but limited
margin on safety, some avenues offer Tax benefit. One particular
avenue may be suitable for one investor while same may not be
suitable for other. Similarly some investor give more importance to
profitability i.e. Return on investment while other give more importance
to safety and security of the fund invested. In brief, every investor has
to find out one or more avenues for investment and act accordingly.
Every investment decision has become increasingly important in

recent days. Sound decisions are made on the basis of knowledge and
skills. There are several point needs to considers for investment decision.
There is no readymade formula which will always work. Investor should
realise that investment are made under condition of uncertainty. A
sound decision can be made if the investor is familiar with the various
alternatives investment available. An investment decision at any point
of time depends upon the individual‟s needs and preferences on one
hand and outlook for various types of securities and real property on
the other hand.
Most of Indian investor are still unaware of various investment

avenues available their features, advantages and disadvantages.

So, the problem definition of this project is as under:
a. Different types Investment Avenue in India
b. Risk and Return

Company Profile:
AM Investments is basically a small firm which deals in all types of small
and big business activities which can start form opening of an account
of a person who is interested in investing in shares giving them proper
guidance how to invest in shares and what are the terms and
conditions to it .It also deals in exports of soap products to the Gulf
countries mainly Dubai and supply semi-ripped mangoes to Akbar
allays in Mumbai.
It mainly concern with the deal of purchase and sale of shares with
Angel Broking connected with BSE On-Line trading System (BOLT).The
Angel Group is a member of the Bombay Stock Exchange (BSE),
National Stock Exchange (NSE) and the two leading Commodity
Exchanges in the country: NCDEX & MCX. Angel is also registered as a
Depository Participant with CDSL. AM Investment Business
would deal in Equity Trading Commodities, Portfolio Management
Services, Mutual Funds, Life Insurance, Personal Loans, Depository
Services, and Investment Advisory.
Angel Group mainly deals in the below:
Angel Broking Ltd,Angel Commodities Broking Ltd.,Angel Securities Ltd.

AM investment would deal in above of the investment in whole. But I
was mainly been associated with the Angel Broking Securities in the
firm and information regarding export and supply of mangoes to Akbar
allays. But the manager would give us all the information regarding the
investments as he used to suggest the investors those who felt that
shares are risky and the can lose money and he used to convince
them that they should not panic in such a situation but remain still. Even
when they are not been convinced by this he would suggest them to
invest in other government policies were no much risk is involved in it.
He would mainly insist us to sit on the BOLT and see how a change
takes place on the BOLT and to determine now further changes will
take place in it.

Introduction:
Investors include individuals and institutional with surplus funds for short
and long run term investments. For all types of investors, alternative
investment avenues are easily available. Every avenue has certain
special features, advantages, limitations and suitability. It is for the
investors to select the best avenues for safe and profitable investment
of their savings/surplus funds. Some investment avenues provide
maximum safety but low return (e.g. GOI saving bonds or government
securities) while some others offer attractive return but limited safety
(e.g. Corporate Securities). Some more avenues offer tax benefits. One
particular avenue may be suitable/convenient to one investor while
the investors give importance to attractive return while others may give
priority to safety and security of the funds invested. In brief, every
investor has to find out one or more avenues for investment as per his
expectation and invest accordingly. One avenue may not necessarily
be convenient to all categories of investors.
Sometimes, an ordinary investor gets confused due to the availability of

varied investment avenues. He finds it difficult to select an avenue
which is most convenient to him. Moreover, the avenues for investment
are increasing rapidly in India. For example, mutual funds bring
availability of varieties of avenues; an investor actually enters in the
wonderland of investment. He keeps on moving in this wonderland in
order to find out the most convenient avenue for his investment. For this
he has to the relative merits and limitation of alternative avenues and
select one or two avenues to achieve his investment objective. An
investor can prepare a sound investment plan provided he is familiar
with various investment avenues. At present investment consultant (e.g.
M/S Blue-chip Corporate Investment Centre, Ltd.) are available. They
guide investors in the selection of most appropriate investment
avenues. In addition, door to door investment service is provided.
Hundreds of investors across India take benefits of such services free of
charge. Even investment agents provide detailed information on
different investment avenues and help the client in the selection of
appropriate avenues suitable to their specific requirements.
In addition, there are investment counsellors who undertake investment

counselling. They study the specific problems of individual investor and
guide him in his investment decisions. The counsellor knows details of
investment avenues and can suggest the avenues which will be most
suitable to a particular investor. This investment counselling service is
necessary in the present period when investment avenues are
increasing and an investor is not aware of details of investment

avenues. Faulty investment is always harmful to the investor as his
income from such investment may be low or he may not be able to
convert his investment into cash when urgently required. Here.
Investment counselling is useful. The investment counsellor is competent
to help and guide his clients in the right direction so as to avoid undue
risk in the investment. Even suitable changes in the investment avenues
can be suggested by the investment counsellor. He acts as a friend
and guide to his clients and offer them timely guidance. The relation
between the investor and his counsellor should be always cordial. In
India, there is urgent need of investment counselling particularly in
urban areas and big cities. The income of the people is increasing
rapidly so as the inflation. They have excess funds for profitable
investment. Here investment counselling is required. This suggests that
there is an ample scope of investment counselling in India.

 Types of Investors:
Avenues for investment are the outlet or agencies useful for investment
of funds. Such investments are many but varied in character. Similarly,
investor are also quite large in number broadly classified into Individual
Investor and Institutional Investor.
o Individual Investor:
Individual investor are individual with surplus money (saving) to invest in

order to have some return on the investment made. This return may be
in the form of interest, dividend, bonus, shares or capital appreciation
of the investment made (short/long term Capital Gain). individual
investor include salaried people, retired employee, businessmen.
Housewives, Professional and so on. in India, an individual
in the 25-35 years age group may plan for purchase of a house and
vehicle, an individual belonging to the age group of 35-45 years may
plan for children‟s education and children‟s marriage, an individual in
his or her fifties would be planning for post-retirement life.
o Institutional Investor
Institutional investor include, financial agencies and other institutions

which desire to invest their surplus funds. Charitable/religious trust,
banks, insurance companies, cultural and educational institutions, etc.
can be treated as an institutional investor.
Moreover, all categories of investors are equally interested in safety,

liquidity and reasonable return on the fund invested.
In India, the avenues for investment are many and their numbers is
continuously increasing along with new development in the capital
market. In the olden days, people used to keep their saving in post
offices and in government securities. They used to purchase gold and
silver generally for occasion purpose. At present , these avenues have
lost their traditional importance as money can be invested more
profitably in the corporate securities, Public Provident Fund (PPF), UTI,
Mutual Funds and so on. The ample avenue give investor more choices
and benefit to the investor provided they have necessary knowledge ,
skill and experience for the selection of best avenues

 Why one should invest their money?
The answer to this question is very simple; one should invest their money
to get some income over it. Nowadays people also invest in some
securities for tax exemption under income tax act, people also invest
their money in order to compensate future expenses e.g child
education, children wedding, retirement, sickness, construction of
house – etc, which is nothing but personal objective of investor.
 Points to consider before making any investment
o Investment Objective:
Before making any investment an investor should first set up his

personal objective than financial objective. Financial objective include
safety and security of the money invested (principal amount),
profitability (through interest and capital appreciation).Financial
objective should be given importance in the lights of personal
objective, because it is personal objective that is going to decide the
size of investment, type of investment and period of investment. Such
objective may be monetary/financial or personal in character. The
objective include safety and security of the funds invested (principal
amount), profitability (through interest, dividend and capital
appreciation) and liquidity (convertibility into cash as and when
required). These objective are universal in character as every investor
will like to have a fair balance of these three financial objectives. An
investor will not like to take undue risk about his principal amount even
when the interest is high and attractive.
o Period of Investment:
Period of investment relates to liquidity, therefore Period of investment

is one major consideration while selecting suitable avenue for
investment. Such period may be short (up to one year), medium (one
to three years) or long (more than three years). Return is more on
longer investment then shorter or medium investment. Example, LIC
policy is an investment for a very period as the investment id made for
the old age hence liquidity is low, whereas balance in the saving bank
account is a short term investment therefore liquidity is higher because
withdrawal is possible at any time as per need. People also invest in
share market on intra-day basis, that is the shortest period of investment
people can take exit from the market any time he want and vice
versa.

o Risk in investment:
It is the third factor that needs to be given importance before any

investment decision. Risk needs careful consideration while selecting
the avenue for investment. Risk is a normal feature in every investment,
as it is said “higher the risk, higher the return and lower the risk lower the
return”, the degree of risk and uncertainty may be more in some
investment avenues while it may be less in case of other avenues. In
addition, Liquidity risk, Inflation risk, Market Risk, Business Risk, Political
Risk, etc also connected with the investment made. Example – risk is
more, if the period of maturity of loan is longer. Similarly, the risk is less in
case of debt instrument (e.g. Debenture) and more in case of
ownership instrument (Equity Share). Certain type of risk is unavoidable
while some other can be estimated to some extent.
The objective of an investor should be to minimise the risk involved in

the investment and maximise the return out of the investment made.
There has to be proper balance between the risk involve and the return
available.
o Return on Investment:
An investor would like to have at least reasonable return on his

investment in terms of dividend, interest and capital appreciation. The
return is a reward of the risk undertaken and also for parting with
liquidity. Return on investment includes current income which is in the
form of interest or dividend earned on a yearly basis. The return on
investment is in the form of capital gains which may in the form of
increase in the market price of the investment. For example, a share of
Rs.10 may be available for Rs.25 at time of purchase. However, after 10
years, the market price of the same share mat reach to Rs.100, here,
Rs.75 (Rs.100 – Rs. 25) is the capital gain for the investor. He gets
dividend for a period of ten years and also capital gain at rate of Rs.75
per share.
o Miscellaneous Factors:
An investor has to consider some more factors while selecting a

suitable avenue for investment. Such factors are:
(i) Tax benefit available.
(ii) Availability of loan facility.
(iii) Initial investment amount and future marketability of
investment.
(iv) Capital appreciation.
(v) Availability of funds for investment and post retirement benefit
available.

(vi) Market standing of market borrowing agency.
(vii) Nomination facility and transfer of investment on the name of
close relative.
In short, selection of suitable avenue for investment depends on various

factors. An integrated approach on part of investor is necessary in this
regard. An investor also needs proper education, training and
guidance for the selection of most convenient avenues for his
investment. It is delicate decision which needs proper knowledge,
judgement and vision.

 Why Portfolio Management is given so much
Importance?
Portfolio management means selection of securities and constant
shifting of the portfolio in the light of varying attractiveness of being a
part of a whole portfolio. It is a choice of selecting and revising the
range of securities to it in with the characteristics of an investor.
Expected rate of return on portfolio is directly to the expected return on
the component securities, it is not possible to deduce portfolio riskiness
simply by knowing the riskiness of individual securities. The riskiness of
portfolio depends upon the attributes of individual securities as well as
the interrelationships among the securities.
A professional, who manages other people‟s or institution‟s

investment portfolio with the object of profitability, growth and risk
minimization, is known as a portfolio manager. He is expected to
manage the investor‟s assets by showing thought for the future and
choose particular investment avenues appropriate for particular time
aiming at maximization of profit. The skill in portfolio management lies in
achieving a sound balance between the objective of safety, liquidity
and profitability
Shares
Derivatives Commodity
Bonds Mutual Funds
Gold and
Silver Portfolio Others

 What is Investment Analysis?
An investor has to analyse the securities available for investment.

Investment Analysis means to make a comparative study of the type of
industry, kind of security, fixed or variable securities. This helps to form
beliefs regarding future behaviour of price and stocks, the expected
return and risk associated with it. It helps investors regarding various
features such as liquidity, safety, income stability, capital appreciation,
tax incentive and legality. All investment decisions are to be made on
scientific analysis.
o FUNDAMENTAL ANALYSIS:
The primary purpose of any investment is to gain profit; it may be for

short or longer period. Therefore, fundamental analysis is a method of
finding out the future price of a security which an investor wants to buy.
The method of forecasting the future behaviour of investment, the rate
of return etc. is based on an analysis of the broad economic
environment in order to operates, a kind of industry to which it belongs
and the analysis of the internal working of the company through the
financial statement of the company which must be able to find out the
price movement of the shares and help to understand where to invest
their money effectively. The economy and industry would be necessary
to decide when, where and how much to invest. Thus, a look into the
monetary fiscal and demographic factors can give basic idea into the
trends in the economy.
Fundamental Analysis includes:

a) Economic Analysis
b) Industry Analysis
c) Company Analysi
a) Economic Analysis:
A study of economics forces which would give an idea about

future corporate earnings, payment of dividend, an interest to
investor is known as economic analysis. Some of the important
forces for economics analysis are: population, research and
technological developments, capital formation, natural
resources and raw material.
Population gives an idea of the kind of labour form available in

the country. Investor can invest on those industries amount of

share in the funds of the development of the country. Another
consideration of the investor is to invest in the company which
makes investment in capital goods or modernisation and
replacement of asset. The natural resources of the country are
responsible for its economic development. It is advisable to invest
in a company which utilises available natural resources of the
country.
Almost every piece of national legislation, substantial changes in

appropriation of funds by the government to specific
programme. Any changes in interest rate will have stimulating
impact on some companies. Investors should also get
knowledge of the present investment environment, the national
income figure, the wholesale price index, the agriculture and
industrial price indexes and the monetary policy and tax policy
for making economic analysis for making investment more
profitable.
b) Industry Analysis:
Industry analysis is the study of industries which are on the

upswing or growing. The ideal investment is the investment in
growing industry. There are certain industries which have been
growing in India. The recent examples are of entertainment and
computer software, petrochemical, bio-technology and capital
goods industries etc. Investment in these industries will definitely
gain in future.
Industry analysis should analyse and study of the following

factors.
1) Product line
2) Raw material and input
3) Capacity installed and utilised
4) Industry characteristics
5) Demand and market
6) Government policy with regards to industry
7) Labour and other industrial problems.
The investor should know the industry classification used in the

economy. It is also necessary to know the characteristics,
problems and practices in different industries. There is also need
to study the present and future development, operating
features, seasonal variation and competitiveness in order to
establish the proper perspective. In recent times the growth of
industries has been affected due to technological changes,
competitive pressure, population, etc

An investor should select few industries that are in the expansion
stages. Investment should not be made in the industries which
are in the pioneering stage. Similarly, industries that are in the
stagnation stage or declining stage its economic importance
should be avoided. Investor should select that company that
have developed a strong competitive position. It is difficult to
identify a good industry for investment. However an attempt to
analyze all the above factors should made by an investor.
An investor should measure the growth of the industry in terms of

Gross National Product. Those industries which are growing faster
than the growth if national income are useful for investment
purpose, and its growth rate is also useful for the investor to
analyse the prosperity and period between expansion and
growth. The economic and industry analysis is made in order to
have a broad idea of the forces affecting the investment.
c) Company Analysis:
The industry analysis helps to select few industries for investment

in securities. There are many companies in an industry. For
example \, is an investor want to invest in computer software
industry, then he has to select few companies from that industry.
There are thousands of listed companies from computer software
industry. Company analysis is the method to find out the worth of
the company. It is based on the analysis if the financial
statement of the company, it is the study of the variables which
influence the future price of a company‟s share. It is an
assessment of the company‟s competitive position, earning
capacity and profitability. It is a method of finding out the
intrinsic value of a company‟s share. This requires both internal as
well as external information.
The basic financial statements which are used as tools of

company analysis are the income statement, the balance sheet
and the statement of changes in financial position. While making
company analysis, investors should carefully judge that these
statements are correct, complete, consistent and comparable.
The most frequently used tools for company analysis are as

follows:
1) Ratio Analysis
2) Trend Analysis
3) Fund Flow Analysis
4) Common size Statement Analysis
5) Technical Analysis.

o TECHNICAL ANALYSIS:
Technical analysis is a study of market data in terms of factors affecting

supply and demand schedules, such as prices, volume of trading etc. it
is simple and quick method of forecasting behaviour of share prices.
The financial data and past behaviour of a company are presented on
charts and graphs in order to find out the history of price movement.
Technical analysis provides a simplified picture of price behaviour of
share. The analyst believe that the price of a share depends on
demand and supply in the stock market. They get the important
information about price and volume of a share in the stock market.
Investors, who use technical analysis, start checking the market action
of the share if it is favourable. They also examine the fundamental
factor and make sure that the company is sound and profitable.
Technical Analysis is based on certain assumption. These are

as follows:
1) The price of a security is related to demand and supply factor

operating in the market.
2) There are rational as well as irrational factors which affect the

supply and demand factors of a security.
3) The prices of securities behave in a manner that their movement

is continuous in a particular direction for some length of time.
4) Trend in the prices of securities have been seen to change when

there is shift in the demand and supply factors.
5) Whenever there are shifts in demand and supply, they can be

detected through charts prepared specially to show the action
of the market.
There are several way that technician think and act. At any given time,
many investor gain and many make loss. Technical analyst believe that
their method is simple and gives an investor a bird‟s eye view on the
future of security prices by measuring the past movement. They predict
the price behaviour through line chart, point charts, bar charts and
figure charts. There are large numbers of patterns which predict the
upward and downward swing in the market. This is not an accurate
method but it gives the general indication of the behaviour of prices in
the stock market.

 Investment Decision
In order to enhance future wealth by generating income, each

individual has to make to separate decision. The first is saving decision.
It is concerned with the choice of how much of one‟s wealth consume
now and how much to consume later. The second is investment
decision, which relates the choice of portfolio or collection of assets
(instrument) for investment in which saving can be invested. Thus there
is a need for investment decision. The saving decision determine how
much to invest in securities, whereas, investment decision determine in
which securities or assets we can invest.
An individual may purchase a share of Rs. 1000 today in hopes of being

able to have Rs 1200 available for consuming a year from now with the
purpose in mind, think of an investment anything which is expected to
alter the owner‟s claim to consumption in present and future period.
The individual‟s purchase of share (investment) does this by reducing
consumption in the current period by Rs 1000 and by increasing
expected consumption by Rs 1200 in the future. In other words, there
are investment alternatives as well as investor‟s needs for which the
investment decision are necessary.
Investments are important as well as useful in the dynamic world. The

following factors provide investors to make investment decision:
(a) Increase in Income

(b) Retirement Benefit
(c) Contingency Arrangement
(d) Reduce Tax Liability
(e) If Basic Family Commitment such as Housing, Education,
Insurance, Marriage, Medical etc.
Individual have to decide from time to time about their saving and
investment on the basis of above factors. Basically, in making such
decisions, four things must be taken into account, which are as under
1) Available opportunities,
2) Preferences,
3) Market prices
4) Wealth.

 Importance of Decision Making:
Investment is important in the context of present day conditions. The

following factors are responsible for making investment decision
increasingly important:
(a) Planning for retirement:
People retire at the age of 60. Individual have plan for their post
retirement life. Therefore, the earning from the employment should
be calculated and same portion of the earning should be saved.
The saving should be invested in such a manner that the investment
will appreciate sufficiently to provide stable income after retirement.
Thus, the investment decision is very important for an individual in
this respect.
(b) Tax saving:
Taxation is an important factor which influences the people to

invest. Individual manage to save and invest in such a manner
that their income tax is saved or minimised. Salaried people,
particularly, have to manage their investment in such a way that
their income tax will be saved or minimised. Investment in UIT,
ULIP, LIC NSC, post office deposits, PPF, mutual funds are eligible
for income tax relief to the investors. However, they have to take
investment decision in such a way that the investment will be
profitable, safe and the tax will be minimised.
(c) Interest rates:
Investors have to consider interest rates while making investment

decisions. As the objective of the investor is to maximise the
return on investment he will normally, select the investment which
will give the higher rate of interest. Thus, stability of interest is
important. However, a high rate of interest may not be the only
factor for selection of investment. The investor has to consider
other factor such as safety, liquidity, risk and legality of the
investment media. Interest rates may differ due to different
benefits offered by the investments. The investor has to take
proper decision on the basis of interest rates.

(d) Inflation:
In order to make the right choice of investments, investors have

to consider carefully the effect of inflation on their investment.
The investor has to consider an investment alternative which will
give a high rate of return in the form of interest to cover any
decrease in return due to inflation. Inflation has become a
continuous problem in India and hence, it is important for
investment decision making.
(e) Income:
Income level of investor goes on increasing due to inflation,

general increase in employment and other benefits and services.
If more income is generated investors find more revenues for
investment, however, investment decisions have become
important due to constant increase in income of the investors.
(f) Investment channels:
The growth and development of the country leads to greater

economic activities which provide large number of investment
channels. In India, investment opportunities and avenues have
increased due to liberalisation and free economy since 1991. This
has provided variety of investment opportunities. Thus, the
investors have the choice of variety of instruments. The investor
will have to try and achieve a proper investment mix between
high rate of return and stability of return to reap the benefit of
both. Therefore, investments decisions are important in modern
days.
An investor in order to fulfil his goals operates under certain constraints,

which are as follows:
Liquidity,
 Age.
 Need for regular income,
 Time horizon,
 Risk tolerance,
 Tax liability.
The challenge in investment management lies in choosing the

appropriate investment which will meet the investment objectives of
the investor, subject to his constraints. Therefore, investment decision is
important from this point of view

Risk Return Analysis
Risk is a chance of loss. Investment risk exists where there is more than
one possible future return associated with an investment. If more than
one possible return exits and the investor has no idea of the
probabilities associated with the occurrence of any of the possible
future returns the situation is of complete investment uncertanity.
Investment certainly exists where there is only one possible return. The
investor is certain of the investment‟s return. Between the two extremes
of investment certainty and investment uncertainty lies the area of
investment risk. Under conditions of risk, investors realize that there is a
range of possible return and can associate some probability to each
possible return. This dispersion of possible returns represents risk. The
greater the dispersion of possible returns, on an investment, the greater
the risk.
The risks that equity shares can carry are:
 Loss of dividend when no dividend is declared.

 Low dividend i.e. dividend lower than bank‟s fixed deposit rates
of interest.
 Stagnation or depreciation in the prices of shares and
 Insolvency of the company.
o Types of Risk:
The various types of risks in investment may be classified as follows:
Default risk:
It is the risk of issuer of investment going bankrupt. An investor who
purchases shares or debentures will have to face the possibility of
default and bankruptcy of the company. In the case of fixed income
securities such as debentures or fixed deposits of companies, the
investor may take the care to see that the credit rating given to the
company, so that the risk can be minimized.
Business risk:
Business risk means the risk of a particular business failing thereby your
investment is lost. It is identifiable as the variation in the firm‟s earning
due to it‟s business or product line. The principle determinants of a firms
business risk are the variability of sales and it‟s operating leverage.

Operating leverage represents the firm‟s ability to translate increased
sales into increased profit. Business risk can be divided into two broad
categories, external and internal. External business risk is the result of
operating conditions imposed upon the firm by circumstances beyond
its control. Internal business risk is associated with the efficiency with
which a firm conducts its operations.
Financial risk:
The financial risk is function of the companies‟ capital structure or

financial leverage. The company may fall on financial grounds, if its
capital structure tends to make earnings unstable. Financial leverage
is the percent change in net earnings for a given result from the use of
debt financing in the capital structure. If a company uses a large
amount of debt, then it has contracted to pay a relatively large fixed
amount for its sources of capital. When the operating profits fall, the
company will have to pay large interest payments and the net profits
will fall even more. This is example of financial leverage. The like hood
of a company defaulting on its debt-servicing obligation is known as
financial risk.
Purchasing power risk:

The purchasing power risk of a security is the variation of real returns on
the security caused by inflation. Inflation reduces the purchasing
power of money over time. As price risk, the purchasing power of a
rupee falls and the real return on an investment may fall even though
the nominal return in current rupee rise. The impact of inflation is felt
greater in case of fixed income investments. On the other hand, in
case of fluctuating incomes like shares dividends, there is possibility of
the dividend rate being higher than the inflation rate. Thus, unless the
returns on your investments are higher than the inflation rate, your
investments are not profitable. The return on your investments after
adjusting for inflation is known as real rate of return.
Interest rate risk:

The earnings of companies and the performance of their shares are
sensitive to interest rates changes. Therefore, potential variability of
investment returns due to interest rate fluctuations is interest rate risk.
The prices of debt securities and all other securities with fixed payout
are dependent upon the level market interest rates. When interest rates
rise, bond values will generally fall. The degree of sensitivity to interest
rate changes will naturally differ from company to company.

Recently, companies have started issuing „floating rate bonds‟. The
rates of interest on these bonds are linked to some floating rate such as
„prime rate‟ or the banks minimum lending rate. When market interest
rate rise, the bond rate rises and when it fall, the bond rate also falls.
This is a good way of circumventing interest rate risk when interest
rates are on the rise. But in a situation where inflation is under control
and interest rates are on the decline, it is bond to be disadvantageous
to the investors.
Market risk:
The market risk means the variability in the rates of caused by the
market up swings or market down swings. It is caused by investor
reactions to tangible as well as intangible events in the market. Most
investors are quick to note about the security markets that returns on
securities tend to move together. That is, on a good day, the fact that
some stocks in the markets are rising seems to fuel enthusiasm, and
other sto7cks tend to rise also. On the other hand, when some stocks
begin to fall, others will also tend to fall as a mood of pessimism
pervades the market. This market psychology is the explanation of the
existence of market risk, while is the volatility of a security‟s return
attributable to changes in the level of market and have a high degree
of market risk, while others fluctuate very little as the market changes.
When a relatively small increase in the market usually accompanies a
relatively larger increase in the price of stock, the stock has a high
degree of market risk.
Liquidity risk:
Liquidity risk arises from the inability to convert an investment quickly
into cash. It refers to the ease with which a stock may be sold. If a stock
is highly liquid, it can be sold very quickly at a price which is more or
less equal to its previous market price. In a security market, liquidity risk
is function of the marketability of the security.
When an investor wants to sell a stock he is connected with its liquidity.
On the other hand, when an investor wants to buy a stock, he is
interested in its availability. A stock may be deemed to be easily, if it
can purchased quickly at a price more or less equal to its previous
price. A stock may be regarded as not easily available, if the purchaser
has to wait for quite sometimes to buy it at a price which is more or less
equal to the previous price. Alternatively, the purchaser, may, have to
offer a substantial premium in order to buy the stock quickly. Thus, the
lower marketability of stock gives a degree of liquidity risk that makes
the price of the stock a bit more uncertain.

Systematic and Unsystematic risk:
The fluctuation in an investment‟s return attribute to changes in broad
economic social or political factors which influence the return on
investment is systematic risk. It is that portion of total risk of security
which is caused by the influence of certain economic-wide factor like
money supply, inflation, level of government spending and monsoon
which have a bearing on the fortune of every company. Systematic risk
is undiversifiable risk and investors cannot avoid the risk arising from the
above factors.
Unsystematic risk is the variation in returns due to factors related to
the individual firm or security. It is that portion of the total risk which
arises from factors specific to particular firm such as plant breakdown,
labor strikes, sources of materials etc. It is possible to reduce
unsystematic risk by adding more securities the investor‟s portfolio. All
risky securities have some degree of unsystematic risk but combining
securities into diversified portfolios reduces unsystematic risk from the
portfolio. Therefore, unsystematic risk is often referred to as diversified
risk. The sum of systematic and unsystematic risks is equal to the total
risk of a security.

 Investment avenues in India:
Avenues for investment are the outlet or agencies for useful for
investment of funds.
Such avenues are many and varied in character. Similarly, investor are
also quite large in number, they broadly include individual investor or
institutional investor as stated earlier. The avenues for investment are
same for all the investors and both categories of investor select suitable
avenues for the purpose of investment. Moreover, all categories of
investors are equally interested in safety, liquidity and reasonable rate
of return.
In India, avenues are many for investment and their number is

continuously increasing along with new developments in the capital
market. In olden days people used to keep their savings in post offices
and government securities. They also used to purchased gold or silver
in order to invest their surplus money. At present, these avenues have
lost its traditional importance as money can, now, be invested more
profitably in the corporate securities, public provident fund, UTI, mutual
fund and so on.
Shares and
Debenture
Commodity Mutual
Funds
Government Bank
Bonds Deposit
Investment
Postal
LIC Scheme Avenues Saving
Scheme
Real Estate Public

Provident
Fund
Gold and Money
Silver Market
Securities

Investment in share:
Joint stock companies collect their long term money/ fixed capital by
issuing share (equity/preference). This is called Stock Financing, share
are very popular amongst the investor class. Investment in share, are
risky as well as profitable. Transaction in share takes place in primary
and secondary markets. Large majority of investor prefer to invest their
money in shares through broker and other dealer operating on
commission basis. Purchasing of share is now easy and quick due to the
extensive use of computer and screen based trading based trading
system (STB‟s). Order can be registered on computers.
The shares are available for investment is classified into different

categories such as blue chip share, growth share, speculative share,
income share and so on. For proper investment in share the company
must be properly selected after studying the balance sheets and other
details of various companies. SHARE CERTIFICATE in physical form is no
more popular in India due to demat facility. It gives convenient in
handling and transfer of shares. For this, demat account can be
opened in the bank which provide depository service (e.g. ICICI
Demat).
o Advantage of investment in shares:

1) Equity shareholders get income in the form of dividend.
Companies offer attractive dividend to shareholder even when
the rate of dividend is flexible. Profitable and stable companies
offer good reward to their investors in the form of high rate of
dividend.
2) The liability of Equity shareholder is limited only to the extent of

their investment. Naturally, shareholder are not required to pay
anything more than the face value of the share purchased,
3) Shares are easily transferable and this facilitates easy transfer of

ownership at the option of shareholder. The transfer facility also
brings liquidity to the investment in shares.
4) The equity shareholders get an opportunity to participate in the

profitability of the company in the course of time. The profitable
companies also issue bonus share and rights shares from time to
time. Even the new shares issued by the companies are first
offered to existing shareholders. This pre-emptive right enables

existing shareholders to maintain their proportional ownership in
the additional share capital issued.
5) Listed equity share are actively quoted and traded on stock

exchanges. This marketability of equity shares brings liquidity to
the investment in share and also convenient to investors.
6) Equity shares carry Tax benefit. At present, dividend on the share

of Indian companies has been made tax free. However the
position may change as per the government policy.
7) Equity shareholders are the owner of the company with certain

power and voting rights. This enables them (collectively) to
exercise some control over the policies of the company.
8) Capital gain in equity investor is possible in the case of shares as

the price of the shares fluctuate along with the future prospect
of the company. Due to rise in the share price, there is a capital
appreciation and this offer extra benefit to the shareholders.
o Limitation of Investment in Shares:

1) Uncertainty of income/return: The return as regards investment in
shares is uncertain as it is linked with the profitability of the
company. The investment in share may prove to be the
unremunerative if the profit earn by the company is less.
2) Risky Investment: In the case of share, there is an element of

regards changing market values. The share price may go down
due to various reasons. This is bound to affect the investor
seriously. Secondly, selling at a low price bound to bring financial
loss. This suggests that investment is always risky.
3) Speculative activities are harmful: Speculative activities are quite

common as regards shares. However, such speculative deals
affect genuine investor and they may suffer loss even when they
are not directly involves in such speculative activities.
4) Future linked with company: In the case of shares, the future of

the shareholders is linked with the future of the company. The
return on investment will be attractive if the company makes
good profit. However, a shareholder may not get any return on
his investment if his company fails to get reasonably high profit.

 Investment in Derivative:
Derivative is a product whose value is derived from the value of one or
more basic variables, called bases (underlying asset, index, or
reference rate), in a contractual manner. The underlying asset can be
equity, FOREX, commodity or any other asset. According to Securities
Contracts (Regulation) Act, 1956 {SC(R)A}, derivatives is
A security derived from a debt instrument, share, loan, whether
secured or unsecured, risk instrument or contract for differences or any
other form of security. A contract which derives its value from the
prices, or index of prices, of underlying securities.
Derivatives are securities under the Securities Contract (Regulation) Act

and hence the trading of derivatives is governed by the regulatory
framework under the Securities Contract (Regulation) Act.
o Types of Derivative
There are mainly four types of derivatives i.e. Forwards, Futures, Options
and swaps.
Forward
Future
Calls
Derivative Option
Puts
Interest
Rate Swap
Swaps
Currency
Swap

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 pre-agreed price.
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 contacts.
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.
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.
Warrants:
Options generally have lives of upto one year, the majority of options
traded on options exchanges having a maximum maturity of nine
months. Longer-dated options are called warrants and are generally
traded over-the-counter.

LEAPS:
The acronym LEAPS means Long-Term Equity Anticipation Securities.
These are options having a maturity of upto three years.
Baskets:
Basket options are options on portfolios of underlying assets. The
underlying asset is usually a moving average or a basket of assets.
Equity index options are a form of basket options.
Swaptions:
Swaptions are options to buy or sell a swap that will become operative
at the expiry of the options. Thus a swaption is an option on a forward
swap. Rather than have calls and puts, the swaptions market has
receiver swaptions and payer swaptions. A receiver swaption is an
option to receive fixed and pay floating. A payer swaption is an option
to pay fixed and receive floating.
o Trading Participant in Derivative;

1) HEDGERS :
The process of managing the risk or risk management is called as

hedging. Hedgers are those individuals or firms who manage
their risk with the help of derivative products. Hedging does not
mean maximising of return. The main purpose for hedging is to
reduce the volatility of a portfolio by reducing the risk.
2) SPECULATORS :
Speculators do not have any position on which they enter into

futures and options Market i.e., they take the positions in the
futures market without having position in the underlying cash
market. They only have a particular view about future price of a
commodity, shares, stock index, interest rates or currency. They
consider various factors like demand and supply, market
positions, open interests, economic fundamentals, international
events, etc. to make predictions. They take risk in turn from high
returns. Speculators are essential in all markets – commodities,
equity, interest rates and currency. They help in providing the
market the much desired volume and liquidity.

3) ARBITRAGEURS :
Arbitrage is the simultaneous purchase and sale of the same

underlying in two different markets in an attempt to make profit
from price discrepancies between the two markets. Arbitrage
involves activity on several different instruments or assets
simultaneously to take advantage of price distortions judged to
be only temporary.
Arbitrage occupies a prominent position in the futures world. It is

the mechanism that keeps prices of futures contracts aligned
properly with prices of underlying assets. The objective is simply to
make profits without risk, but the complexity of arbitrage activity
is such that it is reserved to particularly well-informed and
experienced professional traders, equipped with powerful
calculating and data processing tools. Arbitrage may not be as
easy and costless as presumed.
o Advantages for investment in derivative;
1) Flexibility:
Derivatives can be used with respect to commodity price, interest and

exchange rates and equity price. They can be used in many ways.
2) Risk Reduction:
Derivatives can protect your business from huge losses. In fact,

derivatives allow you to cut down on non-essential risks.
3) Stable Economy:
Derivatives have a stabilizing effect on the economy by reducing the

number of businesses that go under due to volatile market forces.
o Disadvantages of Derivatives:
If derivatives are misused, they can boomerang on the company.
1) Credit Risk:
While derivatives cut down on the risks caused by a fluctuating market,

they increase credit risk. Even after minimizing the credit risk through
collateral, you still face some risk from credit protection agencies.

2) Crimes:
Derivatives have a high potential for misuse. They have been the
caused the downfall of many companies that used trade malpractices
and fraud.
3) Interest Rates:
Wrong forecasts can result in losses amounting to millions of dollars for

large companies; it can wipe out small businesses. You need to
accurately forecast the long term and short term interest rates,
something that many businesses cannot do.
o Minimizing Risks with Derivatives:

1) Future Exchanges:
Arrange the derivatives through future exchanges. You may need to

put in a lot of work here; you must keep track of all adjustments in the
market worth of the underlying asset.
2) Asset and Liability driven Transactions:
The transactions should be driven by asset and liability management.

You should not speculate based on future forecasts.
3) Derivative Policy:
A good derivative policy focuses more on cost management and less

on forecasting. It should aim for cutting down expenses and costs.
While dabbling in derivatives is risky if you choose to speculate,

derivatives can be an important tool for financial structuring and cost
management if you use them correctly. If you do not know how to start
investing in derivatives, you can consult a small business advisor or
financial consultant. Remember, if you do go for derivatives, always
play by the book and never try anything illegal.

Investment in Commodity Market
You may have your debt and equity funds in place, but investing in
commodities could just be the one element to improve your portfolio.
Commodity trading provides an ideal asset allocation, also helps you
hedge against inflation and buy a piece of global demand growth.
In 2003, the ban on commodity trading was lifted after 40 years in India.
Now, more and more people are interested in investing in this new
asset class. While price fluctuations in the sector could get rather
volatile depending on the category, returns are relatively higher.
However, as this is not a primary area of investment for most, there is a

lot of apprehension about when and how to invest.
o Why invest in commodities?

Commodities allow a portfolio to improve overall return at the same
level of risk. Ibbotson Associates, a leading US-based authority on asset
allocation estimates that commodities increased returns between 133
and 188 basis points, at no extra risk.
o Who should invest?

Any investor who wants to take advantage of price movements and
wishes to diversify his portfolio can invest in commodities. However,
retail and small investors should be careful while investing in
commodities as the swings are volatile and lack of knowledge may
result in loss of wealth.
Investors must understand the demand cycles that commodities go

through and should have a view on what factors may affect this.
Ideally, you should invest in select commodities that you can analyse
rather than speculate across products you have no idea about.
Investing in commodities should be undertaken as a kicker in your

portfolio and not as the first destination for your money.

o What is commodity trading?
It's an age-old phenomenon. Modern markets came up in the late 18th
century, when farming began to be modernised. Though the trade's
mechanisms have changed, the basics are still the same.
In common parlance, commodities means all types of products.

However, the Foreign Currency Regulation Act (FCRA) defines them as
'every kind of movable property other than actionable claims, money
and securities.'
Commodity trading is nothing but trading in commodity spot and

derivatives (futures). If you are keen on taking a buy or sell position
based on the future performance of agricultural commodities or
commodities like gold, silver, metals, or crude, then you could do so by
trading in commodity derivatives.
Commodity derivatives are traded on the National Commodity and

Derivative Exchange (NCDEX) and the Multi-Commodity Exchange
(MCX). Gold, silver, agri-commodities including grains, pulses, spices,
oils and oilseeds, mentha oil, metals and crude are some of the
commodities that these exchanges deal in.
Trading in commodities futures is quite similar to equity futures trading.

You could take a long position (where you buy a contract) or a short
position (where you sell it). Simply speaking, like in equity and other
markets, if you think prices are on their way up, you take a long position
and when prices are headed south you opt for a short position.
o What do you need to start trading?

Like equity markets, you have to fulfil the 'know your customer' norms
with a commodity broker. A photo identification, PAN and proof of
address are essential for registration. You will also have to sign the
necessary agreements with the broker.
o Is there a regulator for the commodity trading

market?
The Forward Markets Commission is the regulatory body for the
commodity market in India. It is the equivalent of the Securities and
Exchange Board of India (Sebi), which protects the interests of investors
in securities.

o What kind of products can be listed on the
commodity market?
All commodities produced in the agriculture, mineral and fossil sectors
have been sanctioned for futures trading. These include cereals, pulses,
ginned cotton, un-ginned
cotton, oilseeds, oils, jute, jute products, sugar, gur, potatoes, onions,
coffee, tea, petrochemicals, and bullion, among others.
o What are the risk factors?

Commodity trading is done in the form of futures and that throws up a
huge potential for profit and loss as it involves predictions of the future
and hence uncertainty and risk. Risk factors in commodity trading are
similar to futures trading in equity markets.
A major difference is that the information availability on supply and

demand cycles in commodity markets is not as robust and controlled
as the equity market.
o What are the factors that influence the commodity

prices in the market?
The commodity market is driven by demand and supply factors and
inventory, when it comes to perishable commodities such as
agricultural products and high demand products such as crude oil. Like
any market, the demand-supply equation influences the prices.
Variables like weather, social changes, government policies and global

factors influence the balance.
o What is the difference between directional trading

and day trading?
The key difference between commodity markets and stock markets is
the nature of products traded. Agricultural produce is unpredictable
and seasonal. During harvesting season, the prices of these
commodities is low as supply goes up. There are traders who use these
patterns to trade in the commodity market, and this is termed
directional trading.

Day trading in commodity markets is no different from day trading in
the equity market, where positions are bought in the morning and
squared off by the end of the day.
o How to keep updated?

Most commodity trading firms have a research team in place that
prepares commodity charts and conducts detailed study on the trends
of the commodity in question.
Investing strategies based on this research are usually provided to

clients.
They usually provide daily market reports before the market opens and
intra-day calls during trading hours, along with monthly and weekly
research reports.

Mutual Fund Scheme
“A mutual fund is formed by the coming together of a number of

investors who hand over surplus funds to a professional organisation to
manage their funds”.
UTI had virtual monopoly in the field of Mutual fund from 1964 to 1987.
After 1987, SBI (State Bank of India), Bank of India and other banks
financial institutions start their mutual funds (e.g. Kothari Pioneer Fund,
CRB Capital market and so on). They are given with recognition by
RBI/SEBI. Mutual funds, in general, are popular among the investing
class. Moreover, practically all mutual fund organisations are successful
in collecting crores of rupees from the investing class.
The main function of mutual fund is to mobilise the saving of the

general public and invest them in stock market securities. At present,
there is diversion of saving of the middle class investors from bank to
mutual funds. The government has thrown the field open to the private
sector and joint sector mutual funds.
More than 63 mutual funds are operating in India. The popular mutual
funds in India are as noted below:
1) HDFC Mutual Fund,
2) Birla Sun Life Mutual Fund,
3) Alliance Capital Mutual Fund,
4) Canbank Mutual Fund,
5) Pioneer ITI Mutual Fund,
6) Standard Chartered Mutual Fund,
7) Templetion India Income Fund,
8) Tata Mutual Fund,
9) Sundaram Mutual Fund,
10)Kotak Mutual Fund.
It may be noted that the investment scheme of Mutual fund are open-
ended or close-ended. In the open-ended scheme, there is no fixed
maturity period. Secondly, the investment can be encashed at any
time. The rate of conversion into cash will be the market rate available
on the day. The open-ended schemes of mutual fund are popular due
to these advantages. HDFC Prudence Fund is an example of an open-
ended and balanced fund.
In the close-ended scheme, the investment is for a fixed maturity

period. Encashment of the investment till maturity is not possible. This
means there is no liquidity to the investment as in the case of open-

ended schemes. The investors are paid back their invested money as
per the term agreed at the time of issue. The close-ended schemes of
mutual fund are no more popular with the mutual fund as well as with
the investors.
Mutual fund is a financial intermediary which collect saving of the

people for secured and profitable investment. The entire
income/profits of mutual fund are distributed among the investor in
proportion to their investment. Expenses of managing the fund are
charged to the fund. The mutual funds in India are registered as trusts
under the Indian Trust Act. The trustees are appointed and they look
after the management of the trust. They decide the investment policy
and give the benefit of professional investment through such mutual
fund. These funds are managed by financial and professional experts.
Naturally the saving collected from small investors is invested in a safe,
secured and profitable manner. This gives good income to the fund
and the investors are made party for sharing such income.
In brief, small investors get many benefits (and that to without any
botheration) due to the formation of mutual funds in India. Mutual fund
such as SBI mutual fund, LIC mutual fund, Indian Bank Mutual Fund, 20th
Century Mutual Fund, Shriram Mutual Fund, Tata Mutual fund, ICICI
Mutual Fund, BOI Mutual Fund are popular as they offer various service
and benefit to the investing class. Moreover, ordinary investor does not
have time, expertise and patience to take independent investment
decision on their own. Even the mutual funds starts by the public sector
banks (e.g. Canara Bank) are equally popular among the investor.
Mutual funds give wide publicity to their activities through press
advertisement in leading newspapers. UTI publishes such information on
monthly basis in the form of full page advertisement in the press.
o Benefit of Mutual Funds:
(1) Benefit of diversified and profitable investment:
Mutual Fund collects small saving of millions of people and pools

such savings for profitable investment. The funds collected are
invested in sound and profitable companies from different
industries. As a result the benefits are diversified and profitable
investments are available to small investors. Investment in mutual
funds is treated as liquid, reasonably safe and profitable
investment.
(2) Benefit of professional management:

Mutual fund is managed by trustees who are professional expert
in the field of finance, business and management. They frame
the investment policy for mutual fund. Naturally, carefully and
planned and sound investment decision are taken. The
investment made is safe as well as profitable. The benefit of such
professional management is passed on to every investor with the
mutual fund.
(3) Liquidity to the investment;
Mutual fund provides liquidity to the investment due to open-

ended investment schemes. The investor can sell his shares or
units in the market and recover his investment. Even repurchase
facility is also provided by mutual funds (e.g. UTI). This gives the
benefit of liquidity to the investors. The liquidity is not available in
the case of close-ended scheme of mutual funds. Here, the
investor has to wait till the maturity date. As a result, the
popularity of close-ended scheme is fast declining. However,
liquidity benefit is available in the open-ended scheme.
(4) Tax Benefit:
Tax benefits are given by the government to the investors of

mutual funds. This tax benefit relates to payment of income tax
on the income earned through such investment. The Tax relief
under 80L is one additional benefit available to investors of
mutual funds. In addition, investors can take tax benefit on the
amount invested in the scheme.
(5) Assured Allotment:
All application made to mutual funds for purchase of units are

normally honoured. This give the benefit of assured allotment to
the investors. Assured allotment avoids tension on part of the
investors. Loss of interest on application money is also avoided.
(6) Effective Regulation:
Mutual fund fund in India have to operate as per the guidelines

given by SEBI and also by the government or RBI from time to
time. There is supervision and control functioning of the mutual
funds. This is necessary for the protection of investors.

(7) Spread of Risk:
Mutual funds invest their funds in securities from different

industries. As a result, the risk in the portfolio management is
spread over a wider area. Some companies may incur losses but
such loss will be compensated by more profit of other companies
in which funds are invested.
(8) No Tension:
An investor gives his saving/surplus money to the mutual fund

and the fund looks after the investment of money collected from
such investors. The whole botheration of profitable and
diversified investment is given to the fund. In short, the investor
gets benefits without botheration and tension.
o Limitation of Investment in Mutual Funds:

(1) The investor are likely to come in difficulties If the Mutual funds (in
which funds are invested) is not managed efficiently. The rate of
return will go down and the investment may become risky.
(2) The investor has no direct control on their investment as the

investment policies are decided by the trustees.
(3) Investors of mutual funds are not given adequate information

about the functioning of their mutual funds. They gat the
information about irregularities, etc. when it is to late to introduce
remedial measures.
(4) The future of mutual fund investors is link with the future of mutual
funds. An investors may suffer because of mismanagement of
the mutual funds.
(5) The expectation (as regards return on investment) of investors

are fast growing in the case of mutual fund but the manager of
mutual funds find it hard to meet such high expectation of
investor.

o Scheme of Mutual Funds
Mutual funds have introduce many scheme for attracting investor and
also for collecting their saving. Such scheme include the following:
a) Open-Ended Scheme: Regular income scheme,

recurring investment scheme and cumulative growth
scheme.
b) Close-Ended Scheme: Dhanashree 1989, (LIC Mutual

Fund), IndJyoti, (Indian Bank Mutual Fund) and
Magnum Regular Income Scheme 1987 (SBI Mutual
Fund).
It may also be noted that basically there are 4 schemes by which

mutual fund collect money from the investor. Such schemes are:
a) Growth Scheme,
b) Income Scheme,
c) Balance Scheme
d) Money market scheme and
e) Tax Saving Scheme.
a) Growth Scheme:
Aim to provide capital appreciation over the medium to long
term. These schemes normally invest a majority of their funds in
equities and are willing to bear short-term decline in value for
possible future appreciation.
These Schemes are not for investors seeking regular income or

needing their money back in the short-term
Ideal for :
 Investors in their prime earning years.

 Investors seeking growth over the long-term.
b) Income Scheme:
Aim to provide regular and steady income to investors. These
schemes generally invest in fixed income securities such as bonds
and corporate debentures.
Ideal for : Capital appreciation in such schemes may be limited.

 Retired people and others with a need for capital stability and
regular income.
 Investors who need some income to supplement their earnings
c) Balanced Scheme: Aim to provide both growth and income by

periodically distributing a part of the income and capital gains
they earn. They invest in both shares and fixed income securities
in the proportion indicated in their offer documents. In a rising
stock market, the NAV of these schemes may not normally keep
pace, or fall equally when the market falls.
Ideal for :
 Investors looking for a combination of income and moderate

growth.
d) Money Market Schemes:

Aim 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. Return on these
schemes may fluctuate, depending upon the interest rates
prevailing in the market.
Ideal for :
 Corporate and individual investors as a means to park their

surplus funds for short periods or awaiting a more favourable
investment alternative.
e) Tax Saving Schemes :
These Schemes offer tax rebates to the investors under tax laws
as prescribed from time to time. This is made possible because
the Government offers tax incentives for investment in specified
avenues. For example, Equity Linked Savings Schemes (ELSS) and
Pension Schemes.
Recent amendments to the Income Tax Act provide further

opportunities to investors to save capital gains by investing in
Mutual Funds. The details of such tax savings are provided in the
relevant offer documents.

Ideal for:
 Investors seeking tax rebates.

 Investment in Gold and Silver
(BULLION)
In India, there is attraction for gold and silver since the early historical
period. Our faith in God and gold dates back to the Vedic times. We
worship both. In India it is not wrong to say that gold is an obsession,
deep-rooted on mythology, religious rites and its very psyche. These
two precious metals are used to make ornaments and also for
investment of surplus funds over a long period. In every family, at least
a little quantity of gold is available. There is also a general tendency to
purchase gold or silver or gold ornaments as and when surplus money is
available. The price pf both the metal are continuously increasing.
Moreover, it is easily saleable at market price i.e. it has good liquidity.
This bring safety, profitability and liquidity to the investment in gold or
silver. As result, the investment in gold and silver is popular in India.
India‟s gold consumption for the year 2009 was around 840 tonnes. The
import of gold is now made free.
o Investment in gold and silver is attractive due to

following advantages/merits:
(1) Gold and silver are useful as store of wealth. They even act
as a secret asset.
(2) Both the metals are highly liquid. This facilitates easy
convertibility into cash at anytime without incurring any
loss.
(3) The market price of both the metals is continuously rising.

This makes investment abnormally profitable. Investment in
gold and silver act as a hedge against inflation.
(4) Investment in gold and silver provide a sense of security to

the investors as it has immediate liquidity.
(5) There is a high degree of prestige value for gold and silver
in the society. The benefit of capital appreciation is also
available.
(6) Investment in gold and silver is quite safe and secured.

(gold is also scam-free). The possibility of loss in the
investment is practically nil in the case of these metals.

Along with gold and silver precious stones such as diamonds, rubies
and pearls are also appealing for long term investment particularly
among the rich people. Even art object (Antiques) are used for
investment purpose. Art object include painting, sculptures, antiques,
old coins and stamps, etc. the value of such articles increases with the
passage of time.
o Limitation of Investment in gold/silver:

Investment in gold and silver has certain limitations. For example,
1) Such investment are risky due to theft, etc. at present, using gold
ornaments is risky and dangerous,
2) It is a dead type of investment as profit is available only when it is

sold out and people rarely sell gold.
3) Regular income from the investment is not available
4) Huge amount of money is required to invest in gold and silver.
5) Investment in gold and silver is not useful for capital formation

and economic growth. Even the traditional attraction for gold
and silver is gradually reducing in India.
6) Import of gold is now free as a result, investing funds in gold and

silver is no more safe and profitable.
o Options for investing in gold

Not too long ago, buying physical gold was the only option for
investing in gold. However, the launch of Gold ETFs threw open another
option for investors. Gold ETFs are open-ended funds which track prices
of gold. They are listed and traded on a stock exchange; hence, they
can be bought and sold like stocks on a real-time basis. These funds
are passively managed and they mirror domestic gold prices. By
enabling investors to invest in gold without holding it in physical form,
Gold ETFs offer a rather unique investment opportunity to investors.
o Advantages of Gold ETFs

Although the mode chosen for investing in gold would entirely depend
on investors, Gold ETFs do offer some distinct advantages vis-à-vis
investing in physical gold.

1. Convenience:
Gold ETFs are a convenient means of investing in gold. Since there is

no delivery involved, investors do not have to worry about the storage
and security aspects that are typically associated with investing in
physical gold.
2. Quality:
As per SEBI regulations, the purity of underlying gold in Gold ETFs should
be 0.995 fineness and above. This spares investors the trouble of finding
a reliable source to buy gold.
3. No premium:
Jewellers and banks generally sell gold at a premium. The premium

can be in the range of 5%-10% (inclusive of making charges) in case of
jewellers and upto 15% in case of banks. Since Gold ETFs are traded on
the stock exchange, they can be bought at the prevailing market rate
without paying any premium.
4. Low cost:
To store physical gold, one would typically need a locker. This expense
is over and above the premium paid at the time of buying physical
gold. As for Gold ETFs, a pre-requisite is to have demat and trading
accounts with a broker. To maintain these accounts, investors are
required to pay annual charges, which vary from broker to broker.
Investors also have to pay the brokerage on each trade. Finally, there
are annual recurring charges which are charged to the fund.
Considering the premium and other charges borne while buying

physical gold, investing via Gold ETFs can turn out to be a more cost-
effective option.
5. Transparent pricing:
The pricing of physical gold varies depending on the vendor.

Conversely, Gold ETFs have a transparent pricing mechanism.
International gold prices are converted to Indian landed price using
the applicable exchange rate. Various duties and taxes are also
added to arrive at the landed price of gold.
6. Tax efficiency:
In Gold ETFs, long-term capital gains tax is applicable after twelve

months from the date of purchase vis-à-vis three years in the case of

physical gold. Also, unlike physical gold, investments in Gold ETFs are
not subject to Wealth Tax.
7. Resale value:
Gold ETFs can be easily sold in the secondary market on a real-time

basis (i.e. at the prevailing market price). Whereas, while selling
physical gold, the jeweller will deduct making charges (the charge that
is added while buying gold). As regards banks, they refuse to buy back
gold.
8. Tax implication:
Tax implications on Gold ETFs are same as those on debt mutual funds.
A unit of a Gold ETF that is held for less than twelve months is treated as
a short-term capital asset. Gains on the same are taxed at the
investor‟s marginal rate of tax. Units held for more than twelve months
are treated as long-term capital assets. Long-term capital gains are
taxed at 20% (after allowing for indexation benefit) or 10% (without
indexation benefit), whichever is less.

Deposit with Banks:
Investment of surplus money in bank deposit is quite popular among
the investors (particularly among salaried people), bank (co-
operative & Commercial) collect working capital for their business
through deposit called bank deposit. The business and profitability of
banks depends on deposit collection. For depositing money in the
bank, and investor/depositor has to open an account in a bank.
Different types of deposit accounts are :

1) Current Account,
2) Saving Bank Account,
3) Fixed Deposit Account and
4) Recurring Deposit Account.
NRI‟s and NRE‟s can keep money in nationalised and other banks as
savings or fixed deposits, in case of NRI & NRE accounts, the bank
interest is not taxable. Some banks offer 1% higher in interest rate on
NRI/NRE account.
 Important Features of Bank Deposits accounts

are as noted below:
1) Any individual (of major age) can open a bank account by
following simple procedure. An account holder is treated as
bank customer and all normal banking facilities are offered to
him. A bank account may be single or joint. Nomination facility is
also given to account holder.
2) Deposit in the bank are safe and secured. They can withdrawn
as per the term and condition of the bank account. The benefit
of deposit insurance is also available to depositor.
3) Money can be deposited at any time in the case of current and

savings bank account. In the case of fixed deposit account, it is
deposited only once and money is every month in the case of
recurring deposit account.
4) Interest is paid on bank deposit (except Current deposit). The

interest rate is decide by the RBI from time to time as per the
money market situation. The co-operative offer nearly 1% higher
interest rate as compared to commercial banks. Even senior
citizen are offer a little higher interest rate.

5) Interest is paid on quarterly of sixth monthly basis. However, if the
deposit period is less than 90 days, the interest is paid on
maturity.
6) Bank deposits have high liquidity. Banks even give loan on the
security of fixed deposit receipt.
7) Interest on bank deposit is exempted from the tax liability upto

certain limit under section 80L of Income Tax Act.
 Advantages of Bank Deposits:

1) Investment is reasonably safe and secure with adequate
liquidity.
2) Banks offer reasonable return on the investment made and that

too in a regular manner.
3) Banks offer loan facility against the investment made.
4) Procedures and formalities involved in bank investment are

limited, simple and quick.
5) Banks offer various services ans facilities to their customers.
 Limitation of Bank Deposits:

1) The rate of return in the case of bank investment is low as
compare to other avenues of investment.
2) The return on investment is not adequate even to give protection

against the present inflation rate in the country.
3) Capital appreciation is not possible in bank investment.
Tax benefits offered in the case of bank investment are not attractive
as compared to other investment avenues

 GOVERNMENT OF INDIA SAVINGS
BONDS:
A) Government of India 8.0% savings (taxable)

bonds:
The Government of India (GOI) introduced this 8% savings (taxable)

bonds. These bonds are convenient for charitable trusts. It is the best
option for investment of surplus funds. There is no maximum limit for
investment in the bonds, 8% interest payable is taxable.
o Important Features of 8.0% Savings Bonds:
a) Who can but: Resident Individual (Not NRI), Minor, HUF, Charitable
Institution and Universities
b) Interest : 8.0% p.a. payable half yearly or Rs.1000/- becomes

Rs,1,601/- after 6 years. Half yearly or cumulative interest payment
option available.
c) Period: 6 years.
d) Investment: any amount i.e. no limit on the amount of investment

(minimum amount is Rs.1000/- and multiples thereof).
e) Tax Benefit: Interest is taxable but wealth exempted. Effective yield

is 8.32%.
f) Transferability: Bonds are not transferable and pledgable. They are

not tradable in secondary market.
g) No TDS will be deducted on interest.
h) Nomination facility is available.
i) The bonds shall not be eligible as collateral for loans from banks
and financial institutions,
j) No interest will be paid after the maturity.
k) The NRIs are not allowed to invest their funds in these savings bonds.

B) 9.00% GOI Senior Citizens Savings Scheme 2004:
It is special investment scheme introduced for the benefit of senior

citizens. It gives attractive return to senior citizens and is popular among
them. The features of this scheme are:
a) Resident Indians aged 60 years and above can invest in this

scheme. VRS people age of 55 years can also invest in this
scheme.
b) Interest rate is 9% per annum and is payable quarterly. The

interest (9% p.a.) is taxable.
c) Period of scheme is 5 years. The maturity period can be

extended by another 3 years.
d) Ceiling for maximum permissible deposit per person is Rs.15 lac

(Minimum deposit amount is Rs. 5000/- and in multiples of Rs.
1000/-.
e) Account can be opened jointly with spouse only. Account can

be opened in the SBI, BOI, and BOB.
f) No TDS will be deducted but interest is taxable.
g) Premature withdrawal facility is available after one year.

However, premature penalty is charged.
1) After one year and before two years – 1.50% of
deposit.
2) After two years – 1.00% deposi shall be deducted.
h) Nomination facility is available.
i) NRI and HUF are nor eligible for depositing money under this
scheme.
j) PAN card, age proof and residence proof are required for joining
the scheme.

C) Government of India 6.50% savings (Tax
free) Bonds:
Recently, the government has started issuing 6.50% (Tax Free) bonds
which are reasonably attractive and sewcured investment for
individual and institutions.
Important Features of 6.50% Savings (Tax Free) Bonds:
(a) Resident individual (Not NRI), HUF, minor theough guardian can
invest in these bonds.
(b) No maximum limit on amount of investment in these bonds.
(c) Interest 6.50%. interest payable half yearly or cumulative. Interest

payment is exempted from income tax- No wealth tax.
(d) Maturity period is of 5 years.
(e) Pledge and transfer are not allowed. However, the bonds can
be transferable only by the way of gifts.
(f) Cumulative facilty available, Rs.1000/- become RS. 1,377.- after 5

years.
(g) Non-cumulative facility is also available. This means 6.5% interest

p.a.(payable half yearly). This 6.5% tax free interest is equal to
9.82 p.a. taxable (for 30% tax payer).
(h) Redemption (premature encashment) after 3 year only.
(i) Nomination facility is available.
It may be noted that 6.50% savings bonds offers more

benefits/concession as compared to 8% saving (taxable) bonds. Both
the bonds are popular and used extensively as a safe and secured
investment avenue by large number of rich investors. Both the avenues
are not available to NRIs. The new savings bonds of GOI are similar to
Relief Bonds which RBI was issuing previously on behalf of Government
of India. RBI Relief bonds are discounted till further notice. The
application for both categories of bonds may be submitted to SBI or
HDFC Bank. They issue bond certificates of GOI.

o Investments benefits in Infrastructure Bonds
By investing in infrastructure bonds in India, an investor can save on
taxes as provided under Section 88 of the Income Tax Act, 1961. The
two significant economic factors playing vital role in the investment
decisions in the infrastructure bonds are Inflation and interest rate
movements. For instance, price of a bond will fall if interest rates rise
and vice-versa.
Tax Rate Investments in Infrastructure

Tax
Slab Returns
Savings
After 3 After 5
years years
30% 6,000 2,000 32,139
20% 4,000 27,485 30,139
10% 2,000 25,485 28,139
Obligatory Returns to
25,194 29,387
defy Inflation Effect
Tax Tax fortified in lieu of investing in Infrastructure

Rate Bonds
Slab Yields on investments from Market after Tax
After 3 years After 5 years
30% 21,292 28,159
20% 24,334 32,182
10% 27,376 36,204
o How to invest in infrastructure bonds?

Infrastructure Bonds are available through issues of ICICI and IDBI, in the
name of ICICI Safety Bonds and IDBI Flexibonds. They can reduce tax
liability by upto Rs 16,000 per annum. Both the bonds provide
investors the option of purchasing and holding the instruments either as
physical certificates or in the demat form. The Tax-Saving Bond from
ICICI for the month of July 2001 provides two options:

 Face value of Rs 5,000 for 3 years at the rate of 9.00% interest
payable annually.
 Deep Discount Bonds with a face value of Rs 6,600. These bonds

are available for Rs 5,000, and are issued for 3 years and 4
months, after which they are redeemed at their face value.
These infrastructure bonds are suitable for an increase in the
investment. The terms for the IDBI Bonds are similar too.
 Apart from the above Infrastructure Bonds , Rural Electrification

Corporation (REC) has come out with an issue of tax-saving
infrastructure bonds for investors seeking to utilize the additional
Rs 30,000 qualifying limit for investments in Infrastructure Bonds.
 Points to remember before investing in

infrastructure bonds
 Infrastructure Bonds do not offer any protection against high
inflation since the rate of interest they offer is pre-determined.
 Against the pledging of the infrastructure Bonds with a bank, one
can borrow money from banks. The amount depends on the
market value of the bond and the credit quality of the
instrument.
 Moreover, it should be noted that although Infrastructure Bonds
are considered to be safe, there is no assurance of getting the
full investment back.

 Postal Saving Schemes / Post Office
Saving Scheme:
Indian Postal network is the largest postal network in the world. The
postal network has grown almost seven folds since 1950. Post office is
the service organisation and also operates as a financial institution. It
collect small saving through saving bank accounts facility. In addition,
time deposits and government loans are also collected through post
offices. Certain government securities such as Kisan Vikas Patras,
National Saving Certificates, etc are sold through offices. New schemes
are also introduces by postal department in order to collect saving of
the people. This include recurring deposits, mothly income scheme, PPF
ans so on.
Postal Saving bank scheme was popular in India for a long period as
banking facilities were limited and were available mainly in the urban
areas upto 1950s. the popularity of postal saving schemes is now
reducing due to growth of banking and other investment facilities
throughout the country. However, even at present , small investors used
postal saving facilities for investing their savings due to certain benefits
like stable return, security and safety of investment and loan facilities
against postal deposit. Even tax benefits is one attraction for
investment in post office. Moreover, investment in postal schemes is as
good as giving money to the government for economic development
alongwith reasonable return and tax benefits. Postal savings schemes
include the following:
a) Saving Bank Account : No fixed period : Simple Interest rate of

3.5% with effect from March 1, 2003. Maximum deposit upto Rs.
50000/- in individual and Rs. 100000/- in joint account is allowed.
b) Monthly Income Scheme: Period : 6 years : Interest rate is 8.0%

per annum payable monthly. There will be no tax deduction at
source.
c) Recurring Deposit: Period : 5 years: Interest rate 7.5% with effect

from March 1, 2003. The interest is compounded on quarterly
basis. Maturity is notified and paid accordingly. Minimum amount
payable is Rs. 10/- and there is no limit to maximum amount. Tax
is not deducted at source.
d) Time Deposit: Period: 1 year to 5 years: Maximum amount is Rs.

200/- . No limit maximum deposit in an amount – Interest earned
is exempted under section 80L of the Income Tax Act. The

interest rates on time deposit with effect from March1, 2003 are
as noted below;
Period Interest Rate

1 year Time Deposit 6.25 %
2 years Time Deposit 6.50 %
e) Investment in government securities is possible through post

offices. Here, the terms and condition are fixed by the
government. Let us, now, consider the details of some postal
savings schemes:
i) Post Office Time Deposits (POTDs):
 Broad Features:
1) Such deposits can be make in multiples of Rs. 50/- by submitting
a prescribed application form. No upper limit to such deposits.
2) Interest is paid regularly on such deposits, depending on the
period. The I interest rates are as noted above.
3) Withdrawal is permitted before 6 months.
4) The interest is calculated half-yearly and paid annually.
5) POTD account can be pledged.
6) The interest on POTD account is exempted from Tax liability within
certain limits under section 80L of the Income Tax Act.
ii) 6 years Post Office Monthly Income

Scheme:
The monthly income scheme is now popular and use extensively
particularly by those who do not get regular salary income or
pensions. Here, monthly interest can be use for meeting various
expenses. It is suitable to middle people and also to those who take
the benefit of voluntary retirement.
Under this scheme, the post office is providing the facility of monthly
income (interest payment) to depositors. This schemes provides
regular monthly income (like pension) to depositor against fixed
deposited in the post office for 6 years period.

o The Features of monthly income scheme are as
noted below:
1) The period of deposit is 6 years (lock in: 6 years). The minimum
amount to be deposited is Rs. 6000/- and in multiples of Rs. 6000/-
, and the maximum is Rs.300000/- for single holder and
Rs.600000/- for joint holders. PAN is compulsory when amount
invested is more than Rs.50000/-.
2) The rate of interest offered is 8% with effect from March 1, 2003

payable on monthly basis. In addition, as an incentive, a bonus
of 10% is paid to the depositor at the end of 6 years i.e. on the
maturity of the deposit. This benefit of bonus payment is now
withdrawn. However, the accounts that have already opened
will not be effected by this change. (Source: The Times of India.
Feb 11, 2006).
3) The interest amount is taxable at your respective tax slab.
4) Monthly income scheme is attractive to middle class investors

due to safety, regular and reasonable return and tax exemption.
5) Nomination facility is available. No tax on principal on maturity.
6) Premature closure of account is permitted at any time after one

year and before three years with 3.50% deduction. No deduction
of penal interest after 3 years. No bonus payment on premature
closure of accounts. The government has also decided to
reduce the penalty on premature withdrawal from the monthly
income accounts.
It may be noted that withdrawal of 10% bonus on monthly income

scheme is a move that will take sheen off the post office monthly
income accounts. It will reduce the effective returns on the monthly
deposit schemes that have a tenure of 6 years from around 9.5% to 8%.
As a result, the popularity of monthly income scheme is reducing.
In addition, post office acts as an avenue of investment by other

methods. For example, post office recurring deposit account for 5 years
period can be opened with Rs. 5 and multiples of Rs.5 subject to a
maximum amount of Rs.1000/- per month. The entire amount (with
simple interest at 7.50%) is paid to the depositor on maturity. Two
withdrawal are also allowed during this period. This scheme is similar to
recurring deposit account with a co-operative or public sector bank.

iii) National Saving Scheme (NSC)
National savings scheme (NSC) is operated by the post offices. The
national saving certificates are available in the denomination of
Rs.500/-, Rs. 5,000/- and Rs. 10,000/-. The interest on NSC is at 8% p.a.
cumulative. The investment in these certificates qualifies for tax
redemption under section 80C of the Income Tax Act. The certificate of
Rs. 10,000/- will have a maturity value of Rs. 16,010/- after 6 years. There
is no TDS on maturity amount. The investment is qualified for deduction
under section 80C. PAN No. is compulsory for amount Rs.50,000/- and
above. Certificates are transferable from one person to another person
before maturity and Certificates are also transferable from one Post
office to any Post office. Certificate can be pledged as security
against a loan to banks/ Govt. Institutions.
iv) Kisan Vikas Patras
Kisan Vikas Patras are also sold out through post offices throughout
India. Kisan Vikas Patras are certificates available in the denomination
of Rs. 500/-, Rs.1,000/-, Rs.5,000/- and Rs. 10,000/- which will be double
in eight years and seven months (103 months) with effect from 1st
March 2003 (RS. 10,000/- becomes Rs.20,000/- after 8 years and 7
months) i.e. the rate of interest is 8.40% compounded annually. These
certificate known as patras are not transferable but nomination facility
is available. These patras is issued to an individual singly or jointly and
Companies, Trusts, Societies and any other Institution not eligible to
purchase.. There is no upper limit to investment in these patras. They
can be encashed before maturity. Such premature encashment is
possible after 2 ½ years. There is no Tax deduction at source in case of
Kisan Vikas Patra. There is no Tac benefits to these patras. PAN is
compulsory for amount invested more than Rs.50,000/-. Patras are
transferable to any Post office in India.
Post Office provides various schemes for safe investment of surplus

funds. There is full safety to the post office investment. However, the
return on investment is rather low. At present 8.00% compounded
quarterly. Such trend is applicable to all saving scheme in India. The
Postal rules and procedure are lengthy. Moreover, quick service and
personal attention are normally not given due to inadequate staff

 Public Provident Fund (PPF):
Public Provident Fund (PPF) is one attractive tax sheltered investment
scheme for middle class and salaried persons. It is even useful to
businessmen and higher income earning people. The PPF scheme is
very popular among the marginal income tax payers. The scheme was
introduce in 1969.
o Features of PPF:
i. PPF account may be opened at any branch of the SBI or its
subsidiaries or at specified branches of nationalised banks like
the Bank of Maharashtra, Bank of Baroda etc. PPF account can
be opened even in a post office on the same terms and
conditions. Such account can be opened by any individual or
by HUF. Even NRI can be opened PPF account.
ii. The PPF account is for a period of 15 years but can be extended
for more years (five years at a time) at the desire of the
depositor.
iii. The depositor is expected to make a minimum deposit of Rs.100/-

every year. In addition, money can be deposited once In every
month. The maximum permissible deposit per year is Rs.70,000/-.
iv. The PPF account is not transferable, but nomination facility is

available.
v. The deposit in a PPF account are qualified for tax rebate under
the income tax Act (section 80C deduction). The PPF account is
fully exempted from the Wealth Tax. It is also exempted from
attachment from the court.
vi. A compound interest at 8% per annum is paid in the case of PPf

account with effect from 1-3-2003. The interest accumulated in
the PPF account is also tax free.
vii. PPF account holder is eligible for one withdrawal per financial
year after five years from the end of the year in which the
subscription is made. It is limited to 50% of the balance at the
end of the fourth year.
viii. On maturity, the credit balance in the PPF account can be

withdrawn or the subscriber can extend account for five years
or more
o Special Advantages of PPF:
(1) Reasonably attractive interest rate even it is reduced by one per

cent from 1-3-2003.
(2) Income from PPF account (interest payment) is exempted from

income tax and wealth tax.
(3) At present, PPF investment plus other investment (i.e. investment

under savings schemes) upto Rs. One lakh is exempted from the
total taxable income.
(4) Withdrawal facility at certain intervals.
(5) It is useful as a provision for old age, or as provision for certain

expenses of a son/daughter, purchase of flat, etc.
(6) PPF account can be extended even after the completion of 15

years. Extension is given easily for a period of 5 years at a time.
This gives benefits of PPF account over a long period.
o Limitation of PPF Account:
(1) Low liquidity as withdrawal are not easily allowed.
(2) The PPF account is for a period of 15 years which is a very long
period.
Inspite of limitations, PPF is an attractive avenue for investment in the

case of tax payers/salaried class/businessman/professionals. The
benefit of PPF scheme are given continuation over years by the
government. This is perhaps the reason for its growing popularity.

 LIC Scheme
Life insurance business was nationalised in India since long (1956) and
is run by the Life Insurance Corporation of India. In addition, we have
also Postal Life insurance scheme run by the Postal department. LIC is
responsible for the expansion of life insurance business in India. In
addition, it plays an important role in collecting the savings of the
people. It gives protection and acts as a method of compulsory
savings. LIC is one avenue for investment of money out of regular
income. It also gives protection to the family members of the
policyholder. Life insurance business is no more monopoly of LIC.
Private sector is now allowed to participate in the insurance business.
Investment in the insurance schemes offers the following advantages
to investors:
(1) Protection to family members through financial support in the

case of death of policy holder.
(2) Investment in life insurance scheme serves as a provision for old

age (maintenance, medical expenses, etc).
(3) It acts as a method of compulsory saving over a long period out

of regular income.
(4) Investment in life insurance provides loan facility from banks.
(5) LIC now gives bonus to policy holders on yearly basis. This adds
to the maturity value of policy taken.
(6) Investment in life insurance scheme give tax benefit (15% of

premium paid). This tax benefit is available even when the
policy is taken on the name of investor‟s wife, son or daughter.
(7) Investment in life insurance scheme gives mental peace to

investor in this age when our life exposed to various risks,
uncertainties and danger.
(8) Investment in life insurance provides comfortable and

financially independent life after retirement. This is a special
benefit during the old age in life insurance policyholders.
LIC issues different life policies such as whole life policy, etc.
An investor can select policy considering age, monthly income

and capacity to save. Investment in LIC has wide significance. It is not

merely for monetary benefit but for security of investor and his family
members. In addition following tax benefits are given to policyholders:
(i) Premium paid are eligible for tax deduction under section
80C
(ii) The maturity claim and death claim amount received is TAX
FREE under section 10 (10D).

 Investment in Money Market
Securities:
Money market is a market for borrowing and lending for short periods. It
is one constituent of capital market. However, it is basically concerned
with short term investment. Money market securities are fixed income
securities similar to gilt edges securities, preference share, debentures.
Normally, individual investor is not interested in money market securities
as the return on investment is not attractive. However, institutional
investors with surplus funds purchase money market securities for short
term investments. A money market security is a debt instrument of short
period maturity. Money market securities in India are as explained
below:
a) Treasury Bills:
Treasury bills are a short term money market instrument used by the
central government for short term borrowing from the market for
meeting urgent financial needs. Its features are:
a) The Maturity of a treasury bills is foor a period of six months.
b) It is issued at a discount and is repable at par.
c) It carries low rate of return due to short priod and hence it fails
to attract individual investors for profitable investment.
Institutional investors use this instrument for short term
investment of surplus funds.
d) It is gilt-edged security. It has highest safety as government is

responsible for the payment of interest and refund.
e) The RBI looks after the issue and sale of treasury bills on behalf
of the Central Government. The sale of treasury bills is by
auction.

b) Gilt-edged Securities:
Government (Central and States) securities and securities are issued by

financial institutions such as IDBI, ICICI, etc are called gilt-edged
securities. These are debt securities issued by the central government,
State government and semi-government agencies. The market for such
securities is called gilt-edged market. Securities issued by port trust,
public sector enterprises, electicity board are also called gilt-edged
securities. Such securities are in the form of bonds and credit notes.
Institutional agencies such as banks, insurance companies, etc are the
buyers of such securities. Such securities are fully secured as they have
government backing. The maturity period is varying generally upto 10
to 20 years. Gilt-edged securities market constitute the largest segment
of the Indian capial market. This market is expanding rapidly in recent
years. Gilt-edged security is highly liquid asset as it can be sold easily.
Tax benefits are abailable to gilt-edged securities.
c) Commercial Paper:
Commercial Paper is one money market security. It is a short term

unsecured promissory note issued by a firm for the loan taken. Such
commercial paper are issued by reputed companies for meeting their
urgent short term needs. A major benefit of commercial paper is that
it does not need to be registered with the Securities and Exchange
Commission (SEC) as long as it matures before nine months (270 days),
making it a very cost-effective means of financing. The proceeds from
this type of financing can only be used on current assets (inventories)
and are not allowed to be used on fixed assets, such as a new plant,
without SEC involvement. The features of commercial paper are as
follows:
(a) The usual period for the issue of commercial paper is 180 days
and not more than 270 days.
(b) It is sold at a discount and is redeemable at its face value .
(c) The denomination of commercial paper is normally high and is

bought by institutional investors and companies for short term
investment of surplus funds available with them. Commercial
paper is not popular with the individual investors as they do not
have capacity to purchase it due to high denomination.
Moreover, the return on the investment is also not attractive.

d) Certificate of Deposit:
A certified deposit is a time deposit with a commercial bank, thrift

institutions, and credit unions but can be negotiated. Such deposit
carries attractive interest rate. The denomination of the deposit is also
substantial. Institutional investors and companies take interest in this
avenue of investment

 INVESTMENT IN REAL ESTATE PROPERTIES
Investment in real estate is popular due to high saleable value after
some years. Such properties include buildings, commercial premises,
industrial land, plantations farmhouses, and agricultural land near cities
and so on. Such properties attract the attention of affluent investor and
builders. They purchase such properties at low prices and do not sale
the same unless there is substantial increase in the market prices. The
property owners are willing to wait even for 20 to 30 years for attractive
return. During this period, it is a type of dead investment for the owners.
However, the resale price will be attractive in due course when they
can recover four times the price paid. This is how real estate is one
attractive as well as profitable avenue for investment provided the
property to be purchased is selected with proper care and foresight.
Liquidity in the case of such properties is limited as quick sale (like sale
of shares and debentures) is neither possible nor profitable. Similarly,
documentation formalities are also very lengthy and costly in the case
of purchase and sale or real estate properties.
A residential home/building represent the most attractive real estate

properties for large number of investors. Such investment are attractive
due to the following reasins:
(2) Ownership of the residential house provides owned

accommodation and satisfaction to the head as well as the
family members. It act as a useful family asset with saleable
value.
(3) There is capital appreciation of residential buildings particularly in

the urban areas.
(4) Loans are available from different agencies like banks etc for
buying, constructing or renovating owned residential building.
(5) Interest on such loan is deductible within certain limits.

,
(6) Wealth tax benefit is available on case of residential building as
the value is reckoned at its historical cost and not on the present
market value.

o Advantages of investment in Real Estate:
(1) Real estate like house is a necessity of life and provides pleasure
to all family members.
(2) Real estate acts as asset which can be used in case of a

necessity i.e. financial security. Moreover, the asset value
increases year after years.
(3) Profit in the real estate is substantial provided the owner willing
to wait till appropriate time.
(4) The chance fo capital appreciation are usually bright in the case of real estate.
(5) Real estate properties can be used as security for raising loan. In addition tax
benefit and protection against inflation are available.
o Disadvantages of investment in Real Estate:

(1) Investment in real estate properties is normally substantial. Due to huge
investment in one item, the benefits of diversification of investment are not
available.
(2) In real estate property, profitability is available at the cost of liquidity. Thus,
liquidity is low.
(3) The risk in the investment is more as compared to investment in banks, UTI,
etc.
(4) Tax burden in the form of stamp duty, capital gains tax, etc is heavy as and
when the property is sold out.
(5) Repairs, maintenance, etc constitute additional expenditure and botheration to

the owner.
(6) Government rules and regulation regarding buying and selling are troublesome
in the case of real estate properties.

Recommendation:
Investing is interesting and challenging. However, investing in a portfolio of carefully
selected stocks with an excellent track-record can be quite safe. Equity shares are not
safe for all the investors. The stock market are by nature volatile and unpredictable. A
prudent investor should never put all eggs in one basket. For young investors, who
can take some risk, the stock market can be quite interesting and rewarding. But an
old investor, who depends on his savings for a living, should not buy and hold equity
shares. The following are some tips that an investor should keep in mind before
making any investment decisions;
1) Do not invest all your money in one type of investment.

2) Limit the number of scripts (10-12) in your portfolio.
3) Invest in along run.
4) Do not speculate.
5) Invest in real value.
6) Set a limit to your greed.

BIBLIOGRAPHY
1. NSE Modules
2. Books on Investment by Angel Broking
3. Investment Analysis and Portfolio Management- by
N.G. Kale
4. Angel Broking Books
5. Investment Analysis and Portfolio Management – by
Prasanna Chandra
6. Web Addresses
7. www.angelbroking.com
a. www.nseindex.in
b. www.bseindex.com
c. www.angelbackoffice.com

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Summer Training Project On

“Spectrum of Investment Avenues in India”

ANJUMAN I ISLAM’s ALLANA INSTITUTE OF MANAGEMENT STUDIES

Required For Partial Fulfilment of MMS Program

Shaikh Mohd. Jahir Munna Alli - 47

Under The Guidance Of

For The Academic Year

I Mr. Shaikh Mohd. Jahir Munna Alli, student of

2 Spectrum of Investment Avenues in India

If words are considered as a symbol of approval and token

I am indebted to the reviewer of the project Mr. Ahmer

I am also grateful to Mr. Pradeep (Senior Manager – AM

I would like to thank the University of Mumbai, for giving its

Last but not least, I would like to express my sincere thanks to

3 Spectrum of Investment Avenues in India

4 Spectrum of Investment Avenues in India

The abolition of controller of capital issue and establishment of

Every investment decision has become increasingly important in

Most of Indian investor are still unaware of various investment

5 Spectrum of Investment Avenues in India

a. Different types Investment Avenue in India

b. Risk and Return

6 Spectrum of Investment Avenues in India

Angel Group mainly deals in the below:

Angel Broking Ltd,Angel Commodities Broking Ltd.,Angel Securities Ltd.

7 Spectrum of Investment Avenues in India

Sometimes, an ordinary investor gets confused due to the availability of

In addition, there are investment counsellors who undertake investment

8 Spectrum of Investment Avenues in India

9 Spectrum of Investment Avenues in India

Individual investor are individual with surplus money (saving) to invest in

Institutional investor include, financial agencies and other institutions

Moreover, all categories of investors are equally interested in safety,

10 Spectrum of Investment Avenues in India

 Points to consider before making any investment

Before making any investment an investor should first set up his

Period of investment relates to liquidity, therefore Period of investment

11 Spectrum of Investment Avenues in India

It is the third factor that needs to be given importance before any

The objective of an investor should be to minimise the risk involved in

An investor would like to have at least reasonable return on his

An investor has to consider some more factors while selecting a

12 Spectrum of Investment Avenues in India

In short, selection of suitable avenue for investment depends on various

13 Spectrum of Investment Avenues in India

A professional, who manages other people‟s or institution‟s

Bonds Mutual Funds

14 Spectrum of Investment Avenues in India

An investor has to analyse the securities available for investment.

The primary purpose of any investment is to gain profit; it may be for

Fundamental Analysis includes:

A study of economics forces which would give an idea about

Population gives an idea of the kind of labour form available in

15 Spectrum of Investment Avenues in India

Almost every piece of national legislation, substantial changes in

Industry analysis is the study of industries which are on the

Industry analysis should analyse and study of the following

The investor should know the industry classification used in the

16 Spectrum of Investment Avenues in India

An investor should measure the growth of the industry in terms of

The industry analysis helps to select few industries for investment

The basic financial statements which are used as tools of

The most frequently used tools for company analysis are as