Sandy Sem 6 Project.docx

ACKNOWLEDGMENT

I would like to thank wholeheartedly, my parents and all the people concerned who have helped me continuously and gave moral support while preparing this project. It would be rather unfair on my part for not thanking my college Nagindas Khandwala and University of Mumbai for giving us the opportunity. The help and timely support given by the library staff of college cannot be ignored. I am very grateful to and would like to thank my project guide, Prof. Kavita Shah for proper guidance. My acknowledgement would be incomplete without thanking all my professors who have helped me at some stage or the other. I look forward of having a favorable feedback from the readers.

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TABLE OF CONTENTS SR NO.

TOPIC

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1 2 3 4 5 6 7 8 9 10 11

Project report Introduction to investment The Emerging Investment Avenues Needs and characteristics of wealthy investors Investment alternatives in India Marketable and Non-marketable securities Equity shares Bonds Money market instruments Mutual funds Life insurance Real estate

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Project Report

The project “Investment Avenues in India” gives a brief idea regarding the various investment options that are prevailing in the financial markets in India. With lots of investment options like banks, Fixed Deposits, Government bonds, stock market, real estate, gold and mutual funds the common investor ends up more confused than ever. Each and every investment option has its own merits and demerits.

Any investor before investing should take into consideration the safety, liquidity, returns, entry/exit barriers and tax efficiency parameters. We need to evaluate each investment option on the above-mentioned basis and then invest. Today an investor faces too much confusion in analyzing the various investment options available and then selecting the best suitable one. In the present project, investment options are compared on the basis of returns as well as on the parameters like safety, liquidity, term holding etc. thus assisting the investor as a guide for investment purpose.

The primary objective of the project is to make an analysis of various investment decisions. The aim is to compare the returns given by various investment decisions. To cater the different needs of investor, these options are also compared on the basis of various parameters like safety, liquidity, risk, entry/exit barriers, etc.

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RESEARCH METHODOLOGY. There are two methods of collecting data for research and project work, they are:  Primary Data collection  Secondary Data collection Primary data is the data which is collected from the field under the control and supervision of an investigator. It is the original data that has been collected specially for the purpose in mind. It is collected by the researcher himself through interview, observation, questionnaires and other such sources. Secondary data is the data gathered and recorded by someone else prior to and for a purpose other than the current project. It is the data that already exists and is being reused. It is collected through previous research, official statistics, web information and other sources. In this project, the secondary data collection method is used wherein relevant information from books, journals, magazines and websites is taken.

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INTRODUCTION TO INVESTMENT “The poor make money by working for it, while the rich make money by having their assets work for them” The above is a simple message by Robert T Kiyosaki from his book ‘Rich Dad, Poor Dad’ to motivate kids (new to investment) start investing, so that your assets work for you. In this modern era, money plays an important role in one’s life. In order to overcome the problems in future they have to invest their money. Investment of hard earned money is a crucial activity of every human being.

Investment is the commitment of funds which have been saved from current consumption with the hope that some benefits will be received in future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on their risk and return demands, Safety of money, Liquidity, the available avenues for investment, various financial institutions, etc.

Investment is a purchase of a financial product or other item of value with an expectation of favorable future returns. Investing is a serious subject that can have a major impact on investor’s future well-being. Virtually everyone makes investments. Investors have a lot of investment avenues to park their savings. The risk and returns available from each of these investment avenues differ from one avenue to another. Even if the individual does not select specific assets such as stock, investments are still made through participation in pension plan, and employee saving programme or through purchase of life insurance or a home. Employee behavior deals with analyzing the behavior of an employee based on his psychographic and demographic factors like age, gender, education and income groups. The respondents of this study will consist of only the banking employees working in private and public sector as they are having knowledge of financial products available at large. They have unique features of safety, security, regular income, retirement benefit than the other occupation people like business man. When it comes to investing, the volume of facts and information available can be incredibly time consuming to wade through and for many individuals it is just too confusing. Yet we need a good understanding 5

of the financial options available to us to be able to make good investment decisions.

In India, many investment avenues are available where some are marketable and liquid while others are non-marketable and some of them are highly risky while others are almost riskless. The investor has to choose Proper Avenue depending upon his specific need, risk preference, and returns expected.

Investors are a heterogeneous group, they may be large or small, rich or poor, expert or lay man and not all investors need equal degree of protection. An investor has three objectives while investing his money, namely safety of invested money, liquidity position of invested money and return on investment. The return on investment may further be divided into capital gain and the rate of return on investment as interest or dividend. Among all investment options available, securities are considered the most challenging as well as rewarding. Securities include shares, debentures, derivatives, units of mutual funds, Government securities etc. An investor may be an individual or corporate legal entity investing funds with a view to derive maximum economic advantage from investment such as rate of return, capital appreciation, marketability, tax advantage and convenience of investment.

The Capital market facilitates mobilization of savings of individuals and pools them into reservoir of capital which can be used for the economic development of a country. An efficient capital market is essential for raising capital by the corporate sector of the economy and for the protection of the interest of investors in corporate securities. There arises a need to strike a balance between raising of capital for economic development on one side and protection of investors on the other. Unless the interests of investors are protected, raising of capital, by corporates is not possible. Like, the primary objective of a senior citizen’s asset allocation is the generation of regular income.

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Investment Parking of funds (current) to earn benefits or securing growth in future can be termed as Investments. It is a sacrifice from current income to gain returns at a later stage/date. Investment should be done to yield more return than rate of inflation. The current income of an individual can be put aside for two things – either consumption or savings. The money once consumed is gone forever, whereas the savings bears fruit.

Major element of any investment is time and risk. It purely depends upon individual capacity to give importance to either of the two elements, on the basis of one’s need. There are plenty of areas where money can be invested like- government bonds, equities, gold, real estate, stocks, fixed deposits, etc.

A proper planning and analysis should be done in order to reach to a perfect decision of investment/ or portfolio management. One’s skill improves with the timely investments.

In this uncertain and volatile life, even the markets (secondary/commodity, etc.) refuse to perform as per the expectations of the investor. Hence, one needs to analyse well in advance which security can be considered worth to invest into; which security is suitable to game for.

With the changing times, inclusion of youngster’s decision has also taken a solid ground while deciding which investment avenue to exercise. There may be a difference of opinion in selecting a good stock, a statistical approach may solve the issue. A proper and systematic analysis of stock leads to the formation of a flexible portfolio that may be churned easily as the needs of the hour. There can be various investment avenues like T-Bills, 10 Yr G Security Bonds, Mutual Funds, etc. Parking money in tax haven is a better/safer way of evading tax. One needs to check out the pros and cons, before getting into any such elements.

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The Emerging Investment Avenues

According to a study undertaken jointly by Merrill Lynch and Cap Gemini Ernst and Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in portfolio management, risk management, consolidation financial assets and use of diversification strategies as actively as large institutions. HNIs are proactive in identifying new investment options and take inputs from professional advisors in volatile market conditions.

HNIs are dynamic in modifying their asset allocation and were among the first investors to move from equities to fixed income during 2001-2002 period of downturn in equity markets. They shifted back to equities when they identified favorable market trends.

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NEEDS AND CHARACTERISTICS OF WEALTHY INVESTORS

Needs  Wealthy investors being aware of the emerging investment opportunities use sophisticated investment strategies such as: Leveraging on the professional advisors' capability to analyse market trends and make appropriate investments  Searching for innovative products to enhance value  Diversifying across various types of assets  Investing across emerging geographies  Consolidating financial information and assets

Investment products and avenues:

 Managed products: Managed product service is the most popular investment strategy adopted by wealthy investors globally

 Real Estate: Wealthy investors have found this asset class very attractive and have invested directly in real estate and indirectly through real estate investment trusts.

 Art and passion: Wealthy investors also have their investment in art, wine, antiques, and collectibles

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 Precious Metals: Gold and other precious metals are attractive investment options to balance the asset allocation

 Commodities: Wealthy investors have turned to commodities to offset the lower returns from fixed income securities.

 Alternative investments: Hedge funds and Private equity investments such as venture funds are becoming increasingly popular with wealthy investors to reduce the investment risks related to stock market fluctuations. This is because these instruments have low correlation with equity asset class performance. Investment in non correlated assets, such as commodities helps to improve diversification of the portfolio amidst volatile market conditions.

Characteristics

        

Young, educated and knowledgeable Well informed about global trends Willing to take risks Demanding and quality conscious Performance oriented in taking decisions and less loyal Techno savvy and seeks information from various sources Smart in looking for the best deal Not attracted by traditional status symbols that do not add value Hands on in checking investments, making deals and getting personally involved

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Special needs of investors The strategies and characteristics of investors has led to financial institutions innovating and expanding their product range to meet the growing demands of such investors. A financial advisor should keep in mind the following special needs and expectations of the wealthy clients:-

 Demand broader range of services and skills: Wealthy clients not only are on the look out for multiple investment avenues, unlike other clients, but are also ready to face the risks associated with newer products.

 Net worth and goals need to be matched and assets need to be planned tax effectively: Since investors have surplus funds that can be passed on to the next generations and also come into the high tax paying category, investors need to advice them on the best methods to transfer their assets after death as well as on the best tax saving investments.

 Estate planning and tax planning: In-depth knowledge about tools of estate planning such as wills, trusts, and power of attorney is necessary. It is also important to know the succession rules and tax rules to do effective tax planning resulting in minimal/no tax on transfer of assets.

 Educate the client: Educating the client on various and different types of investment avenues that will suit him the best will prove very beneficial for the financial advisor. Wealthy clients, especially those who are self made, may assume that if they can make wealth in one industry they can manage their own portfolio as well. In 11

such cases it is best to educate the client about the best investment options rather than trying to push a product; because if one is trying to push a product, the client is unlikely to get interested since he/she will be having enough people chasing him/her for investments.

Risk appetite shows the capacity of an investor to bear losses related to his investments. Risk appetite is unique for each investor as it depends on various personal factors such as age of the investor, earnings stability, financial condition of his family etc. It is important to understand the risk appetite to decide on the allocation in your investment portfolio to high risk and high returns instruments as against the low risk and low returns instruments.

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INVESTMENT ALTERNATIVES IN INDIA  Marketable and Non marketable securities:Marketable securities:    

Money market securities Capital market securities Derivatives Indirect investments

Non marketable securities:    

Savings Account Government Savings Bonds Non-negotiable Certificates of Deposits (CDs) Money Market Deposit Accounts (MMDAs)

 Equity shares: These are shares of company and can be traded in secondary market. Investors get benefit by change in price of share and dividend given by companies. Equity shares represent ownership capital. As an equity shareholder, a person has an ownership stake in the company. This essentially means that the person has a residual interest in income and wealth of the company. These can be classified into following broad categories as per stock market:       

Blue chip shares Growth shares Income shares Cyclic shares Speculative shares Bonds

Bonds are the instruments that are considered as a relatively safer investment avenues.  G sec bonds  GOI relief funds  Govt. agency funds 13

  

PSU Bonds RBI BOND Debenture of private sector co.

 Money market instrument By convention, the term "money market" refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year.  T-Bills  Certificate of Deposit  Commercial Paper  Mutual Funds A mutual fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities, ranging from shares, debentures to money market instruments or in a mixture of equity and debt, depending upon the objective of the scheme. The different types of schemes are  Balanced Funds  Index Funds  Sector Fund  Equity Oriented Funds  Life insurance Now-a-days life insurance is also being considered as an investment avenue. Insurance premiums represent the sacrifice and the assured sum the benefit. Under it different schemes are:    

Endowment assurance policy Money back policy Whole life policy Term assurance policy

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 Real estate One of the most important assets in portfolio of investors is a residential house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate:  Agricultural land  Semi urban land  Farm House

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Marketable and Non marketable securities Demystifying Securities In the financial world, securities can be defined as financial instruments that have some financial value, and they can be traded amongst investors, governments and private enterprises. Securities in a financial market are traded legally and are bound by stipulated laws. So, if you buy some securities (say five stocks of a blue-chip company), then you're entitled to receive the future gains on your investment (from the five stocks in which you have invested your money) under some stated terms and conditions. Further, suppose that you have two billion dollars in your account, and you buy few bonds of the US government. Now, as a legal proof of your purchase (and it happens in any transactions), you'll be provided with a share certificate or bond, which is nothing but the acknowledgment of your security. Now, we have got some idea about basics of securities. But what are the different types of securities? What are their characteristics? Why it is easy to sell one type of security, while the other aren't traded frequently? Let us explore more into the concept of securities, that form the foundation stone of world's financial market. Characteristics of Securities Since a security is a financial instrument, it has some characteristic features that make it valuable in the market and it is sold or purchased keeping in mind its basic features. As an investor, the three must-know features of a security are:  Return on Investments (ROI) It is a human habit to calculate the gains or losses incurred in a transaction. In financial markets, ROI is the factor that motivates people to buy and sell securities.  Risk Inherent in It All investments carry some degree of risk. Many people stake a significant fraction of their money in stock markets even when they are 16

aware of the risks! If their estimates work, they earn many times their investments but if it fails, they go bankrupt. So, risk in securities is another factor which promotes its buying and selling.  Liquidity Liquidity of a financial product or asset or financial instrument is the ease with which it is traded in the market. What does it mean for an investor if a security can be traded with ease? It means that there are lots of potential buyers and sellers who're interested in that particular security and so, it can be traded frequently, thereby, increasing the scope of negotiation in price (value) of the security. Generally, investors prefer to have assets with high liquidity!

Generally 'assets' and 'securities' are used interchangeably. However, there are small differences between the two. Assets are often classified as 'hard' and 'soft' assets. When we talk about hard assets, we are actually referring to physical investments like oil, metals, real estate, natural gas, diamonds, gold, etc. Soft assets, on the other hand, are financial products or the rights exclusively stated in official documents like credit balances, patents, trademarks and financial contracts, to name a few. Securities are distinctively soft assets in the form of bonds or stocks of a company. The noteworthy point is that hard assets can be transformed into soft assets to facilitate the trade in structured financial markets. A. Marketable Securities Stocks, bonds or any other types of securities which can be traded easily in organized financial markets or between two investors with the help of brokers, are known as marketable securities. The chief feature of marketable securities is that it is easier to trade them and they can be converted into cash whenever required by the investor. From the figure given below, it can be observed that marketable securities are classified into four types- money market securities, capital market securities, derivatives, and indirect investments. Each of these four marketable securities comprise several trade and financial instruments. We will discuss all of these in detail. 17

1. Money Market Securities One of the most reliable and highly liquid assets, money market securities are short-term bonds issued by governments or large financial corporations. Transactions are generally very large, to the tune of US$100,000 and the maturity period is one year or less. Since transactions of very high value are involved in these, only major financial institutions are able to trade in such securities. For investors with limited risk potential, such securities can be accessed by investing in mutual funds. Let us know in more detail about what constitutes these securities.  Treasury Bills • What are They: Short-term securities issued by the government. • Issued By: Governments • Risk Factor: Least Risky • Face Value: $1,000 - $1mn • Maturity Period: 3, 6 months or yearly Commercial Papers

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• What are they: Short-term promissory note • Issued By: Corporations • Risk Factor: Safe • Face Value: $100,000 • Maturity Period: 270 days or less

 Euro Dollars • What are They: Deposits in Non-US banks or banks outside U.S.A., denominated in US$ • Issued By: Financial Institutions • Risk Factor: Not totally risk-free • Face Value: Varies • Maturity Period: Short-term Negotiable Certificates • What are They: Certificates of deposits • Issued By: Commercial Banks • Risk Factor: Low risk • Face Value: $100,000 or more • Maturity Period: 14 days to 1 year

 Banker's Acceptance • What are They: Same as treasury bills, short-term credit investments, bank guarantee • Issued By: Non-financial firms • Risk Factor: Least Risky • Face Value: $100,000 • Maturity Period: 30 - 180 days

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 Purchase Agreement • What are They: Selling the security with an agreement with the seller to repurchase them later at a fixed time • Issued By: Securities dealers • Risk Factor: Residual credit risks • Face Value: Varies • Maturity Period: Very short-term (overnight!) 2. Capital Market Securities The common stocks in which we trade in the open market are classic examples of a capital market security. In such securities, the maturity period is greater than one year and for some securities (for example, stocks), there is no defined maturity period. Let us know more about several capital market securities.  Fixed Income Securities These are investments that promise guaranteed income on the amount invested, though at a lower rate of return. Suppose you invest US$100 in a bond at 10% fixed interest annually. So, it will give you a $10 return every year until maturity when you would receive the US$100 back.  Bonds They are a form of fixed-income securities, and payments are made as per the time and depending on the conditions mentioned in the deal. The investor can sell the purchased bond before maturity, depending on the market conditions and how that particular bond is rated.  Treasury Notes and Bonds Another types of fixed-income securities are treasury notes and bonds, that are issued by the US government for longer maturity periods (10-30 years). The terms of treasury notes are usually between 1 to 10 years while for the treasury bonds, it is between 10-30 years. These securities offer higher interests, and they also repay the principal on maturity.  Federal Agencies Securities To raise funds for carrying out public infrastructure related tasks, the federal agencies securities are issued by the federal government and by Government-Sponsored Enterprises (GSEs). While the bonds issued by federal agencies are backed by the US government, the bonds of GSEs 20

are not backed by the same guarantee by US government. So, while buying bonds of GSEs, don't forget to check the credential of the sponsored agencies. Investment in these bonds generally, starts from US$10,000.  Municipal Bonds These are tax-exempted investments and hence, one of the most sought after bonds issued by the government. To raise funds for public work several counties, states and municipalities issue bonds. If you buy these bonds, you will not only be entitled tax exemption, you will also be able to get back your invested money, along with the interest at a good rate.  Corporate Bonds These are almost similar to the treasury bonds with the major difference that they are issued by corporate entities, so the risk of default is higher.  Common Stocks Most of us must know about stock investments. Stocks are divided into two types- preferred stocks and common stocks. The general trading we see in stock markets is done in common stocks. Stocks in essence, represent a share of ownership in the companies, and they are also a proportionate claim on profit of the corporations. However, suppose if a company shuts down or goes broke, common stock shareholders are the last investors to get compensated. Dividend, if it is distributed at all, first goes to creditors, bondholders, and preferred shareholders. With preferred stocks, you may have a larger share of the profit but your ownership rights are very limited. 3. Derivatives These class of marketable securities represent those investments values of which are dependent on the performance of several other securities. That means, their values are derived from the value of other investment instruments and hence, the name derivatives.  Options It is an interesting security that provides the holder the right, but not obligation to buy or sell securities at some fixed point of time in the future. Now, the buying is typically known as 'a call option' while selling is popular as 'a put option'. In case, the holder doesn't carry the transaction within the specified time constraints, the deal expires. The

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point to be noted is that stock options are very speculative and hence, are not for everyone. It is only ideal for sophisticated investors.  Futures Futures securities are just like options, however, the major difference between the two is that in future securities, the buyer is obligated to fulfill the terms of contract unlike the options. The futures market is extremely liquid, risky and very complex. Again, this is not for investors do not like to take risks.  Rights and Warrants Similar to options and futures are rights and warrants that grant the shareholders some rights of ownership and profit from the company's performance. Rights and warrants are issued by the companies for raising money. By issuing rights, these companies allow shareholders to buy more of their shares at a price lower than the original share price. It thus favors, to the existing shareholders. Warrants are further attached to rights or preferred issues to make them more attractive trading prospects for the shareholders. What differentiates rights and warrants? Rights are generally for short-term and expire within a week, while warrants may be traded for one to a few years. 4. Indirect Investments Investments in securities that are made by purchasing shares of an investment company, are known as indirect investments. Just like any other company, even an investment company tries to diversify its portfolio and generate funds for its business purposes. Three popular indirect investments are:  Unit Trusts A unit trust functions under a trust deed and is looked after by fund managers. Also known as open-ended investments, the value of a unit trust depends on the number of units issued and the price of each unit. The cost of fund management (fee of the fund managers, costs incurred in running the company) is adjusted to the inflow of funds. The success of a unit trust depends on the expertise and experience of the fund managers handling it. Unit trusts can be purchased from fund managers.  Investment Trusts

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One of the most popular investment instruments are the mutual funds. Investment trusts, like mutual funds, also known as open-end investment companies sell shares of the companies even after the Initial Public Offering (IPO) gets over. Mutual fund companies pool money from investors, and it is then invested in a variety of investment options like stocks, bonds, short-term assets, etc. All investors of a mutual fund have a proportionate ownership in the company. Another type of marketable securities are in the form of closed-end investments. These are the companies under trusts that don't sell the shares after the IPO of a company gets over. The initial shares that have been purchased by investors are the ones which are later on traded in stock market.  Hedge Funds One of the most popular funds that have gained attention of financial wizards and investors are hedge funds. Since these marketable securities are traded aggressively, and are limited to a few accredited investors, they are not ideal for average investors. The private capital pooled in hedge funds is generally, very large and is invested by few sophisticated investors. Here's a word about hedge funds from the official website of the US Securities and Exchange Commission - Hedge fund is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors - including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interests, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more." B. Non-Marketable Securities Now that we know the definition of marketable securities, it is easier to define non-marketable securities. Securities that are difficult to trade in a normal financial market are generally called non-marketable securities. It is difficult to get a potential buyer for non-marketable securities and hence, some of the financial instruments that comprise non-marketable securities are traded in private transactions. Although these securities 23

can't be traded easily, they from a significant portion of an investor's portfolio. These securities are traded between investors and large financial institutions like commercial banks, so it is a risk-free and safe investment. Different types of these securities are as follows.

a. Savings Account As we all know, savings accounts are a common mode of deposits in banks. They are a form of non-marketable securities that earn an interest over a period. The interest rates and maturity period depends on the banks. Withdrawing money is possible at any point of time, however for the account to function, investor needs to maintain some minimum balance as per the directives of the bank. It is a safe and simple form of investment although, the returns are not very high. b. Government Savings Bonds Those government bonds that can't be traded in the open market, constitute a part of government savings bonds. These government debt instruments are traded amongst investors and financial institutions (banks) indirectly. These bonds earn interest only when they are redeemed. c. Non-negotiable Certificates of Deposits (CDs) CDs are promissory notes (the bearer is promised some return on investment with interest) that are issued by commercial banks. CDs are insured by the Federal Deposit of Insurance Corporation (FDIC), so they are relatively a safe 24

investment. CDs have a maturity period of one month to five years and any withdrawal prior to maturity attracts penalty. To understand it more closely, let us say, you buy a $100 CD with an interest rate of 10%, compounded annually and a term of one year. At the end of the year, you will earn $110 ($100 plus 10% of 100, i.e. $110). d. Money Market Deposit Accounts (MMDAs) MMDA securities are another type of savings account, but with very high interest rates along with some restrictions. For instance, in MMDAs, an investor is allowed a limited number of transactions every month. In some of these accounts, it is also mandatory to maintain a minimum balance that is normally higher than that in normal savings account. The minimum balance criteria differs from bank to bank. So, this was all about classification of marketable and non-marketable securities. As you can observe, each topic in these classifications can be a subject of PhD. If you have investment related concerns, it is best to contact professionals in this field.

Investment is the process of risking one's savings in the hope of a monetary gain. An investment involves the act of using a good or its money equivalent to create another good or fetch the returns of the invested amount in terms of interest or profit share. The basic purpose of an investment is to hold an asset in order to obtain recurring or capital gains. Take a look at the various types of investments.  Aggressive Investment Aggressive investors invest in stock markets and business ventures. This type of investment can involve the act of investing in a real estate, renovating it, and renting it out. Aggressive investment involves a greater amount of risk.  Business Management The value of the business assets is determined after which they are used to generate revenue. Business assets can be physical, financial, or intangible. Physical assets include property and machinery that is in possession of the

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business. Financial assets include the liquid assets of a business and the company stocks and bonds.  Conservative Investment Conservative investors invest in cash. They put their money in investment accounts like savings, mutual funds, and certificates of deposit.  Economics: In context of economics, investment is the per unit time production of goods, which are not consumed and are rather used for production in the future. Tangibles like property, as also intangibles such as the costs incurred in on-thejob trainings are included in this type of investment. Income and interest rates form the determinants of an investment decision. A growth in income boosts investments while a rise in the rates of interest is not conducive to greater investments as it makes borrowing money costlier.  Finance Investments in finance refer to the cost of capital invested in buying financial assets and securities. They include investments made in shares, bonds, and equities. Investments in the finance sector are made through banks, insurance companies, and other investment schemes. Learn all about the different types of insurance.  Foreign Direct Investment When a company from one country invests in another country, it is known as foreign direct investment. This investment is generally of the physical form with the intent to build a factory in another country.  Investing in Gold Investments in gold can be done through ownership or by means of certificates and shares. Here is a list of the types of gold investments. Bar: Buying gold bars in one of the very traditional ways of investing in gold. It is practiced in Argentina, Austria, and Switzerland where gold bars can be purchased from major banks in these nations. Coins: Coins, which are priced according to their weight, are purchased in this form of investment in gold. The British gold sovereign and the Swiss Vreneli are some examples of bullion coins. 26

Accounts: Swiss banks provide the customers with gold accounts which can deal in gold transactions. Gold Exchange-traded Funds: In this scheme of investing in gold, gold can be traded on major stock exchanges. Spread Betting: Firms in the UK offer spread betting in gold investments. Spread betting is about predicting the rise or fall in the prices of gold before investing in it.  Investing with the Mining Companies Trading in the shares of gold mining companies is one of the means of investing in gold. Investing in Silver: Investing in silver is similar to investing in gold. The various ways in which one can invest in silver are also the same as those for gold investments.  Land Investment Land investment can turn out to be a long-term and rewarding investment if the purchased land is developed properly.  Moderate Investment The investments made in cash and bonds and those which involve low or moderate amounts of risk, are known as moderate investments.  Personal Finance Personal finance includes the money that is put aside on a regular basis with the aim of saving it. Mere saving of money involves only the risk arising out of devaluation of the saved amount due to inflation. However, saving money and investing it involves the investment risks like capital loss. Learn more about personal finance planning.  Philatelic Investment The investments made in collectible postage stamps with the intent of making profits are known as philatelic investments. Rare stamps can serve as unique pieces of art and excellent collectibles. Investors dealing in stamps have chances of benefiting from the nation's growing wealth. Know more about philatelic investment.  Real Estate

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Investment in real estate is the one made in purchasing property. Property is purchased with the intent of holding or leasing. Residential real estate investment involves the process of buying other people's houses while the investment in commercial real estate involves the purchase of a large property that can be rented to a company. Commercial real estate investment is riskier than that in residential real estate.  Socially Responsible Investing This investment strategy aims at fetching financial gains for a social cause. Investors prefer investing in practices that promote human rights, equality, environmental awareness, and other social concerns.  Stock Investment There is a rising interest among the masses for investing in the stock market. Stock investments can prove to be rewarding if share trading is done wisely.  Value Investing It involves buying securities whose shares seem under-priced. Investment is after all, the means to channelize money in order to secure one's future. I am sure you would want to consult an efficient investment adviser for guidance on investing wisely.

Equity shares In accounting and finance, equity is the residual value or interest of the most junior class of investors in assets, after all liabilities are paid; if liability exceeds assets, negative equity exists. In an accounting context, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in the assets of a company, spread among individual shareholders of common or preferred stock; a negative shareholders' equity is often referred to as a positive shareholders' deficit. At the very start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be 28

considered, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owners' interest in the business. This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterwards, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital or liable capital.

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. Typically equity holders receive voting rights, meaning that they can vote on candidates for the board of directors (shown on a proxy statement received by the investor) as well as certain major transactions, and residual rights, meaning that they share the company's profits, as well as recover some of the company's assets in the event that it folds, although they generally have the lowest priority in recovering their investment. It may also refer to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations. The equities held by private individuals are often held as mutual funds or as other forms of collective investment scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms, such as Schroder’s, Fidelity Investments or The Vanguard Group. Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients

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who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives. A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the yield gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the longterm bond. An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc. The various kinds of equity shares are as follows – • Rights Issue/ Rights Shares The issue of new securities to existing shareholders at a ratio to those already held. • Bonus Shares Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. • Preferred Stock/ Preference shares Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders / debenture holders. 30

• Cumulative Preference Shares A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. • Cumulative Convertible Preference Shares A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. • Participating Preference Share The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level. Security Receipts: Security receipt means a receipt or other security, issued by a securitization company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitization. Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (upto twenty years). Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured/ charged against the asset of the company in favor of debenture holders.

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 Stock market classification of Equity Shares  Blue chip shares Shares of large, well-established, and financially strong companies with an impressive record of earnings and dividends. Definition Stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. While dividend payments are not absolutely necessary for a stock to be considered a blue-chip, most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips. A blue-chip stock is generally a component of the most reputable market indexes or averages, such as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq-100 in the United States, the TSX-60 in Canada or the FTSE index in the United Kingdom. While a blue-chip company may have survived several challenges and market cycles over the course of its life, leading to it being perceived as a safe investment, this may not always be the case. The bankruptcy of General Motors and Lehman Brothers, as well as a number of leading European banks, during the global recession of 2008, is proof that even the best companies may sometimes be unable to survive during periods of extreme stress.  Growth shares Shares of companies that have a fairly entrenched position in a growing market and which enjoy an above average rate of growth as well as profitability. Definition Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.

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Also known as a "glamor stock". A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks. Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.

 Income shares Shares of companies that have fairly stable operations, relatively limited growth opportunities, and high dividend payout ratios. Definition A class of shares offered by a dual purpose fund that has little room for capital appreciation but gives the holder a portion of all income earned in the portfolio. This type of share typically attracts those investors looking for a steady stream of income rather than capital appreciation. The holders receive their portion of all income created in the portfolio plus any additional returns on the stocks' par value at the time of the fund's dissolution.  Cyclical shares Shares of companies that have a pronounced cyclicality in their operations. Definition An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies that sell discretionary items that consumers can afford to buy more of in a booming economy and will cut back on during a recession. Contrast cyclical stocks with counter-cyclical stocks, which tend to move in the opposite direction from the overall economy, and with consumer staples, which people continue to demand even during a downturn.

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Cyclical stocks rise and fall with the business cycle. This seeming predictability in the movement of these stock's prices leads some investors to try to time the market by buying these stocks at the low point in the business cycle and selling them at the high point. Examples of companies whose stocks are cyclical include car manufacturers, airlines, furniture retailers, clothing stores, hotels and restaurants. When the economy is doing well, people can afford to buy new cars, upgrade their home furnishings, go shopping and travel. When the economy is doing poorly, these discretionary expenses are some of the first things consumers will cut. If a recession is bad enough, cyclical stocks can become completely worthless as companies go out of business.

 Defensive shares Shares of companies that are relatively unaffected by the ups and downs in general business conditions. Definition A stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market. This is not to be confused with a "defense stock", which refers to stock in companies which manufacture things like weapons, ammunition and fighter jets. Defensive stocks remain stable during the various phases of the business cycle. During recessions they tend to perform better than the market; however, during an expansion phase it performs below the market. Betas of defensive stocks are less than one. To illustrate this phenomenon, consider a stock with a beta of 0.5. If the market is expected to drop 15%, and the existing risk-free rate is 3%, a defensive stock will only drop 9% (0.5*(-15%-3%)). On the other hand, if the market is expected to increase 15%, with a risk-free rate of 3%, a defensive stock will only increase 6% (0.5*(15%-3%)). The utility industry is an example of defensive stocks because during all phases of the business cycle, people need gas and electricity. Many active investors will invest in defensive stocks if a market downturn is expected. However, if the 34

market is expected to prosper, active investors will often choose stocks with higher betas in an attempt to maximize return. Also known as a "non-cyclical stock" because it is not highly correlated with the business cycle.

 Speculative shares Shares that tend to fluctuate widely because there is a lot of speculative trading in them. Definition A stock with a high degree of risk. A speculative stock may offer the possibility of substantial returns to compensate for its higher risk profile. Speculative stocks are favored by speculators and investors because of their high-reward, high-risk characteristics. Such stocks usually have a very low share price, and often trade on smaller exchanges like the OTC Markets in the U.S. or the TSXVenture Exchange in Canada. A necessary condition for investing in speculative stocks is a high tolerance for risk. This means an investor in a speculative stock should be prepared for the possibility of losing the full amount invested if the stock price goes down to zero. The low share price of speculative stocks and the possibility – albeit remote – of windfall profits are two of their most appealing characteristics. A share price of a few cents means that speculators can load up on thousands of shares. If the company is successful and the shares eventually trade at a significantly higher price, the potential profit can be much more than that offered by most other investments. Speculative stocks tend to be clustered in sectors such as mining, energy and biotechnology. While there is significant risk involved in investing in earlystage companies in these sectors, the possibility that a small company may find a giant mineral deposit or oil field, or discover a cure for a disease, offers enough incentive for speculators to take a punt on it. Although most speculative stocks tend to be early-stage companies, a blue-chip can occasionally become a speculative stock if it falls upon hard times and has 35

rapidly deteriorating prospects for the future. Such a stock is known as a “fallen angel” and may offer an attractive risk-reward payoff if it can manage to turn its business around. Speculative stocks outperform in very strong bull markets, when investors have abundant risk tolerance. They underperform in bear markets, because investors’ risk aversion causes them to gravitate towards larger-cap stocks that are more stable. Typical valuations metrics like the price/earnings and price/sales ratios cannot be used for most speculative stocks, since they are generally unprofitable and may have minimal sales. For such stocks, alternative techniques like discounted cash flow (DCF) valuation or peer valuation may need to be used. Speculative stocks often account for a small portion of diversified portfolios held by experienced investors, since such stocks may improve the return prospects for the overall portfolio without adding too much risk. Experienced investors who dabble in speculative stocks typically look for companies that have experienced management, strong balance sheets, and excellent long-term business prospects.

BONDS In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date.[1] Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market. [2] Thus a bond is a form of loan or IOU (sounded "I owe you"): the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short term commercial 36

paper are considered to be money instruments and not bonds: the main difference is in the length of the term of the instrument. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are investors), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Being a creditor, bondholders have absolute priority and will be repaid before stockholders (who are owners) in the event of bankruptcy.[3] Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely. An exception is an irredeemable bond, such as Consols, which is a perpetuity, i.e. a bond with no maturity. Just as people need money, so do companies and governments. A company needs funds to expand into new markets, while governments need money for everything from infrastructure to social programs. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds (or other debt instruments) to a public market. Thousands of investors then each lend a portion of the capital needed. Really, a bond is nothing more than a loan for which you are the lender. The organization that sells a bond is known as the issuer. You can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor). Of course, nobody would loan his or her hard-earned money for nothing. The issuer of a bond must pay the investor something extra for the privilege of using his or her money. This "extra" comes in the form of interest payments, which are made at a predetermined rate and schedule. The interest rate is often referred to as the coupon. The date on which the issuer has to repay the amount borrowed (known as face value) is called the maturity date. Bonds are known as fixed-income securities because you know the exact amount of cash you'll get back if you hold the security until maturity. For example, say you buy a bond with a face value of $1,000, a coupon of 8%, and a maturity of 10 years. This means you'll receive a total of $80 ($1,000*8%) of interest per year for the next 10 years. Actually, because most bonds pay interest semi-annually, you'll receive two payments of $40 a year for 10 years.

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When the bond matures after a decade, you'll get your $1,000 back. Debt Versus Equity Bonds are debt, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor becomes an owner in a corporation. Ownership comes with voting rights and the right to share in any future profits. By purchasing debt (bonds) an investor becomes a creditor to the corporation (or government). The primary advantage of being a creditor is that you have a higher claim on assets than shareholders do: that is, in the case of bankruptcy, a bondholder will get paid before a shareholder. However, the bondholder does not share in the profits if a company does well he or she is entitled only to the principal plus interest. To sum up, there is generally less risk in owning bonds than in owning stocks, but this comes at the cost of a lower return. Why Bother With Bonds? It's an investing axiom that stocks return more than bonds. In the past, this has generally been true for time periods of at least 10 years or more. However, this doesn't mean you shouldn't invest in bonds. Bonds are appropriate any time you cannot tolerate the short-term volatility of the stock market. Take two situations where this may be true: 1) Retirement The easiest example to think of is an individual living off a fixed income. A retiree simply cannot afford to lose his/her principal as income for it is required to pay the bills. 2) Shorter time horizons Say a young executive is planning to go back for an MBA in three years. It's true that the stock market provides the opportunity for higher growth, which is why his/her retirement fund is mostly in stocks, but the executive cannot afford to take the chance of losing the money going towards his/her education. Because money is needed for a specific purpose in the relatively near future, 38

fixed-income securities are likely the best investment. These two examples are clear cut, and they don't represent all investors. Most personal financial advisors advocate maintaining a diversified portfolio and changing the weightings of asset classes throughout your life. For example, in your 20s and 30s a majority of wealth should be in equities. In your 40s and 50s the percentages shift out of stocks into bonds until retirement, when a majority of your investments should be in the form of fixed income. Different Types Of Bonds  Government Bonds In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less than one year. Notes - debt securities maturing in one to 10 years. Bonds - debt securities maturing in more than 10 years. Marketable securities from the U.S. government - known collectively as Treasuries - follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills). Technically speaking, T-bills aren't bonds because of their short maturity. (You can read more about T-bills in our Money Market tutorial.) All debt issued by Uncle Sam is regarded as extremely safe, as is the debt of any stable country. The debt of many developing countries, however, does carry substantial risk. Like companies, countries can default on payments.  Municipal Bonds Municipal bonds, known as "munis", are the next progression in terms of risk. Cities don't go bankrupt that often, but it can happen. The major advantage to munis is that the returns are free from federal tax. Furthermore, local governments will sometimes make their debt non-taxable for residents, thus making some municipal bonds completely tax free. Because of these tax savings, the yield on a muni is usually lower than that of a taxable bond. Depending on your personal situation, a muni can be a great investment on an after-tax basis. 39

 Corporate Bonds A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a shortterm corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years. Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on. The company's credit quality is very important: the higher the quality, the lower the interest rate the investor receives. Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity.  Zero-Coupon Bonds This is a type of bond that makes no coupon payments but instead is issued at a considerable discount to par value. For example, let's say a zero-coupon bond with a $1,000 par value and 10 years to maturity is trading at $600; you'd be paying $600 today for a bond that will be worth $1,000 in 10 years.

Money Market Instruments In the financial marketplace, a distinction is made between the capital markets and the money markets. The capital market is a source of intermediateterm to long-term financing in the form of equity or debt securities with maturities of more than one year. The money market provides very short-term funds to corporations, municipalities and the United States government. Money market securities are debt issues with maturities of one year or less.  Characteristics Money market instruments give businesses, financial institutions and governments a means to finance their short-term cash requirements. Three important characteristics are: 40

 Liquidity Since they are fixed-income securitieswith short-term maturities of a year or less, money market instruments are extremely liquid.  Safety They also provide a relatively high degree of safety because their issuers have the highest credit ratings.  Discount Pricing A third characteristic they have in common is that they are issued at a discount to their face value. The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities. There is no physical "money market." Instead it is an informal network of banks and traders linked by telephones, fax machines, and computers. Money markets exist both in the United States and abroad. The short-term debts and securities sold on the money markets—which are known as money market instruments—have maturities ranging from one day to one year and are extremely liquid. Treasury bills, federal agency notes, certificates of deposit (CDs), Eurodollar deposits, commercial paper, bankers' acceptances, and repurchase agreements are examples of instruments. The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk. The money market is important for businesses because it allows companies with a temporary cash surplus to invest in short-term securities; conversely, companies with a temporary cash shortfall can sell securities or borrow funds on a short-term basis. In essence the market acts as a repository for short-term funds. Large corporations generally handle their own short-term financial transactions; they participate in the market through dealers. Small businesses, on the other hand, often choose to invest in money-market funds, which are professionally managed mutual funds consisting only of short-term securities. Although securities purchased on the money market carry less risk than longterm debt, they are still not entirely risk free. After all, banks do sometimes fail, and the fortunes of companies can change rather rapidly. The low risk is 41

associated with lender selectivity. The lender who offers funds with almost instant maturities ("tomorrow") cannot spend too much time qualifying borrowers and thus selects only blue-chip borrowers. Repayment therefore is assured (unless you caught Enron just before it suddenly nose-dived). Borrowers with fewer credentials, of course, have difficult getting money from this market unless it is through well-established funds.  TYPES OF MONEY MARKET INSTRUMENTS  Treasury Bills Treasury bills (T-bills) are short-term notes issued by the U.S. government. They come in three different lengths to maturity: 90, 180, and 360 days. The two shorter types are auctioned on a weekly basis, while the annual types are auctioned monthly. T-bills can be purchased directly through the auctions or indirectly through the secondary market. Purchasers of T-bills at auction can enter a competitive bid (although this method entails a risk that the bills may not be made available at the bid price) or a noncompetitive bid. T-bills for noncompetitive bids are supplied at the average price of all successful competitive bids.  Federal Agency Notes Some agencies of the federal government issue both short-term and long-term obligations, including the loan agencies Fannie Mae and Sallie Mae. These obligations are not generally backed by the government, so they offer a slightly higher yield than T-bills, but the risk of default is still very small. Agency securities are actively traded, but are not quite as marketable as T-bills. Corporations are major purchasers of this type of money market instrument.  Short-Term Tax Exempts These instruments are short-term notes issued by state and municipal governments. Although they carry somewhat more risk than T-bills and tend to be less negotiable, they feature the added benefit that the interest is not subject to federal income tax. For this reason, corporations find that the lower yield is worthwhile on this type of short-term investment.  Certificates of Deposit

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Certificates of deposit (CDs) are certificates issued by a federally chartered bank against deposited funds that earn a specified return for a definite period of time. They are one of several types of interest-bearing "time deposits" offered by banks. An individual or company lends the bank a certain amount of money for a fixed period of time, and in exchange the bank agrees to repay the money with specified interest at the end of the time period. The certificate constitutes the bank's agreement to repay the loan. The maturity rates on CDs range from 30 days to six months or longer, and the amount of the face value can vary greatly as well. There is usually a penalty for early withdrawal of funds, but some types of CDs can be sold to another investor if the original purchaser needs access to the money before the maturity date. Large denomination (jumbo) CDs of $100,000 or more are generally negotiable and pay higher interest rates than smaller denominations. However, such certificates are only insured by the FDIC up to $100,000. There are also eurodollar CDs; they are negotiable certificates issued against U.S. dollar obligations in a foreign branch of a domestic bank. Brokerage firms have a nationwide pool of bank CDs and receive a fee for selling them. Since brokers deal in large sums, brokered CDs generally pay higher interest rates and offer greater liquidity than CDs purchased directly from a bank.  Commercial Paper Commercial paper refers to unsecured short-term promissory notes issued by financial and nonfinancial corporations. Commercial paper has maturities of up to 270 days (the maximum allowed without SEC registration requirement). Dollar volume for commercial paper exceeds the amount of any money market instrument other than T-bills. It is typically issued by large, credit-worthy corporations with unused lines of bank credit and therefore carries low default risk. Standard and Poor's and Moody's provide ratings of commercial paper. The highest ratings are A1 and P1, respectively. A2 and P2 paper is considered high quality, but usually indicates that the issuing corporation is smaller or more debt burdened than A1 and P1 companies. Issuers earning the lowest ratings find few willing investors. Unlike some other types of money-market instruments, in which banks act as intermediaries between buyers and sellers, commercial paper is issued directly by well-established companies, as well as by financial institutions. Banks may 43

act as agents in the transaction, but they assume no principal position and are in no way obligated with respect to repayment of the commercial paper. Companies may also sell commercial paper through dealers who charge a fee and arrange for the transfer of the funds from the lender to the borrower.  Bankers' Acceptances A banker's acceptance is an instruments produced by a nonfinancial corporation but in the name of a bank. It is document indicating that such-and-such bank shall pay the face amount of the instrument at some future time. The bank accepts this instrument, in effect acting as a guarantor. To be sure the bank does so because it considers the writer to be credit-worthy. Bankers' acceptances are generally used to finance foreign trade, although they also arise when companies purchase goods on credit or need to finance inventory. The maturity of acceptances ranges from one to six months.  Repurchase Agreements Repurchase agreements—also known as repos or buybacks—are Treasury securities that are purchased from a dealer with the agreement that they will be sold back at a future date for a higher price. These agreements are the most liquid of all money market investments, ranging from 24 hours to several months. In fact, they are very similar to bank deposit accounts, and many corporations arrange for their banks to transfer excess cash to such funds automatically. MUTUAL FUNDS A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal and investments may be in shares, debt securities, money-market securities or a combination of these. Those securities are professionally managed on behalf of the unit holders and each investor holds a pro-rata share of the portfolio, that is, entitled to profits as well as losses. Income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. A mutual fund is the most suitable investment scope for common people as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively lower cost. The flow chart below describes broadly the working of a Mutual fund:

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There exist various mutual fund schemes to cater to the needs such as financial position, risk tolerance and return expectations etc. The content below gives an overview of the existing types of mutual fund schemes in the industry.  By Structure  Open-Ended Schemes Open-ended schemes are mutual funds that can issue and redeem their shares at any time. Open-ended funds do not have restriction on the amount of shares the fund will issue. They offer units for sale without specifying any duration for redemption. If demand is high enough, the fund will continue to issue shares, no matter how many investors are there. Open-ended funds also buy back shares when investors wish to sell. Investors can conveniently buy and sell units of open-ended funds directly from the fund house at the prevalent Net Asset Value (NAV) prices. One of the key features of open-end schemes is the liquidity that these funds offer to investors.  Close-Ended Schemes Close-ended schemes are mutual funds with a fixed number of shares (or units). Unlike open-ended funds, new shares/units are not created by managers to meet demand from investors but the shares can only be purchased (and sold) in the secondary market. 45

Close-ended funds raise a fixed amount of capital through a New Fund Offer (NFO). The fund is then structured, listed and traded like a stock, on a stock exchange. The price per share is determined by the market and is usually different from the underlying value or net asset value (NAV) per share of the investments held by the fund. The price is said to be at a discount or premium to the NAV when it is below or above the NAV, respectively. A premium might be due to the market's confidence in the investment manager’s ability to produce above-market returns. A discount might reflect the charges to be deducted from the fund in future by the fund managers. 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, that is, either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.  Interval Schemes Interval schemes are those that combine the features of both 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 Investment objective  Growth or Equity-Oriented Schemes The aim of growth funds is to provide capital appreciation over medium to long- term. These schemes normally invest a major part of their portfolio in equities and have comparatively high risks. They provide different options to the investors like dividend option, capital appreciation, etc. and investors may choose one depending on their preferences. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. It can be further classified into following depending upon objective:

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Large-Cap Funds: These funds invest in companies from different sectors. However, they put a restriction in terms of the market capitalization of a company, i.e., they invest largely in BSE 100 and BSE 200 Stocks. Mid-Cap Funds: These funds invest in companies from different sectors. However, they put a restriction in terms of the market capitalization of a company, i.e., they invest largely in BSE Mid Cap Stocks. Sector Specific Funds: These are schemes that invest in a particular sector, for example, IT. Thematic: These schemes invest in various sectors but restrict themselves to a particular theme e.g., services, exports, consumerism, infrastructure etc. Diversified Equity Funds: All non-theme and non-sector funds can be classified as equity diversified funds. Tax Savings Funds (ELSS): Investments in these funds are exempt from income tax at the time of investment, up to a limit of Rs 1 lakh.  Income or Debt oriented Schemes The aim of income funds is to provide regular and steady income to investors. These schemes generally invest in fixed-income securities such as bonds, corporate debentures, Government Securities and moneymarket instruments and are less risky compared to equity schemes. However, opportunities of capital appreciation are limited in such funds. The NAVs of such funds are impacted because of change in interest rates in the economy. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long-term investors do not bother about these fluctuations.  Balanced Schemes The aim of the balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income instruments in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest between 65% and 75% in equity and the rest in debt instruments. They are impacted because of fluctuation in stock markets but NAVs of such funds are less volatile compared to pure equity funds.  Money Market or Liquid Funds These funds are also income funds and their aim is to provide easy 47

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liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as Treasury Bills, Certificates of Deposits, Commercial Paper and inter-bank call money, Government Securities, etc. Returns of these schemes fluctuate much less than other funds. These are appropriate for investors as a means of shortterm investments. Gilt Funds These funds invest exclusively in Government Securities. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt-oriented schemes. Fund of Funds Schemes Fund of Funds invests in other mutual fund schemes. A traditional mutual fund comprises a portfolio of shares, but a Fund of Funds comprises a portfolio of different mutual fund schemes. A Fund of Funds helps the investor to reduce his chances of selecting the wrong mutual fund. Gold Exchange Traded Funds It is an open-ended Exchange Traded Fund. The investment objective of the scheme is to generate returns that are in line with the returns on investment in physical gold, subject to tracking error. Floating Rate Funds These are open-ended income schemes seeking to generate reasonable returns with commensurate risk from a portfolio which comprises floating rate debt instruments and fixed rate debt instruments swapped for floating rate returns. The scheme may also invest in fixed rate money market and debt instruments

 Other schemes:  Tax-saving schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues like Equity Linked Savings Schemes (ELSS). ELSS is a type of diversified equity mutual fund, which is qualified for tax exemption under Section 80C of the Income Tax Act, and offers the twin-advantage of capital appreciation and tax benefits. It comes with a lock-in period of three years. 48

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The Rajiv Gandhi Equity Savings scheme (RGESS), which was revised in the Union Budget 2013-14, would provide a 50% tax deduction on investments up to Rs. 50,000 to first time investors in equity whose annual taxable income is below Rs. 12 lakh. Index Schemes Index funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error". Necessary disclosures in this regard are made in the offer document of the scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Sector Specific schemes These are the funds which invest in the securities of only those sectors or industries as specified in the offer documents like Pharmaceuticals, Software, FMCG, Petroleum stocks etc. The returns of these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. Load or No-Load Funds A load fund is one that charges a percentage of NAV for exit. That is, each time one sells units in the fund, a charge will be payable. This charge is used by the Mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for exit. It means the investors can exit the fund at no additional charges during sale of units. In accordance with the SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009, no entry load will be charged for purchase / additional purchase / switch-in accepted by the fund with effect from August 1, 2009. Similarly, no entry load will be charged with respect to applications for registrations under Systematic Investment Plan/ Systematic Transfer Plan / Systematic Investment Plan Plus accepted by the fund with effect from August 1, 2009. Dividend Payout Schemes Mutual Fund companies as when they keep on making profit, distribute a 49

part of the money to the investors by way of dividends. If one wants to keep on taking part of profit regularly, he may select this option.  Dividend Reinvestment Schemes This option is similar to the first option except that the dividend declared is re-invested in the same fund on the same day’s NAV.

LIFE INSURANCE

(Life Wire) - By investing in life insurance, almost anyone can transfer the financial risks of dying early, guaranteeing a payout for family members who might otherwise be left in economic turmoil. Today's life insurance policies, however, often come with features borrowed from the investment world, blending traditional insurance with attributes of a fund account. Vehicles for Investing in Life Insurance Those who haven't purchased a policy may be familiar only with "term" life insurance, which covers the owner for a set period of time, say, until their child graduates from college. If the owner lives past that date, the plan expires and is worthless. But some life insurance policies are "cash value," which means the fees, or premium, initially are greater at the start of the policy than they would be in a term policy. The excess premium is then invested in a "separate account," either by the insurer or in an account controlled by the policy holder, building up cash value. Any investment gains can be used in a few ways: to increase the death benefit, to borrow against for any use or to keep the policy in effect if you stop paying monthly premiums. Policies that offer this investment feature come with significantly more complex terms, and are offered by salespeople who may earn a significant commission off your initial premium. In variable life insurance policies, the cash value and benefits may actually decrease or go away completely depending upon the performance of your investments. The National Association of Insurance Commissioners website offers a downloadable consumer guide to life insurance policies that urges prospective buyers of variable life policies to obtain a prospectus from the company and to read it carefully. 50

Tax Benefits of Investing in Life Insurance Tax benefits are chief among the advantages of a variable universal life insurance policy. Each year's earnings on the investment portion of the policy are not taxed, and the taxable gains on policies that are later cashed out can be reduced by the amount of insurance protection the plan provided. And if the policy holder dies, the gains are not usually taxed. Similar tax benefits are also offered through pure investment accounts, such as 401k plans, IRAs and Roth IRAs; some financial advisers recommend that these choices be funded to the maximum amount before an investment-oriented insurance policy is considered. In addition, insurance policies may offer a wide variety of investment options, including stocks, bonds, balanced mutual funds, international mutual funds and money market accounts. Investments may also be tied to a major stock market index, like the Standard & Poor's 500. These are often similar to what might be found in a retirement investment account. Flexibility of Investing in Life Insurance The death benefit on a variable universal plan may be increased with a lumpsum payment, or borrowed against in the event of a pressing financial need like a medical emergency. The ability to skip payments is also considered an advantage. In addition, the investment account may be shifted to more conservative or aggressive options. Fees and Complexity of Life Insurance Critics of variable universal life insurance plans say that the tax benefits are outweighed by a variety of fees that eat away at returns. These fees may be misunderstood by the policy holder, disclosed in long prospectus documents but glossed over in sales pitches. These policies may charge a fee, often 4% to 6%, on each deposit; annual contract fees; administrative charges on the account, and expenses on the investment options themselves. Many of these plans come with "surrender" charges of $10,000 or more in the event the policy is cashed out before a certain number of years. While other investment accounts come with a variety of fees, critics of life insurance policies say the true cost of the plans are difficult for many buyers to comprehend. 51

Tips for Investing in Life Insurance If you decide that a variable universal life insurance policy offers appropriate benefits, you might consider purchasing a plan directly from the insurer and skipping the salesperson. These include Ameritas, USAA life and TIAA-CREF. Though you won't be enriching a salesperson, there are still sales costs that should be explained by the company's agent. Here are some other tips: Consider funding your other tax-advantaged retirement accounts before opening a variable universal life insurance policy. Term life insurance, however, continues to provide a unique benefit. Holding a cash value insurance plan until death or retirement increases the likelihood that the plan will be an appropriate investment. Dodge big fees, commissions, and surrender charges by investigating "lowload" insurers. Read the prospectus, which explains the benefits and risks in relatively plain language, without the spin of a sales pitch.

 TYPES OF LIFE INSURANCE Life insurance protection comes in many forms, and not all policies are created equal, as you will soon discover. While the death benefit amounts may be the same, the costs, structure, durations, etc. vary tremendously across the types of policies.  Whole Life Whole life insurance provides guaranteed insurance protection for the entire life of the insured, otherwise known as permanent coverage. These policies carry a "cash value" component that grows tax deferred at a contractually guaranteed amount (usually a low interest rate) until the contract is surrendered. The premiums are usually level for the life of the insured and the death benefit is guaranteed for the insured's lifetime. With whole life payments, part of your premium is applied toward the insurance portion of your policy, another part of your premium goes 52

toward administrative expenses and the balance of your premium goes toward the investment, or cash, portion of your policy. The interest you accumulate through the investment portion of your policy is tax-free until you withdraw it (if that is allowed under the terms of your policy). Any withdrawal you make will typically be tax free up to your basis in the policy. Your basis is the amount of premiums you have paid into the policy minus any prior dividends paid or previous withdrawals. Any amounts withdrawn above your basis may be taxed as ordinary income. As you might expect, given their permanent protection, these policies tend to have a much higher initial premium than other types of life insurance. But, the cash build up in the policy can be used toward premium payments, provided cash is available. This is known as a participating whole life policy, which combines the benefits of permanent life insurance protection with a savings component, and provides the policy owner some additional payment flexibility.  Universal Life Universal life insurance, also known as flexible premium or adjustable life, is a variation of whole life insurance. Like whole life, it is also a permanent policy providing cash value benefits based on current interest rates. The feature that distinguishes this policy from its whole life cousin is that the premiums, cash values and level amount of protection can each be adjusted up or down during the contract term as the insured's needs change. Cash values earn an interest rate that is set periodically by the insurance company and is generally guaranteed not to drop below a certain level.

 Variable Life Variable life insurance is designed to combine the traditional protection and savings features of whole life insurance with the growth potential of investment funds. This type of policy is comprised of two distinct components: the general account and the separate account. The general account is the reserve or liability account of the insurance provider, and is not allocated to the individual policy. The separate account is comprised of various investment funds within the insurance company's portfolio, such as an equity fund, a money market fund, a bond fund, or some 53

combination of these. Because of this underlying investment feature, the value of the cash and death benefit may fluctuate, thus the name "variable life.  Variable Universal Life Variable universal life insurance combines the features of universal life with variable life and gives the consumer the flexibility of adjusting premiums, death benefits and the selection of investment choices. These policies are technically classified as securities and are therefore subject to Securities and Exchange Commission (SEC) regulation and the oversight of the state insurance commissioner. Unfortunately, all the investment risk lies with the policy owner; as a result, the death benefit value may rise or fall depending on the success of the policy's underlying investments. However, policies may provide some type of guarantee that at least a minimum death benefit will be paid to beneficiaries.  Term Life One of the most commonly used policies is term life insurance. Term insurance can help protect your beneficiaries against financial loss resulting from your death; it pays the face amount of the policy, but only provides protection for a definite, but limited, amount of time. Term policies do not build cash values and the maximum term period is usually 30 years. Term policies are useful when there is a limited time needed for protection and when the dollars available for coverage are limited. The premiums for these types of policies are significantly lower than the costs for whole life. They also (initially) provide more insurance protection per dollar spent than any form of permanent policies. Unfortunately, the cost of premiums increases as the policy owner gets older and as the end of the specified term nears. Term polices can have some variations, including, but not limited to: Annual Renewable and Convertible Term: This policy provides protection for one year, but allows the insured to renew the policy for successive periods thereafter, but at higher premiums without having to furnish evidence of insurability. These policies may also be converted into whole life policies without any additional underwriting. 54

Level Term: This policy has an initial guaranteed premium level for specified periods; the longer the guarantee, the greater the cost to the buyer (but usually still far more affordable than permanent policies). These policies may be renewed after the guarantee period, but the premiums do increase as the insured gets older. Decreasing Term: This policy has a level premium, but the amount of the death benefit decreases with time. This is often used in conjunction with mortgage debt protection. Many term life insurance policies have major features that provide additional flexibility for the insured/policyholder. A renewability feature, perhaps the most important feature associated with term policies, guarantees that the insured can renew the policy for a limited number of years (ie. a term between 5 and 30 years) based on attained age. Convertibility provisions permit the policy owner to exchange a term contract for permanent coverage within a specific time frame without providing additional evidence of insurability.  Food for Thought Many insurance consumers only need to replace their income until they've reached retirement age, have accumulated a fair amount of wealth, or their dependents are old enough to take care of themselves. When evaluating life insurance policies for you and your family, you must carefully consider the purchase of temporary versus permanent coverage. As you have just read, there are many differences in how policies may be structured and how death benefits are determined. There are also vast differences in their pricing and in the duration of life insurance protection. Many consumers opt to buy term insurance as a temporary risk protection and then invest the savings (the difference between the cost of term and what they would have paid for permanent coverage) into an alternative investment, such as a brokerage account, mutual fund or retirement plan.

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REAL ESTATE Chances are, when you think about investing in real estate the first thing that comes to mind is your home. For many people, their home is the single largest investment they will ever make. But have you ever stopped to consider that once you purchase a home it becomes part of your overall portfolio of investments? In fact, it's one of the most important parts of your portfolio because it serves a dual role as not only an investment but also a centerpiece to your daily life. Though a home is one of the largest investments the average investor will purchase, there are other types of real estate investments worth investing in. The most common type is income-producing real estate. Large income-producing real estate properties are commonly purchased by high net-worth individuals and institutions, such as life insurance companies, real estate investment trusts (REITs) and pension funds. (To read more about REITs, see What Are REITs?, Basic Valuation Of A Real Estate Investment Trust (REIT)and The REIT Way.) Income-producing properties are also purchased by individual investors in the form of smaller apartment buildings, duplexes or even a single family homes or condominiums that are rented out to tenants. (To find out more about being a landlord, see Tips For The Prospective Landlord, Tax Deductions For Rental Property Owners and Investing In Real Estate.) In the context of portfolio investing, real estate is traditionally considered an "alternative" investment class. That means it is a supplementary investment used to build on a primary portfolio of stocks, bonds and other securities. One of the main differences between investing in a piece of real estate as compared to stocks or bonds is that real estate is an investment in the "bricks and mortar" of a building and the land it is built upon. This makes real estate highly tangible, because unlike most stocks you can see and touch your property. This often creates substantial pride of ownership, but tangibility also has its downside because real estate requires hands-on management. You don't need to mow the lawn of a bond or unplug the toilet of a stock!

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In this chapter, we will discuss the types and characteristics of real estate, things to think about when buying and owning property, and the rationale for adding real estate to your portfolio. The most basic definition real estate is "an interest in land". Broadening that definition somewhat, the word "interest" can mean either an ownership interest (also known as a fee-simple interest) or a leasehold interest. In an ownership interest, the investor is entitled to the full rights of ownership of the land (for example, to legally use and transfer the title of the land/property), and must also assume the risks and responsibilities of a landowner (for example, any losses as a result of natural disasters and the obligation to pay property taxes). On the other side of the relationship, a leasehold interest only exists when a landowner agrees to pass some of his rights on to a tenant in exchange for a payment of rent. If you rent an apartment, you have a leasehold interest in real estate. If you own a home, you have an ownership interest in that home. Some jurisdictions recognize other interests beyond these two, such as a life estate, but those interests are less common in the investment arena. As a real estate investor, you will most likely be purchasing ownership interests and then earning a return on that investment by issuing leasehold interests to tenants, who will in turn pay rent. It is also not uncommon for an investor to acquire a long-term leasehold interest in land, which then has a building constructed upon it. At the end of the land lease, the land and building become the property of the original land-owner.

 TYPES OF REAL ESTATE

 Income-Producing and Non-Income-Producing Investments There are four broad types of income-producing real estate: offices, retail, industrial and leased residential. There are many other less common types as well, such as hotels, mini-storage, parking lots and seniors care housing. The key criteria in these investments that we are focusing on is that they are income producing. Non-income-producing investments, such as houses, vacation properties or vacant commercial buildings, are as sound as income-producing 57

investments. Just keep in mind that if you invest equity in a non-income producing property you will not receive any rent, so all of your return must be through capital appreciation. If you invest in debt secured by non-income-producing real estate, remember that the borrower's personal income must be sufficient to cover the mortgage payments, because there is no tenant income to secure the payments.  Office Property Offices are the "flagship" investment for many real estate owners. They tend to be, on average, the largest and highest profile property type because of their typical location in downtown cores and sprawling suburban office parks. At its most fundamental level, the demand for office space is tied to companies' requirement for office workers, and the average space per office worker. The typical office worker is involved in things like finance, accounting, insurance, real estate, services, management and administration. As these "white-collar" jobs grow, there is greater demand for office spaces. Returns from office properties can be highly variable because the market tends to be sensitive to economic performance. One downside is that office buildings have high operating costs, so if you lose a tenant it can have a substantial impact on the returns for the property. However, in times of prosperity, offices tend to perform extremely well, because demand for space causes rental rates to increase and an extended time period is required to build an office tower to relieve the pressure on the market and rents.  Retail Property There is a wide variety of Retail properties, ranging from large enclosed shopping malls to single tenant buildings in pedestrian zones. At the present time, the Power Center format is in favor, with retailers occupying larger premises than in the enclosed mall format, and having greater visibility and access from adjacent roadways. Many retail properties have an anchor, which is a large, well-known 58

retailer that acts as a draw to the center. An example of a well-known anchor is Wal-Mart. If a retail property has a food store as an anchor, it is said to be food-anchored or grocery-anchored; such anchors would typically enhance the fundamentals of a property and make it more desirable for investment. Often, a retail center has one or more ancillary multi-bay buildings containing smaller tenants. One of these small units is termed a commercial retail unit (CRU). The demand for retail space has many drivers. Among them are: location, visibility, population density, population growth and relative income levels. From an economic perspective, retails tend to perform best in growing economies and when retail sales growth is high. Returns from Retails tend to be more stable than Offices, in part because retail leases are generally longer and retailers are less inclined to relocate as compared to office tenants.  Industrial Property Industrials are often considered the "staple" of the average real estate investor. Generally, they require smaller average investments, are less management intensive and have lower operating costs than their office and retail counterparts. There are varying types of industrials depending on the use of the building. For example, buildings could be used for warehousing, manufacturing, research and development, or distribution. Some industrials can even have partial or full office build-outs. Some important factors to consider in an industrial property would be functionality (for example, ceiling height), location relative to major transport routes (including rail or sea), building configuration, loading and the degree of specialization in the space (such as whether it has cranes or freezers). For some uses, the presence of outdoor or covered yard space is important.  Multi-family Residential Property Multi-family residential property generally delivers the most stable 59

returns, because no matter what the economic cycle, people always need a place to live. The result is that in normal markets, residential occupancy tends to stay reasonably high. Another factor contributing to the stability of residential property is that the loss of a single tenant has a minimal impact on the bottom line, whereas if you lose a tenant in any other type of property the negative effects can be much more significant. For most commercial property types, tenant leases are either net or partially net, meaning that most operating expenses can be passed along to tenants. However, residential properties typically do not have this attribute, meaning that the risk of increases in building operating costs is borne by the property owner for the duration of the lease. A positive aspect of residential properties is that in some countries, government-insured financing is available. At the expense of a small premium, insured financing lowers the interest rate on mortgages, thereby enhancing potential returns from the investment.

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CONCLUSIONS From the detailed analysis following conclusions were drawn: 1. From the study it is concluded that most of the investors are highly educated and therefore, they consider ‘own study and observation’ as an important factor for their investment decisions. 2. Though the investors are highly educated they face difficulties in differentiating various investment avenues also they lack in knowledge and skills of investing. 3. The investors consider relatives and friends as reliable source for information about investment and investment avenues followed by news paper / magazines. 4. Large portion of investor’s portfolio belongs to safe investment avenues. 5. Investors prefer safe and secured investment avenues to save tax and also they give preference to investment avenues which will help them to get dual benefit like Real estate/ buying a house against loan. 6. Considering current scenario of real estate market it is concluded that every investor must have real estate as a part of their portfolio. 7. It has been observed that the investors are investing in residential property along with commercial property because it acts as extra income source. 8. It is concluded that investors still prefer banks over other kinds of fixed deposits. 9. Considering past, present and future prospects of Gold and silver it is concluded that every investor must have precious metals as a part of their portfolio.

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BIBLIOGRAPHY

www.investmentavenues.com www.efinancemanagement.com www.economictimes.indiatimes.com www.indianmba.com

A study on investment avenues for investor Portfolio management

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