Investments Project

PROJECT REPORT ON “INVESTMENT AVENUES” BY SHILPA AGRAWAL 2009- 2010

IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION DEGREE DISHA INSTITUTE OF MANAGEMENT AND TECHNOLOGY,RAIPUR

CHAPTER – 1 INTRODUCTION ON VARIOUS INVESTMENT AVENUES

INVESTMENTS The dictionary meaning of investment is to commit money in order to earn a financial return or to make use of the money for future benefits or advantages. People commit money to investments with an expectation to increase their future wealth by investing money to spend in future years. For example, if you invest Rs. 1000 today and earn 10 %over the next year, you will have Rs.1100 one year from today. An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment. Most investors and advisors spend a great deal of time understanding the merits of the thousands of investments available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

The Investment Needs of an Investor By and large, most investors have eight common needs from their investments: 1. Security of Original Capital; 2. Wealth Accumulation 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal;

Types of investment -

Fixed Deposits – They cover the fixed deposits of varied tenors offered by the commercial banks and other non-banking financial institutions. These are generally a low risk prepositions as the commercial banks are believed to return the amount due without default. By and large these FDs are the preferred choice of risk-averse Indian investors who rate safety of capital & ease of investment above all parameters. Largely, these investments earn a marginal rate of return of 6-8% per annum.

Government Bonds – The Central and State Governments raise money from the market through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does not default in payments. But the interest rates offered by them are in the range of 7% - 9%. Money-back insurance - Insurance in India is mostly sold and bought as investment products. They are preferred because of their add-on benefits like financial life-cover, tax-savings and satisfactory returns. Even if one does not manage to save money and invest regularly in financial instruments, with insurance, the policyholder has no choice. If he does not pay his premiums on time, his insurance cover will lapse. Money-back Insurance schemes are used as investment avenues as they offer partial cash-back at certain intervals. This money can be utilized for children’s education, marriage, etc.

Endowment Insurance – These policies are term policies. Investors have to pay the premiums for a particular term, and at maturity the accrued bonus and other benefits are returned to the policyholder if he survives at maturity. Bullion Market – Precious metals like gold and silver had been a safe heaven for Indian investors since ages. Besides jewellery these metals are used for investment purposes also. Since last 1 year, both Gold and Silver have highly appreciated in value both in the domestic as well as the international markets. In addition to its attributes as a store of value, the case for investing in gold revolves around the role it can play as a portfolio diversifier. Stock Market – Indian stock markets particularly the BSE and the NSE, had been a preferred destination not only for the Indian investors but also for the Foreign investors. Although Indian Markets had been through tough times due to various scams, but history shows that they recovered very fast. Many types of scrip had been value creators for the investors. People have earned fortunes from the stock markets, but there are people who have lost everything due to incorrect timings or selection of fundamentally weak companies.

Real Estate- Returns are almost guaranteed because property values are always on the rise due to a growing world population. Residential real estate is more than just an investment. There are more ways than ever before to profit from real estate investment. Mutual Funds - There is a collection of investors in Mutual funds that have professional fund managers that invest in the stock market collectively on behalf of investors. Mutual funds offer a better route to investing in equities for lay investors. A mutual fund acts like a professional fund manager, investing the money and passing the returns to its investors. All it deducts is a management fee and its expenses, which are declared in its offer document. Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component.

Return

Safety

Volatility

Liquidity

Convenienc

Equity

High

Low

High

High

e Moderate

Bonds

Moderate

High

Moderate

Moderate

High

Co.

Moderate

Moderate

Moderate

Low

Low

Debentures Co. FDs

Moderate

Low

Low

Low

Moderate

Bank

Low

High

Low

High

High

Deposits PPF

Moderate

High

Low

Moderate

High

Life

Low

High

Low

Low

Moderate

Insurance Gold

Moderate

High

Moderate

Moderate

Gold

Real Estate

High

Moderate

High

Low

Low

Mutual

High

High

Moderate

High

High

Funds

CHAPTER -2 MUTUAL FUND

INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion 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. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.

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. The flow chart below describes broadly the working of a mutual fund

ADVANTAGES OF MUTUAL FUND •

Portfolio Diversification

•

Professional management

•

Reduction / Diversification of Risk

•

Liquidity

•

Flexibility & Convenience

•

Reduction in Transaction cost

•

Safety of regulated environment

•

Choice of schemes

•

Transparency

DISADVANTAGE OF MUTUAL FUND •

No control over Cost in the Hands of an Investor

•

No tailor-made Portfolios

•

Managing a Portfolio Funds

•

Difficulty in selecting a Suitable Fund Scheme

Type of Mutual Fund Schemes BY STRUCTURE Open Ended Schemes An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Close Ended Schemes A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

Interval Schemes Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

BY NATURE Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual fund is categorized as follow:

1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: • • • •

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the riskreturn matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, interbank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. BY INVESTMENT OBJECTIVE •

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these

schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

•

Income Schemes: Income Schemes are also known as debt schemes. The aim of these

schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. •

Balanced Schemes: Balanced Schemes aim to provide both growth and income by

periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). •

Money Market Schemes: Money Market Schemes aim to provide easy liquidity,

preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

OTHER SCHEMES •

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax

laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. •

Index Schemes: Index schemes attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

RISK V/S RETURN

CHAPTER – 3 RESEARCH METHODOLOGY

RESEARCH METHODOLOGY This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

Research Design A Research design is purely and simply the framework of plan for a study that guides the collection and analysis of data. The study is intended to find the investors preference towards various investment avenues. The study design is descriptive in nature

Data sources: Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various websites. Duration of Study: The study was carried out for a period of 1 week, from 20 sep to 26 sep 2009.

Need for the study: To study the perception of the people about investment of their savings. To understand basic requirement of the common man and their view towards investment.

OBJECTIVES OF THE STUDY: PRIMARY OBJECTIVE To Study the various investment avenues and the investors risk preference towards it. SECONDARY OBJECTIVES To find out the general demographic factors of the investors dealing in capital market. To find out the preference level of investors on various Capital Market instruments. To find out the type of risk which are considered by the investors? To find out the ways through which the investors minimizes their risk.

QUESTIONNAIRE A study of preferences of the investors for investment in mutual funds. 1. Personal Details: (a). Name:(b). Age:(c). Qualification:Govt. Ser

Pvt. Ser

Business

Agriculture

Others

Business

Agriculture

Others

(d). Occupation. Pl tick (√) Govt. Ser

Pvt. Ser

(e). What is your monthly family income approximately? Pl tick (√). Up to Rs.10,000

Rs. 10,001 to 15000

Rs. 15,001 to 20,000

Rs. 20,001 to 30,000

Rs. 30,001 and above

2. What kind of investments you have made so far? Pl tick (√). All applicable. a. Saving account b. Fixed deposits c. Insurance e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver

3. While investing your money, which factor will you prefer? . (a) Liquidity (b) Low Risk (c) High Return

d. Mutual Fund h. Real Estate

(d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (√). 5. If yes, how did you know about Mutual Fund?

Yes

No

a. Advertisement

b. Peer Group

c. Banks

d. Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√).

Yes

No

7. If not invested in Mutual Fund then why? (a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable. a. SBIMF

b. UTI

c. HDFC d. Reliance

e. Kotak

f. Other. specify

9. When you plan to invest your money in asset management co. which AMC will you prefer? Assets Management Co. a. SBIMF b. UTI c. Reliance d. HDFC e. Kotak f. ICICI

10. Which Channel will you prefer while investing in Mutual Fund? (a) Financial Advisor

(b) Bank

(c) AMC

11. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√). a. One Time Investment

b. Systematic Investment Plan (SIP)