GURU NANAK COLLEGE OF ART, SCIENCE AND

COMMERCE

GTB NAGAR, MUMBAI-400037

A PROJECT REPORT ON

“STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS

BY WORKING PEOPLE IN MUMBAI”

IN PARTIAL FUILLMENT FOR BACHELOR OF

ACCOUNTING AND FINANCE

SUBMITED BY

AJAY RAJBHAR

SEAT NO : 28

T.Y.B.A.F (SEMESTER-VI)

SUBMITTED TO

UNIVERSITY OF MUMBAI

ACADEMIC YEAR

2018-2019

UNDER THE GUIDANCE OF

PROF. KALEESHWARI NADAR

 ACKNOWLEDGEMENTS
In the first place, I thank Guru Nanak College of Arts, Commerce and Science
Mumbai for giving me an opportunity to work on this project. I would also like to
thank Asst Prof. Kaleshwari ma'am, for giving me her valuable guidance for the
project. Without her help it would have been impossible for me to complete the
project. I am thankful to her for giving me suggestions and encouragement
throughout the project work and helping me continuously at each and every stage. I
would also like to thank the various people who have provided me with a lot of
information and in fact even sharing some of the confidential company documents
and data – many of which I have used in this report and without which this project
could not have been completed. I would be failing in my duty if I do not
acknowledge with a deep sense of gratitude the sacrifices made by my parents and
thus have helped me in completing the project work successfully.

Signature of the student.

Place: Mumbai
Date:
 CERTIFICATE
This is to certify that the project work entitled “STUDY On INVESTMENT IN
FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN MUMBAI" is
the bona fide research work carried out by Mr. AJAY RAJBHAR student of ,
Bachelor in Commerce (Accounting and Finance) at Guru Nanak College of Arts,
Commerce and Science during the year 2018-2019,in partial fulfillment of the
requirements for the award of the Degree of Bachelor of Accounting & Finance,
and that the project work has not formed the basis for the award previously of any
degree, diploma, associate ship, fellowship or any other similar title to any
candidate of any university.

________________ ________________ ________________

PROJECT GUIDE CO-ORDINATOR PRINCIPAL
PROF. PROF. DR.
KALEESHWARI NADAR KALEESHWARI NADAR PUSHPINDAR BHATIA

____________________
EXTERNAL EXAMINER

DECLARATION
I, AJAY RAJBHAR, hereby declare that this project work titled “STUDY ON
INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE
IN MUMBAI" submitted for the BAF Degree at Guru Nanak College of Arts,
Commerce and Science under the guidance of Asst Prof. Kaleshwari maam is my
authentic work and has not formed the basis for the award of any
degree/diploma/associate- ship/fellowship or any other similar titles to any
candidates of the university.

Signature of the student

(AJAY RAJBHAR)

INDEX
 Sr. No. Title of the Chapter Page
no
Chapter No.1 Introduction

1.1 Types of Financial Markets

1.2 Types of Financial instruments

1.3 Analysis of instruments

Chapter No.2 Literature review

Chapter No.3 Research and methodology

3.1 Objective

3. Nature and scope of the study

2

3.3 Universe and sample size

3.4 Sources of data

Chapter No.4 Data Analysis, Interpretation and Presentation
Chapter No.5 Findings

Chapter No.6 Conclusion

1. INTRODUCTION
A financial instrument is a claim against a person or an institution for payment, at a Future date,
of a sum of money or a periodic payment in the form of interest or dividend. A financial
instrument represents paper wealth such as shares, debentures, bonds, notes etc,. Different types
of financial instruments can be designed to suit the risk and return preferences of different
classes of investors. Savings and investments are linked through a wide variety of complex
financial instruments known as "securities". securities are financial instruments that are
negotiable and tradable. Financial securities may be of primary and secondary securities. Primary
securities are also termed as direct securities as they are directly issued by the ultimate borrowers
of funds to the ultimate savers. Secondary securities are also referred to as indirect securities, as
they are issued by the financial intermediaries to the ultimate savers. Bank deposits, mutual
funds units and insurance policies are secondary securities. Financial instruments differ in terms
of marketability, liquidity, reversibility, type of options, return, risk and transaction costs.
Financial instruments help financial markets and financial intermediaries to perform the
important role of channelizing funds from lender to borrowers. Financial Instruments are also
known as investment Avenues.

In Mumbai, many families save money on a monthly basis from their income mainly to secure
their future. Putting ones money in savings account or locker will not help the money to
multiply. One can multiply their money by Investing. An individual can invest money in various
financial instruments which are available in Mumbai.

Financial instruments are assets that can be traded. They can also be seen as packages of capital
that may be traded. Most types of financial instruments provide an efficient flow and transfer of
capital all throughout the world's investors. These assets can be cash, a contractual right to
deliver or receive cash or another type of financial instrument, or evidence of one's ownership of
an entity. The present financial market is flooded with a lot investment instruments, viz., Shares,
Bonds, Mutual funds, Insurance plans, Fixed Deposits, other money and capital market
instruments and also various options of investment in Real Estate and Commodity Market etc.
Sometimes people refer to these options as "investment vehicles," which is just another way of
saying "a way to invest." Each of these vehicles has its own positives and negatives and ultimate
decision of investment is influenced by the individual investor’s perception regarding the risk
and return of concerned investment opportunity available in the market. Further, the investment
decisions is full of complexity because of volatility of market conditions, Inflation rate
fluctuations, impact of Global environment, Cash reserve ratio, and Repo rates. Therefore, it is
imperative to analyze these factors while taking an investment decision. Keeping above in mind,
the study has been done to see the perception of investors which provides understanding to
readers about the various factors which should be keep in mind at the time of investment. The
study is useful to company in providing the understanding about the investors’ perception to
devise the suitable product/marketing strategies, which would helps it in making their policies or
strategies in order to attract them. Further. financial planner get advent to make portfolio
according to response given by respondents, which belong to different occupations, having
different income level, different age level or which instrument is mostly like by the investors for
investment. The study would further helpful for readers in understanding about the various
investment opportunities available in the market.

International Accounting Standards defines financial instruments as any contract that gives rise
to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial instruments act as channels to invest the money. There are various financial
instruments available on the market currently. It acts as a tool to raise funds. For investment
purpose, there are many ways to save money. An investor has to choose the best investment
option to fetch the best return on the invested money.
instruments provide an efficient flow of money and transfer of capital throughout the world.
These tools can be real or virtual documents representing agreement involving any monetary
value. It has a monetary value, and it constitutes a legally enforceable agreement between two or
more parties regarding a right to payment of money.

A financial instrument is a claim against a person or an institution for payment, at a future date,
of a sum of money or a periodic payment in the form of interest or dividend. A financial
instrument represents paper wealth such as shares, debentures, bonds, notes etc,. Different types
of financial instruments can be designed to suit the risk and return preferences of different
classes of investors. Savings and investments are linked through a wide variety of complex
financial instruments known as „securities‟. Financial securities are financial instruments that are
negotiable and tradable. Financial securities may be of primary and secondary securities. Primary
securities are also termed as direct securities as they are directly issued by the ultimate Borrower
of funds to the ultimate savers. Secondary securities are also referred to as indirect securities, as
they are issued by the financial intermediaries to the ultimate savers. Bank deposits, mutual
funds units and insurance policies are secondary securities. Financial instruments differ in terms
of marketability, liquidity, reversibility, type of options, return, risk and transaction costs.
Financial instruments help financial markets and financial intermediaries to perform the
important role of channelizing funds from lender to borrowers. Financial Instruments are also
known as investment avenues.
1.1 TYPES OF FINANCIAL MARKETS
A financial market consists of two major segments: (a) Money Market; and (b) Capital Market.
While the money market deals in short-term credit, the capital market handles the medium term
and long-term credit.Let us discuss these two types of markets in detail.

 MONEY MARKET
The money market is a market for short-term funds, which deals in financial assets whose
period of maturity is upto one year. It should be noted that money market does not deal in
cash or money as such but simply provides a market for credit instruments such as bills of
 exchange, promissory notes, commercial paper, treasury bills, etc.These financial instruments
are close substitute of money. These instruments help the business units, other organisations
and the Government to borrow the funds to meet their short-term requirement.Money market
does not imply to any specific market place. Rather it refers to the whole networks of
financial institutions dealing in short-term funds, which provides an outlet to lenders and a
source of supply for such funds to borrowers. Most of the money market transactions are
taken place on telephone, fax or Internet. The Indian money market consists of Reserve Bank
of India, Commercial banks, Co-operative banks, and other specialised financial institutions.
The Reserve Bank of India is the leader of the money market in India.
Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC,
UTI, etc. also operate in the Indian money market.

MONEY MARKET INSTRUMENTS:

Following are some of the important money market instruments or securities.
(a) Call Money: Call money is mainly used by the banks to meet their temporary requirement of
cash. They borrow and lend money from each other normally on a basis. It is repayable on
demand and its maturity period varies in between one day to a fortnight. The rate of interest paid
on call money loan is known as call rate.

(b) Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term
requirement of funds. Treasury bills are highly liquid instruments, that means,at any time the
holder of treasury bills can transfer of or get it discounted from RBI.
These bills are normally issued at a price less than their face value; and redeemed at face value.
So the difference between the issue price and the face value of the treasury bill represents the
interest on the investment. These bills are secured instruments and are issued for a period of not
exceeding 364 days. Banks, Financial institutions and corporations normally play major role in
the Treasury bill market.

(c) Commercial Paper: Commercial paper (CP) is a popular instrument for financing working
capital requirements of companies. The CP is an unsecured instrument issued in the form of
promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to
raise short-term funds. It can be issued for period ranging from 15 days to one year. Commercial
papers are transferable by endorsement and delivery. The highly reputed companies (Blue Chip
companies) are the major player of commercial paper market.

(d) Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued by
Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from
one party to another. The maturity period of CDs ranges from 91 days to one year. These can be
issued to individuals, co-operatives and companies.

(e) Trade Bill: Normally the traders buy goods from the wholesalers or manufactures on credit.
The sellers get payment after the end of the credit period. But if any seller does not want to wait
or in immediate need of money he/she can draw a bill of exchange in favour of the buyer. When
buyer accepts the bill it becomes a negotiable instrument and is termed as bill of exchange or
trade bill. This trade bill can now be discounted with a bank before its maturity. On maturity the
bank gets the payment from the drawee i.e., the buyer of goods. When trade bills are accepted by
Commercial Banks it is known as Commercial Bills. So trade bill is an instrument, which
enables the drawer of the bill to get funds for short period to meet the working capital needs.

 CAPITAL MARKET
Capital Market may be defined as a market dealing in medium and long-term funds. It is an
institutional arrangement for borrowing medium and long-term funds and which provides
facilities for marketing and trading of securities. So it constitutes all long-term borrowings from
banks and financial institutions, borrowings from foreign markets and raising of capital by issue
various securities such as shares debentures, bonds, etc. In the present chapter let us discuss
about the market for trading of securities.
The market where securities are traded known as Securities market. It consists of two different
segments namely primary and secondary market. The primary market deals with new or fresh
issue of securities and is, therefore, also known as new issue market; whereas the secondary
market provides a place for purchase and sale of existing securitiesand is often termed as stock
market or stock exchange.

 PRIMARY MARKET
The Primary Market consists of arrangements, which facilitate the procurement of long-term
funds by companies by making fresh issue of shares and debentures. You know that companies
make fresh issue of shares and/or debentures at their formation stage and, if neccesary,
subsequently for the expansion of business. It is usually done through private placement to
friends, relatives and financial institutions or by making public issue. In any case, the companies
have to follow a well-established legal procedure and involve a number of intermediaries such as
underwriters, brokers, etc. who form an integral part of the primary market.

• SECONDARY MARKET
The secondary market known as stock market or stock exchange plays an equally important role
in mobilising long-term funds by providing the necessary liquidity to holdings in shares and
debentures. It provides a place where these securities can be encashed without any Difficult and
delay. It is an organised market where shares, and debentures are traded regularly with high
degree of transparency and security. In fact, an active secondary market facilitates the growth of
primary market as the investors in the primary market are assured of a continuous market for
liquidity of their holdings. The major players in the primary market are merchant bankers,
mutual funds, financial institutions, and the individual investors;and in the secondary market you
have all these and the stockbrokers who are members of the stock exchange who facilitate the
trading.
1.2 Types of Financial Instruments in India

1. Equities :

It is a type of security that represents the ownership of a company. Equities are traded in stock
markets. It can also be purchased through Initial Public Offerings (IPO), whenever a company
issues shares to the public for the first time. In India, share trading actively happens in stock
exchanges; prominent ones are BSE (Bombay Stock Exchange) and NSE (National Stock
Exchange). It is one of the best options to invest in equities over an extended period as it will
fetch good returns. It is also subject to market-related risk, and one needs to do thorough research
before investing in equities. Equity shares constitute permanent capital for the firm and it cannot
be redeemed during the lifetime of the company and as per the Companies Act of 1956, a
company cannot purchase its own shares during its existence. At the time of liquidation, the
equity shareholders can demand the refund of their capital amount and the same will be paid
after meeting all the other prior claim including preference shareholders.

2. Mutual Funds In India:

Mutual Funds are top-rated because the initial investment amount is very less and the risk is
diversified. Mutual funds allow a group of individuals to invest their money together. The
investment avenue is famous because of cost-efficiency, risk-diversification, professional
management and sound regulation. The minimum amount to be invested can be as small as INR
500, and the frequency of investment is usually monthly or quarterly.Mutual Funds are financial
instruments. These funds are collective investments which gather money from different investors
to invest in stocks, short-term money market financial instruments, bonds and other securities
and distribute the proceeds as dividends. The Mutual Funds in India are handled by Fund
Managers, also referred as the portfolio managers. The Securities Exchange Board of India
regulates the Mutual Funds in India. The unit value of the Mutual Funds in India is known as net
asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds in
India, by dividing it with the number of units issued and outstanding units on daily basis.

3.Bonds:
Bonds are fixed income instruments which are issued to raise working capital. Both private
entities, such as companies, financial institutions, and the central and state government
institutions issue this to raise funds. The bonds issued by the government carries the lower rate of
risk but guarantees returns. The bonds issued by private institutions have high risks.
Bonds have long been considered the boring, poorer performing alternative to stocks. However,
in most portfolios, there is an important role to be played by bonds and it is crucial to understand
the nature of this alternative to the stock market.
Bond is basically a loan. The owner of a bond has given the issuer-whether it be a corporation, a
government or another agency-a sum of money that can be used at any point. In exchange, the
issuer will pay interest to the bondholder over a period of time and will eventually return the
initial amount loaned, called the principal. Unlike a stock, the bondholder does not own a part of
the company.

4. Deposits:
Investing the money in banks or post-office is one of the standard method of savings followed in
India. The risk factor involved is zero, and the return on investment is guaranteed.

5. Cash and Cash Equivalents:

These are relatively safe and highly liquid investment options. All the securities that can be
immediately converted into cash within three months are known as cash and cash equivalents.
Treasury bills, gold, money market funds are cash equivalents.

6.Futures and Options:

Derivatives Instruments are a Financial Contracts which solve the primary purpose of hedging
the asset price fluctuation. It Derives value from its underlying assets, hence it is called as
derivatives. There are various types of derivative used world wide, but in India currently we have
Two Exchange Traded Derivatives namely Futures and Options

 Call option and Put option-

Apart form hedging, trader uses these instruments as it offers better leverage, convenience in
holding Long and Short positions, Low Cost to trade compared to Equity delivery and enable
traders to profit sideways movement using options.

Futures contracts gives Rights with Obligations to the Traders, hence the open position is settled
on the maturity date.Option Contracts gives Rights to the Buyer with NO OBLIGATION, hence
he needs to pay some premium to the seller to get the contract. Seller of the Option has the
Obligations

Call Option Buyers – Has Rights to Buy

Put Option Buyers – Has Rights to Sell

• Commodity Futures Contracts

A futures contract is an agreement for buying or selling a commodity for a

predetermined delivery price at a specific future time. Futures are standardized
contracts that are traded on organized futures exchanges that ensure performance of
the contracts and thus remove the default risk. The commodity futures have existed
since the Chicago board of trade was established in 1848 to bring farmers and
merchants together. The major function of futures market is to transfer price risk from
hedgers to speculators. For example, suppose a farmer is expecting his crop of wheat
to be ready in two months‟ time, but is worried that the price of wheat may decline in
this period. In order to minimize his risk, he can enter into a futures contract to sell his
crop in two months‟ time at a price determined now. This way he is able to hedge his
risk arising from a possible adverse change in the price of his commodity.

• Commodity Options Contracts

Like futures, options are also financial instruments used for hedging and speculation.
The commodity option holder has the right, but not the obligation, to buy or sell a
specific quantity of a commodity at a specified price on or before a specified date.

Option contracts involve two parties – the seller of the option, who writes the option
in favour of the buyer, who pays a certain premium to the seller as a price for the
option. There are two types of commodity options: a „call‟ option gives the holder a
right to buy a commodity at an agreed price, while a „put‟ option gives the holder a
right to sell a commodity at an agreed price on or before a specified date called expiry
date.
Futures and options trading therefore helps in hedging the price risk and also provide
investment opportunity to investors who are willing to assume risk for a possible
return. Further, futures trading and the ensuing discovery of price can help farmers in
deciding which crops to grow. They can also help in building a competitive edge and
enable businesses to smoothen their earnings because non-hedging of the risk would
increase the volatility of their quarterly earnings. Thus futures and options markets
perform important functions that cannot be ignored in modern business environment.
Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are
bought and sold in standardized contracts.

The terms commodities and futures are often used to depict commodity trading or
futures trading. It is similar to the way stocks and equities are used when investors
talk about the stock market. Commodities are the actual physical goods like gold,
crude oil, corn, soy beans, etc. Futures are contracts of commodities that are traded at
a commodity exchange like MCX. Apart from numerous regional exchanges, India
has three national commodity exchanges namely, Multi Commodity Exchange
(MCX), National Commodity and Derivatives Exchange (NCDEX) and National
Multi-Commodity Exchange (NMCE).

Forward Markets Commission (FMC) is the regulatory body of commodity market. It

is one of a few investment areas where an individual with limited capital can make
extraordinary profits in a relatively short period of time. Selected information about
the most important commodity exchanges in India is given here.

 Investment Avenues

By Investment Avenue we mean a particular organization or system in which an

investor can place his surplus funds with the objectives of having certain gains in the
future. This organization may be well organized like a bank, financial institution,
mutual funds and company or in an unorganized manner like chit fund organization,
Nidhis (a type of non-banking finance company) or curry (a type of non-banking
finance company in southern India). Different investment avenues have different
features; few offer a fixed return and certain others offer stock market based returns
and yet certain others offer a mix of these two. Few of these have an element of safety
and yet others do not have any kind of safety. In certain cases these are in negotiable
form and in other cases these are non-negotiable. Investment avenues of a country are
subject to different rules and regulations of either the government or some apex body
like Reserve Bank of India, NABARD, SEBI or Companies Act. Following are the
features of investment avenues.

• A place where one can invest his surplus

• Fixed or floating return

• Security vs. Non-security form

• Investment accepting organization might have an obligation or not

• Negotiable vs. Non-negotiable

• Risk is the inherent part of every avenue

• May be in an organized form or unorganized form

• Regulation

• Market oriented vs. others

Investment avenues can be broadly divided into following types.

• Security form

• Non security form

• Traditional form

• Other emerging avenue

1.3 ANALYSIS OF INSTRUMENTS
Types of Investments / various instruments

Overview:-
There are many ways to invest your money. Of course, to decide which investment
vehicles are suitable for you, you need to know their characteristics and why they may
be suitable for a particular investing objective.

• Debt Market
• Public Provident Fund

• Fixed Deposits

• Bonds

• Mutual Funds

• Banks Deposits

• Equity Market
• Initial Public Offer

• Insurance

• Forex

• Cash

• Gold

• Real Estate
 Features of different types of financial instruments
1. DEBT INSTRUMENTS
Debt instruments protect your capital, therefore the importance of a solid debt portfolio. This not
only gives stability, but also offers you optimal returns, liquidity and tax benefits. Debt products,
besides safeguarding your capital, can be used to meet short, medium and long-term financial
needs.

1.1 SHORT TERM INVESTMENT

They are good for short term goals, you can look at liquid funds, floating rate funds and short
term bank deposits as options for this category of investments. Liquid funds have retuned around
5% post-tax returns as compared to 5.6% post-tax that your one-year 8% bank fixed deposit
gives you. So, if you have funds for investment for over a period of one year, it is better to go in
for bank deposits. However, liquid funds are better, if your time horizon is less than one-year,
say around six months. This is because the bank deposit rates decrease proportionately with
Lower periods, while liquid funds will yield the same annualized returns for any period of time.
Short-term floating rate funds can be considered at par to liquid funds for short term investments.

a) Fixed Maturity Plan (FMP): If you know exactly for how much time you need to invest your
surplus, a smarter option is to invest in FMPs. They are shorter-tenured debt schemes that buy
and hold securities till maturity, thereby eliminating the interest rate risk. Try and opt for FMPs
that offer a double indexation benefit. Fund houses usually launch double-indexation FMP’s
during the end of the financial year so that they cover two financial year closings.

1.2. Medium & Long-Term Options

These options typically offer low or virtually no liquidity. They are, however, largely useful as
income accumulation tools because of the assured interest rates they offer. These instruments
(small savings schemes) should find place in your long-term debt portfolio.
 2.

BONDS

2.1. Overview
It is a fixed income instrument issued for a period of more than one year with the purpose of
raising capital. The central or state government, corporations and similar institutions sell bonds.
A bond is generally a promise to repay the principal along with a fixed rate of interest on a
specified date, called the Maturity Date. The main attraction of bonds is their relative safety. If
you are buying bonds from a stable government, your investment is virtually guaranteed, or
riskfree. The safety and stability, however, come at a cost. Because there is little risk, there is
little potential return. As a result, the rate of return on bonds is generally lower than other
securities.

2.2. Tax Saving Bonds

These are those bonds that have a special provision that allows the investor to save on tax.

Examples of such bonds are:

a) Infrastructure Bonds
b) Capital Gains Bonds

a. Rural Electrification Corporation (REC) Bonds

b. National Highway Authority of India (NHAI)
c. National Bank for Agriculture & Rural Development
c) RBI Tax Relief Bonds
3. MUTUAL FUNDS
3.1. Overview
A mutual fund is a body corporate registered with SEBI that pools money from the
Individuals/corporate investors and invests the same in a variety of different financial
Instruments or securities such as Equity Shares, Government Securities, Bonds, Debentures, etc.
The income earned through these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.

Mutual fund units are issued and redeemed by the Asset Management Company (AMC) based
on the fund’s net asset value (NAV), which is determined at the end of each trading session.
Mutual funds are considered to be the best investments as on one hand it provides good Returns
and on the other hand it gives us safety in comparison to other investments avenues.
Important Factors to Consider Before Choosing Mutual Fund

1. Investment objective and style

There’s an objective that every mutual fund, without exceptions, follow. This helps them to
determine and invest in various asset classes that would help meet the objectives. Check if the
fund’s objective and yours align so that your goals are also fulfilled. Choosing a fund with
similar objective makes your investment reach its goal faster and better.

As for the style, you can choose from large cap, mid cap, small or micro-cap, multi-cap and flexi
cap funds. These are market capitalizations though which you can structure your portfolio better.
You must also assess the fund’s management style to know how well it would be able to handle
your money.

2. Fund performance

The performance needs to be considered because it gives you an idea of how it has handled
money in the past over a period of time. Ensure that you measure the performance over a
significantly long period so that you know the pattern and can make a good judgment. You may
want to look into what kind of risks the fund has exposed you to over a period of time. Also,
check if there was any clogging of risk-adjusted returns. Review the various portfolio that was
held by them and how often was it churned. This should give you the entire snapshot of the
fund’s performance.

4. Experience of the fund manager

This plays a significant role in generating returns. How? A fund manager has to keep moving the
capital in the direction where the market seems promising. This requires expertise and
experience. Besides their tenure also help you determine how reliable they are. The fund
performance is largely impacted by the fund manager’s expertise and tenure and thus, it becomes
crucial to be sure who you are entrusting your hard-earned money to.
5. Expense ratio

This is usually considered when you invest in an equity fund. The higher the expense ratio, the
more it affects you directly. It comprises of the brokerage fees and other costs that the mutual
fund houses charge from investors. Hence, you need to see if the charges are not over the top.
However, there are funds that charge high but make it up by offering a higher NAV or better
returns. So consider these also while checking the expense ratio.

6. Exit load

Exit load is another cost that you directly incur. It is a fraction of the NAV that you receive and
thus, leaves a hole in your investment value. So, the lower exit load a fund offers, the better is it
for you. Having said that, it only comes into play if you wish to sell your units. It is always
beneficial that you stay invested for a long term to reap good returns from any mutual fund.
4. EQUITY

4.1. Overview
Equities are often regarded as the best performing asset class vis-à-vis its peers over longer time
frames. However equity-oriented investments are also capable of exposing investors to the
highest degree of volatility and risk. There are a number of factors, which affect the performance
of equities ad studying and understanding all of them on an ongoing basis, can be challenging for
most.

Stock markets have always been a draw for investors for their ability to generate wealth over the
long-term. Fear, greed and a short-term investment approach act as hurdles that frustrate the
investor from achieving his/her investment goals. You need to keep in mind the risk associated
with the stocks. You also need to diversify your equity portfolio i.e., include more stocks and
sectors. This helps you diversify your investment risk, so even if something were to go wrong
with a stock/industry in your portfolio, other stocks/industries should help you shore up your
portfolio.

Two important resources that are critical to investing directly in stock markets are quality stock
research and a reliable and inexpensive stock broker. The first one – research on stocks is the
most critical input that investors need to identify before they begin investing in stock markets.
This is because even while you may have the risk appetite for equities, you still need credible,
stock market related research that can help you make the right investment decision.

The good thing about the Indian market, riding on the back of an economy that has grown by
over 7% in the last two years, is that you can’t miss being part of growth if you invest in the
stock markets carefully. The bad part is the CHOICE! Of the listed 4,758 stocks on BSE and the
NSE, how do you even get close to taking a call? Here comes the need of a financial advisor who
can make your investment decisions and monitor your funds. Clearly, as Indians earn more, save
more and accumulate more, financial advisors will play a crucial role in helping individuals
create, protect and manage wealth.
• Some of the main differences between mutual funds and equity can be seen
below

Risk
Mutual funds are usually considered to be best suited for those individuals who have a low risk
profile or are risk-averse by nature. However, investors in equity or individual stocks tend to be
more active with a penchant for taking risks. In this sense, mutual funds are seen as a ‘safer’ bet
in comparison to equity stocks, due to their low risk quotient.

Returns
While mutual funds offer investors very decent returns over a period of time, equity stocks have
the potential to bring the investor extremely high returns over a much shorter period of time.
Investing in stocks can be tricky, and is usually only done by individuals with an in-depth
understanding of market conditions.

Volatility
Equity stocks or individual stocks are very volatile by nature. The value of these investments
could skyrocket or plummet within an extremely short span of time, leading to either massive
profits or damaging losses. However, mutual funds are a much more stable form of investment
due to its diversity. This makes it a less volatile form of investment since all gains and losses are
spread out over a wider range of stocks.

Convenience
Individuals who invest in mutual funds enlist the services of a fund manager who takes care of
his or her portfolio, making it an extremely convenient form of investment. However, investing
in equity requires the individual to constantly monitor his or her investments due to the ever-
changing nature of individual stocks. Investors in equity are dependant on their own knowledge
of the market while mutual fund investors rely on the expertise of the fund manager to guide
them.
Costs
Trading in individual or equity stocks usually comes at a huge cost. Sometimes, any profits made
from the sale of a stock can be wiped out due to the high trading cost involved. This is one of the
reasons why only those investors with a high risk profile tend to invest in equity. Trading in
mutual funds, however, comes at a much lower cost since these expenses are spread over all
portfolios within the fund.

Based on the information outlined above, both mutual funds and equity stocks come with their
pros and cons. Therefore, it is highly recommended that individuals looking to invest in either
one take the time to determine which form of investment best suits their profile as well as their
budget.
5. INSURANCE
5.1. Overview

Life insurance has traditionally been looked upon pre-dominantly as an avenue that offers tax
benefits while also doubling up as a saving instrument. The purpose of life insurance is to
indemnify the nominees in case of an eventuality to the insured. In other words, life insurance is
intended to secure the financial future of the nominees in the absence of the person insured.
The purpose of buying a life insurance is to protect your dependants from any financial
difficulties in your absence. It helps individuals in providing them with the twin benefits of
insuring themselves while at the same time acting as a compulsory savings instrument to take
care of their future needs. Life insurance can aid your family on a rainy day, at a time when help
from every quarter is welcome and of course, since some plans also double up as a savings
instrument, they assist you in planning for such future needs like children’s marriage, purchase
of various household items, gold purchases or as seed capital for starting a business.
Traditionally, buying life insurance has always formed an integral part of an individual’s annual
tax planning exercise. While it is important for individuals to have life cover, it is equally
important that they buy insurance keeping both their long-term financial goals and their tax
planning in mind. This note explains the role of life insurance in an individual’s tax planning
exercise while also evaluating the various options available at one’s disposal.
Life is full of dangers, but with insurance, you can at least ensure that you and your dependents
don’t suffer. It’s easier to walk the tightrope if you know there is a safety net. You should try and
take cover for all insurable risks. If you are aware of the major risks and buy the right products,
you can cover quite a few bases. The major insurable risks are as follows:
• Life
• Health
• Income
• Professional Hazards
• Assets
6. GOLD
6.1. Overview

In India, gold has traditionally played a multi-faceted role. Apart from being used for adornment
purpose, it has also served as an asset of the last resort and a hedge against inflation and currency
depreciation. India has more than 13,000 tones of hoarded gold, which translates to around Rs.6,
50,000 crores. Gold is an asset class that’s associated with safety.
However, the ups and down that the yellow metal has seen over the last few months, has made it
look similar to other market investment assets. This is due to an unprecedented demand for gold
as an investment avenue since the last couple of years.
Gold has attracted a high level of attention in last couple of years, with an image shift from a
non-volatile asset to a hot investment avenue. The future outlook for the metal looks positive
given its proven linear relationship with the crude oil and non-linear with the US dollar. The
much-awaited gold exchange-traded funds would provide a very good vehicle to the investors
and a sensible alternative to the current forms available for investment.
Gold has got lot of emotional value than monetary value in India. India is the largest consumer of
gold in the world. In western countries, majority of stock of gold is kept in central banks. But in
India, people use gold mainly as jewels. When look at gold in a business sense, anybody can
understand that gold is one of the all-time best investment tool in India. Following data shows
Indian gold market current scenario.

Size of the gold economy in India is more than Rs. 30000 crores.
Number of gold jewelry manufacturing units is almost 100000.
Number of people employed more than 500000.
Gems & Jewellery constitute 25 percent of India‟s exports and about 10 percent of our import
bill constitutes gold import.
Official estimates of the stock of gold in India are 9000 tons; unofficial estimates of the stock of
gold in India are 12000 to 14000 tons.
Gold held by the reserve bank of India as on 31st March, 2010 was 358 tons.
Gold production in India is 2 tons per annum.
India has the highest demand for gold in the world and more than 90 percent of this gold is
acquired in the form of jewellery. The movement of gold prices is one of the important variables
determining demand for gold. The increase in the irrigation, technological change in agriculture
have generated large marketable surplus; and a highly skewed rural income distribution is
another factors contributing to additional demand for gold.

 Advantages of Investing in Gold

Gold has been a useful commodity throughout the economic history of mankind. In the earlier
civilizations gold used to be a currency itself. There used be to coins made of gold and silver.
The gold remained in the market as a standard for trading purposes till the beginning of the 20th
century. In the second half of the previous century gold was replaced by paper currencies the
world. Here are the few benefits of investing in gold.

A) Stability in Trading ValueAlthough there have been some down turns but over the last few
decades gold has overall seen a surge in its value. It has been used as a way of preserving wealth.
Take the example of its equivalence to US dollar. In the early 70s, one ounce of gold equaled 35
$ which has now risen to 1000$. The value of dollar might have decreased due to various reasons
chief of them being an increase in the amount of money available in the market.

B)Economic Weapon

From the various statistics of the central banks and IMF it is evident that almost one Fifth of the
reserves are in the form of gold. Had the gold not been a symbol of security the economists
would have never preserved the wealth of the country in the form of the gold. It is also used
against the inflation. The buying power of the gold owner is preserved or increases with the
increase of inflation. Inflation can harm in the long run when buying goods at an increased price
or when currency is devalued.

C) Lesser Production of GoldLike any other mineral gold reserves have also started to deplete.
This has resulted in lesser production of gold from the gold producing countries. On the other
hand the human population is increasing all the time. This has automatically resulted in a supply
demand gap which in turn increases the price of gold further.
D) Diversification Gold also provides a choice with a diversification in assets. Gold is not
dependent on the values of stocks, securities or bonds. Statistics show that over a period an
increase in value of one commodity has shown a decrease in the value of other commodity.

E) ImmuneGold has immune from the geo political situations. Throughout the history of
mankind there have been a variety of changes in political landscapes of the different countries,
resulting in a collapse of their monetary system. But gold is not a property of only one nation. Its
value has the same effect on all the currencies.

 Disadvantages of Investing in Gold

Gold investment is no doubt a thrilling option. However they are not free from limitations. Many
investors blindly take decisions on the basis of the ups and downs in the stock markets and this
creates havoc especially when the gold market is demonstrating a different behavior. Gold
investment is very important as it contributes to the national and international economy. Here are
few disadvantages to invest in gold.

A) Massive Growth Potential is Curtailed Right Now Gold has seen a near meteoric rise in
value over the last decade, but that has mostly been exhausted. What that means to potential
investors is that gold has much strength, but massive growth potential is not one of them. The
problem for gold in growth terms is that the market itself is highly evaluated. Everyone
knows the value of investing in gold and that takes away a lot of the opportunity. In other
markets, there are opportunities and sectors where people still have not discovered the
potential that exists. The value of gold is likely to rise slowly in the coming years, but other
options are also available that enjoys rapid growth potential.
B) Lack of Constant Revenue from Dividends With many investment types, like real estate or
stocks, investors can reap the rewards of their investment without having to sell their asset. This
happens with dividends, which comes from stocks and come in the form of rent payments when
own a real estate property. The good thing about dividend earnings is that investor can take the
money from those items and reinvest right back in the investment. Real estate owners take their
money and put it back into the property, adding value. Stock investors typically just reinvest
their dividends automatically in order to purchase more stock. Gold does not offer any dividends.
When investor purchase coins, bars or bullion, he or she own those items and the value is derived
when sell them. This is a downside that investors have to consider, because many of them
depend upon the residuals to further investments. Though gold provides a nice, steady, stable
investment type, it does not offer extra “perk” that is often seen a staple of the financial world.

C) Must Provide Physical Storage Space for Gold One of the important things that many gold
investors cite as a positive can be considered a negative by others. Investors who buy gold
typically like to have it on hand.

They do this because the entire point of gold is to have something tangible in case the system
itself fails miserably. Though investors can have certificates to account for their gold ownership,
this defeats the purpose of investing in gold in the first place. With that in mind, if investor own
actual physical gold, they need to have safe place to store it. Because gold coins are small and
can be easily stolen, investor cannot leave them laying around. If it is not properly stored then it
can be dangerous to keep gold in home. Gold investment has its own advantages and
disadvantages and investors are very well aware about opportunities and threats for investing in
gold. But in a current scenario it is desirable to have solid gold investment in investor‟s
portfolio.
7. REAL ESTATE

7.1. Overview

Real estate is a great investment option, as it gives you capital appreciation and rental income.
It’s an investment option since it fights inflation. The fundamentals for investing in property
markets remain strong in India - relatively low interest rates, strong capital flows, high
employment growth, abundant liquidity, attractive demographics (young population and
migration from West), increase in affordability, and a large supply of stock to keep up with
demand and focus on quality. The price you pay for a property should reflect the future
rent/income at which you let it. As in the stock market, the prices in real estate are also driven by
sentiments. All that is required to reverse a price movement is a change in sentiment.

saving for a home the moment you begin your career. Early acquisition helps you to repay your
home loan well within your working life. Also, the EMI as a percentage of your salary decreases
as your pay increases making the outflows more affordable. If you lock into the interest rate for
the loan, the interest outflow will be less than the compounding effect of Inflation.

You should be very clear about why you want to invest in real estate. It is a very good tool for
wealth creation but like all other assets, has its share of risks. Careful planning, however, can
minimize the risks.

The growth curve of Indian economy is at an all-time high and contributing to the upswing is the
real estate sector in particular. Investments in Indian real estate have been strongly taking up
over other options for domestic as well as foreign investors. The boom in the sector has been so
appealing that real estate has turned out to be a convincing investment as compared to other
investment vehicles such as capital and debt markets and bullion market.
 Advantages of Investment in Properties
In general, property is considered a fairly low-risk investment, and can be less volatile than
shares. Some of the advantages of investing in property includes following.

A) Tax Benefits
A number of deductions can be claimed on tax return, such as interest paid on the loan, repairs
and maintenance, rates and taxes, insurance, agent's fees, travel to and from the property to
facilitate repairs, and buildings depreciation.

B) Negative Gearing
Tax deductions can also be claimed as a result of negative gearing, where the costs of keeping
the investment property exceed the income gained from it.

C) Long - Term Investment

Many people like the idea of an investment that can fund them in their retirement. Rental
housing is one sector that rarely decreases in price, making it a good potential option for long-
term investments.

D) Positive Asset Base

There are many benefits from having an investment property when deciding to take out another
loan or invest in something else. Showing potential lender that have the ability to maintain a loan
without defaulting will be highly regarded. The property can also be useful as security when
taking out another home, car or personal loan.

E) Safety Aspect
Low-risk investments are always popular with untrained "mum and dad" investors.. Housing in
metropolitan areas is constantly in demand with the high purchase price being offset by
substantial rental income and a yearly return of between 6 to 9 percent.
F) High Leverage Possibilities
Investment properties can be purchased at 80 percent LVR (loan to valuation ratio), or up to 90
percent LVR with mortgage insurance. The LVR is calculated by taking the amount of the loan
and dividing it by the value of the property, as determined by the lender. This high leverage
capacity results in a higher return for the investor at a lower risk due to less personal finance ties
up in the property. By choosing a property intelligently, investors can make this form of
investment work for them. However, as with all investments there are some disadvantages to be
aware of. Disadvantages of investment properties includes the following.

G) Liquidity

Investorcan sell the property if things go bad, but however this can take many months unless
willing to accept a price less than the property is worth. Unlike the stock market, investor will
have to wait for any financial rewards.

H) Putting all your Eggs in one Basket

If investor has tied up all money in property, overexposure to one particular type of investment
can be a dangerous thing. If the property market crashes investor can stand to lose significantly.

I) Capital Gain Tax

Capital gain tax is imposed by the federal government on the appreciation of investments and
payable on disposal. Increase in tax rates reduces the amount of appreciation benefit.

J) Other Costs
Negative gearing may offer tax deductions each financial year, however ongoing payments to
cover the shortfall need to be budgeted for every month. Also, costs involved in purchasing and
disposing of the property can be substantial.
8 FOREX

8.1 Overview
If you read about investing, you've seen the word forex trading. But because forex doesn't get
much publicity in the major publications and websites, many investors don't know that forex is
just short for "foreign exchange". So trading the forex market is simply trading foreign
currencies.
As recently as ten years ago, currency trading had high barriers to entry, so only large banking
and institutional firms had access to the tools and systems required to play in the forex trading
game. Recently, however, technology has developed to the point that any individual investor can
hop right in and trade with one of the many online platforms.

The foreign exchange market also known as FOREX. FOREX or currency market is a global,
worldwide decentralized over the counter financial market for trading currencies. Financial
centers around the world function as anchors of trading between a wide range of different types
of buyers and sellers round the clock, with the exception of weekends. The foreign exchange
market determines the relative values of different currencies.The primary purpose of the foreign
exchange is to assist international trade and investment, by allowing businesses to convert one
currency to another currency. For example, it permits a US business to import British goods and
pay Pound, even though the business's income is in US dollars. It also supports speculation, and
facilitates the carry trade, in which investors borrow low-yielding currencies and lend or invest
in high-yielding currencies, and which may lead to loss of competitiveness in some countries.
In a typical foreign exchange transaction, an investor purchases a quantity of one currency by
paying a quantity of another currency. The modern foreign exchange market began forming
during the 1970s when countries gradually switched to floating exchange rates from the previous
exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of:-

• Its huge trading volume, leading to high liquidity;

• Its geographical dispersion;

• Its continuous operation: 24 hours a day except weekends;

• The variety of factors that affect exchange rates;

• The low margins of relative profit compared with other markets of fixed income; and
• The use of leverage to enhance profit margins with respect to account size.

When buying and selling in the forex currency trading system market, you'll see that there are
four "currency pairs" that dominate the percentage of trades. Those four are the Euro vs U.S.
Dollar, US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and US Dollar vs British Pound.
9 FIXED DEPOSITS

Same as a term or time deposit. Money may be placed with a bank, merchant bank, building
society or credit union for a fixed term at a fixed rate of interest which remains unchanged
during the period of the deposit. Depositors may have to accept an interest penalty if they break
the deposit, ie, ask to take the money out before the agreed period has expired.
Few points which FD investors must consider at the time of investment,

1. Safety
FD have conventionally been the premier choice for investors with a low risk appetite; assured
returns is the key factor which attracts investors towards deposits. Stick to FDs of the highest
credit rating i.e. those with a “AAA” rating even if their rates seem modest vis-à-vis those
offered by company deposits.

2. Tenure
Short tenured fixed deposits continue to be your best bet. With interest rates on the ascent, a
further hike in rates offered by fixed deposits cannot be ruled out. Locking your investments in
longer tenured instruments may lead to an opportunity loss.

3. Liquidity
Find out how FD fares on the pre-mature encashment front i.e. how easily can your investment
be liquidated. Also enquire about the penalty clauses, e.g. do you suffer a loss of interest and/or
principal amount. Compare how various FDs rank on this parameter and pick the best deal;
thereby try to minimise the impact of illiquidity which is typically associated with FDs.

4. Additional benefits
Fixed deposits from reputed entities offer additional benefits, e.g. they can be used as collateral
against which loans can be raised. Select a fixed deposit scheme which scores favourably on
such parameters.
Any investment portfolio should comprise the right mix of safe, moderate and risky
investments.While mutual funds and stocks are the favorite contenders for moderate and risky
investments, fixed deposits, government bonds etc. are considered safe investments. Fixed
deposits have been particularly popular among a large section of investors in India as a safe
investment option for a long period.
With fixed deposits or FDs as they are popularly known, a person can invest an amount for a
fixed duration. The banks provide interest rates depending on this loan amount and the tenure of
deposit. Here are the benefits, drawbacks of fixed deposits and precautions one should take while
making such investments.
10 Savings Bank Account
In a savings bank account, account holder has the option to deposit his small savings with the
aim to have safety and interest income on such deposit. Investor has the convenience of
withdrawal of his money through different mechanisms like by cheque, by withdrawal slip,
through ATM card, etc. Bank offers anywhere banking which offers operation of the bank
account for deposit and withdrawal from anywhere across the country at the designated branches.
In a saving bank account one can have limited number of transactions in each month and it has
the restrictions that frequent transactions cannot be made in this account. Although banks have a
norm for maintaining minimum balance in the savings bank account, yet there are the banks
which offer zero balance savings bank account. The main reason people use banks to hold their
money isn't because of the lucrative returns from interest rates - it is because the bricks, sensors
and a tempered steel safe convey a sense of security that a sock drawer can't match.

11 Chit Fund
Chit funds have been a popular savings scheme in several parts of India. It has paved it‟s way as
a convenient finance option amongst businessmen, small scale Industrialist and other small time
investors. Though very often shrouded by news of fraudulence, they have still managed to retain
their popularity. Chit funds evolved years ago, when the present system of banking did not exist.
Few families in a village would get together to form a chit or a group, to save money and to avail
of loans amongst the group formed. A sensible person is chosen to manage the group. This
informal system of saving prevailed only on trust. Gradually, as groups became larger and the
money involved became huge, many companies started chit fund schemes with attractive offers.
Thus to provide regulation for chit funds and for matters connected therewith, the government
introduced the Chit Funds Act in 1982.

A chit fund is a savings and borrowing scheme, in which a group of people enter into an
agreement to contribute fixed amounts periodically for a specified period of time. The amount so
collected or the chit value is distributed among each of the persons in turns, which is determined
by way of lots or an auction. Chit funds provide an opportunity to save excess cash on a daily,
weekly or monthly basis, and give an easy access to it in case of emergency. Chit fund schemes
possess a predetermined chit value and duration. The amount collected from members is
auctioned out every month. Bidders can bid up to a maximum of this total collected value. The
difference between the gross sum collected and the actual auction amount, known as the
discount, is then equally distributed among subscribers, or, is deducted from the next month‟s
premium.

Benefits of Investing in Chit Fund

• It inculcates the habit of compulsory regular saving.

• It earns dividends every month. So the net effective rate of return proves to be pretty attractive.

• For any unexpected financial requirement, bidding for the lump sum amount, could prove to be
a better option than going through the hassles of a loan.
• Chit fund investments are not affected by any market fluctuations.
•Finance option through chit funds are easier to repay through the remaining monthly
installments.

Drawbacks of Investing in Chit Fund

Chit-funds do not offer any predetermined or fixed returns. Higher returns are earned when there
are more number of members in the group or if the duration of the scheme is longer. One would
earn more, when more members need emergency funds. Thus returns cannot be calculated and
decided when one joins the scheme. With the plethora of chit fund companies around, the safety
of a chit fund lies in choosing the right one. In a registered chit fund company, under legal
binding, the activities are regulated and institutionalized by the chit fund act, and hence could be
considered safe. However, other unregistered companies operating informally do exist. One
needs to exercise caution while choosing where he desires to invest.

Chit funds definitely are an attractive option for regular saving. It inculcates a disciplined
approach to financial planning.
13 Public Provident Fund
PPF is a 30 year old constitutional plan of the central government happening with the objective
of providing old age profits security to the unorganized division workers and self-employed
persons. Any individual salaried or non-salaried can open a PPF account. Investor may also
pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account. A person
can contain only one PPF account. Also two adults cannot open a combined PPF account. The
collective annual payment by an individual on account of himself his minor child and
HUF/AOP/BOI cannot exceed Rs.70000 or else the excess amount will be returned without any
interest.
The yearly contribution to PPF account ranges minimum Rs.500 to a maximum of Rs.70000
payable in multiple of Rs.500 either in lump sum or in convenient installments, not exceeding 12
in a year. The account will happen to obsolete if the required minimum of Rs.500 is not
deposited in any year. The account can be regularized by depositing for each year of default,
arrears of Rs.500 along with penalty of Rs.100.A PPF account can be opened at any branch of
State Bank of India or its subsidiaries or in few national banks or in post offices.

On opening of account a pass book will be issued wherein all amounts of deposits, withdrawals,
loans and repayment together with interest due shall be entered. The account can also be
transferred to any bank or post office in India. Deposits in the account earn interest at the rate
notify by the central government from time to time. Interest is designed on the lowest balance
among the fifth day and last day of the calendar month and is attributed to the account on 31st
March every year. So to derive the maximum, the deposits should be made between 1st and 5th
day of the month.
Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e. the year of
opening the account and adding 15 years to it. The sum made in the 16th financial year will not
earn any interest but one can take advantage of the tax rebate. The investor is allowed to make
one removal every year beginning from the seventh financial year of an amount not more than 50
percent of the balance at the end of the fourth year or the financial year immediately preceding
the withdrawal, whichever is less. This facility of making partial withdrawals provide liquidity
and the withdrawn amount can be used for any purpose.
Features of PPF Account

• It is not necessary to make a deposit in every month of the year. The amount of deposit can be
varied to suit the convenience of the account holders.
• Those who are contributing to GPF fund or EPF account can also open a PPF account.

• No age is prescribed for opening a PPF account.

• Pre-mature closure of a PPF account is not permissible except in case of death.
• Nominee/legal heir of PPF account holder on death of the account holder cannot continue the
account, but account had to be closed.
• The account holder has an option to extend the PPF account for any period in a block of 5 years
on each time.
• The account holder can retain the account after maturity for any period without making any
further deposits. The balance in the account will continue to earn interest at normal rate as
admissible on PPF account till the account is closed.
• Deposits are exempt from wealth tax.
4.5 Various factors which affects investment decision
1. CRR:

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI
decides to increase the percent of this, the available amount with the banks comes down. RBI is
using this method (increase of CRR rate), to drain out the excessive money from the banks.

How It Affects :
a) From a stock market perspective Rising interest rates have several implications including -

* slowing down the overall growth in the economy; this effectively means that demand for goods
and services, and investment activity, gets adversely impacted.

* apart from the fact that overall growth is impacted, companies take a hit on account of higher
interest costs that they have to bear on their outstanding loans (to the extent their cost of funds is
not locked in)

* since some investors tend to leverage and invest in the stock markets, higher interest rates
increase expectation of returns from the stock markets; this has the impact of lowering current
stock prices.
* an overall decline in stock prices has a cascading effect as leveraged positions are unwound (on
account of meeting margin requirements), leading to still lower stock prices.

b) From a debt market perspective If you are contemplating on investing monies in the debt
market, you will benefit from higher interest rates on offer. However, existing investors in debt
oriented funds may take a one time hit; but at the same time, since overall interest rates are
higher, from here on, such funds will yield higher return

c) From the perspective of borrower: As a prospective borrower, you are the worst hit. The cost
of money i.e. interest rates will rise post the CRR hike. You will probably need to settle in for a
lower loan amount given the EMI.
If you are an existing borrower, as long as the rate of interest on your loan is fixed, you are
immune to any rise in interest rates. However, if you have a floating rate loan, then expect either
the tenure of the loan or the EMI to jump soon.

2. Inflation:
Inflation is defined as an increase in the price of bunch of Goods and services that projects the
Indian economy. An increase in inflation figures occurs when there is an increase in the average
level of prices in Goods and services. Inflation happens when there are less Goods and more
buyers, this will result in increase in the price of Goods, since there is more demand and less
supply of the goods.

How it affects:
The investors have less money to invest if there is increase in prices of goods or increase in
inflation rate. So it restrict investor to invest in order to fulfill other needs.

3. Global factors:

If there is any change in global environment then it also affects the investors decision of
investment, as present scenario there is change in crude price which is very high due to that it
affects Indian economy as increase in rates of each product which results in high inflation rate.
Due to that investors have less amount for investment. Also these factors change the investors
mind of investment. Still if they want to invest they look to that instruments which are constant
in prices like gold. If they have handsome amount for investment then they look for real estate
sector. So due to these factors their investment decision goes affected and it changes their
behavior pattern towards investment.
2 RESEARCH METHODOLOGY

Nature of Research: Study is descriptive and analytical in nature. It is descriptive as

it describes the existing financial instruments available in the market. It is analytical
as it analyses the perception of the investors.,

Universe and Sample Size:-MUMBAI region have been taken as universe of the
study. Convenient sampling technique is used and a sample of 55 investors has been
taken for the purpose of the study.

Data Collection and Sources:-The study is based on both primary and secondary
data. Following are the sources of secondary data:

Research Instruments: Interview and questionnaire have been used to conduct the
study. A structured questionnaire consisting close-ended questions have been made,
which is filled by the trainee during direct interaction with the respondents.

Interviews have been taken of Relationship managers of different NBFC's and

BANKS to seek the investor’s behavior towards investment.

Analysis pattern: Critical examinations of various investment instruments have been

done and a comparison is made, based on their merits and demerits. The data collected
form questionnaire is edited, tabulated and analyzed. Various graphical techniques
have been used to present the data in more meaningful way.
2 LITERATURE REVIEW

Various studies have been done to know Investors perception regarding various
financial opportunities available in market for investment. The different studies tell
the perception of investors i.e. where they want to invest and what they see at the time
of investment. Large costs associated with evaluating market conditions. Even
Individual savers may not have the ability to collect process and produce information
on possible investments. High information cost may prevent capital to flow to its
highest value use. So Financial intermediaries undertake the costly process of
researching investment possibilities for others. Savers do not like risk; but high-return
projects are riskier; Financial systems that ease risk diversification induce a portfolio
shift towards higher return project. Banks, mutual funds, securities markets provide
vehicles for trading, pooling and diversifying risk Risk diversification —> savings
rate —> resource allocation —> economic growth.

•Yameen (2001) delivered massage, investors will need to be alert to any new
development in capital market and take advantage of the Investor Education and
Awareness Campaign program which to be undertaken by the Capital Market Section
to acquaint of the risks and rewards of investing on the Capital market.Speech was
also focused on to create a new breed of financial intermediaries, which will deal on
the market for their clients. They have to be professionals with quite advanced
knowledge on stock exchange operations, techniques, law and companies valuation.
Investors depend to a large extent on their professional advice when investing on the
market. Furthermore, these intermediaries must be men of integrity and honesty as
they would deal with clients‟ money Confidence of investors in these professionals is
a key to the success of the capital market.

•Makbul Rahim (2001) argued in his speech that the regulatory framework must
provide the right environment for the development and the growth of the market. High
standards of probity and professional conduct have to be maintained and reach world
class standards. Integrity is very important as well confidence. The development of a
proper free flow ofinformation and disclosure helps investors to make informed
investment decisions.

•P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is
becoming more and more risky and complex in nature so that ordinary investors are
unable to keep track of its movement and direction. The study revealed that the Indian
market is probably more volatile than developed country markets, which is probably
why a much higher proportion of savings in developed countries go into equities.

Peter Carr and Dilip Madan (2001) disclosed that generally does not formally consider
derivatives securities as a potential investment vehicles. Derivatives are considered at
all, they are only viewed as tactical vehicles for efficiently re-allocating funds across
broad asset classes, such as cash, fixed income, equity and alternative investments.
They studied thatunder reasonable market conditions, derivatives comprise an
important, interesting and separate asset class, imperfectly correlated with other broad
asset classes. If derivatives are not held in our economy then the investor confines his
holdings to the bond and the stock and the optimal derivatives position is zero.

•Prof. Peter McKenzie (2001) in his speech at seminar investors have a choice
instead of placing their money in only one company they can pick areas of growth and
move their money, buying and selling and placing it where it is going to be most
profitable. The individual investor does not have to make an individual decision
where to place his savings. These decisions are made by an expert fund manager,
which would spread the risk by spreading the investments across different sectors of
the economy.
•Hong Kong Exchanges and Clearing Ltd. (2002) surveyed on derivatives retail
investors, and argued first based on empirical evidence that years of trading
experience and usual deal size have a positive correlation. Second, Male investors
traded to trade more frequently than female investors. Third, the usual deal size of
investor with higher personal income traded to be larger. Fourth majority of
respondents are motivated by their stock trading experience to start derivatives
trading. Fifth, trading for profit is the key reason for derivatives trading other than
high rate of return, hedging, etc. Sixth, the most significant motivating factors are
more liquid market and more transparent market. Seventh, majority of traders are
infrequent in trade- 3 times or less in a month and Index futures is the most popular
product to trade most frequently. Ninth, a large proportion of the investors invest in
exchange cash products than derivatives or investment avenues. Through empirical
evidence form investor‟s opinion, study argued that the liquidity of derivatives
products other than futures is low. High transaction costs or margin requirement is the
barrier for active participation in derivatives market. But also shows that more active
traders do not have much complaint towards transaction costs and margin
requirement.

•M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish
trends in primary equity markets need to be reverse by restoring investors‟ confidence
in market. Savings for retirement essential seek long term growth and for that
investment in equity is desirable. It is a well established fact that investments in
equities give higher returns than debt and it would, therefore, be in the interest of the
banks to invest in equities.

•Warren Buffet (2002) argued that derivatives as time bombs, both for the parties
that deal in them and the economic system. He also argued that those who trade
derivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-
market accounting. But often there is no real market, and “mark-to-model” is utilized.
This substitution can bring on largescale mischief. In extreme cases, mark-to-model
degenerates into mark-myth.Many people argue that derivatives reduce systemic
problems, in that participant who can‟t bear certain risks are able to transfer them to
stronger hands. He said that the derivatives genie is now well out of the bottle, and
these instruments will almost certainly multiply in variety and number until some
event makes their toxicity clear.

•Swarup K. S. (2003) empirically found that equity investors first enter capital
market though investment in primary market. The main reason for slump in equity
offering is lack of investor confidence in the primary market. It appeared from the
analysis that the investors give importance to own analysis as compared to brokers‟
advice. They also consider market price as a better indicator than analyst
recommendations.

3.Research and Methodology

3.1 Objectives of the Study

3.2 Nature and Scope of the Study

3.3 Sample size of the study

3.4 Sources of data

3.1- OBJECTIVES OF STUDY:-

The various objectives of the study are-

1) To study the various financial opportunities available for investment.
2) To study about the investors perception regarding various investment opportunities available
in the market.

3) To analyze the investment patterns of the investment.

4) To examine the investors changing behavior regarding various investment opportunities.

3.2- Nature and scope of Research:

Study is descriptive and analytical in nature. It is descriptive as it describes the

existing financial instruments available in the market. It is analytical as it analyses the
perception of the investors.,
3.3- Universe and Sample Size:

Mumbai region have been taken as universe of the study. Convenient sampling
technique is used and a sample of 55 investors has been taken for the purpose of the
study.

3.4- Data Collection and Sources:

This study is based on both primary and secondary data. Following are the sources of
secondary data:

Research Instruments: Interview and questionnaire have been used to conduct the
study. A structured questionnaire consisting close-ended questions have been made,
which is filled by the trainee during direct interaction with the respondents.

CONCLUSION

As it could be seen from the above factors that investors are having low saving
potential, growth of capital acts as a primary objective behind investments, investors
taking financial decisions independently, which depicts that there is a need of
financial planners to approach these investors in a proper manner so as to provide
value additions to the saving potential and portfolio.
RECOMMENDATIONS AND SUGGESTIONS

On studying the peculiarities of the wealth management industry and analysing the
responses of the investors on their perception, the following points are recommended
which a general financial advisor should consider while approaching the people.

India is seeing as a maturing financial environment. Options to attract savings exist

through a spate of financial products and services that have differing risk/growth and
asset accretion propositions. It is becoming increasingly obvious to people that their
money, in real terms, would fall in value if they were to keep their money in the bank.
And hence the keenness to find out the right avenue that would help grows their
savings or assets.

While this is becoming a universally undeniable desire, the fact is that some people
don’t have the knowledge and inclination to understand the financial markets and
others don’t have the time to follow them. This then leads to financial decisions being
taken by individuals based on either relationship hearsay or the sales call of a vendor

Unbiased Advisory Investment Advisory Services are in this business of managing the
assets of individuals and corporations. However, the distinct model of services should
enable the advisors to offer unbiased advice on the entire spectrum of personal
finance, keeping the clients interest foremost while doing so. The investment
strategies developed across perpetuity should outline a detailed financial plan with
frequent reviews of investment decisions made to ensure that portfolios are in line
with what was planned. I’d like to add here that the financial advisory should not only
be unbiased with respect to an asset class but it should also be independent of biases
across manufacturers within an asset class.

Investment in Foreign Markets A recent pioneering initiative is to facilitate for the

clients investment in foreign markets, adding to the advisory capability that spreads
across the widest range of asset classes in the country. Oneneeds to be cautious while
investing and it is now important to hire a financial planner to plan your wealth better.

Financial Planning Should Be Encouraged Financial planning’ is the process of

charting out the money course of your life. It’s like having a financial roadmap that
guides your every step till you pass on the baton to the next generation. In other
words, it is a process in which an individual sets long-term financial goals through
investments, tax planning, asset allocation, risk management, retirement planning.
anestate planning. Most of us approach our financial lives like the disorganized

One of the myths regarding financial planning is that only rich individuals and HNIs
can undertake this. This perception exists because most players in the market target
these people, as they are very profitable customers. However, anyone can use
financial planning. In fact, individuals should use effective financial planning to build
their wealth over the years. Awareness of the Benefits of Planning Early for
Retirement Anyone who will retire needs to plan for it. There is more than one reason
to save for retirement.

The all-important reason is the rising cost of living. It’s called inflation. If you start
planning forretirement early on, you can bridge the gap between what you have in
your hand today and what you would like to have when you retire. If you begin saving
for retirement early on in your life, you can set aside smaller amounts. You can also
take on more risk by investing larger amounts in equities i.e., stocks and equity funds.

If you delay saving for retirement, you will have to invest larger sums of money to
save for the same amount; also the share of equity investments as a portion of your
retirement savings will have to be lower. The older you are when you start, the more
risk averse you will have to be. Your retirement portfolio will actually be a mix of
stocks, debt securities, index funds and other money market instruments.
 DATA INTERPRETATION

1. What do you think are the best options for investing your money.

 INTERPRETATION

In this we can conclude that majorly have been told that the best option is to
Safe/Low risk investment avenue.
 2. Are you aware of the following investment Avenue

 INTERPRETATION
We can say that 33.3% are aware of Moderate risk investment avenue.
 3. Reason for selecting this options.

 INTERPRETATION

In this we have 3options but people have been selected for the medium risk,
medium return which is 50.8%
 4. In which sector do you prefer to invest your money.

 INTERPRETATION

In this case we have different sectors to choose but people have been majorly
choosen to invest in Public sector which the percentage is 59.6.
 5. What are your saving objective.

 INTERPRETATION

In this there are 5saving objectives so the people have been choosen highly is
Home purchase which is 34.6%
 6. What is your investment objective.

 INTERPRETATION

32.3% people have been choosen for the Growth & Income Investment.
 7. What is the purpose behind investment.

 INTERPRETATION

There are many options in the market to do the investment but we can conclude
that 44.3% has been invested for the Future Expectation.
 8. At which rate do you want your investment to grow.

 INTERPRETATION

In this pie chart we can say that with the people responses that they have sayed
that majorly they want their investment to grow with the Average Rate.
 9. Do you invest your money in share market.

 INTERPRETATION

In this survey people have told that they don’t want to invest in the Share
market with the percentage of 63.0.
 10. What percentage of your income do you invest.

 INTERPRETATION

34.0% of people told that they will invest their income in different areas.
 11.What’s the time period you prefer.

 INTERPRETATION

In this survey we can say that people have highly choosen to the Medium Term
time period.
 12.What is your source of investment advice.

 INTERPRETATION

In this survey 32.6% of Internet is the source of investment.