Report on Reliance Capital

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A REPORT ONCOMPARATIVE ANALYSIS OF INVESTMENT OPTIONS AVAILABLE

IN THE MARKET AND INVESTMENT OPTION SELECTIONBEHAVIOUR OF INDIVIDUAL INVESTOR - WITH REFERENCE TODEHRADUN CITY.

BYJOYDEEP MONDAL[09BSDDU0033]

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A REPORT ONCOMPARATIVE ANALYSIS OF INVESTMENT OPTIONS AVAILABLE

IN THE MARKET AND INVESTMENT OPTION SELECTIONBEHAVIOUR OF INDIVIDUAL INVESTOR - WITH REFERENCE TO

DEHRADUN CITY.

BYJOYDEEP MONDAL[09BSDDU0033]

A report submitted in partial fulfillment of the requirements of MBA program of the ICFAI university ,

Dehradun

FACULTY GUIDE::PROF. JAGDISH BHAGWAT

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TABLE OF CONTENTSCONTENTS PAGE NO.

Abstract 4

VARIOUS INVESTMENT AVENUES

Fixed deposits offered by Banks 4

Fixed deposits offered by Post Offices 5

Company Fixed Deposits (FDs) 5

Bonds and Debentures 5

National savings certificate 6

Public Provident Fund 6

National Pension Scheme 6

Equities 6

Mutual funds 7

Insurance 7

Derivatives 7

Commodities 7

Gold 8

Exchange traded funds 8

Index funds 9

Currency market 10

Questionnaire 11

References 12

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ABSTRACT::Consumer behavior from the marketing world and financial economics has brought together to the

surface an exciting area for study and research: behavioral finance. Analysts seem to treat financial

markets as an aggregate of statistical observations, technical and fundamental analysis. A rich view of

research waits this sophisticated understanding of how financial markets are also affected by the

financial behavior of investors. With the reforms of industrial policy, public sector, financial sector and

the many developments in the Indian money market and capital market, investors now get many

options for investment purpose. But investment habit of individuals is heavily influenced by their

financial behavior. Hence, this study has made an attempt to examine the related aspects of the

investment option selection behavior of individual investors, in Dehradun city. From the researchers

and academicians point of view, such a study will help in developing and expanding knowledge in this

field.

VARIOUS INVESTMENT AVENUES::Fixed deposits offered by Banks ::Considered as the safest of all options, banks have been the roots of the financial systems in India.

Promoted as the means of social development, banks in India have indeed played an important role in

not only urban areas, but also in rural upliftment. For an ordinary person though, banks have acted as

the safest avenue wherein a person deposits money and earns interest on it. Fixed Deposit or FD isaccrues 8.5% of yearly profits, depending on the bank's tenure and guidelines, The minimum tenure of

FD is 15 days and maximum tenure is 5 years and above. Senior citizens are entitled for exclusive rate of

interest on Fixed Deposits.

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Fixed deposits offered by Post Offices : :Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial

assistance as well as serving the basic requirements of communication. Among all saving options, Post

office schemes have been offering the highest rates. Added to it is the fact that the investments are safe

with the department being a Government of India entity. So the two basic and most sought features,

those of return safety and quantum of returns were being handsomely taken care of.

Company Fixed Deposits (FDs)::FDs are instruments used by companies to borrow from small investors. Typically FDs are open

throughout the year. Invest in FDs only if you have surplus funds for more than 12 months. Select your

investment period carefully as most FDs are not encashable prior to their maturity.

Just as in any other instrument, risk is an embedded feature of FDs, more so because it is not mandatory

for non-finance companies to get a credit rating for this instrument.

Investors should consciously and judiciously select the companies they invest in as quite a few small

investors have lost their life's savings by investing in FDs issued by companies that have run intofinancial problems.

Bonds and Debentures::Option for large investments or to avail of some capital gains tax rebates. Besides company FDs, bonds

and debentures are the other fixed-income instruments issued by companies. As a result of an illiquid

secondary market and a lack-lusture primary market, investment in these instruments is largely skewed

towards issues from financial institutions.

While one might find some high-yielding options in the secondary market, if one does not want the

problems associated with bad deliveries and the transfer process or if one wants to invest a large sum

of money, the primary market is the better option

Infrastructure Bonds::In this years budget, Finance Minister had announced that over the Rs.1 lakh that is exempt under

Section 80C, a further Rs.20,000 will be exempt if invested in long term infrastructure bonds. Only bonds

issued by Industrial Finance Corporation of India (IFCI), Life Insurance Corporation of India (LIC),

Infrastructure Development Finance Company (IDFC) and non banking finance companies classified asinfrastructure finance companies by the RBI are eligible. These bonds are not backed by the government

and carry risk of loss.

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Investments in National Saving Certificate (NSC)::National Saving Certificate (NSC) is subsidized and supported by government of India as is a secure

investment technique with a lock in tenure of 6 years. There is no utmost limit in this investment option

while the highest amount is estimated as Rs 100. The investor is entitled for the calculated interest of

8% which is forfeited two times in a year. National Saving Certificate falls under Section 80C of IT Act andthe profit accrued by the investor stands valid for tax deduction up to Rs 1, 00,000.

Investments in Public Provident Fund (PPF)::Like NSC, Public Provident Fund (PPF) is also supported by the Indian government. An inve stment ofminimum Rs 500 and maximum Rs 70, 000 is required to be deposited in a fiscal year. The prospective

investor can create it PPF account in a GPO or head post office or in any sub-divisions of the centralized

bank.

PPF also falls under Section 80C of IT Act so investors could gain income tax deduction of up to Rs 1,

00,000. The rate of interest of PPF is evaluated yearly with a lock in tenure of maximum 15 years. The

basic rate of interest in PPF is 8%.

National Pension Scheme(NPS)::A pension scheme available to all citizens of India, NPS brings the advantage of having 6 professional

fund managers manage your retirement savings. SBI, UTI, Reliance Capital, Kotak Mahindra, IDFC and

ICICI Prudential have been authorized to manage contributions to earn the best possible returns. Within

each scheme, you have the option to select the desired asset allocation Equity (E), Corporate Bonds (C)

and Government Bonds (G). The investments are market linked and hence are subject the relevant

market risks.

Investment in equity::Private Equity is expanding at a fast pace. India acquired US $13.5 billion in 2008 under equity sharesand featured among the top 7 nations in the world. At the end of 2010, the total equity investment is

predicted to increase upto USD 20 billion. Indian equities promise satisfactory returns and have more

than 365 equity investments firms functioning under it.

A company issues units of its equity capital (shares) to the public as a means of raising finance. Earningsin equities come from increase in the shares value based on how well the company performs. For this

very reason, equities are potentially, the highest earning, and the riskiest of all investment options. Few

universal guidelines for investing in equities:

Equities are a sophisticated investors instrument, requiring deep understanding and constantstudy of corporate, macroeconomic and global forces that may affect a shares value. Stock

tips from friends and family are not adequate replacements for this due diligence.

Understand your risk appetite well; investing in equities usually requires moderately high toaggressive risk taking appetite.

Look at this option for medium to long term at least 3-5 years to ensure that you do not loseout due to short term volatility in a shares price.

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Never invest your entire investible portfolio into equity. Study and plan how much of yourportfolio will be in equities and stick to the plan.

Mutual funds::Mutual Fundsare essentially investment vehicles where people with similar investment objective come

together to pool their money and then invest accordingly. Each unit of any scheme represents theproportion of pool owned by the unit holder (investor).

Mutual Funds in India 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 share 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 shares issued and outstanding shares on daily basis.

Investment in insurance::Insurance features among the best investment alternative as it offers services to indemnify your life,assets and money besides providing satisfactory and risk free profits. Indian Insurance Market offers

various investment options with reasonably priced premium. Some of the popular Insurance policies in

India are Home Insurance policies, Life Insurance policies, Health Insurance policies and Car Insurance

policies.

Some top Insurance firm in India under whom you can buy insurance scheme are LIC, SBI Life, ICICI

Prudential, Bajaj Allianz, Birla Sunlife, HDFC Standard Life, Reliance Life, Max NewYork Life, Metlife, TataAIG, Kotak Mahindra Life, ING Life Insurance, etc.

Derivatives: :These are financial contracts the values of which are derived from the value of the underlying assets,such as equities, commodities and bonds, on which they are based. Derivatives can be in the form of

futures, options and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations

in the value of the underlying assets (hedging).

Commodities: :A market that transacts business with commodities of all nature referred as commodity markets.

Commodity market was initially meant only for agricultural products and that too in the local market.Industrializations, globalizations, technological advancements, increasing demand from consumers and

intense competition from other players has paved way for commodity markets to cross boundaries and

break barriers with regards to the commodity traded.

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Commodity markets deal in the trade of commodities like gold, cotton, crude oil, orange juice etc. Many

items both perishable non perishable, finished goods, raw materials and semi finished goods will be

traded in this market at the international level. Commodity market does not necessarily require you to

buy or sell the commodities but you can even exchange them.

Gold::This is the oldest investment option available in the world. The way gold never looses its lusture,

inesting in gold is never loss making proposition in medium and long term. In the last 3 years this form

of investment has yielded highest return than any form of investment. This form of invest is highly

liquid, however in india, we purchase mainly Gold ornaments and attach emotional values

Exchange traded funds::An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An

ETF holds assets such as stocks, commodities, or bonds and trades at approximately the same price asthe net asset value of its underlying assets over the course of the trading day. Most ETFs track an index,

such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, taxefficiency, and stock-like features.

ETFs are the most popular type of exchange-traded product.

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought

or sold at the end of each trading day for its net asset value, with the tradability feature of a closed-end

fund, which trades throughout the trading day at prices that may be more or less than its net asset

value. Closed-end funds are not considered to be "ETFs", even though they are funds and are traded on

an exchange.

Types of ETFs::Index ETFs::

Most ETFs are index funds that hold securities and attempt to replicate the performance of a stockmarket index. An index fund seeks to track the performance of an index by holding in its portfolio either

the contents of the index or a representative sample of the securities in the index. Some index ETFs,

known as leveraged ETFs or inverse ETFs, use investments in derivatives to seek a return that

corresponds to a multiple of, or the inverse (opposite) of, the daily performance of the index. As of

February 2008, index ETFs in the United States included 415 domestic equity ETFs, with assets of $350

billion; 160 global/international equity ETFs, with assets of $169 billion; and 53 bond ETFs, with assets of

$40 billion. As of November 2010 an index ETF, namely Standard & Poor's Depositary Receipts (SPDR

S&P 500), was the largest ETF by market capitalization.

Commodity ETFs or ETCs::

Commodity ETFs invest in commodities, such as precious metals and futures. Among the first

commodity ETFs were gold exchange-traded funds, which have been offered in a number of countries.

The idea of a Gold ETF was first officially conceptualised by Benchmark Asset Management Company

Private Ltd in India when they filed a proposal with the SEBI in May 2002.The first gold exchange-traded

fund was Gold Bullion Securities launched on the ASX in 2003, and the first silver exchange-traded

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fund was iShares Silver Trust launched on the NYSE in 2006. As of November 2010 a commodity ETF,

namely SPDR Gold Shares, was the second-largest ETF by market capitalization.

Bond ETFs::

Exchange-traded funds that invest in bonds are known as bond ETFs. They thrive during economic

recessions because investors pull their money out of the stock market and into bonds (for example,

government treasury bonds or those issues by companies regarded as financially stable). Because of this

cause and effect relationship, the performance of bond ETFs may be indicative of broader economic

conditions.There are several advantages to bond ETFs such as the reasonable trading commissions, but

this benefit can be negatively offset by fees if bought and sold through a third party.

Currency ETFs or ETCs::

In 2005, Rydex Investments launched the first ever currency ETF called the Euro Currency Trust(NYSE: FXE) in New York. Since then Rydex has launched a series of funds tracking all major currencies

under their brand Currency Shares. In 2007 Deutsche Bank's db x-trackers launched EONIA Total ReturnIndex ETF in Frankfurt tracking the euro, and later in 2008 the Sterling Money Market ETF (LSE: XGBP)

and US Dollar Money Market ETF (LSE: XUSD) in London. In 2009, ETF Securities launched the world's

largest FX platform tracking the MSFXSM

Index covering 18 long or short USD ETC vs. single G10

currencies. The funds are total return products where the investor gets access to the FX spot change,

local institutional interest rates and a collateral yield.

Leveraged ETFs::

Leveraged exchange-traded funds (LETFs), or simply leveraged ETFs, are a special type of ETF that

attempt to achieve returns that are more sensitive to market movements than non-leveraged

ETFs. Leveraged index ETFs are often marketed as bull or bear funds. A leveraged bull ETF fund might forexample attempt to achieve daily returns that are 2xor 3xmore pronounced than the Dow Jones

Industrial Average or the S&P 500. A leveraged inverse (bear) ETF fund on the other hand may attempt

to achieve returns that are -2xor -3xthe daily index return, meaning that it will gain double or triple

the loss of the market. Leveraged ETFs require the use of financial engineering techniques, including the

use ofequity swaps, derivatives and rebalancing to achieve the desired return. The most common way

to construct leveraged ETFs is by trading future contracts.

INDEX FUNDS::An index fund is a a mutual fund or exchange-traded fund) that aims to replicate the movements of an

index of a specific financial market. An Index fund follows a passive investing strategy called indexing. It

involves tracking an index say for example, the Sensex or the Nifty and builds a portfolio with the same

stocks in the same proportions as the index. The fund makes no effort to beat the index and in fact itmerely tries to earn the same return.

Advantages of Index Funds::

As per efficient markets concept index funds provide optimum returns in the long run.

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An index fund doesn't have to pay for expensive analysts and frequent trading.

Index funds track a broad index which is less volatile than specific stocks or sectors, thereby

lessening the risk for investors.

Index Funds in the context of India::

In the Indian market scenario index funds may not be the best option. The basic principle of indexing is -

the more the number of stocks comprising an index the better is the diversification and price discovery.

Indian indices like the Sensex (30) and the Nifty (50) cover a relatively small number of stocks and ignore

many opportunities in the mid-cap sector. Also, unlike the capital markets in developed countries, Indian

markets haven't been thoroughly researched and there is enormous scope to beat the market by sound

research.

Currency market::The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as

anchors of trading between a wide range of different types of buyers and sellers around the clock, with

the exception of weekends. The foreign exchange market determines the relative values of differentcurrencies.

[1]

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 Sterling, 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

(invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness

in some countries.[2]

In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying aquantity 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, i.e. trading from 20:15 GMT on

Sunday until 22:00 GMT Friday;

The use ofleverage to enhance profit margins with respect to account size.

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QUESTIONNAIRE

I am currently engaged in a study on INVESTMENT OPTION SELECTION BEHAVIOUR OF INDIVIDUAL

INVESTOR .In this connection I request You to read the following items carefully and answer them. The

answers your give will be held confidential and used purely for academic purpose. Please put a tick mark

in the square corresponding your choice. I thank you for your time.

Please read the following and give your views::

1. Name [optional] : .. 2. Sex: : Male Female3. Age: Below 30 31-40 41-50 50-60 above 604. Academic qualification:

School final Graduate Post-graduate Professional degree

5. Marital status:Married Unmarried

6. Occupation:Professional Businessman Retired

7. Annual income:Below 1 lac 1.01-3.0 lacs 3.01-5.0 lacs Above 5 lacs

8. How much do you save annually:Less than 50 k 50 k-1 lac Above 1 lac

9. Objectives of your savings:For tax deduction To meet contingencies

For purchase of assets For childrens educationTo secure retired life

10. What is your current preference of savings avenues? [ Rank from 1-first preference to 12 lastpreference]:

Bank deposit Pension and provident fund

Mutual fund Postal savings

Insurance Shares

Real estate Currency market

Commodity market Gold

Govt. bonds Exchange traded funds

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11. Presently you invest in :Bank deposit Pension and provident fund

Mutual fund Postal savings

Insurance Shares

Real estate Currency market

Commodity market Gold

Govt. bonds Exchange traded funds

12. What are the factors that you look before investing:Good return Safety

Capital appreciation Liquidity

Flexibility Tax benefit

Professional management Diversification benefit

13. What is your current attitude towards the following financial instruments :Instruments Highly

favourable

Favourable Somewhat

favourablr

Not very

favourable

Not at all

favourableShares

Debentures

Mutual funds

Bonds

Gold

currency

ANY COMMENTS::

THANK YOU FOR PROVIDING THESE INFORMATIONS

REFERENCES::

www.wikipedia.com www.investopedia.com www.bseindia.com www.nseindia.com www.sebi.gov.in www.rbi.org.in www.finance.indiamart.com