INVESTMENT AVENUE INTRODUCTION:- Savings form an important part of the economy of any nation. With the savings invest ed in various options available to the people, the money acts as the driverfor growth of the country. Indian financial scene too presents a plethora ofavenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment. One needs to invest to and earn return on your idle resources and generate a specified sum ofmoney for a specific goal in life and make a provision for an uncertain future One of the important reasons why one needs to invest wisely is to meet the cost ofInflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or service in the future as it does now or did in the past. The sooner one starts invest ing the better. By investing ear ly you allow your investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules for all investors are: • Invest early • Invest regularly • Invest for long term and not short term This project will also help to understand the investors facet before investing in any of the investment tools and thus to scrutinize the important aspects for the investors before investing that further helped in analyzing the relation between the features of the products and the investors’ requirements. 1
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Investment process:-The investment process involves a series of activities
leading to the purchase of securities or other investment alternatives.
1). Investment policy:- formulates the policy for systematic functioning
-> Investible funds – management of fund which are used in investment.
Objectives & knowledge:- required rate of return, need for regularity of
income, risk perception and the need for liquidity.
Investor should collect all into about the investment alternatives before
proceeding into investment.
2). Security analysis – through market, industry and company analysis
After formulating the invetment policy the security to be bought has to be
scrutinized.
3). Valuation- the valuation helps to determine the return and risk expected from
an investment in the common stock.
4). Construction of portfolio: - the portfolio so constructed in such manner to meet
the investor’s goals diversification his portfolio and allocates funds among the
securities.
5). Portfolio evaluation: - the portfolio has to be managed efficiently. Throughappraisal as revision process.
Mutual Fund
Mutual fund is a pool of money collected from investors and is invested according
to stated investment objectives Mutual fund investors are like shareholders and
they own the fund. Mutual fund investors are not lenders or deposit holders in a
mutual fund. Everybody else associated with a mutual fund is a service provider,who earns a fee. The money in the mutual fund belongs to the investors and
nobody else. Mutual funds invest in marketable securities according to the
investment objective. The value of the investments can go up or down, changing
the value of the investor’s holdings.NAV of a mutual fund fluctuates with market
price movements. The market value of the investors’ funds is also called as net
assets. Investors hold a proportionate share of the fund in the mutual fund. New
investors come in and old investors can exit, at prices related to net asset value
per unit.
Mutual Funds now represent perhaps the most appropriate investment
opportunity for most small investors. As financial markets become more
sophisticated and complex, investor need a financial intermediary who provides
the required knowledge and professional expertise on successful investing. It is
no wonder then that in the birthplace of mutual funds-the U.S.A.-the fund industry
has already overtaken the banking industry, with more money under Mutual Fund
management than deposited with banks. The Indian Mutual Fund industry has
already opened up many exciting investment opportunities to Indian investors.Despite the expected continuing growth in the industry, Mutual Fund is a still new
financial intermediary in India.
Mutual Fund Industry in India
Mutual Fund is an instrument of investing money. Nowadays, bank rates have
fallen down and are generally below the inflation rate. Therefore, keeping large
amounts of money in bank is not a wise option, as option, as in real terms thevalue of money decreases over a period of time. One of the options is to invest
the money in stock market. But a common investor is not informed and
competent enough to understand
the intricacies of stock market. This is where mutual funds come to the rescue. A
mutual fund is a group of investors operating through a fund manager to
purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost
efficient and very easy to invest in. By pooling money together in a mutual fund,investors can purchase stocks or bonds with much lower trading costs than if
they tried to do it on their own. Also, one doesn't have to figure out which stocks
or bonds to buy. But the biggest advantage of mutual funds is diversification.
Diversification means spreading out money across many different types of
overall return. Dilution is also the result of a successful fund getting too
big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new
money.• Taxes:
When making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a
security, a capital-gain tax is triggered, which affects how profitable the
individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
Types of Mutual Funds
Mutual fund schemes may be classified on the basis of its structure and its
objective: -
By Structure
1. Open-ended Funds: -
An open-end fund is one that is available for subscription all through the year.These do not have a fixed maturity. Investors can conveniently buy and sell units
at Net Asset Value ("NAV") related prices. The key feature of open-end schemes
is liquidity 25
2. Closed-ended Funds: -
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some
close ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate
that at least one of the two exit routes is provided to the Investor.
remembering that these may vary at the different exchanges where the company
is quoted.
b) Performance indicators -
Here is a list of the standard performance indicators
Performance Indicator Definition
Closing price: The last price at which the stock was bought or sold.
High and low: The highest and lowest price of the stock from the previous trading
day.
52 week range: The highest and lowest price over the previous 52 weeks.
Volume: The amount of shares traded during the previous trading day High and
low.Net change: The difference between the closing price on the last trading day and
the
Closing price on the trading day prior to the last.
The stock exchange -
A marketplace in which to buy or sell something makes life a lot easier. The
same applies to stocks. A stock exchange is an organization that provides amarketplace in which investors and borrowers trade stocks. Firstly, the stock
exchange is a market for issuers who want to raise equity capital by selling
shares to investors in an Initial Public Offering (IPO). The stock exchange is also
a market for investors who can buy and sell shares at any time.
a) Trading shares on the stock exchange: -
As an investor in the INDIA, you can't buy or sell shares on a stock exchange
yourself. You need to place your order with a stock exchange member firm (a
stockbroker) who will then execute the order on your behalf. The NSE AND BSE
are the leading stock exchange in the INDIA. Trading is done through
Government securities (G-secs.) are sovereign securities which are issued by the
Reserve Bank of India on behalf of Government of India, in lieu of the Central
Government's market borrowing program.
The term Government Securities includes:
Central Government Securities.
Central Government Securities.
State Government Securities
Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit’. The market
borrowing of the Central Government is raised through the issue of dated
securities and 364 days treasury bills either by auction or by floatation of loans.
In addition to the above, treasury bills of 91 days are issued for managing thetemporary cash mismatches of the Government. These do not form part of the
borrowing program me of the Central Government.
Types of Government SecuritiesGovernment Securities are of the following types: -
Dated Securities: They are generally fixed maturity and fixed coupon securities
usually carrying semiannual coupon. These are called dated securities because
these are identified by their date of maturity and the coupon, e.g., 11.03% GOI
2012 is a Central Government security maturing in 2012, which carries a coupon
of 11.03% payable half yearly. The key features of these securities are:
They are issued at face value.
Coupon or interest rate is fixed at the time of issuance, and remains constant till
Redemption of the security.
The tenor of the security is also fixed.Interest /Coupon payment is made on a half yearly basis on its face value.
The security is redeemed at par (face value) on its maturity date.
Zero Coupon bonds : These are bonds issued at discount to face value and
redeemed at par. These were issued first on January 19, 1994 and were followed
by two subsequent issues in 1994-95 and 1995-96 respectively. The key features
of these securities are:
They are issued at a discount to the face value.
The tenor of the security is fixed.
The securities do not carry any coupon or interest rate. The difference between
the issue price (discounted price) and face value is the return on this security.
The security is redeemed at par (face value) on its maturity date.
Partly Paid Stock: This is stock where payment of principal amount is made in
installments over a given time frame. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds
immediately. The first issue of such stock of eight year maturity was made on
November 15, 1994 for Rs. 2000 crore. Such stocks have been issued a few
more times thereafter. The key features of these securities are:
They are issued at face value, but this amount is paid in installments over a
specified period.
Coupon or interest rate is fixed at the time of issuance, and remains constant till
Redemption of the security.
The tenor of the security is also fixed.
Interest /Coupon payment is made on a half yearly basis on its face value.
The security is redeemed at par (face value) on its maturity date.
Floating Rate Bonds: These are bonds with variable interest rate with a fixed
percentage over a benchmark rate. There may be a cap and a floor rate attached
thereby fixing a maximum and minimum interest rate payable on it. Floating rate
bonds of four year maturity were first issued on September 29, 1995, followed by
another issue on December 5, 1995. Recently RBI issued a floating rate bond,
the coupon of which is benchmarked against average yield on 364 Days
There are many advantages and disadvantages of investing in real estate. One
of the advantages of investing in real estate is; real estate is an investment that
can give you income for the rest of your life. If you buy properties and rent the
properties out it can give you lifelong income. Another advantage of investing in
properties is you can use a lot of leverage to acquire them. There are many ways
you can buy properties without using your own money. One way of doing this is
seller financing. Seller financing is when you agree to pay the seller over time the
down payment and the rest you get from the bank.
One last advantage of investing in real estate is real estate has intrinsic value to
it. A stock that you buy can lose 99% of its value but it is almost impossible to
buy a property and it loses 99% of its value. One disadvantage of investing inproperties is if you buy a property and can't make the mortgage payments you
can lose the property and damage your credit. Another disadvantage of investing
in properties is, as an investor you depend on a lot of people to do their part. If
the people you are renting out to do not pay their rent you will have to use their
security money and find new people quickly or it can eat up your profits.
One last disadvantage of investing in properties is the cost it takes to maintain or
repair. Many times when you think you're done with a property something canbreak or needs to be replaced. Investing in properties does have its advantages
and disadvantages. If you use the information you read here you will have some
idea of what the advantages and disadvantages are.
There are many different types of investment real estate: rental houses,
apartments, vacant land, commercial buildings, industrial, shopping centers or
warehouses. They all offer big tax incentives for investors who understand those
benefits. Many people believe that depreciation is the best real estate tax
deduction of all. The IRS REQUIRES real estate investors to depreciate their
investment properties.
Depreciation is a "paper loss" required for estimated wear, tear and
obsolescence. However, land value is not depreciable. This applies to 100% of
the money invested in buying vacant land and that part of the property value
apportioned to land on an improved property. (That is, land with a building on it).
Condominiums do not have a land element and 100% of the purchase price can
be depreciated.
Residential income property is depreciated over 27.5 years on a straight-line
basis.Commercial property is depreciated over 39 years, also on a straight-line basis.
Tax benefits
If you are a "real estate professional" who meets certain time requirements and
who "materially participates" in managing your investment property, you are
allowed almost unlimited income tax-deductions from your investment property.
CURRENCY
DefinitionAn exchange of currencies, where an investor will exchange a specific amount of
one currency for another currency which can be invested at a higher interest rate.
Any form of money that is in public circulation currency includes both hard money(coins) and soft money (paper money). Typically currency refers to money that is
legally designated as such by the governing body, but in some cultures currency
can refer to any object that has a perceived value and can be exchanged for
other objects.
Characteristics
The money market is a market for financial assets that are close substitutes for money. It is a market for overnight short-term funds and instruments having a
maturity period of one or less than one year. It is not a place (like the Stock
market), but an activity conducted by telephone. The money market constitutes a
very important segment of the Indian financial system.
The average turnover of the money market in India is over Rs 40,000 crore daily.
This is more than 3 per cent of the total money supply in the Indian economy and
6 percent of the total funds that commercial banks have let out to the system.
This implies that 2 per cent of the annual GDP of India gets traded in the money
market in just one day. Even though the money market is many times larger than
the capital market, it is not even a fraction of the daily trading in developed
markets.
Postal Services in India
India possesses the largest postal network in the world with 155,000 post offices
spread all over the country as on March 31, 2001, of which 89 per cent are in therural sector. Post offices in India play a vital role in the rural areas. They connect
these rural areas with the rest of the country and also provide banking facilities in
the absence of banks in the rural areas. Post Offices offer various types of
accounts. These are:
• Savings Account• Recurring Deposit Account• Monthly Income Account• Time Deposit Account
Post Offices also offer various saving and tax saving instruments such as:
• National Savings Certificate• Public Provident Fund• Kisan Vikas Patra
National Saving Certificate of NSC is another popular and safe investment
option. Maturity period of NSC is 6 years compared to 16 in PPF.
National Savings Certificate, popularly known as NSC, is a time-tested tax saving
instrument that combines adequate returns with high safety.
National Savings Certificate can be purchased by the following:
• An adult in his own name or on behalf of a minor,• A minor,• A trust• Two adults jointly,• Hindu Undivided Family
National Savings Certificates are available in the denominations of Rs. 100, Rs
500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the
purchase of the certificates.
Period of maturity of a certificate is six years. Presently, maturity value of a
certificate of Rs. 100 denomination is Rs. 160.10. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the
certificate is not permissible except at a discount in the case of death of the
holder(s), forfeiture by a pledge and when ordered by a court of law.
Interest accrued on the certificates every year is liable to income tax but deemed
to have been reinvested. Income Tax rebate is available on the amount invested
and interest accruing under Section 88 of Income Tax Act, as amended from time
to time. Income tax relief is also available on the interest earned as per limits
fixed vide section 80L of Income Tax, as amended from time to time.
Public Provident Fund account can be opened at designated post offices
throughout the country and at designated branches of Public Sector Banks
throughout the country. The account can be opened by an individual in his own
name, on behalf of a minor of whom he is a guardian, or by a Hindu Undivided
Family.
Minimum deposit required in a PPF account is Rs. 500 in a financial year.
Maximum deposit limit is Rs. 70,000 in a financial year. Maximum number of
deposits is twelve in a financial year.
The account matures for closure after 15 years. Account can be continued withor without subscriptions after maturity for block periods of five years. Premature
withdrawal is permissible every year after completion of 5 years from the end of
the year of opening the account.
Loans from the amount at credit in PPF amount can be taken after completion of
one year from the end of the financial year of opening the account and before
completion of the 5th year.
Interest at the rate notified by the Central Government from time to time, is
calculated and credited to the accounts at the end of each financial year.
Presently, the rate of interest is 8% per annum.
Income Tax rebate is available "on the deposits made", under Section 88 of
Income Tax Act, as amended from time to time. Interest credited every year is
The increased use of commodity trading vehicles in investment management has
led practitioners to create investable commodity indices and products that offer
unique performance opportunities for investors in physical commodities. As is
true for stock and bond performance, as well as investment in managed futures
and hedge fund products, commodity-based products have a variety of uses.
Besides being a source of information on cash commodity and futures
commodity market trends, they are used as performance benchmarks for
evaluation of commodity trading advisors and provide a historical track record
useful in developing asset allocation strategies. However, the investor benefits of
commodity or commodity-based products lie primarily in their ability to offer risk
and return trade-offs that cannot be easily replicated through other investment
alternatives. Previous research that direct stock and bond investment offers littleevidence of providing returns consistent with direct commodity investment.
Commodity-based firms may not be exposed to the risk of commodity price
movement. Thus for investors, direct commodity investment may be the principal
means by which one can obtain exposure to commodity price movements.
The commodities that are traded in the market.• Gold
• Copper
• Silver
• Sugar
• Wheat
• Zeera
• Guar
The commodity trading system functions on a real time basis through online
means. Farmers, exporters, importers, and traders are the main participants in
this market. This article will help the reader to gain overall knowledge on the