Full N Final By Ajay.pdf

“STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN MUMBAI”

A Project Submitted to University of Mumbai for partial completion of the degree of Bachelor in Commerce (Accounting and Finance) Under the Faculty of Commerce

By

Ajay Rajbhar

Under the Guidance of Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE GTB NAGAR, SION, MUMBAI 400037

April 2019

“STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN MUMBAI”

A Project Submitted to University of Mumbai for partial completion of the degree of Bachelor in Commerce (Accounting and Finance) Under the Faculty of Commerce

By

Ajay Rajbhar

Under the Guidance of Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE GTB NAGAR, SION, MUMBAI 400037

April 2019 2

Acknowledgment To list who all have helped me is difficult because they are so numerous and the depth is so enormous. I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion of this project. I take this opportunity to thank the University of Mumbai for giving me chance to do this project. I would like to thank my Principal, Dr. Pushpinder Bhatia for providing the necessary facilities required for completion of this project. I take this opportunity to thank our Coordinator S. Kaleeshwari Nadar for her moral support and guidance. I would also like to express my sincere gratitude towards my project guide S. Kaleeshwari Nadar whose guidance and care made the project successful. I would like to thank my College Library, for having provided various reference books and magazines related to my project. Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion of the project especially my Parents and Peers who supported me throughout my project.

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Declaration by learner

I the undersigned Mr.Ajay Rajbhar here by, declare that the work embodied in this project work titled “STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN MUMBAI” forms my own contribution to the research work carried out under the guidance of S. Kaleeshwari Nadar is a result of my own research work and has not been previously submitted to any other University for any other Degree/ Diploma to this or any other University. Wherever reference has been made to previous works of others, it has been clearly indicated as such and included in the bibliography. I, here by further declare that all information of this document has been obtained and presented in accordance with academic rules and ethical conduct.

Ajay Rajbhar

S. Kaleeshwari Nadar

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Certificate

This is to certify that Mr. Ajay Rajbhar has worked and duly completed his Project Work for the degree of Bachelor in Commerce (Accounting & Finance) under the Faculty of Commerce in the subject of Financial Management and his project is entitled “STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN MUMBAI” under My supervision. I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted previously for any Degree or Diploma of any University. It is his own work and facts reported by his personal findings and investigations.

S. Kaleeshwari Nadar

Date of submission:

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INDEX

Sr. No.

Title of the Chapter

Chapter No.1 Introduction

Page no 07

1.1 Types of Financial Markets

10

1.2 Types of Financial instruments

14

1.3 Analysis of instruments

19

1.4 Important factors to be considered before selection of financial 26 instruments

1.5 Mutual funds Vs equity investments

29

1.6 Various factors affecting investment decision

46

Chapter No.2 Research and methodology 2.1 Objective

49

2.2

Scope of study

50

2.3

Limitation of study

51

2.4 Sources of data Chapter No. 3

52

Literature review

54

Data Analysis, Interpretation and Presentation

58

Chapter No.5

Findings

78

Chapter No.6

Conclusion

79

Chapter No.4

6

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CHAPTER NO. 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, 7

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 help 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 8

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.

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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 up to 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 organizations 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, Cooperative banks, and other specialized 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.

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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, which 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 11

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 favor 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 drawer 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 securities and 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

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fresh issue of shares and/or debentures at their formation stage and, if necessary, 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 wellestablished 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 mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures. It provides a place where these securities can be encased without any Difficult and delay. It is an organized 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.

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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 14

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.

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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 worldwide, but in India currently we have Two Exchange Traded Derivatives namely Futures and Options

Call option and Put optionApart from 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.

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• 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. 17

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. Nonnegotiable. • Risk is the inherent part of every avenue • May be in an organized form or unorganized form • Market oriented vs. others

Investment avenues can be broadly divided into following types. • Security form 18

• Non security form • Traditional form • Other emerging avenue

1.3 ANALYSIS OF 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 19

• Gold • Real Estate

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Features of different types of financial instruments 1. DEBT INSTRUMENTS:

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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 doubleindexation 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.

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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

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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.

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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. 3. 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.

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4. 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. 5. 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.

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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.

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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.



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.

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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 dependents 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

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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 tons 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 nonvolatile 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 Indians 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.

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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 Value: Although 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 Gold Like 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

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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) Immune Gold 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. 34

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.

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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.

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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 longterm 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.

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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 Investor can 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.

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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;

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• 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.

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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 41

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.

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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 43

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.

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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.

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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.

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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 47

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.

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Chapter 2) RESEARCH METHODOLOGY

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Objectives The various objectives of the study are1) 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.

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Scope of the Study This project is limited to the study of certain selected factors and its effect on retail investors in their investment on mutual funds, analyzing retail investor’s perception towards the mutual fund industry .The study is limited to Mumbai district of Maharashtra.

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Limitation of the Study Geographic Scope: The sample used for the study has been taken from the investors of Mumbai city. Frame work: Sampling frame (i.e the list of population members) from which the sample units are selected was incomplete as it takes into consideration only those (target investors) who have made their investments .Although adequate care was taken to elicit the accurate information from the respondents.. Apart from the problem faced in articulating, it is the validity of the feedback can be speculated. Despite the above limitations the study is useful in that it does point out the trends and helps to identify the dimensions for improving the scope of investment.

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Sources of data Primary data is data that is tailored to a company’s needs, by customizing true approach focus groups, survey, field-tests, interviews or observation. Primary data delivers more specific results than secondary research, which is an especially important consideration when one launching a new product or service. In addition, primary research is usually based on statistical methodologies. The tiny sample can give an accurate representation of a particular market. Secondary data is based on information gleaned from studies previously performed by government agencies, chambers of commerce, trade associations and other organizations. This includes census bureau information. Much kind of this information can be found in libraries or on the web, but looks and business publications, as well as magazines and newspapers. Analysis of individual investment patterns can be done by this primary data analysis. In this project I have done a survey with a questionnaire with a sample size of 100 individuals who are employees , salaried person & students. The questionnaire includes the economic status of the individuals, age group, etc. Secondary data is used to the extent required. Reference is given in bibliography.

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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 57 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.

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Chapter 3) LITERATURE REVIEW

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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

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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 57

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.

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Chapter 4) DATA INTERPRETATION

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Q.1 What do you think are the best option for investing your money ?    

Safe / low risk investments Moderate risk investments High risk investment Traditional investments

Choice

No of respondents

Percentages %

Safe / low risk

27

50

Moderate risk

20

37

High risk

8

14.08

Traditional

9

16.07

Total

64

100

60

no of respondents

14% 13%

42%

safe/ low moderate high

31%

traditional

Interpretation: Out of total respondents 42 % of respondents are attracted toward safe / low risk investments , 31% for moderate , 14% traditional and rest 13% of them go for higher risk

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2. Are you aware of the following investment Avenue?  Safe / low risk investments  Moderate risk investments  High risk investment  Traditional investments Choice

No of respondents

Percentages %

Safe / low risk

26

49.01

Moderate risk

28

52.08

High risk

15

28.03

Traditional

15

28.03

Total

84

100

respondents

18% 31%

low / risk moderate risk

18%

high risk traditional

33%

Interpretation: From the above analysis 33% of respondents are aware about moderate risk investments, 31% for low risk and 18% for both high risk and traditional investment avenues.

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3. Reason for selecting this options.  Low risk  Medium risk, medium return  High risk , high return Choice

No of respondents

Percentages

Low risk

18

33.33

Medium risk, medium return

30

55.60

High risk , high return

11

20.40

Total

59

100

no of respondents

19% 30% low risk meduim risk high risk

51%

Interpretation:

From above we can say that 51% respondent for medium, 30 % for low and 19% for high risk. 63

4. In which sector do you prefer to invest your money.  Private  Public  foreign Choice

No of respondents

Percentages

private

22

41.5

Public

34

64.2

Foreign

1

1.9

Total

56

100

no of frespondents

2% 38% 60%

private

public foreign

Interpretation: From the above we can say that out of total respondents only 1 respondents prefer to invest in foreign bank and 30 respondents for public bank and rest 22 respondents for private bank.-

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5. What are your saving objective?

    

Children education Retirement plans Home purchase Health care Others

Choice

No of respondents

Percentages

Children edu.

10

18.5

Retirement plan

11

20.4

Home purchase

28

51.9

Health care

14

25.9

Others

18

33.3

Total

81

100

no of respondents

22%

12% 14%

child edu retiremdent plans

17%

home purchase

35%

helth care other

Interpretation: From the above we can say 35% is for home purchase 17 % is for child education 22% is for others 12% for child education 14% is for retirement plan. 65

6. What is your investment objective.  Income and capital  Short term growth  Growth and income  Long term growth Choice

No of respondent

percentages%

Income and capital

19

31.75

Short term growth

6

9.52

Growth and income

17

26.98

Long term growth

20

31.75

Total

62

100

no of respondent

31%

32%

income and capital short term growth

10% 27%

66

growth and income long term growth

Interpretation: From the above data we can conclude that 44%of the respondents main objective is to income and wealth, 39%for growth of their income and capital, 14% interested in short term and rest for the long term investment.

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7. What is the purpose behind investment.    

Wealth creation Tax savings Future expectation Earn return

Choice

No of respondent

Percentages%

Wealth creation

20

28.17

Tax savings

08

11.27

Future expectation

31

43.66

Earn return

12

16.90

71

100

Total

no of respondent

17%

28% wealth creation tax savings

11% 44%

future expectation earn return

68

Interpretation: From the above pie chart we can conclude that 44% respondent like to invest for their future,28% for wealth creation and 17%for earn good return and the rest for saving tax.

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8. At which rate do you want your investment to grow?  Slow and steadily  Average rate  Fast rate  At market rate

Choices

No of respondent

Percentages

Slow and steadily

7

11.67

Average rate

28

46.67

Fast rate

12

20

At market rate

13

21.67

Total

60

100

70

no of respondent

22%

12% slow and steadily

20%

average rate

46%

fastrate

at market rate

Interpretation: From 60 respondent, 46% respondent are ready to invest in average rate, 22% at market rate, 20%respondent at fast rate and rest at slow rate.

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9. Do you invest your money in share market.  Yes  No

Choices

No of respondent

Percentages%

Yes

21

37.50

No

35

62.50

Total

56

100

no of respondent

37% yes

63%

no

Interpretation: According to the survey 37% of the respondent invest in share market, and 63% does not invest in share market.

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10. What percentage of your income do you invest.    

0-5% 5-15% 15-25% 25 & above Choices

No of respondent

Percentage %

0-5%

16

31.37

5-15%

18

35.29

15-25%

12

23.53

25 & above

05

9.8

Total

61

100

no of respondent

10% 31% 24%

0-5% 5-15% 15-25%

35%

73

25 & above

Interpretation: From the above data 35% respondent invest less than 5% of their income, 31% invest only invest 5-15% of their income, 24% invest 15-25% of their income and rest of the people invest more than 25% of their income.

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11. What’s the time period you prefer.  Short term (0-1 years)  Medium term (1-5 years)  Long term ( 5 & above) Choice

No of respondent

Percentages %

Short term

19

35.19

Medium term

24

44.44

Long term

11

20.37

Total

54

100

no of respondent

20% 35% short term medium term

45%

long term

Interpretation: From the above chart, we can conclude that 45% respondent invest in medium term instruments, 35% invest for medium term and rest invest for long term. 75

12. What is your source of investment advice.    

Family and friends Newspaper and news Internet Financial advisor

Choices

No of respondent

Percentages%

Family and friends

29

37.18

Newspaper and new

10

12.82

Internet

25

32.05

Financial advisor

14

17.95

Total

78

100

no of respondent

18% 37% family and friends newspapers and news

32%

internet

13%

76

financial advisor

Interpretation: From the above data, we can say that 37% people get influenced by their family and friends, 32% get news from internet, 18% respondent have their personal financial advisor and rest get information from news.

77

Chapter no. 5

5.1 Findings 5.2 Conclusion

78

5.1 Findings • It is found from the analysis that maximum of the respondents have invested their money through mutual funds. • It is followed from the analysis that maximum of the investors are salaried people. • It is known from the analysis that maximum of the investors are earning below Rs 30,000 Pm. They invest 15-25% of their income. • It is observed that 62% respondent do not invest directly in share market, they invest via mutual funds. • It is inferred from the analysis that maximum of the investors have invested their money through public sector. • It is cleared from the analysis that maximum of the respondents are getting information through their friends and family and by financial advisors.

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5.2 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.

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Annexure:

Q.1 What do you think are the best options for investing your money. 1-Safe/ low risk investment Avenue(Saving account/FD) 2-Moderate risk investment Avenue (Mutual fund/LIC/Debentures) 3-High risk investment (Equity shares/ Forex market) 4-Traditional investment(Real estate/Gold/ silver)

Q.2 Are you aware of the following investment Avenue. 1-Safe/ low risk investment Avenue(Saving account/FD) 2-Moderate risk investment Avenue (Mutual fund/LIC/Debentures) 3-High risk investment (Equity shares/ Forex market) 4-Traditional investment(Real estate/Gold/ silver)

Q.3 Reason for selecting these options. 1-low/risk 2-medium risk, medium return 3-high risk, high return

Q.4 In which sector do you prefer to invest your money. 1-private sector 2-public sector 81

3-Foreign

Q.5 What are your saving objective. 1-Children education 2-Retirement plan 3-Home purchase 4-Health care 5-Other

Q.6 What is your investment objective. 1-Income and capital 2-short term growth 3-Growth and income 4-Long term growth

Q.7 What is the purpose behind investment 1-wealth creation 2-Tax savings 3-future expectation 4-Earn return

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Q.8 At which rate do you want your investment to grow. 1-Slow and steadily rate 2-Average rate 3-Fast rate 4-At market rate

Q.9 Do you invest your money in share market. 1-Yes 2-No

Q.10 What percentage of your income do you invest. 1- 0-5% 2- 5-15% 3-15-25% 4- 25 & above.

Q.11 What's the time period you prefer. 1- Short term(0-1) year 2-Medium term (1-5) year 3-Long term( 5 year & above)

83

Q.12 What is your source of investment advice. 1-Family and friends 2-Newspaper and news 3-Internet 4-Financial advisor

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BIBLIOGRAPHY BOOKS REFERRED Financial management SYBAF SEM 04

WEBLOGRAPHY

o Web site – www.slideshare.com o Web site – www.investopedia.com o Web site – www.wikipedia.com o Web site – www.pdfcoke.com o Web site – www.researchgate.net o Web site – www.thesij.com

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