Investment Option Synop

7/29/2019 Investment Option Synop

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SYNOPSIS

ON

“AN ANALYSIS OF VARIOUS INVESTMENTOPTIONS AVAILABE IN INDIA & SELECTING THE

BEST PORTFOLIO MIX”

BY

PRIYANKARegistration. No. 581120623

A Synopsis submitted in partial fulfillment of the requirementsfor the degree of Master of Business Administration of

Sikkim Manipal University, INDIA

INSOFTC – 2, SECTOR – 10, NOIDA – 201 301

CENTER CODE : 01822

Sikkim – Manipal University of Health, Medical and Technological ScienceDistance Education Wing

Syndicate House, Manipal – 576104

1



DECLARATION

I hereby declare that the synopsis entitled:

A Synopsis on “An Analysis Of Investment Option Available In India and Selecting The Best Portfolio

Mix” submitted in partial fulfillment of the requirement for the degree of Masters of Business Administration

to Sikkim – Manipal University, India, is my original work and not submitted for the award of any other

degree, diploma, fellowship, or any other similar title or prizes.

Place: Noida

Date: ( ) Signature____________

(Reg. No. 581120623)

2



CERTIFICATE

The synopsis of PRIYANKA (Registration No. 581120623) A synopsis on

“An Analysis Of Investment Option Available In India and Selecting The Best Portfolio Mix” is approved

and is acceptable in quality and form.

Internal Examiner External Examiner

(Mr.

_______________)

3



INDEX

PAGE NO.

• Executive Summary 05

• Introduction 12

• Problem of Study 13

• Objectives 14

• Research Methodology 15

• Analysis 16

• Conclusion 17

• Recommendation 19

• Bibliography 20

4



EXECUTIVE SUMMARY

In its broadest sense, an investment is the sacrifice of current money or other

resources for future benefits. Numerous avenues of investment are available today.

We can either deposit money in the bank account or purchase a long term

government bond or invest in the equity shares of the company or contribute to a

provident fund account or buy a stock option or acquire a plot of land or invest in

some other form.

Investment may be defined as an activity that commits funds in any financial /

physical form in the present with an expectation of receiving additional return in the

future.

The two key aspects of any investment are time and risk. The sacrifice takes place

and is certain. The benefit is expected in the future and tends to be uncertain.

Income when not consumed immediately as expenditure promotes savings. A prudent

and consistent saving habit of less income earners to set aside a certain amount of

current income for the future income.

3 main objectives of the investment are

1. Earn return

2. Future cash flow

3. To avail tax saving schemes of government

In order to foster investment habits, many economies offer incentives in the form of

tax saving schemes. Tax rates are applicable for a fiscal year, therefore to cut down on

immediate tax expenditures an investor would invest in tax saving schemes offered by

the government. These objectives of the investor to reduce present tax payments also

offer a marginal return to investor in the future.

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Today choosing a best investment plan is difficult because there are so many

investment options available. These days we are getting more money compared to last

decades.

A five step procedure of investment includes the following:

• Set investment policy

• Perform investment analysis

• Construct a portfolio

• Revise the portfolio

• Evaluate the performance of the portfolio

1) Set Investment Policy

The first step in the portfolio management process is to specify the one’s investment

objectives and constraints. The commonly stated investment goals are:-

INCOME - To provide a steady income through the regular interest or divided

payment.

GROWTH -To increase the value of the principal amount through capital appreciation.

STABILITY – Since income and growth represent two ways by which return is

generated and investment objectives may be expressed in terms of return and risk. An

investor will be interested in higher return and lower level risk. However the risk and

return go hand to hand, so an investor has to bear a higher level of risk in order to

earn a higher return.

2) Perform Investment Analysis

It involves examining all the alternatives available to an investor within the broad

categories of financial assets

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1. GOVERNMENT SECURITIES - It's not uncommon to find investors who have a high

percentage of their portfolio composed with these securities. A government securities

investment fund would use almost all of these instruments, assuring the organization

or individual the stability of his investment. Benefits and Risks of Investing In

Government Securities One of the benefits of government securities is that some of

them don't pay state or local taxes. That means a higher return on security investment.

US Treasury Notes, Bills and Bonds fall within this category. Zero coupon bonds are

included too. Unfortunately, TIPS have a limited advantage regarding taxes. Although

they don't pay local or state taxes, they do pay federal taxes.

The main risk is the cost of opportunity. Since this kind of securities offer a very low

risk, the interest rate is also lower than the ones offered by private entities. So, if you

pursue this path, you may find yourself wondering a what if scenario

• Bank Fixed Deposits (FD) Fixed Deposit or FD is the most preferred

investment option today. It yields up to 8.5% annual return depends on the Bank and

period. Minimum period is 15 days and maximum is 5 years and above. Senior citizens

get special interest rates for Fixed Deposits. This is considered to be a safe investmentbecause all banks operated under the guidelines of Reserve Bank of India.

• National Saving Certificate (NSC) NSC is backed by Govt. of India so it

is a safe investment method. Lock in period is 6 years. Minimum amount is Rs100 and

no upper limit. You get 8% interest calculated twice a year. NSC comes under Section

80C so you will get an income tax deduction up to Rs. 1, 00,000. From FY 2005-'06

onwards interest accrued on NSC is taxable.

• Public Provident Fund (PPF)PPF is another form of investment backed by Govt. of

India. Minimum amount is Rs500 and maximum is Rs70, 000 in a financial year. A PPF

account can be opened in a head post office, GPO and selected branches of nationalized

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banks. PPF also comes under Section 80C so individuals could avail income tax

deduction up to Rs 1, 00,000. Lock in period for PPF is 15 years and interest rate is

8%. Unlike NSC, PPF interest rate is calculated annually. Both PPF and NSC considered

being best investment option as it is backed by Government of India.

Zero Coupon Bonds

The main difference of a zero coupon bond is that it doesn't make any kind of payment

during the period of the bond, only at the end. They have become quite popular in the

last years.

Treasury Bills These kinds of bonds are the shortest government security available.

Considered a high risk investment, they don't offer any kind of interest gain during the

lifetime of the bill, only at the end. They are very similar to zero coupon bonds, but the

main difference is the amount of time they endure (only a few months instead of

decades).

Treasury Inflation-Protected Securities (TIPS) TIPS are one of two kinds of

securities issued by the US Government that are protected from inflation. They are tied

to the Consumer Price Index (CPI) in such a way that, if there is inflation or deflation,

the initial investment increases or decreases, respectively. The payments are made

every six months

U.S. Savings Bonds These financial instruments are issued by the federal government

in United States of America. They are absolutely risk free and in any case you will not

be paid less than the face value of the bond. One of the major advantages of this bond

is that you are exempted from paying any kind of tax when the government credits the

interest proceeds from the bond into your account.

Unlike other kind of government securities, these bonds can't be traded in the

secondary market. They are sold to individual investors and can only be bought

8



directly from the U.S. Treasury.

• Post office deposits: A Post-Office Recurring Deposit Account (RDA) is a banking

service offered by Department of post, Government of India at all post office counters

in the country. The scheme is meant for investors who want to deposit a fixed amount

every month, in order to get a lump sum after five years. The scheme, a systematic

way for long term savings, is one of the best for the low income group

2. GOLD - This is another important commodity for investment. The price for gold

depends mainly on the demand in your country. The quantity of oil that your country

can produce or supply or posses at a particular time also decides the price. Gold prices

can also decline drastically or increase all on a sudden. However they are not as risky

as investing in the stock market.

3. MUTUAL FUNDS - Mutual funds are collective investments undertaken by

commercial entities. They collect funds fro m individual and institutional investors and

invest them in various stock options. The returns and risks are shared according to t he

individual contribution in the total sum. Mutual funds are also less risky when

compared with stock markets. Lesser risks and service of financial experts with regards

to investing in stock market has contributed to the popularity of mutual funds and

today it remains to be a financial instrument highly demanded in the market. Even if

you have little money to invest you can choose this scheme.

4. FOREX - Forex expands foreign exchange. In this type of investment you can make

profits by selling and buying foreign currencies. This is the most profitable investment.

However you need to be prepared for taking lot of risks as foreign exchange rates

fluctuate to a vast extent on the basis of internal and external factors. You need to

comply with lots of formalities from the local government if you wish to engage in

fore=890.

9

http://www.webindia123.com/finance/post/rda.htm

http://www.webindia123.com/finance/post/rda.htm



5. CORPORATE BONDS- A corporate bond is a bond issued by a corporation. It is a

bond that a corporation issues to raise money in order to expand its business. [1]The

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

falling at least a year after their issue date. (The term "commercial paper" is

sometimes used for instruments with a shorter maturity.)

Sometimes, the term "corporate bonds" is used to include all bonds except those

issued by governments in their own currencies. Strictly speaking, however, it only

applies to those issued by corporations.

6. ELSS- Equity Linked Saving Scheme (ELSS) Equity linked saving schemes is a

kind of mutual funds like diversified equity funds with Tax benefits. It is just like other

tax saving instruments like National Savings Certificate and Public Provident Fund. Main

advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for

PPF it is 15 years. At the same time risk factor is high in ELSS.

7. LIFE INSURANCE - Life insurance is often used as an investment for retirement

planning. Basic life insurance can be divided into two general categories, term

insurance and whole life insurance. When you buy term insurance, you pay premiums

in exchange for a death benefit over a specified period of time. This is the least

expensive type of life insurance. Because the death benefit is all that you get with term

insurance, it's never sold as an investment.

• Construct a portfolio

It involves identifying those specific assets in which to invest in consideration with the

risk and return an investor is compatible to. Also the proportion of the amount an

investor should invest in each decided alternative so as to minimize risk and yield high

returns in stipulated time period.

• Revise the portfolio

10

http://en.wikipedia.org/wiki/Bond_(finance)

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Corporate_bond#cite_note-0

http://en.wikipedia.org/wiki/Government

http://www.finweb.com/insurance/term-life-insurance.html


http://www.finweb.com/insurance/types-of-life-insurance.html

http://en.wikipedia.org/wiki/Bond_(finance)

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Corporate_bond#cite_note-0

http://en.wikipedia.org/wiki/Government



http://www.finweb.com/insurance/types-of-life-insurance.html



It includes the periodic review of the portfolio .An investor may due to environmental

factors withdraw his money from a particular asset and diversify it into some other

instrument so as to meet the objectives.

• Evaluate the performance of the portfolio

The investor is also required to periodically evaluate how his portfolio is performing in

terms of risk, return and time period. Portfolio managers, to be successful, have to

work on any one or more of the following strategies:

• Timing the market.

• Selection of superior stocks or groups of stocks.

• Making changes in the portfolio structure and/or strategy.

• Having a long-term investment philosophy.

While the above strategies do look impressive on paper, empirical studies made on the

performance of the fund managers have proved that it is very unlikely that a fund

manager consistently outperforms the market from these strategies in the long run

and that it is therefore better to hold the market portfolio.

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INTRODUCTION

This project deals with the different investment decisions made by different people

and focuses on element of risk in detail while investing in securities. It also explains

how portfolio hedges the risk in investment and giving optimum return to a given

amount of risk. It also gives an in depth analysis of portfolio creation, selection,

revision and evaluation. The report also shows different ways of analysis of securities

for effective and efficient portfolio construction. It also gives a brief analysis of how to

evaluate a portfolio.

Investment is the active redirection of resources/assets to creating benefits in the

future; the use of resources/assets to earn income or profit in the future. It is related

to saving or deferring consumption. Investment is involved in many areas of the

economy, such as business management and finance matter for households, firms, or

governments. An investment involves the choice by an individual or an organization

such as a pension fund, after some analysis or thought, to place or lend money in a

vehicle, instrument or asset, such as property, commodity, stock, bond, financial

derivatives (futures and options) or the foreign asset denominated in foreign currency,

that has certain level of risk and provides the possibility of generating returns over a

period of time. Investment comes with the risk of the loss of the principal sum. The

investment that has not been thoroughly analyzed can be highly risky with respect to

the investment owner because the possibility of losing money is not within the owner's

control. It depends on the investment owner's mind whether the purpose is for lending

the resource to someone else for economic purpose or not.

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PROBLEM OF THE STUDY

This report would cover the material particularly useful and relevant for today’

investment climate. It would prefer about what we can reasonably expect to accomplisby using what we learn and what we can realistically expect to achieve as an investor i

today’s investment world. As many investors have an unrealistic expectations and thi

ultimately leads to disappointments in results achieved. So through this report we try t

remove all myths and cons of an investment in a policy or in a option available to a

investor.

Any investor before investing should take into consideration the safety, liquidity,returns, entry/exit barriers and tax efficiency parameters. We need to evaluate each

investment option on the above-mentioned basis and then invest money. Today

investor faces too much confusion in analyzing the various investment options

available and then selecting the best suitable one. In the present project, investment

options are compared on the basis of returns as well as on the parameters like safety,

liquidity, term holding etc. thus assisting the investor as a guide for investment

purpose.In last 5 decades or so the field of investment has received considerable attention from

everyone. The issues off understanding are

• How should risk be measured?

• How should financial assets be valued?

• What is the relation between the risk and return?

• How efficiently financial markets function?

• What is the importance of assets allocation?

• What is the role of diversification in portfolio management?

• How successful are the various strategies followed by the investment

practitioners?

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Our project provides a guided tour of the so called complex world of investment an

seeks to improve our skills in managing investments.

However following limitations were faced while constructing a report

The study was limited to only seven investment options.

The data collected is basically confined to secondary sources, with very

little amount

of primary data associated with the project.

Detailed study of the topic was not possible due to the limited size of the

project. There was a constraint with regard to time allocated for the research

study

OBJECTIVES OF THE STUDY

To help the investors to decide the effective portfolio of securities.

To identify the best investment options available in the market so as to maximize

the return and minimize the risk of investor.

To study the role and impact of securities in investment decisions.

To clearly defining the portfolio selection process.

To select an optimal portfolio

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RESEARCH METHODOLOGY

We are primarily interested in the view point of the individual investor. A majo

difference in the institutional investor and the individual investor is in regard to the tim

horizon. The objective of the report will be to understand the investment fields for th

individual investor and to make sound decision that enhance the economic welfare.

Govt Securities, Gold, Mutual Funds and Life Insurance were identified as major types

of investment decision.

Report contains data from secondary sources. The secondary data for the project

regarding investment and various investment decisions were collected from websites,

textbooks and internet and search engines.

It includes current data about 6 best investment options available for 2013, which was

obtained from websites.

Stages of our research process

1.First we would analyze all the option available to a investor for the purpose o

investment.

2. Each option would be studied in detail as to what will be the rate of return

time of maturity, cash flow of an investment, risk involved, tax benefits in investing in

particular asset etc.

3. Construct a portfolio which will maximize the return and minimize the risk.

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4. Come out with an intellectual decision as to diversify investment option so as to gai

maximum return.

ANALYSIS

The project gives the brief idea regarding the various investment options that are

prevailing in the financial markets in India. With lots of investment options like banks,

Fixed Deposits, Government bonds, stock market, gold and mutual funds. The common

investor ends up more confused than ever. Each and every investment option has its

own merits and demerits. Here we have discussed about few investment options

available. This report

• Describes the characteristics of various investment alternatives available to

investors

• Explores the implications of modern research in the field of investment

• Present a framework for portfolio management

• Provides insight into the strategies followed by investment wizard of the world

• Sensitizes the reader to the pitfalls in the investment game

•

Offers a set of guidelines for investors with varying inclinations

Many people consider investing to be a daunting activity. They are bewildered by th

profusion and proliferation of the investment alternatives, rattled by the fluctuations i

financial prices, overwhelmed by the presence of the mighty institutional investors

confounded by the exotic instruments and complicated investment strategies, confuse

by the intricacies of the tax system and exasperated by the financial scams tha

periodically rock the market. Notwithstanding these concerns, investing can be fairlmanageable, rewarding and enjoyable experience, if we adhere to certain principles an

guidelines.

The successful investor thinks that

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“To invest successfully over a lifetime does not require a stratospheric IQ, unusua

business insight, or, inside information. What is needed is a sound intellectual framewor

for the decision making and the ability to keep emotions from corroding tha

framework.”

CONCLUSION

Investment is a subjective matter. It is of crucial to invest the proper amount with

Proper Avenue. There are plenty of investment avenues to invest the money but

before making any investment, it is important to get the comprehensive information of

that particular investment avenue.

All the concerned data and facts need to know in details. It is very much advisable and

prudent, not to take any decision of investment based on whims and fancies of people,

never imitate the people. Investment made based on unsuitable advises may prove to

be dangerous. Blind investment may become reason for collapse of wealth. So get the

wide-ranging and sensible information based on some trustworthy source before

making any investment.

Before making investment decision gather data related to following:

Amount of investment

Risk & Return on investment

Liquidity of investment

Market perception of investment

Timing of investment

Various Options Available including shares, debentures, Mutual fund, FD’s etc

Remember the Importance of Diversification.

Throughout the entire portfolio construction process, it is vital that you remember to

maintain your diversification above all else. It is not enough simply to own securities

17



from each asset class; you must also diversify within each class. Ensure that your

holdings within a given asset class are spread across an array of subclasses and

industry sectors.

Construct a Portfolio according to individual requirement

If the portfolio manager is efficient and the investor is risk tolerant person and the

investment is a long term perspective then it is better to invest in the MID-Caps &

SMALL-Caps companies securities, where the growth of returns are higher than the

LARGE-Caps .

If investor is not risk tolerant person & short-term perspective it’s good to invest in

large caps companies’ securities.

Review , Rebalance and Evaluate a portfolio timely so as to get maximum

returns

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RECOMMENDATION

Diversification of portfolios in various projects or securities may reduce high risk

and it provides the high wealth to the shareholders.

There are several investments to choose from these include equities, debt, mutual

funds and gold. Each class of assets has its peculiarities. At any instant, some of those assets will offer good returns, while others will be losers. Most investors in

search of extraordinary investments try hard to find a single asset. Some look for

the next infosys, other buys real estate or gold. Many of them deposit their savings

in the Public Provident Fund (PPF) or post office deposits, others plump for debt

mutual funds. Very few buy across all asset classes or diversify within an asset class.

Therefore it has been widely said that “Don’t put all your eggs in one basket”. The

idea is to create a portfolio that includes multiple investments in order to reduce risk.

Regardless of your means of method, keep in mind that there is no generic

diversification model that will meet the needs of every investor. Your personal time

horizon, risk tolerance, investment goals, financial means, and level of investment

experience will play a large role in dictating your investment experience will play a

large role in dictating your investment mix. Start by figuring out the mix of stock,

bonds and cash that will be required to meet your needs. From there determine

exactly which investments to in completing the mix, substituting traditional assets for

alternatives as needed.

The Bottom Line Overall, a well-diversified portfolio is your best bet for consistent

long-term growth of your investments. It protects your assets from the risks of large

19



declines and structural changes in the economy over time. Monitor the diversification

of your portfolio, making adjustments when necessary, and you will greatly increase

your chances of long-term financial success.

BIBLIOGRAPHYWebsites

www.bseindia.com

www.myinvestmentidea.com www.investopedia.com

www.citeman.com www.mutualfundsindia.com

www.en.wikipedia.org/wiki/Investment

www.ilikeinvesting.com/

www.investorwords.com/2599/investment.html www.investmentmap.com www. investment commission.in

Text Books

Investment Analysis and Portfolio Management - Prasanna Chandra

Investments - Sharpe & Alexander

Portfolio Handbook - Robert A Strong

Security Analysis and Portfolio Management - Fischer & Jordan

Search Engine

Google.com

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http://www.bseindia.com/

http://www.myinvestmentidea.com/

http://www.investopedia.com/

http://www.citeman.com/

http://www.mutualfundsindia.com/

http://www.en.wikipedia.org/wiki/Investment

http://www.ilikeinvesting.com/

http://www.investorwords.com/2599/investment.html

http://www.investmentmap.com/

http://www.investmentcommission.in/

http://www.bseindia.com/

http://www.myinvestmentidea.com/

http://www.investopedia.com/

http://www.citeman.com/

http://www.mutualfundsindia.com/

http://www.en.wikipedia.org/wiki/Investment

http://www.ilikeinvesting.com/

http://www.investorwords.com/2599/investment.html

http://www.investmentmap.com/

http://www.investmentcommission.in/

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